CHAPTER 1A CHAPTER 1B
INTRODUCTION TO BLP COMMERCIAL AWARENESS – OPTIONAL READING
BLP ASSESSMENT: COMMERCIAL AWARENESS:
2-part Assessment: Why is commercial awareness important?
• 3 hour exam in the morning consisting of problem questions. * As a lawyer, you will advise your client on how to ensure that its
• 1-hour MCQ style paper which focuses on the detailed analysis business functions within the law and you must help them
of the law. address/minimise commercial risk with legal solutions.
* Your clients will expect you to have a good understanding of the
Three pervasive subjects: *Taught and assessed within BLP* wider commercial context in which their businesses operate and
• Tax not just the law as this will help you better understand the
• Business Accounts challenges they are facing.
• PCR * The ‘status quo’ of a business: every recommendation that is
made to a business needs to be evaluated with respect to the
Drafting is taught within BLP but assessed in a separate exam. business ‘as is’.
* Most of the work of a corporate lawyer will bring about strategic
change within an organisation and thus, you must understand
BLP CLIENTS: the practical implication of your work.
You will be practice BLP scenarios in the context of 3 fictional clients Models/frameworks help because it can be difficult to gain a good
which you can read about in the ‘client portfolios’ included in your LPC perspective on a large business. These tools should help to shape your
materials. thinking.
1. The Ritchisons Group:
During the first half of the BLP module, you will develop legal and COMMERCIAL RISK:
commercial skills in the context of this expanding supermarket
chain that is exploring new possibilities in its industry sector and In business, clients constantly face choices as to whether or not to take
forming/acquiring new business divisions. The holding company a given commercial risk. Lawyers must be able to understand the risks,
of the group is a listed company. to help a client spot them and to identify the consequences for failing to
adequately address those risks.
The main points to note about Ritchisons Group:
• A group company, the holding company is Ritchisons Risk = the likelihood of things going wrong.
Holdings Plc Liability = being/becoming legally obliged or responsible to another
• A listed company, registered on the London Stock party, or of owing another party money.
Exchange. – a lot of money floating around in it
• Acquisition of other companies and will issue shares Examples of commercial risk:
* Business starts making a loss
2. Marine Paints International Limited: * Signing onerous contracts without a way of terminating them
In the second half of the module, you will develop further legal * Agreeing to obligations without limitations of liability
and commercial skills in the context of this private, medium- * Agreeing to unrealistic deadlines for performance
sized family manufacturing company with an international
customer base, which is undertaking various transactions with A client will want to know:
its directors and shareholders. • The main elements of risk in the proposed action
• Any consequences/potential liabilities if things go wrong
The main points to note about Marine Paints: • The strategies to be employed to reduce/minimise risks
• A very worthy but smaller company
• Buy-backs THE LIFE CYCLE OF A BUSINESS:
• Directors’ duties
Incorporation:
3. Anglo-Italian Limited:
The final part of the module will be delivered in the context of When a business starts out, its owners will decide on a business medium.
this entrepreneurial private company that is in financial If the business is going to be operated as a company, then the first stage
difficulties after undergoing an unsuccessful expansion into a will be to incorporate that company.
new business area, at the same time as suffering a damaging
dispute. Your experiences with this client should also help you to Raising Money:
foresee relevant issues that clients 1 and 2 should have kept in
the back of their minds while developing their new ventures, Early in the growth cycle the business will need to raise money to begin
mindful of the fact that things do not go always as planned. its life so that it can fund the set-up costs.
The main points to note about Anglo-Italian limited: Set-up costs may be:
• A dodgy company used to discuss insolvency 1. Low – eg. recruitment agencies require little money to set up
• Breach of directors’ duties OR
2. High – eg. restaurants have high set up costs due to the costs of
MATERIALS: furnishing and fittings, hiring staff and marketing the restaurant
You can use your Statute Book (Butterworths Company Law Handbook) A company may raise money by:
for BLP and you will be allowed to use your Statute Book during the exam 1. Issuing shares (equity finance): the company issues shares in
but you must not annotate it except as allowed. return for cash and shareholders will expect dividends and a
capital return when they sell their shares.
Focus of the module:
2. Debt finance: borrowing money and promising to repay that
Insolvency Act 1986 loan plus interest. The lender will usually want over the assets of
the company so that it can sell them if the loan payments are
Companies Act 2006 missed.
• Implementation: when it was implemented, it was the longest
piece of legislation ever enacted by the UK Parliament. Expansion:
• Simplification: It served to simplify the law as it was in the
Companies Act 1985. A business can grow:
• It has made the law surrounding certain companies such as * Organically – by increasing sales and profit through natural
private limited companies a lot more flexible. growth. Expanding the range of products or services or widening
the target market can both be effective strategies for organic
Additional sources: growth.
1. PLC Corporate Law website (PLC) * Acquisitively – by acquiring another business
2. Tolley’s Company Law Service is a practitioner text found online
which many corporate solicitors use frequently.
3. Palmer’s Company Law – access it via Westlaw Horizontal integration Vertical integration
If the company buys a competitor to If the company buys a business
gain their customer list and which is part of its supply chain;
therefore their market share. either a supplier or a distributor.
BLP – Chapters 1-5 – Workbook summary | Page 1 of 19
, Insolvency: ENVIRONMENTAL SCANNING (PESTLE):
The final stage in a company’s life cycle is insolvency where the company Businesses should also undertake Environmental Scanning to identify
can no longer trade as they are not able to pay their debts. threats in the external environment.
SWOT ANALYSIS: There is a simple model which can help to undertake environmental
scanning regardless of business or sector, which is PESTLE.
Examine a business’ ‘status quo’ by looking at its internal and external
risks and opportunities as they currently stand. This can be done by using PESTLE = Political, economic, socio-cultural, technological, legal and
a SWOT analysis. This analysis will help companies to create strategic environmental factors.
options, allowing the business to capitalise on opportunities and
competitive advantages, and mitigate its weaknesses and threats. Political:
SWOTs = Strengths, weaknesses, opportunities and threats. A business will scan the political environment, looking for opportunities
and threats brought about by government intervention or political
Strengths: influences. – eg. Apple will be concerned about potential intervention
from the Competition and Markets Authority and the political stability
A business’ strengths (competitive advantages) are those factors which of the country that produces its goods (China).
make it better than its competition.
Economic:
Example – Walmart’s strengths:
• It’s size which means a strong buying power A business will also be interested in the economic environment. – eg. the
• Has a reputation of being an excellent employer which helps cost/availability of borrowing, exchange rate movements, inflation and
with hiring and retention of employees whether a country is in a period of growth/recession. Apple is based in
• Has a reputation for affordable prices the US relative to the Euro, and so a weakening of the dollar would
increase the cost of production abroad and reduce the profits made in
Weaknesses: sales abroad so it would see this as a threat.
A business’ weaknesses are those factors which place the business at a Socio-cultural factors:
disadvantage relative to its competition.
Social factors:
Example – Walmart’s weaknesses: • Demographic issues – eg. the growth of middle class in India is
• Its business is focused in particular countries, such as the UK and an opportunity to increase sales for Apple
US, meaning that it does not have market domination in other • Growing concerns for sustainability – eg. Apple got negative
countries such as China and India; publicity over the mining of rare metals to use in its devices.
• Its reputation for corporate social responsibility is bad reducing • Increase in Higher Education
its brand value • Rise of social networking – eg. opportunities for Apple
• It may be slow to react when the market changes due to its size
Legal:
Opportunities:
This includes statutory/regulatory/common law provisions regarding:
Opportunities are chances to increase sales/profits within the market. • Company and corporate governance
• Employment
Example – Walmart’s opportunities: • Competition
• Mergers/acquisitions with companies in China/India to increase • IP/data protection
market share • Commercial/environmental protection
• The current trend for small, local supermarkets in the US/UK • Advertising and trading standards – eg. Apple’s complex
litigation with Samsung in relation to IP patent infringements.
Threats:
Environmental impact:
Threats are things that could potentially cause problems.
There is increasing pressure on companies to be environmentally
Example – Walmart’s threats: friendly. This has impacted on how businesses operate with many being
• Bad reputation for corporate social responsibility. Walmart must called to account for its negative effect on the environment. – eg. Apple
be careful not to allow further bad publicity must recognise the threats of depletion of natural resources used for its
• Extreme price competition between supermarkets significantly devices as well as negative publicity.
reducing Walmart’s profit margins
• The growing costs of food products also reducing profit margins FROM ANALYSIS TO STRATEGY:
TYPES OF MARKET: Strategies exist at the corporate, business or functional level. Most
large businesses have a clearly verbalised mission which rarely changes
When you are trying to understand a business, you must understand the and any strategic work that they do on a day-to-day basis therefore
market that it operates within. needs to be focused on achieving this mission. Therefore, businesses
today are very aware of strategic alignment.
Common market types:
1. Monopoly: market type in which there is only one business with Corporate strategy: Set by the board or other senior management, long
no competitors. Within the UK, the Competition and Markets term direction of organisation as a whole
Authority tries to guard against abuses of monopolies.
Business strategies:
2. Oligopoly: A market with only a few major players. Price fixing is - set by individual management
often seen in this type of market. This is where key players - at business unit level
collude to set prices. They can set prices high, because there is - deals with their particular
nowhere else consumers can then go to get a lower price. Or, - competitors and customers
two providers will collude together to set prices low in order to
push out other players and then raise their prices to recoup their Functional Strategies:
losses (predatory pricing). Co-ordinates and improves Activities of business unit – Eg. finance,
marketing, Human resources, IT
3. Monopolistic Competition: a market with many competing
businesses and because products are differentiated between A basic structural dilemma is simply how much autonomy to allow lower
businesses, there is more than just a price consideration order units in implementing the overall strategy. An example is the
between products. question of how much independence to give subsidiary boards in
implementing their strategies.
4. Oligopsony: market form specific to the farming sector, where
lots of suppliers, such as cocoa, tobacco or cattle farmers have
only a few possible buyers that they can go to. In the case of
cocoa, there are only three major buyers who sell the cocoa
beans on to chocolate makers.
BLP – Chapters 1-5 – Workbook summary | Page 2 of 19
