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BL629 Topic Two. Governance Issues. Available business structures. Sole trader owned & operated by one person all benefits & all responsibilities & liabilities all personal assets at risk issue of tax minimisation easy to start & operate. Available business structures.

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BL629 Topic Two

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bl629 topic two

BL629Topic Two

Governance Issues

available business structures
Available business structures
  • Sole trader
    • owned & operated by one person
    • all benefits & all responsibilities & liabilities
    • all personal assets at risk
    • issue of tax minimisation
    • easy to start & operate
available business structures3
Available business structures

2. Partnership (State Partnership Acts)

  • agreement between 2 or more people to carry on a business for profit
  • partners agree on terms
  • each individually liable for partnership liabilities because no separate legal identity, hence personal assets at risk
  • note limited liability partnership
available business structures4
Available business structures

3. Unincorporated Associations

  • group of people joined together for a common, not-for-profit purpose (clubs, societies)
  • no separate legal existence and hence severe restrictions on what it can do
  • liability of office bearers/members an issue
available business structures5
Available business structures

4. Incorporation under Associations Incorporation Act

  • State legislation for not-for-profit groups
  • separate legal identity
  • extensive legal rights
  • protection for members/executive
available business structures6
Available business structures

5. Corporations [Corporations Act 2001(Cth)]

  • distinct separate legal identity, a ‘legal person’
  • extensive legal rights
  • members own shares and have limited liability – personal assets not at risk
  • many types to suit different circumstances
available business structures7
Available business structures

6. Joint Venture

  • two or more people/companies come together to conduct a business
  • often each party has special expertise
  • often not joined as partners
  • often used in big start-up projects like mining or exploration
available business structures8
Available business structures

7. Trading trust

  • one person/company (the trustee) legal owner of business but operates it for the benefit of another (the beneficiary who has equitable ownership)
  • sometimes used to reduce taxation or protect/disguise the real owner
available business structures9
Available business structures

8. Co-operative

  • similar to corporation
  • persons join together to provide benefits as well as dividends
  • members own shares & limited liability (e.g. farmers co-operatives)
  • regulated by State legislation
available business structures10
Available business structures

9. Franchise

  • contractual arrangement between the owner of the franchise and the franchisee that permits the franchisee to use the franchise name, product, business model, etc under strict terms
  • no rules about which business structure each uses
factors influencing choice of structure
Factors influencing choice of structure

1. Simplicity of establishment and operation

2. Ability to operate as a ‘legal person’

  • what is a legal person and what does it mean?
  • problems of not being a legal person
factors influencing choice of structure12
Factors influencing choice of structure

2. Ability to operate as a ‘legal person’ (cont’d)

a) Contracts

CASE: Carlton Cricket & Football Social Club v Joseph [1970] VR 487

b) Liability of office bearers & members

CASE: Bradley Egg Farm v Clifford [1943] 2 All ER 378

c) Limited rights of members

factors influencing choice of structure13
Factors influencing choice of structure

3. Liability

  • who has to pay up if something goes wrong?

CASE: Salomon v Salomon & Co Pty Ltd [1987] AC 22

  • when will the court lift the ‘corporate veil’?
factors influencing choice of structure14
Factors influencing choice of structure
  • Obligations of company directors
    • act for proper purpose and in best interests of the company
    • exercise reasonable care & diligence
    • no improper use of information
    • no trading while company insolvent

CASE: Commonwealth Bank of Australia v Friedrich & Ors (1991) 9 ACLC 946

factors influencing choice of structure15
Factors influencing choice of structure

4. Taxation

  • different rates of tax for different structures
  • should not be the main criterion
  • use of companies and trusts
  • not such a problem for not for profit organisations
factors influencing choice of structure16
Factors influencing choice of structure

5. Capital & Finance

  • businesses often require capital to start or expand
  • finance from institutions and finance from the public
  • providing security
factors influencing choice of structure17
Factors influencing choice of structure

6. Control

  • what sort of control does the ‘owner’ of the business want
  • issue of the orderly passing of control onto others
factors influencing choice of structure18
Factors influencing choice of structure

7. Maintenance costs & effort and privacy

  • each structure has some legal obligations regarding the running of it
  • the more sophisticated the structure the greater the maintenance
  • legal reporting obligations and the issue of privacy
factors influencing choice of structure19
Factors influencing choice of structure

8. Surviving the first generation

  • issues around the death or retirement of the founder
  • relationship breakdown (family &/or business), introduction of other people (for example, other family members)
  • do I need a suitable will?
people dealing with the organisation
People dealing with the organisation
  • The implications for people dealing with each of these business structures
    • employees
    • contracting parties
    • other people effected by its operations
  • An agent can legally bind another (the principal) in a contract, when acting on behalf of that principal, with a third party
  • Extent of the power of the agent to bind principal depends on their role in the business and the circumstances as they appear to the third party
  • All companies operate through the actions of their employees acting as agents