Good Ref: Advice On Business Structures In Australia Essay Example
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BUSINESS STRUCTURE IN AUSTRALIA
Business structures in Australia
Dear Kylie, Dear Imad,
WE highly appreciate your consideration to choose our law firm to advise you on business types and structures in Australia. Our firm has a wide experience in business accounting, business law, corporate law, company law, financial accounting and business management within and outside Australia. We have advised big entities and corporate in business matters, in addition to representing their interests in the courts.
In regards to your inquiry, we are going to advise you on available business structures and types in Australia that you can use as a channel to set up Gelato Bar in Punchbowl. In addition, we shall advise you on obligations and liabilities if you elect a company in Australia. Finally, we shall pass our recommendation to you for your information and further actions. We really hope that this information will be of use to you. However, in case of any clarification, do not hesitate to contact us for further information, clarification or advice.
Legal environment in Australia
Australia derives its laws from various sources. They include the Australia Constitution law, which is the supreme law of the land. Other subsidiary acts and legislation must consistent with the Constitution; otherwise they are considered null and void. The Constitution vests the legislation powers to the Australian parliament that is made up of the Queen, Senate and House of Representatives (Barry 2007). The Constitution also determines what federal law needs to be passed in relation to business, taxes among other factors. Different federal states across Australia have to adhere to these laws, or use them as benchmarks when formulating their own laws and standards. The second source of law in Australia is the statute law that emerges from a bill drafted by the Parliamentary counsel. The bill must be debated by the parliament and is either approved, modified or rejected. The approved bills are assented to by the state governor or the commonwealth governor general. The third source is the Australia Common law and equity that largely borrows from the England’s common laws. Common laws form a significant percentage of the Australian civil law. Further, several contract and property laws in the Australia traces their origin from the British common law and equity that was introduced by the Britons who first settled in the Australian land (Barry 2007). The customary law is equally an important source of law in Australia. The laws previously addressed the rights and entitlement of the aboriginal Australians, especially in land-related matters. However, they have extended further to have an implication in matters business and administration. The last source is the international law. Being a signatory to various conventions and international treaties, Australia is bound by various international laws and procedures that cut across the business, accounting, finances, environment, and natural resources among other sectors.
The Australian judicial system is three-tiered. Carvan (2002) notes that the first tier is high or Federal Court that serves as the Australian court of appeal. It largely entertains cases related to Australian Constitution and can declare laws either Constitution al or unconstitutional even if they pass through the parliament. Secondly is the state and territorial courts that deals with the national civil and criminal matters. The state courts can take up or dismiss appeals from lower state courts. Further, they have the legal ability to change or reverse decisions passed by the lower ranking courts. The third category is made up of district and resident courts, which entertain cases within their jurisdiction and with limited financial implications. In most cases, these courts handle civil offenses.
Business environment in Australia
Australia is ranked among the ideal global business environments. It ranks 6th in terms of landmass with a population of about 23 million mostly residing in the major cities such as Brisbane, Melbourne, and Sydney. It has a relatively competitive tax rates on conducting business compared to other global economies such as UK and US. According to PWC (2012), the 2011 GDP of Australia was approximately 1.48 Trillion USD, and purchasing parity was estimated at 40,000 USD. Most of the labor force (about 75 percent) is concentrated in the service industry. With such statistics, Australia is the right place to set up the Gelato Bar. The county also provides several business structures when setting out the bar.
Business structures in Australia
There are several available options for business structure in Australia. This section will discuss their legal requirements, advantages, and disadvantages.
a) Sole trader
A business is said to run as a sole trader or sole proprietorship when the owner or his appointed person runs the business. In such case, the owner bears all the liabilities and obligations associated with the operation of the business, such as legal charges, payments of goods and services and employees. Legally, there is no difference between the trader and his business (Gerangelos 2013). The sole trader can operate the business with his name or with a name different from his or hers. In the instance when the business is run with a different name, the name has to be registered as the name of the business. Prior to 1st July 2011, businesses with names other than the owner’s were registered in the state or territory of their operations. After this period, these businesses are registered under the notional business name registration system that is operated by the Security and Investment Commission of Australia (ASIC). Further, the income and expenses of the sole-proprietor business are included in the proprietor’s income tax return form (Form 1040) after being recorded under tax form Schedule C (Davila 2015). The proprietor must also fill Schedule SE that calculates the annual self-employment tax that should be paid to the relevant authority. The proprietor must also pay the quarterly estimated tax payment on his income, which can be paid in fourth quarterly installments in 15th April, July, September and January.
This business structure is advantageous in that it is easy to establish and run since it has minimal legal and structural requirements. Further, this form of business presents the owner an opportunity to make quick and flexible decisions regarding the business. There is also the benefit of sharing full profits from the business; thus effort is directly rewarded. However, the downside of the business is the unlimited liabilities and obligations that can arise from the business (Farrar 2001). Unlike other forms of business where risks are distributed, sole-proprietors take full responsibilities of their debts and other legal requirements. This form of business also lacks sufficient funding and credit facilities, especially at the start level, since it depends on the credibility and creditworthiness of the starter.
In this structure, two or several individuals, entities, corporate or a combination (up to 20 partners) agree in writing to conduct business together. In so doing, the partners establish a key goal that they intend to achieve, which in most cases is making the profit from the undertaken venture. In such as set up, the decision by one partner binds all the parties, and withdrawal of a partner affects all the partners involved. From a legal perspective, partners have equal responsibilities, share profit or loss equally and equally liable to the operations of the business, unless there is a written memorandum (partnership agreement) establishing the roles of each partner (Miles & Dowler 2014). Similarly to the sole-proprietorship business, partners in a partnership venture have no separate legal existence with their business; thus implying unlimited liability from the business in terms of debts and other obligations. As such, partners can be sued and compelled to pay any liability arising from their business. The partnership may either be general or limited. General partners manage the business and are fully responsible for the debts and obligations that may arise (Welsh, Herzberg & Lipton 2013). Limited partners serve as investors, and their management and obligations are limited. The Australian State laws, laws of common and law of contract governs the running and operation of the partnership business.
Partnership business has various advantages and disadvantages. Some of the advantages include shared responsibility in the partnership business, whereby partners share risks, losses and obligations arising from the business. This form of business is also ideal in sourcing for capital and other finances needed to run the business. Such a business stands a better chance to secure loans from financial institutions compared to sole-proprietorship business. On the other hand, partnership business is quite risky especially in terms of personal liability. General partners are liable for obligations and debts that may arise from the business. Partners should have a clear Partnership agreement that outlines all risks, rights and responsibilities of the partner. As Tomasic (2002), the Australian government is also restrictive in registering partnership businesses since they offer no or minimal tax advantages to the government.
A company is a separate legal entity from the directors (who run the organization) and shareholders (owners of the company). The Corporation Act (2001) clearly outlines the exceptions to this general principle that exonerates directors from personal liability. The Act also establishes insolvent trading when the company is deemed unable to pay a debt, or run and trade at its financial status. Australian companies are regulated by the Australian Securities and Investment Commission (ASIC) and administered by the Corporation Act (2001). Some of the key responsibilities of ASIC are to ensure protection of consumers and businesses, ensure adherence to the law and maintenance of proper company records (Miles & Dowler 2014).
There are two common types of companies in Australia that is the company limited by shares and company limited by guarantee. A company limited by shares limits shareholder’s liability to their value of shares. This is the ideal business and trading outfit. Notably, companies limited by shares can either be public or private. Public companies (or publicly held companies) are those whose shares are owned by the public. According to The Corporation Act (2001), these companies should have a minimum of one shareholder to a limitless number. These companies have unlimited ability to borrow the public funds through avenues such as the sale of shares and IPO’s. The shareholders liability is limited to the balance of the company’s shares in the security market and stock exchange. The private companies (proprietary companies) do not sell its share to the public. Tomasic (2002) establishes that the minimum number of shareholders is one and the maximum is fifty. The share transfer is restricted as per the company’s Memorandum and Articles of Association. Private companies are divided into either small or large companies for the sale of accounting. Small companies are characterized by less than 25 million USD revenues and controlled entities, less than 50 employees, as well as less than 12.5 million USD assets value (Davila 2015). Such companies only prepare annual financial report and director’s report to comply with taxation laws and meet the ASIC requirements. Large private companies are characterized by over 25 million USD value of operating revenue and controlled entities, over 12.5 million USD value of gross assets and controlled entities and over 50 employees at the financial year end. These entities must prepare the financial report and director’s report at the end of financial year. The financial reports must be audited and sent to the shareholders.
The second category is companies limited by guarantee. Most of these companies are non-profitable such as charitable companies, religious organizations, and sports clubs. In these companies, member’s liability is limited to what member undertakes to contribute to the company. Other types of companies include Companies Limited by Shares and Guarantee, No Liability Company (formed for mining ventures only), Unlimited Companies, Foreign Company and Sole Corporations (Barry 2007).
Companies have numerous benefits. Farrar (2001) notes that they have better structures and avenues to fundraise compared to other business models. Further, they are a separate legal entity that can transact, sue or be sued, they have separate ownership and operation thus no conflict of interest and their life span is unlimited. However, they are disadvantageous in terms of high costs of setting up, high running and operation costs and layers of regulations such as the Corporation Act (2001) and ASIC regulations.
d) Joint ventures
In this arrangement, two companies or individuals conduct business together under certain agreements and conditions. Notably, the individuals conducting a joint venture remain legally separate and only come together to implement a given task, goal or project. According to Gerangelos (2013) the joint ventures have a clearly defined end and exit point once the task is completed. Unlike the partnership, joint ventures have specific rights and liabilities that are outlined in the venture. This business structure is regulated by the law of contract, common law and Corporations act if the venture is incorporated. Joint ventures in Australia are advantageous to the international corporate as they do not need incorporate Australian subsidiary to run the business in Australia. Notably, an international Corporation cannot conduct business in Australia unless through a legally established corporate, joint venture or registration as a foreign Corporation.
Summary and points to consider
Kylie and Imad you have a good chance to invest in Australia and be a part of the successful entrepreneurs in this land. The paper has discussed the ideal entry point and structures that Gelato Bar can adopt. However, from my research, the best model or structure is the company approach. The ideal company is a public company limited by shares, where the director can agree on the number of shares to own. This approach provides an array of advantages. First, it is easy to raise fund for the company through the sale of shares to the public and interested shareholders. The shareholders will benefit in terms of dividends that are payable by the end of financial year. Secondly, the business is a separate legal entity and the shareholders have minimal liability and obligation. As such, both Kylia and Imad are protected personal liability that can lead to being auctioned or sued for debts and other obligations. The lifespan of these entities is also unlimited and will outgrow the initial shareholders; thus, there is an aspect of continuity in case of any eventuality. Kylia and Imad, being the principle shareholders have equal rights during voting. They can also double up as shareholders and directors. In such case, they have additional responsibilities to the company as outlined in the Corporation Act (2001). Such includes the duty of care and loyalty to the company. They should also avoid conflicting interest and must ensure full disclosures as provided by CA (2001) sections 191-193 (Milles 2015). Directors are also liable to paying compensation in case they are aware of possible insolvency ad they do nothing about it.
It is our sincere hope that this overview is sufficient for your decision-making process. Further information, clarification or enquiries can be addressed to us for further assistance. Our firm is able and willing to take you through this process until the company is legally registered as provided for under various Acts and policies guiding the process in Australia.
Barry, R 2007, The Law Handbook, Redfern Legal Center Publishing, Sydney.
Carvan, J 2002, Understanding the Australian Legal System, Lawbook Co, Sydney.
Corporation Act 2001, Australian Government. Available 13 April 2014 on http://www.comlaw.gov.au/Details/C2015C00163
Davila, A 2015, The rise and fall of start-ups: Creation and destruction of revenue and jobs by young companies. Australian Journal of Management February 2015 40: 6-35.
Farrar, J 2001, Corporate Governance in Australia and New Zealand, Oxford University Press, Melbourne.
Gerangelos, G 2013, Winterton’s Australian Federal Constitution Law, 3rd Ed. Thomson Reuters, Prymont, NSW.
Miles, C & Dowler, W 2014, A Guide to Business Law 21st edition, Law Book, Australia.
Milles, R 2015, Miller's Australian Competition and Consumer Law Annotated, 37th Edition, Thomas Reuters, Rozelle DC.
Parkinson, P 2001, Tradition and Change in Australian Law, LBC Information Services, Sydney.
PWC 2012, Doing business in Australia An introductory guide, PwC, Melbourne.
Tomasic, R 2002. Corporations law in Australia, The Federation Press, Annandale.
Welsh, M, Herzberg, A & Lipton, P 2013, Understanding Company Law, 17th Edition, Thomas Reuters, Rozelle DC.
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