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Business and Corporate Law

Executive Summary of Business and Corporate Law

The current study included brief discussions on the different business structures within Australia, highlighting the most commonly utilized forms such as the sole trader, partnership, companies and trusts. Relevant legislations were also incorporated to improve the extensiveness of the study including the Partnership Act 1892 (NSW) and the Corporations Act 2001 along with relevant requirements relating to the ASIC and the ASX.

Table of Contents

Introduction.

Sole trader

Partnership.

Company.

Trust

Conclusion.

References.

Introduction to Business and Corporate Law

Several types of business structures are available to individuals within Australia seeking to set up their own ventures, albeit each with their own sets of pros and cons. Harry, one of the clients of Big Business Accountants, has saved up $50,000 and is also qualified in bakery and seeks to open his own bakery business. The current study focuses on the different types of business structures available to him within the country based on the suitability of the strcuture to his needs.

Sole Trader

One of the most commonly relied upon business structures within Australia, especially in terms of an individual, is the sole trader structure, which is also often referred to as the sole proprietorship structure. It refers to an individual running and controlling the business single handedly, which in this case would be Harry. The sole trader structure has a number of benefits, with the most prominent relating to the lack of formalities such as registration and the requirements for registration or annual audits. Furthermore, the sole trader retains all the profits he or she makes out of the business. The sole trader is held legally responsible for all the aspects of the business, as there is not scope for debt or liability sharing with any other individual.[1] Employment, although allowed with the sole trader structure, is only limited to external individuals and the trader cannot employ himself.

While the sole trader benefits from the aforementioned advantages, it also has some major limitations that restrict its scope of operations in the long term. The most prominent aspect in this regard relates to the lack of a separate legal person, which can be detrimental for business continuity upon the death of the sole trader. The sole trader also suffers from unlimited liability and also a limited capacity to raise capital. Moreover, the personal assets of the trader can be entailed within the business, thus making it a highly risky affair.

Partnership

Another widely popular structure in terms of setting up a venture relates to the structure of a partnership. The Partnership Act 1892 (NSW) primarily allows for three different types of partnerships including the normal partnership, a limited partnership and an incorporated limited partnership.[2] Normal partnerships do not require any formal registration and simply refers to a business relationship between two or more person with mutual objectives of attaining profits. Limited partnerships include general partners and limited partners, where the former are responsible for the regular management of the business while the latter are only responsible for the debts in accordance to their contributions. Incorporated limited partnerships require registrations and are typically engaged in for venture capital investment purposes.

Partnerships can be beneficial as they entail an extra set of hands and inherently include additional skill sets and resources. Furthermore, the financial burden of the business venture is also limited to some extent. While it adds some sort of formalization to the business structure, there is also a lot less paperwork involved as compared to a registered company or corporation. Furthermore, the tax liabilities are also comparatively lesser thus making it an extremely viable option. However, the disadvantages relate to the evident potential for a conflict between the partners and the limited degree of independence in managing the affairs. The profits are also divided while the partners are taxed individually. Furthermore, partnerships are typically not recognized as separate legal entities, thus affecting their continuity in a negative manner.

Company

The registered company is another structure that may be chosen by Harry when setting up the bakery business. Companies within the territorial scope of Australia are primarily governed by the Corporations Act 2001, which defines a company as a legal entity that can perform all the functions of a body corporate, comprises of perpetual succession and can sue and be sued.[3] Proprietary Limited companies are the most common company structure, where the structure is limited by its shares. However, it must be stated that proprietary limited companies that generate annual turnover figures of $10 million or more and comprise of assets over $5 million are required to register and verify their annual account within the ASIC or Australian Securities and Investments Commission.[4] Other structures include the limited or the no liability companies, both of which are publicly listed companies and typically required listing on the Australian Stock Exchange. Some no-liability companies may not be required to register on the ASX.

One of the most prominent advantages of the company structure that it entails a higher degree of transparency, thus leading to improved levels of investor and consumer confidence. Moreover, companies also benefit from a reduced corporate risk exposure, as perpetual succession is guaranteed. However, the formalities are significantly more stringent and include a number of compliance measures.[5] Given that Harry chooses the company structure, the most prominent limitation would relate to the requirement to disclose personal information as well as corporate information. Companies can also be difficult to sustain in the long run, especially in terms of the costs involved.

Trust

Harry may also choose the option of a trust to set up his bakery business. Trusts are regulated by trust deeds and predominantly operated by the trustees. Trusts are beneficial as a business structure primarily due to the protection from creditors as well as the aspect of asset protection. Furthermore, if Harry chooses the trust structure, he may also distribute the profits to his beneficiaries and it can be extremely effective for tax management.

However, trusts also suffer from distinct limitations, with the most prominent being how the assets of the trust do not constitute any part of a person’s estate.[6] The death of a trustee may also lead to significant negative impacts on the beneficiaries, thus warranting the need for Wills and agreements of power of attorneys.

Conclusion on Business and Corporate Law

In conclusion, various business structures were discussed including the sole trader, partnership and the company structure along with their advantages and disadvantages to determine the suitability towards Harry’s bakery business. The trust structure was also incorporated as they are widely common within Australia; although they suffer from a number of shortcomings.

References for Business and Corporate Law

Statutes

"Corporations Act 2001", Legislation.Gov.Au (Webpage, 2020) <https://www.legislation.gov.au/Details/C2017C00328>

"NSW Legislation", Legislation.Nsw.Gov.Au (Webpage, 2020) <https://www.legislation.nsw.gov.au/#/view/act/1892/12/historical2004-04-05/full>

Governmental publications

"ASIC Home | ASIC - Australian Securities And Investments Commission", Asic.Gov.Au (Webpage, 2020) <https://asic.gov.au/>

"Sole Trader", Ato.Gov.Au (Webpage, 2020) <https://www.ato.gov.au/Business/Starting-your-own-business/Before-you-get-started/Choosing-your-business-structure/sole-trader/>

Websites

"Family Trusts: The Pros And Cons - Planning For Prosperity", Planningforprosperity.Com.Au (Webpage, 2020) <https://www.planningforprosperity.com.au/family-trusts-pros-cons/>

"Research Guides: Companies In Australia: Business Structures", Guides.Slv.Vic.Gov.Au (Webpage, 2020) <https://guides.slv.vic.gov.au/companies/structures>

[1] "Sole Trader", Ato.Gov.Au (Webpage, 2020) <https://www.ato.gov.au/Business/Starting-your-own-business/Before-you-get-started/Choosing-your-business-structure/sole-trader/>.

[2] "NSW Legislation", Legislation.Nsw.Gov.Au (Webpage, 2020) <https://www.legislation.nsw.gov.au/#/view/act/1892/12/historical2004-04-05/full>.

[3] "Corporations Act 2001", Legislation.Gov.Au (Webpage, 2020) <https://www.legislation.gov.au/Details/C2017C00328>.

[4] "ASIC Home | ASIC - Australian Securities And Investments Commission", Asic.Gov.Au (Webpage, 2020) <https://asic.gov.au/>.

[5] "Research Guides: Companies In Australia: Business Structures", Guides.Slv.Vic.Gov.Au (Webpage, 2020) <https://guides.slv.vic.gov.au/companies/structures>.

[6] "Family Trusts: The Pros And Cons - Planning For Prosperity", Planningforprosperity.Com.Au (Webpage, 2020) <https://www.planningforprosperity.com.au/family-trusts-pros-cons/>.

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