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BL629 Topic Two

2. Available business structures. Sole traderowned

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BL629 Topic Two

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    1. 1 BL629 Topic Two Governance Issues

    2. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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

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