LEGAFRAMEWORKOFBUSINESS.pdf - mm 1 w Legal and Regulatory...

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Unformatted text preview: mm 1 w Legal and Regulatory Framework of Business H CONTENTS Objectives Introduction 1.1 Relationship between Business and its Environment 1.2 Legal Aspects of a Business 1.3 Sources and Scope of Mercantile Law 1.4 Objectives and Scope of Business and Commercial Law 1.5 Regulation and Legal Systems Affect Companies 1.6 Summary 1.7 Keywords 1.8 Self Assessment Questions 1.9 Review Questions 0b 'ves After studying this chapter, you will be able to: ' Describe relationship between business and its environment ° Explain legal aspects of business ' Define sources and scope of mercantile law ‘ Discuss objectives and scope of business and commercial law ' Explain regulatory framework and legal systems in business ~________________._.————_—— Introduction One of the core objectives of Legal and regulatory Framework of business is to make the law and reg“I 'ons conducive to business. The Corporate Law Reform Committee (CLRC). through its Working Group A, reviewed the existing law and regulations to find out how it could be simplified and how to lessen the WP” administrative and compliance burden on companies. Particular attention was paid to the needs of smal 3mg, bIISinesses. who least can afford to comply. . The CLRC examined whether there should be separate legislation for small companies, Whether the distinctior between private and public companies should be removed, and the ability of private companies to raise capita from the public. The question of whether an audit of a company's accounts should remain mandatory was ala looked into. In arriving at its recommendations. the CLRC considered representations made by representative of the accounting community and commissioned a survey of the company directors of small and medium size: enterprises (SMEs) to find out their views. The results of this survey are set out to this Consultative Document At present. companies must appoint professional secretaries. The CLRC looked at whether this should remair mandatory. The enforceability of contracts is of importance to business and so the capacity of a company a contract and the doctrine of constructive notice were reviewed. Company formation and the filings th: cunently have to be made with the Registrar were also reviewed. The CLRC looked at the types 0f commie "I“ can be incorporated. single member companies, the incorporation process from name search an reservation to certificate of incorporation, electronic filing and the liability of the Registrar. M 1.1 Relationship between Business and its Environment A company as legal entity which has separate legal identity from its members and is ordinarily incorporated a undertake commercial business. A company is defined in different forms such as: ' 0 Sole trader o Partnership ’ 0 Public companies 0 Private companies 0 Limited companies 0 And unlimited companies The companies act 1985-2006 is an act which sets out the responsibilities of the companies there directors am there secretary the act only applies to companies that are incorporated under it .In the companies act 1985 2006 defines a company that has been registered under law and this act. 1.1.1 The benefits and disadvantagw oflegal and Regulatory Frame Work are as follows: o The members such as the shareholders are not liable for the debt so if a company falls into debt he or sh would not be liable for the debt which is a benefit 0 The company is distinct from its members which is another benefit as the members would not be liable to its debt 0 Partnerships and sole traders are liable for debts which is a disadvantage for them 0 A shareholder has no right of ownership over the property or assets which is a disadvantage 0 Although the owner may be in charge and give task’s and jobs to others he is not regarded as the compan} so he isn’t liable for debt which is another benefit ' The emperate law concept of piercing the cooperate veil describes a legal decision where a shareholder of I cooperationoracompanyispersonaflyresponsibleforthedebtsthatthecompanyhaseventhoughheha limited liability in which case would only happen if the courts took into consideration for the following factor! 1.1.2 Factors for Courts to Consider Significant undercapitalization of the business entity (capitalization requirements vary based on industry location, and specific company circumstances) Failure to observe corporate formalities in tem of behaviour and documentation mmmghng of assets of the corporation and of the shareholder Treatment by an individual of the assets of corporation as his/her own Failure to pay dividends ‘ Siphoning of corporate funds by the dominam shareholder(s) mfinctioning corporate officers and/or directors Concealment or misrepresentation of members Absence or inaccuracy of corporate records Was the corporation being used as a "facade" for dominant shareholder(s) personal dealings: Alter 1380 1110017 Failure to maintain arm’s length relationships with related entities Manipulation of assets or liabilities to concentrate the assets or liabilities omer factors the court finds relevant iiir The main way the veil can be pierced is if a court finds the five factors that creditors have been defrauded or ' the company has committed fraud or injustice against creditors that’s the only way the veil wOuld be lifted and the company would be liable for the counts that the court decide such as outstanding debts etc. 1.1.3 Insolvency OOOO Was the corporation insolvent when a debt or contractual obligation was Incurred. A corporation is insolvent if it is unable to pay debts as they come due in this can also be the case if they have got more liabilities then assets Diversion of Funds: Have shareholders taken corporate funds and used them for Personal purposes in terms of buying flash cars spending money on them seli‘s etc Disregard of corporate Formalities 1.1.4 Creating a Conducive Legal and Regulatory Framework for Businesses This Consultative Document explains the views of the CLRC in relation to the proposed changes to the Companies Act 1965 with the objectives of simplifying the laws and procedures for companies generally and small companies in particular. This Consultative Document focuses on separate legislation for small companies; ' The distinction between private and public companies; The ability of private companies to raise capital: Audits, financial reporting and disclosure; C°mPany secretaries; The capacity of a company to contract and constructive notice; and Company formation and related matters. 1.1.? Business and Environment BMW and environment interaction takes place in the following ways: Hume“ is affected by economic conditions of the environment. During recessionary conditions, for e"11mph". firms reduce the production or pile their inventories to sell during normal or boom condifiom. Business, on the other hand, cab create artificial scarcity of goods by piling inventories and force the wonomic conditions to show signs of adversity while it is not actually so. Both business and enviroan thus. affect and are affected by each other. fins: 13.... iggézgfia.§§?§2§§§?. Easifiaafiziifig sssssssss 133.232.85.35. 2...... 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