BL629 Topic Two

1. BL629Topic Two Governance Issues

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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’?

14. 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

15. 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

16. 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

17. 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

18. 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

19. 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?

20. 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

21. Agency • 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