Fundamentals of Law (BL502) Business Structures. Fundamentals of Law (BL502) Types of Business...

Fundamentals of Law (BL502)

Business Structures


Types of Business Structure Sole trader Partnership Corporation Joint Ventures Trusts Franchise Agency


Factors Influencing Structure Choice Purpose of Business Duration Cost

Formation Maintenance

Types of Asset to be acquired


Factors Influencing Structure Choice Financial participation in:

Capital Profits Losses

Taxation National or overseas activity Liability for risk Lending Institution requirements Professional requirements


Sole Trader An individual Small cost to set up and maintain Personally liable for all business debts


Partnerships Still used by many small businesses Required by some professions Not a separate legal entity Partners have unlimited and vicarious liability for

debts of partnership Unsuited to risk taking Limited in size to 20 partners Allow pooling of resources and assets Allow income splitting


Partnerships Governed by State law To be a partnership (s5 Partnership Act)

Carry on a business In common For profit

No formalities Partnership Act provides the terms of the

partnership agreement if there is no agreement


Corporations Creatures of Statute Come into existence when registered Closely regulated by government Independent legal entity Different types


Corporations (cont.) Limited Liability

Salomon v A Salomon & Co Ltd (S&OR p 300)

Separate Entity Lee v Lee’s Air Farming (S&OR p 301)

Piercing the corporate veil


Corporations (cont.) Has all the powers of a natural person (s124 (1)

Corporations Law) Able to hold property Able to sue and be sued

Acts through agents (sections 126 & 126 Corporations Law)

Continues in perpetuity Has additional powers relevant only to corporations

(S&OR p298)


Corporations (cont.) Types:

Proprietary Company (S&OR p298) Public Company (S&OR p299) Company limited by shares (S&OR p299) Company limited by guarantee (S&OR

p299) Unlimited companies (S&OR p230) No liability companies (S&OR p230)


Corporations (cont.) May also be created, and regulated, by:

Associations Incorporations Act Co-operatives Acts Industrial Relations Acts Acts creating Government organisations Special Acts of Parliament


Joint Ventures Definition:

Association of persons (natural and corporate) Agree by contract To engage in a common undertaking (usually ad

hoc) For joint profit By combining resources

Not governed by specific legislation No registration requirement


Joint Ventures (cont.) Differences with partnerships

Liability is individual No authority to bind one another Receive profits separately

Used in: Mining Property development Manufacturing Research and development


Franchise Contract whereby franchisor provides

product, trade name, ingredients, know how and\or whole business format to franchisee for a number of years

Usually franchisee’s activities are strictly controlled by franchisor

Regulated by a variety of laws and a mandatory code of conduct


Franchise (cont.) Business can benefit from

an existing successful name management support greater marketing penetration and tried and tested business system

Problems: Lack of control Inadequate support from the franchisor Misrepresentations about worth of

business


Trusts Old type of structure originally used to protect

family assets and provide for maintenance of widows, orphans etc.

Definition A person Holds the legal estate in property For the benefit of another


Trusts (cont.) Parties

Settlor Trustees Beneficiary (need not sign)

Governed by Trustee Acts, common law and equity

Not a separate entity Not governed by contract


Trusts (cont.) Separates ownership and control from the

person who benefits from the enterprise The Trustee-beneficiary relationship is a

fiduciary relationship The Trustee, not the beneficiary, is liable for

the debts Corporate trustees are often used Tax advantages – income splitting


Trusts (cont.) Trustees

Can be more than one Can be replaced New ones can be appointed A trust will not fail because there is no

trustee Can be the Settlor or one of the

beneficiaries but cannot be the sole beneficiary


Trusts (cont.) Trust Property

Real property Personal property May include a business

Equity imposes a duty to administer the trust property for the benefit of the beneficiaries

Beneficiaries can bring an action to force the trustee to administer the trust properly


Trusts (cont.) Beneficiaries

May be for a charitable purpose Otherwise, must be for a specific person or

a class of people Must be able to be identified with sufficient

certainty Need not all exist at the time the trust is

created Beneficiaries interest in the trust may be

fixed or an expectancy


Trusts (cont.) Duration

Trusts cannot last indefinitely At common law, no longer than a life in

being plus 21 years By statute, 80 years (Perpetuities and

Accumulations Act 1968 (Vic)) Types of trust

Discretionary trusts Fixed trusts Unit trusts


Agency Definition

An agent Has legal authority To affect the legal rights and obligations Of the principal

A person cannot always act personally Agencies are usually created for the making

of contracts in commercial situations It is a fiduciary relationship


Agency (cont.) Agent or independent dealer

International Harvester v Carrigan’s Hazeldene (S&OR p 239)

Use of the word “agent” is not conclusive

Indicators of agency Who keeps the profits? Is the agent paid a commission? Is the agent required to account to the principal? Potter v Customs & Excise Commissioners (p239)


Agency (cont.)Functions of an agent A person who has no authority to make

contracts on behalf of a principal may be an agent if he has authority to Receive money on behalf of the principal Pay money on behalf of the principal Make representations for which the

principal will be responsible Receive representations on behalf of the

principal


Agency (cont.) A principal will be liable for the acts of an

agent that are committed within his real or apparent authority

Authority can be express Implied Ostensible Arise from estoppel Arise from necessity


Good luck in the exams!

Fundamentals of Law (BL502) Business Structures. Fundamentals of Law (BL502) Types of Business...

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