Bus107 Commercial Law | Certain Assessment Answers

1.John, Torn and Raj have decided that they have sufficient complementary skills and sufficient capital to conduct their own business together. They all want to be involved in the day-to-day business activity and they want to keep control strictly limited to themselves, but also wish to place a limit on the amount of capital they can lose. They have been told that there are several different ways in which their business could be organised, but they are currently undecided as to which they should choose.

Explain the various legal forms under which their business could be conducted and consider the advantages and disadvantages of each of those possibilities and advise John, Tom and Raj as to which of the forms considered best suits their intentions.

2.Sue was walking with her 82-year old mother in a housing estate, and as they passed a house she heard dogs barking. She turned to see two huge dogs viciously barking at them from behind a fence. Sue saw the gate closed but noticed that it was not latched. As they passed the unlatched gate, the two dogs got out and attempted to bite Sue and her mother. Sue screamed and tried to defend herself and her mother with a bag she was carrying. The owner of the dogs, Peter, hearing the commotion, rushed out and called the dogs oft before they could inflict serious harm to Sue and her mother. Sue's mother, although was unharmed, suffered a serious heart attack as the result of her shock and died. Sue is now considering legal action against Peter.

Adive peter for his liabilities.

1.

Introduction

Whenever a person or a group of person think and decides to establish a business, they have many of the choices. Certain kinds of business structures are there that a person can use for his/her business. A business structure depends on the factor that how many people are going to manage the same. Mainly three type of business structure is used by the business and that are Sole Proprietorship, Partnership, and Company. This is to state that a sole Proprietorship concern can be used as a business model only in the circumstance where a single person wants to establish and operate a business. In the case of two or more persons, the later two terms are used. Every business structure has some advantages and disadvantages, which are defined hereunder.

Partnership firm

A partnership firm is a group of two or more person who comes together for an economic purpose and decided to share the profits and loss thereof among themselves. In a partnership firm, the owners are known as partners of the firm and they make decisions for their business according to the power granted under “partnership agreement”. In general, the partnership is a closed structure and does not allow interference of public. A partnership can be limited and unlimited. Unlimited Partnership is also known as a traditional partnership. In such a kind of partnership, the liabilities of the partners are unlimited and their personal properties can be used to pay the debts of their business i.e. partnership firm. Whereas on the other side, a limited partnership has the same characteristics as a traditional partnership, however, this structure has some benefits. Under a Limited Partnership, the liabilities of partners are limited up to the level of their investment. If nothing is mentioned about the type of partnership, in general, it is assumed that partners are into a traditional partnership.  Similar to any other business structure a partnership firm has some pros and cons that as follow:-

Advantages:-

1. Specific Knowledge of each partner can be used for the betterment and development of the business.
2. Legal formalities are very few (Glasgow, 2011).
3. In case of the existence of a partnership agreement in writing, almost no possibilities of conflict are there.
4. Changes in a structure of partnership are very easy as partners can come and go.

Disadvantages:-

1. Liabilities of partners are unlimited except in the cases of a Limited Liability Partnership.
2. There are huge chances of disputes among partners in those cases, where the firm is not registered or partnership agreement has not made in writing.
3. Partners can come and go easily but this element impacts the value of the business in a negative
4. This form of business suits every partner till the time there are only profits in the firm. In case of loss, an issue named conflict of interest starts arising.

As mentioned above this can be stated that although partnership is an easy mode to establish a business, yet the same certain limitations.

Company

After the partnership, this is also a type of business structure as mentioned earlier. In comparison to the partnership, a company is more organized. A well-defined legislation is applicable on every company according to the nation in that such company gets incorporate. A company can be termed as an association of two or more than two person who comes together for a commercial purpose (BusinessDictionary, 2018). Unlike a partnership firm, in a company management and ownership are with two different bodies such as directors and members of the company. Similar to a partnership, there are different types of companies. Companies can be private or public. A private company is closely held companies and the public cannot be a member of such companies, whereas, in a public company, any person can become a member by purchasing it is shares.

On the other side, in terms of liability, companies can be divided into two kinds such as a limited company and unlimited company. In a limited company, liabilities of members are limited up to the level of their investment. In case of an unlimited company, members will be held unlimitedly liable and their personal assets can be called upon in case of winding up of the company. In addition to this, a public company can further divide into listed and unlisted company. A listed company is the one, that has it is shares listed on a recognized stock exchange (Khatri, 2011). This is a more open business structure as any person can become a member of the company by purchasing shares from the open market. An unlisted company, as the name implies does not have any stock or share registered on the stock exchange. Regardless of the type of company, some basic common advantages and disadvantages of the same are mentioned as follow:-

Advantages:-

1. Being a separate legal entity, members, and directors cannot be held liable for the acts of a company.
2. A company is a more legal and organized form
3. A company has an unlimited life (accountingtools, 2017).
4. In case of public company, funds can be raised from the public in form of capital

Disadvantages:-

1. Many legal expenditures are involved.
2. The strict provision under applicable legislation
3. Disputes cause of separation of management and ownership (law-right.com, 2018).
4. Huge interference of authorities and members.
5. Winding up is a long and critical process.

Conclusion

As in the given case, three persons are there, therefore they cannot go for Sole Proprietorship, concern. They have to options for their business structure in the form of partnership and company. As provided in the problem scenario, that John, Tom, and Raj want to keep their business strictly limited up to them; in such a situation, a company will not be helpful for them. As mentioned above that in the case of a company, authorities have significant control over the affair of the business, hence this form of business is not suggested to John, Tom, and Raj. Further, they can go for partnership firm, however, as they want to keep their liability limited up to a level, for this reason, the model of Limited Liability partnership is suggested to them. By adopting this business structure, all of their requirement will be satisfied.

2.

Issues

In the given case, Sue and her mother were walking in a housing estate and then heard some voice of dogs barking. Sue noticed that gate was closed but the same was not latched. As soon as Sue and her mother passed by the gate, two dogs came outside of the gate and tried to bite Sue and her mother. Although, the dogs did not bite any one of them, yet the cause of this sudden incident, Sue’s mother got a heart attack and died. Now the issue is to check that whether the owners of the dogs Mr. Peter will be held liable to pay damages in the case or not?

Rules

Under Tort Law, if a person commits a civil wrong in respect of other then he/she will be held liable. Tort or Civil wrong action of a person may be intentional or unintentional. An unintentional tort is an act that a person does without any knowledge and malafide intention and such acts are commonly known as “Negligence”. Under Tort Law, negligence is a situation where a person who owns a civil liability and duty of care in respect of other and such person breach this liability or duty (Legal Services Commission of South Australia, 2018). The concept of negligence has developed in the area of Tort Law to provide a safeguard to those who suffer from damages due to the negligence of another person. According to the decision given in the case of Donoghue v Stevenson [1932] AC 562 this is necessary to mention that only breach of a duty of care is not enough, the other person must come out with some loss cause of such breach. It is to be stated that the loss accrued to the claimant in the cases of negligence must be a direct result of the negligence act of the defendant.

Under Negligence, remoteness of damage is an important factor to discuss. It was held in the case of Re Polemis & Furness Withy & Company ltd. [1921]3 KB 560 that the damages must be a direct consequence of the act of the defendant (E-lawresources, 2018). Therefore, in a summaries way, this can be stated that the following conditions are needed to be satisfied in the cases of negligence:-

1. Presence of duty of care between claimant and defendant.
2. The defendant must breach such duty.
3. The loss must accrue to the claimant.
4. The reason for such loss must be the negligent act of the defendant (Strong & Williams, 2011).

Losses can come in any form, such as personal injury, property damages, economic loss, or psychiatric injury.

In addition to aforesaid, the defense is also an important aspect under Tort Law. Contributory Negligence is a circumstance, where the claimant fails to take reasonable care of him/her and such carelessness proved as a supporting reason of accident. In cases of Contributory negligence, the Burdon of proof lies with the defendant and if the same proves the presence of Contributory negligence, then the defendant will be entitled to pay the reduced damages to the claimant.

Application

In the given case, Sue and her mother were walking in a housing estate. Soon they both have heard the noise of dogs barking from the side of a house. Being the owner of the dog, it was the civil liability of Peter to provide a safeguard to the outsider and passengers thereon from the dogs. Peter, in this case, was required to latch the gate, as he was aware of the fact that he has two dogs and keeping them unchained can cause an accident to anyone. Later on, when the dogs were barking, Sue has seen that the door of the house was closed from those dogs were barking. In addition to this, Sue has also noticed that the gate was not locked. When Sue went near to the house with her mother from where the dogs were barking, dogs have come out from the house and tried to attack sue and her mother. In this situation, sue screamed and by listening to her scream, Peter came out and controlled the dogs before they would attack Sue or her mother. Peter acted like a reasonable person here and prevented the possible accident that could accrue in the absence of immediate action that Peter has taken. Although, the action of Peter has saved Sue and her mother from a physical injury, however due to all these events Sue’s mother suffered from a heart attack as she felt a sudden shock and due to the heart attack, she died.

Applying the rules of Tort Law, Sue’s mother got a personal injury due to the negligence of Peter. Regardless of the fact that Peter has put the reasonable efforts to stop the accident, the loss has accrued to Sue’s mother ultimately. Applying to Re Polemis & Furness Withy & Company ltd. There was a direct connection between the whole incident and Sue’s mother. Further, all the conditions as stated in the case of Donoghue v Stevenson has satisfied here. Although Peter can take help of Contributory Negligence in this case as Sue already knew that door was not locked, still she and her mother still moved out towards the house.

Conclusion

In order to conclude the issue, this can be stated that Sue is a claimant in the case who can ask for the damages on behalf of her mother to Peter. As Peter was the owner of the dogs, it was his liability to keep the caution towards the passengers and every outsider. Peter did not take any precaution but prevent the accident at the moment. He acted like a reasonable person but fails to perform the duty of care by letting the dogs unchained and door unlatched. In addition to Peter, Sue and her mother also failed to take their care as they continued towards the door even after knowing the same was just closed and dogs could come outside at any time. In such as situation Peter is liable to pay the damages but the amount of damages will be reduced cause of Contributory negligence on the part of sue and her mother.

References

Accountingtools. (2017). Corporation advantages and disadvantages. Retrieved from: https://www.accountingtools.com/articles/corporation-advantages-and-disadvantages.html

BusinessDictionary. (2018). Company. Retrieved from: https://www.businessdictionary.com/definition/company.html

Donoghue v Stevenson [1932] AC 562

E-lawresources. (2018). Remoteness of damage. Retrieved from: https://e-lawresources.co.uk/Remoteness-of-damage.php

Glasgow, F. (2011). Small Business Finance All-in-One For Dummies. England: John Wiley & Sons.

Khatri, D., K. (2011). Financial Accounting. India: Tata McGraw-Hill Education.

law-right.com. (2018). The separation between ownership and control in companies: a key to success? Retrieved from: https://www.law-right.com/the-separation-between-ownership-and-control-in-companies/

Legal services Commission of South Australia. (2018). What is negligence? Retrieved from: https://www.lawhandbook.sa.gov.au/ch29s05s01.php

Re Polemis & Furness Withy & Company ltd. [1921]3 KB 560

Strong, S. I. & Williams, L. (2011). Complete Tort Law: Text, Cases, & Materials. (2^nd ed). New York: OUP Oxford.