Enterprise Law > Study Notes > Enterprise Law Unit 700254: Topic 2: Business Structures (All)

Enterprise Law Unit 700254: Topic 2: Business Structures

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Topic 2: Business Structures Enterprise Law Unit 700254Topic Outcomes On completion of Topic 2, you should be able to: ◦ Explain the essential characteristics and the advantages and disadvantag ... es of the following business structures: ◦ Sole trader ◦ Partnership ◦ Trading trust ◦ Corporation (Propriety or Public) ◦ FranchiseBusiness StructuresChoosing a Business Structure Factors to Consider  duration of business  cost and method of formation  tax burden  whether property is owned by the individual/s or entity  access to further capital for future expansion  requirements of lending institutions (banks etc)  professional ethics or legal restrictions on organisational structure  level of financial risk involved in the enterprise undertakenSole Traders  Very common structure  A sole trader owns and controls his/her own business.  It is the simplest form of business organisation to create.  Subject to regulatory requirements for certain businesses.  No formal requirements if the name of the owner is used  Proprietor is often owner, manager and investor (risk taker)  Common examples: lawn-mowing, dentists, tilers, floristsAdvantages ◦ Keeping all the profits ◦ Ownership and control of the business ◦ Lack of formalities and reporting requirements ◦ Inexpensive and quick to form ◦ Nature of the business can be easily changed ◦ Maintenance of privacy ◦ Profits taxed at personal tax rate Sole TradersDisadvantages ◦ Unlimited liability ◦ Personal assets exposed to creditors ◦ Business and sole trader are synonymous ◦ Degree of personal element can make the business difficult to sell ◦ Owner may lack of management skills or financial/legal expertise ◦ Difficulty in raising large amounts of capital/borrowing Sole Traders Another common way of structuring a business  A basic form of collective ownership regulated by Statute  Section 1 of the Partnership Act 1892 (NSW) defines partnership as: the relation which exists between persons carrying on a business in common with a view of profit  Differs to a Joint Venture (one-off, specific time/task)  Common examples: accountants, lawyers, architects, engineers, auditors, real estate business PartnershipsPartnerships Advantages ◦ Lack of formalities ◦ Inexpensive and quick to form (however, may require a Partnership agreement to be drafted) ◦ The nature of the business can be easily changed by agreement between partners ◦ Tax advantages ◦ Agency relationship may be convenient ◦ Maintenance of secrecy ◦ Sharing of skills, expertise and contacts ◦ Potential for partners to pool capitalPartnerships Disadvantages ◦ Unlimited liability of partners as not a separate legal entity from its members ◦ Numbers generally limited to 20 (exceptions include law/accounting firms) ◦ Lack of permanence as partners and business synonymous ◦ Difficulty in selling one’s interest ◦ Partners owe fiduciary duties ◦ Loss of control of management ◦ Agency relationship can be abused ◦ Partners are held jointly and severally liable ::::::::::::::::::::::::::::::::::::::::CONTENT CONTINUED IN THE ATTACHMENT::::::::::::::::::::::::::::::::::::::::::::::::::: [Show More]

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