Fundamentals of Law (BL502) Business Structures

Fundamentals of Law (BL502) Types of Business Structure  Sole trader  Partnership  Corporation  Joint Ventures  Trusts  Franchise  Agency

Fundamentals of Law (BL502) Factors Influencing Structure Choice  Purpose of Business  Duration  Cost  Formation  Maintenance  Types of Asset to be acquired

Fundamentals of Law (BL502) Factors Influencing Structure Choice  Financial participation in:  Capital  Profits  Losses  Taxation  National or overseas activity  Liability for risk  Lending Institution requirements  Professional requirements

Fundamentals of Law (BL502) Sole Trader  An individual  Small cost to set up and maintain  Personally liable for all business debts

Fundamentals of Law (BL502) 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

Fundamentals of Law (BL502) 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

Fundamentals of Law (BL502) Corporations  Creatures of Statute  Come into existence when registered  Closely regulated by government  Independent legal entity  Different types

Fundamentals of Law (BL502) 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

Fundamentals of Law (BL502) 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)

Fundamentals of Law (BL502) 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)

Fundamentals of Law (BL502) 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

Fundamentals of Law (BL502) 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

Fundamentals of Law (BL502) 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

Fundamentals of Law (BL502) 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

Fundamentals of Law (BL502) 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

Fundamentals of Law (BL502) 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

Fundamentals of Law (BL502) 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

Fundamentals of Law (BL502) 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

Fundamentals of Law (BL502) 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

Fundamentals of Law (BL502) 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

Fundamentals of Law (BL502) 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

Fundamentals of Law (BL502) 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

Fundamentals of Law (BL502) 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

Fundamentals of Law (BL502) 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)

Fundamentals of Law (BL502) 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

Fundamentals of Law (BL502) 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

Fundamentals of Law (BL502) Good luck in the exams!