ACC1003M

Business Law, Governance & Ethics

Assessment Essay Questions 2023/24

Q1. Ezra, Farouk and Jerome are vehicle mechanics who have just completed their
apprenticeships and have decided to start their own business. Ezra has £25,000 he
inherited from his grandmother, Farouk has been given a loan by his uncle of £15,000
and Jerome has been given a workshop rent free for a year by his father. They are
seeking a further £30,000 in the form of a business start-up loan from the National
Eastminster Bank to buy equipment for the business.

o Jerome wants to employ his fiancé as an administrator and secretary.

o Ezra wants to form a partnership with the return on profits linked to their
capital investment.

o Farouk has asked the others to guarantee the loan to his father.

Explain the legal obligations & difficulties that a business with this kind of
arrangement could encounter.

Advise the three about more suitable forms of business structure for this kind of
firm. Pay particular attention to the following obligations & potential liabilities.

(a) The status of Jerome’s fiancé within the firm.

(b) The liability arising from partnership loans
(c) The nature of any agreement on profit sharing
(d) The liability arising from the bank loan

What are the main advantages of a limited company in the circumstances described
above?

What are the disadvantages of limited liability. Include the new provisions from The
Economic Crime and Corporate Transparency Act 2023?

What are the specific difficulties associated with business partnerships?

Q2. Plumbelec Ltd are a firm of electricians and plumbers working in the construction
and service industry. They were founded 11 years ago by brothers Alan and Brian
Flux and employ 2 electricians and 2 plumbers. Alan is a also a plumber and Brian an
electrician.

Two years ago the board of directors was increased by one member, a Mr Harry Fuse.

Harry convinced Alan and Brian to expand the business to take on larger contracts
and to be bolder in their marketing. He persuaded them to employ Eric Flakey to
replace their accountant who was retiring. Harry instructed Eric last year to make
the firm look more attractive to larger contractors by “spicing up the financial
statements” Eric revalued the company current assets from £175,000 up to £350,000
and cash at bank from £16,000 to £45,000. Eric also altered the annual turnover by
30%.

Plumbelec then tendered for a contract for the Local Authority to maintain a
substantial portfolio of offices and rented properties. They declared on the tendering
documents that they had sufficient plant, operating capital, employees and capacity
to be able to deliver the service required. Harry told Alan and Brian that they could
always make up the difference by recruiting zero hours staff and hiring equipment.

The company has now failed six months in a row to meet maintenance targets and
has not paid the plant hire rental company for hired machinery. They have told the
Local Authority that they are suffering from a labour shortage. The plant hire
company have refused to supply them with further equipment and are taking action
in the High Court for unpaid hire fees of £32,000. The local authority are now
bringing an action for breach of contract. Several local suppliers are also bringing
legal action against the firm for non-payment of debts.

They have now laid off the employees without pay and owe them three week’s pay
from last month’s paycheck.

Describe the criminal & civil legal liabilities of the firm Plumbelec Ltd and any
personal liabilities of the directors that may have occurred as a result of the way they
have conducted their business since Harry joined the firm.

What remedies do the creditors have in the above circumstances?

What civil liabilities do the firm have to the employees?

Do the employees have a cause of action against the directors personally?

Do the creditors have a cause of action against the directors personally?

Identify any potential criminal penalties for the way they have conducted business?

It is necessary to cite all legal authorities from legislation and common law cases to
support your arguments. Pay particular attention to the new provisions under The
Economic Crime and Corporate Transparency Act 2023?