Business structures
The various types of business structures that Jack and Jill can form include partnership, joint ventures and a company. A partnership refers to where more than one individual come together and agree to do business together with an aim of making profit. In partnership, every partner is responsible for any decisions that are made by their partners while acting on behalf of their business. The law treats all the partners equally by the law. The partners share profit equally and also cover the losses equally. They also share equal responsibilities in the trading activities of the business (Latimer & Australia Limited, 2011). All these apply in the absence of any agreement. However, from the perspective of a third party, the partners are severally and jointly liable for the partnership’s obligation. The partnership does not have a legal existence that is separate from partners and thus the partners liability for all debts is unlimited, several and joint. Limited partnership refers to the one where general partner carry out the business activities and thus has personal liability. In this case the limited partners are passive investors and bear the liability for only their stake in the business. The limited partners should not be involved in the management of the business. Some states in Australia do not allow the formation of business partnership. Partners’ obligations and duties outlined in the agreement are owed to one another but they should exercise their powers and rights to the overall benefit of the partnership business (Latimer & Australia Limited, 2011). In pursuing whether partnership is appropriate or not, it’s necessary to outlines the advantages or disadvantages associated with this form of business ownership. A major advantage is that this form of business makes it possible to share expertise, labor, financial and other resources. This provides the potential for leveraging of available resources and synergy. Moreover, unlike the incorporated business structures, the cost of establishing a partnership is relatively lower and its registration process is quite easier. The fact that partnership is not separate from owners comes with various tax benefits. However, there are significant noticeable pitfalls as seen where one is liable for the actions of their partners. There is also the high possibility of disputes on the right way to share profits or bear losses. Another pitfall is that the business will definitely cease each moment there is in its membership, as the addition or removal of a person will require the dissolution of the current partnership and creation of another one, through the execution of a new agreement. The business structures are also not effective amassing and holding assets that are appreciating (Latimer & Australia Limited, 2011).
Joint ventures are usually established between two or more organizations in order to carry out some specific projects. The organizations enter into an agreement for joint venture that is legally binding and which should be enforceable. The agreement spells out the obligations for each of the persons or may also come about from the obligations in the common law. The terms contained in the joint venture includes the initial contribution by each of the organization initially, the acts that every organization is obliged to carry out in the duration of the project, the venture’s governance, reporting obligations, the process to be followed in the settlement of a disputes between the parties in the joint venture and what should happen when the duration and life of the venture has come to an end (Cassidy, 2006). These obligations may arise from the special relationship among the parties or from the common law. Joint ventures can be incorporated, unincorporated and Unit Trust Joint Ventures. Unincorporated is one where the parties association lacks both equity capital and form, and the terms of the agreement between the commercial activities and these parties’ binds this venture. The ventures include those which can be defined as partnership in common law and the others that are not business partnership. The incorporated joint ventures are where the parties involved arrange to incorporate a different legal entity to carry out the project on behalf of the participants. The obligations and rights of the participants are normally negotiated separately from the shareholders agreement. The corporate joint ventures establish obligations that are different between the participants. The difference in relationships is normally between the participants in their shareholders’ capacity, participants and the venture itself and between shareholders and directors. The Unit Trust Joint Ventures, there usually a creation of unit trust to have a combination of incorporated and unincorporated joint venture features (Latimer & Australia Limited, 2011).
A company is a legal entity that is separate from its owners and those who carry out the management function. Thus the shareholders and the directors cannot be liable for any debt arising from the company activities. A company is thus able to hold assets in its name and bears the liability for its obligations alone. Thus, the directors and shareholders cannot be held liable for the company’s debts except for the provisions concerning insolvency in trading as outlined in the Corporations Act of 2001(Cassidy, 2006). Essentially, insolvency in trading involves where a debt is incurred in such a time that reasonable grounds exist for the belief that the company can no-longer manage or is likely to no-longer manage to service its debts at the time they are due. In Australia, companies are regulated by Australia Securities and Investment Commission, a body that also administers the corporation act with an aim of ensuring that consumer and businesses protection is provided while transacting with the companies. The various categories of companies are defined by the liability type which is imposed on owners – shareholders. They include companies limited by guarantee or by shares. By shares means that that the shareholders’ liability is limited to how much their shares are valued (Cassidy, 2006). This can either be public or private company. Limited by guarantee implies that there is neither share capital nor shareholders but its members contribute to a certain nominal amount in case there is a shortfall in its assets to pay its debts during the process of dissolution. Companies limited by guarantee should not carry out business activities while aiming at making profits, and thus, are most suitable for religious and welfare organizations. A public company is normally publicly held, implying that its shares are owned by the members of the public. The public company should have at least a single shareholder with no set maximum shareholders number. The company I not limited with the amount of funds it can borrow to the public. The limitation of the shareholders liability is to the extent of any balance that may owe on their shares. The directors for the public company must at least be 3 while at least 2 of them should ordinarily be residents of Australia. It should also have a least a single secretary with residence in Australia. If the company does not have enough number of these officers it should put more efforts in ensuring the appointment of new officers in the quickest time possible to be compliant with the law. Lack of enough officers adds up to the violation of the 2001 Corporations Act’s requirements whose result would be being served with a penalty by ASIC which would require a payment of $1062.50 penalty. The failure to meet this obligation could also lead to legal action against the company (Latimer & Australia Limited, 2011).
A private company is one which does not issue its shares to the members of the public in the stock exchange market. There are usually restrictions on the transfer of shares in a way, like in the case of the requirement that any transfer of the company’s shares must be approved by the directors and that new shareholders can only become company members if the company completes a registration to show that shares have been transferred to them. The company must consist of a minimum of a single member who is the shareholder and a set maximum of fifty shareholders. The company’s shareholders liability is limited usually limited to any uncalled amount, owing on those shares (Latimer & Australia Limited, 2011). The requirements involving accounting that may be imposed on this business structure is dependent on whether it is considered large or small company. A small private company is only obliged to prepare financial reports annually and directors’ reports with information about dividends recommended or paid or issued options and the operations if there is a direction to do so and passed by at least five percent of votes or by ASIC (Cassidy, 2006).
The best type of company to form is an incorporated Proprietary limited company. This kind of company comes with various benefits appropriate for business structures. To begin with, a limited company is normally a legal entity that is distinct from its owners or managers. This indicates that any legal action by creditors can only be done against the company and not its subscribers who established it. This can be explained in terms of the members having limited liability, which is the main advantage attributed to this incorporation. The subscribers are only liable for an amount that is unpaid on shares. In most cases , the shares of private companies are issued as fully paid , which means that if things do not go as expected , the company subscribers only loss will be value of any loan and shares(Cassidy, 2006). Incorporating a business is provides the best means of ensuring protection for personal assets so that they are not put at risk. This means that business owners can carry out business activities with fear of risking their savings and personal property. The only protection which is not offered is in case of fraud. The company directors can thus strategically perform their legal duty of not incurring liabilities which they have reasonable basis of believing the firm will be unable to pay. Incorporation of a business ensures that company names are restricted and since the name follows the set rules, it cannot be used by anyone else. This may not be experienced in other business structures. A proprietary limited company comes with the benefit of continuity, since its life is infinite (Cassidy, 2006). The management, employees and directors act just as agents of this company which means that upon retirement, death or quitting the existence of the company continues. The company’s termination can only be done through liquidation, winding up or an order by the registrar of companies and courts. The Australian law also allows for the introduction of new shareholders more easily since the transfer of shares is done through a straightforward process. The company legislation and preemption right offers protection to the existing shareholders, and the aim is usually to protect minority investors’ interests. The law also allows the company to have as many as 50 shareholders which can proof beneficial to when the firm is growing and expanding and more capital is needed (Cassidy, 2006). Since the payment of corporate tax by companies is done on taxable profit basis, there is a benefit of extensive tax-deductable costs and allowances that can help in offsetting the profits of a company. Moreover, the present corporate tax level is lower as compared to than rates of income taxes. The benefits of incorporating proprietary limited company extend beyond funds availability. A company is normally viewed by customers, suppliers and the respective business associate as having more stability than businesses that are unincorporated. This implies the permanence and credibility which communicates the commitment of the owners to continuous success of their venture. A corporation can also provide anonymity to its shareholders if they need to establish a small firm and want to keep their involvement away from public knowledge (Cassidy, 2006).
A director who has been appointed owes some fiduciaries duties to the company that can lead to personal liability if breached which include, liability for damages, criminal and civil penalties. A director has an obligation of acting honestly, which implies acting in good faith and in the company’s best interest and for the appropriate purpose. The obligation requires the directors to carry out judgments independently in regard to relevant materials, facts or other views while in service of the company. The director has the obligation to ensure they do not improperly use position or information arising from it to acquire their advantage or that of others at the expense of the company (Loos, & International Bar Association.2010). The other obligation relates to avoiding conflict of interest and insures personal interest materials concerning the company affairs that they have are disclosed. A director has the obligation to ensure they do not get personal gain from taking advantage of any corporate opportunity at the expense of wellbeing of the firm. The other obligation requires a director to observe reasonable diligence and care while discharging their duties. To third parties, a director has the obligation not to take part in insolvent business activities or activities that may lender the company insolvent. The other obligation requires every director to ensure the financial and directors reports are prepared for the financial years (Loos, & International Bar Association.2010). Moreover, a director can become personally liable in the instances where the company breaches the law. These include instances where the Competition and Consumer Act 2010 has been contravened by the company. The other instance is where the company violates the laws on safety and occupational health, environment protection and taxation. Directors can bear personal liability if they aided in the company’s violation of tax offences (Tomasi, Bottomley, & McQueen, 2002).
The directors and the shareholders are legally allowed to be employees of the proprietary company under normal wage and salary conditions. This includes their income being taxed at the personal rates (Cassidy, 2006).
References
Latimer, P. S., & CCH Australia Limited. (2011). Australian business law 2012. North Ryde, N.S.W: CCH Australia.
Cassidy, J. (2006). Concise corporations law. Annandale, N.S.W: Federation Press. 37-41
Loos, A., & International Bar Association. (2010). Directors' liability: A worldwide review. Alphen and den Rijn: Kluwer Law International/International Bar Association.271-276
Tomasic, R., Bottomley, S., & McQueen, R. (2002). Corporations law in Australia. Sydney: Federation Press.316-320
