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Business Law

The questions you want answered on this huge subject

By The Stationery Office

Business Law FAQ

In what circumstances is a company in �breach of duty�?

A company is in breach of duty if it has failed to do what it reasonably should be expected to do or does what it reasonably should be expected not to do. If a company is in 'breach of duty' then it has met one of the criterion for being negligent. In working out 'reasonableness' a court takes into account a number of factors, including the likelihood of damage being caused by a company's action or inaction, the extent of damage caused, how cheap and easy it is for a company to take precautions against damage and the need for the action by the company. A plaintiff must prove 'breach of duty', unless the 'facts speak for themselves', meaning the damage is taken to be obviously the result of a company's negligence and clearly an incident within the sole control of the company.

What is a business's �duty of care�?

A business's 'duty of care' is part of the tort of negligence and must be proven by someone taking a company to court for negligence. In 1932 the 'neighbourhood' principle was established as the test of whether a company has a 'duty of care', suggesting that the duty existed where the relationship between the parties involved was one of neighbours, that is, close and where the damage caused was foreseeable. More lately, a further criterion has been added, suggesting a 'duty of care' must be "fair, just and reasonable" to impose on a company.

What is the difference between civil and criminal liability in business?

Civil liability in business arises out of the relations between a business and the people it deals with and is governed by the laws of contract and tort. Cases against a business, for example, for breach of contract or negligence have to be taken by the people directly concerned.

Criminal liability in business, on the other hand, involves a business committing a crime against the state and cases against a business are brought by public officials on behalf of society as a whole. Criminal law applies across many business activities and is especially important in areas such as the proper description and pricing of goods and services and the safety of goods and services, particularly food.

How does �negligence� relate to business activity?

Negligence is a tort, meaning it is a kind of wrongful act giving rise to a civil court action, usually for damages. Business activity can give rise to negligence in many different ways, for example, through selling defective goods or defective services. To show there has been negligence a plaintiff (someone bringing a case of negligence against a company) must prove the company had a legal duty of care, was in breach of its duty and that there was damage caused by the negligence. Damage can be death, injury, nervous shock, damage to property, or financial loss.

How does tort relate to business activities?

Tort is an area of the law concerned with injuries to people or property that come about because of a breach of a duty imposed by the law rather than by some contractual arrangement between people. Individual torts include trespass, defamation, nuisance, negligence and passing-off. Each tort has its own rules.

Business activities, therefore, that involve, for example, negligence such as not properly caring for a customer or selling defective goods, involve a tort. Another example of a tort would be a business passing-off another company's product as its own.

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Business Officials FAQ

What are the duties of company directors?

Company directors have a number of legal duties and these include:

•	acting in the best interest of the company
•	not to run the company for fraudulent purposes
•	not to let the company continue to trade when insolvent
•	to be honest with shareholders
•	to act in the general interest of employees
•	to meet the legal demands of Companies Acts, for example, in keeping and presenting proper accounts

Failure to meet legal duties can result in a company director being disqualified from holding other directorship posts.

Further advice and information on the duties of company directors is available from organisations representing directors, such as the Institute of Directors, accountants and from Companies House.

From autumn 2002, under revisions to the Listings Rules relating to directors' remuneration under the Companies Act 1985, companies must publish details of how directors' salaries are calculated and related to company performance. Companies must produce an annual "directors' remuneration report" which will detail: how a company's board determines remuneration; a company's future plans; director's remuneration in the previous financial year; and "performance graphs" showing a company's past performance and how this has related to directors' remuneration. Shareholders will then have an opportunity to vote on the report.

Relevant Online Forms

Forms are available from Companies House and some are also in Welsh.

What are the responsibilities of a company secretary?

Under the Companies Act 1985, a company secretary, being an officer of a company, has certain legal duties. Legally, a company secretary may be liable if a company fails to provide the relevant authorities with details about the company's directors and accounts. Their general work duties are contained in their contract of employment

The Companies Act demands that a number of company registers are kept and these are usually the responsibility of the company secretary and include the register of members, directors' interests and interests in shares. A company secretary will also have among his duties meeting other statutory requirements, such as making sure forms are filed, giving proper notice of meetings, sending the Registrar of Companies information about company resolutions, keeping minutes of meetings and allowing access to company records when necessary.

Companies House runs a �WebFiling Service� which allows the following company forms to be submitted online: 363s Annual Return (�15 charge), 288a, 288b, 288c, 287, 353, 353a, 190, 190a 88(2) and 123. To use WebFiling a company needs to register for a security authentication codes on the Companies House website.

See Companies House for further information.

Relevant Online Forms

Forms are available from Companies House and some are also in Welsh.

Who can be a company director?

Anyone can be a company director, apart from the following:

•	An undischarged bankrupt, or someone who is disqualified by a court from holding a directorship (unless the appointment is approved by a court)
•	The company's auditor

Some restrictions apply:

•	Public limited companies can only appoint, or reappoint, a person who is over 70 years of age or who reaches 70 years while in office, by resolution of the company in general meeting. Special notice of this meeting has to be given.
•	There is no minimum age limit in the Companies Acts ( the Companies Act 1985 and the Companies Act 1989 ) for a director to be appointed in England and Wales, but someone must be able to consent to their appointment.
•	In Scotland, the Registrar of Companies will not register the appointment of a director who is under 16 years of age.
•	In most cases non-British citizens are restricted as to the employment that they may undertake while they are in this country.

See Companies House for further information.

Relevant Online Forms

Forms are available from Companies House and some are also in Welsh.

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Supplier Contracts FAQ

Does a contract need to be in writing?

Generally a contract for the sale of goods may be written or verbal, but certain contracts must be in writing.

•	Under the Law of Property (Miscellaneous Provisions) Act 1989 a contract for the sale or transfer of land must be made in writing. It must include all the terms that the parties have agreed in one document and be signed by, or on behalf of, each party.
•	Cheques, bills of exchange and promissory notes must be in writing, according to the Bills of Exchange Act 1882.
•	The transfer of shares in a limited company must be made in writing.
•	Employees should be given written contracts of employment within two months of starting work, under the Employment Rights Act 1996. Failure to provide a written statement does not affect the validity of a contract of employment, but it does entitle an employee to refer the matter to an industrial tribunal.
•	A contract of guarantee must also be given in writing (for example, if someone is acting as your guarantor when you borrow money). The absence of a written contract does not make the agreement invalid, but if one of the parties wants to enforce the contract in court, the written notes or memorandum must be produced.

How are damages calculated for breach of contract?

When one party breaches a contract, the other party (the 'aggrieved' party) is entitled to bring an action for damages. The level of damages will depend on the effects of the breach. If the aggrieved party has not sustained a loss, he can only claim nominal damages.

However, if he has sustained a loss as a result of the breach of contract, he is entitled to substantial damages. The amount is calculated in accordance with a set of rules, including the following:

•	The person who has suffered the loss (the 'injured' party) should be placed in the same financial position as if the contract had not been breached. This is called damages for 'loss of bargain'. This means that if the work specified in the contract has not been completed, the damages will be calculated to meet the cost of the work being completed.
•	If the contract relates to the sale of goods, damages can be calculated according to the 'difference in value'. This means that if your supplier fails to deliver goods, the damages will be calculated to match the difference in value between the contract price and the market price of the goods, on the day when delivery should have occurred. See the Sale of Goods Act 1979.
•	Tax liability is taken into account when calculating damages. The amount of tax must be deducted from a claim for damages.