Business Law

The Constitutional Reform Act (CRA) 2005 made major changes to the UK legal system, the most important being the creation of the Supreme Court of the United Kingdom to replace the Appellate Committee of the House of Lords as the final court of appeal from October 2009. The 12 judges will be called Supreme Court Justices and will be appointed by a high-powered appointments committee after having submitted an application. In a new departure, the 2005 Act has opened up the position to lawyers who have not prevously held judicial office.

Certain disputes must be referred to specialist statutory tribunals: claims by employees for unfair dismissal to an employment tribunal; fixing fair rents to a rent tribunal, claims in respect of social security payments to a national insurance tribunal and title disputes to registered land to a lands tribunal.

Legal obligations arise in various ways, but two major ways are under the law of torts and the law of contract: tortious and contractual obligations.

All legal systems which recognise a law of contract and a law of tort face the possibility of concurrent claims arising under the two areas of law. There are two solutions: (i) force claimants to sue for breach of contract; or (ii) allow them to choose the remedy they prefer. In the UK, the problem of concurrent claims was generally ignored until the second half of the 20th century. Initially, the courts adopted the first solution, holding that a claim against a solicitor for negligence must be pursued in contract and, in Groom v. Crocker [1939] 1 KB 194, this was adopted firmly. In Bagot v. Stevens Scanlon & Co. Ltd [1966] 1 QB 197, Diplock lj adopted a similar approach in a claim against a firm of architects.

The UK business organisations are sole traders, general partnerships, limited liability partnerships (LLPs) and registered companies with limited liability. For the entrepreneur, the choice of vehicle for carrying on the business is usually determined by the desire to limit their liability in the event of the failure of the business to the amount of the capital invested. This is impossible in the case of the sole trader and the general partnership, where the proprietor and the partners have unlimited liability for the debts of the business. Limited liability protection for entrepreneurs is possible only with LLPs or limited liability companies which are separate legal persons in law. The business is, in effect, carried on by the legal person which is fully liable for the business debts while the partners’ or shareholders’ liability is limited to their capital investment.

The characteristics of a general partnership are ‘the relation which subsists between persons carrying on a business in common with a view of profit’: Partnership Act (PA) 1890 s.1(1). These are: (i) the existence of a business; (ii) which is carried on in common; (iii) with a view of profit.

There is a single company law code for England and Wales, Scotland and Northern Ireland in the form of the Companies Act 2006. The only differences relate to terminology to take into account the fact that Scotland has a different legal system. The Scottish Parliament has no competence to legislate in respect of company law (Scotland Act 1998 ss.29 and 30 and Schedule 5). There are separate registrars of companies (ROCs) for England and Wales, Scotland and Northern Ireland.

The most obvious change as a result of the CA 2006 has been to abolish the requirement of authorised share capital. Companies registered under the CA 2006 must include a statement of capital and initial shareholdings as part of the registration documentation submitted to the ROC. This constitutes a ‘snapshot’ of the company’s share capital. The statement of capital and initial shareholding must contain the following information:

The shareholders of a company are generally described as its members and, in the case of registered shares, which are the UK norm, the list of shareholders required to be kept by the company is generally referred to as the list of members.

The financial scandals of the 1980s and 1990s led to the questioning of the corporate governance mechanisms and a series of reports to strengthen the self-regulatory codes applicable to large, publicly quoted companies:

The changes in corporate insolvency law in 1985, later consolidated in the Insolvency Act (IA) 1986, were inspired by developments in the late 1970s in the USA and the insolvency administration known as ‘Chapter 11 bankruptcy’. Under Chapter 11, businesses which had run into financial problems were able to place themselves under the protection of the bankruptcy laws in an attempt to hold their creditors at bay while they attempted to solve their financial problems. The procedure enabled the directors to remain in control of the company while the rescue plan was worked through. The success of the procedure was a source of inspiration for the Cork Committee, whose report was the basis of the reform of insolvency law, and UK corporate insolvency law was reoriented towards saving sick businesses — giving rise to a culture of corporate rescue. The same inspiration was behind the reform of corporate insolvency law elsewhere in the world including Australia and France.

Business assets are important as they can be used as security for raising loans and increasing borrowing capacity. Business property can be tangible and intangible. Tangible property includes land and assets which are capable of physical possession. Intangible property is not capable of physical possession except through the enforcement of ownership rights. Intangible property includes debts and rights under insurance policies. It also includes shares the ownership of which confers the right to attend shareholders’ meetings and vote, the right to a dividend and return of the investment on the company’s liquidation. Intangible property can be assignable or negotiable in the form of negotiable instruments: cheques and bills of exchange.

Persons lending money or supplying goods or services on credit will generally require some form of security. In the case of loans, this may be in the form of a mortgage or charge on the borrower’s property, so that the lender can seize the mortgaged property and realise its value by sale if the borrower defaults on the loan. Suppliers of goods may protect themselves against non-payment by giving themselves the right to recover the unpaid goods.

Agents are persons with authority to act on behalf of another called the principal whom they can bind in contracts with a third party within the scope of their authority.

Contracts of service are between employer and employee; contracts for services are between an employer and a self-employed person, an independent contractor.

The law relating to contracts for the sale of goods is found in the Sale of Goods Act (SOGA)1979 as amended, and statutory references in this part of the chapter are to this Act except where otherwise indicated.

There is often some confusion about the use of the terms ‘assurance’ and ‘insurance’, ‘assured’ and ‘insured’. Generally assurance refers to life policies and insurance to indemnity policies, since the death of the insured person is a certainty, whereas indemnity insurance is in respect of an event which may never happen. In this chapter, the words ‘insurance’ and ‘insured’ are used throughout for both categories. The person taking out the insurance is the insured (or policyholder) whereas the insurance company is the insurer.

The Consumer Credit Act (CCA) 1974 and later Regulations regulate consumer credit and consumer hire in the UK. They also license traders engaging in consumer credit and hire business and ancillary credit business. A consumer credit business is any business so far as it comprises or relates to the provision of credit under regulated consumer credit agreements. A consumer hire business is one comprising or relating to the bailment of goods under regulated consumer hire agreements: s.189(1). Ancillary credit businesses include credit brokerage, debt adjusting, debt counselling, debt collecting or the operation of a credit reference agency: s.145(1).

A commercial practice is any act, omission, course of conduct, representation or commercial communication (including advertising and marketing) by a trader which is directly connected with the promotion, sale or supply of a product to or from consumers, whether occurring before, during or after a commercial transaction (if any) in relation to a product. A consumer is any individual who, in relation to a commercial practice, is acting for purposes which are outside his business. A trader is any person who, in relation to a commercial practice, is acting for purposes relating to his business, and anyone acting in the name of or on behalf of the trader. ‘Product’ means any goods or services and includes immovable property, rights and obligations: The Consumer Protection from Unfair Trading Regulations (cPUT) 2008.