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
disadvantages of the following bu
...
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
disadvantages 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:::::::::::::::::::::::::::::::::::::::::::::::::::
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