Setting up a Business - Essay Example

Setting up a Business – assessment Initiating or setting up a business requires multi-faceted and comprehensive analysis and assessment of different variables and parameters. It is widely believed by entrepreneurs that a novel idea mixed with passion and a dream would most possibly convert it into a real running business. However, besides internal factors such as business idea, good governance &management skills and availability of capital and resources, there are external variables such as local regulatory environment and legislation, market conditions, macroeconomic situation and law and order situation which plays a crucial role in success of a business. First and foremost of the external factor is the requirement of gaining thorough and deep understanding of legal environment and institutions. Better understanding of local regulations and statutory requirements facilitates an entrepreneur in gauging the conduciveness of local environment for establishment, sustainability and evolution of a successful business. A business faces various types of external threats such as unfair practices of competitor, theft of business idea and other market imperfections. The legislation facilitates the creation and sustainability of market for the businesses as; it provides security to the business &consumers and standardizes market and controls macroeconomics variables. Hence, deeper understanding of laws and statute is one of the primary steps of establishing a business.Depending on the internal and external constraint it facilitates in deciding what type of business structure to set up. Furthermore, it also provides clear understanding of how the role of each stakeholders can be utilized to the optimum level and how different agents can interact together to maximize the holistic benefit. Especially, the unambiguous and clear knowledge and of role of owner / proprietorsin each business structure plays a significant role in deciding which business structure to choose. In order to start up a business of T-shirt manufacturer with a friend, following are the basic business structures to be considered in light of internal constraints and suitability in terms of legal requirements, liability limitations, filing of tax returns and other advantages and disadvantages. Sole proprietor Sole proprietor is regarded as one of the simplest structures of business. This individual is the one who owns the business enterprise and takes a full responsibility of the business and all the risks involved. As per law, he bears sole responsibility of meeting business obligation to its creditors and has limited liability. He / she is the sole investor and daily manger of the business. However, as a main advantage it requires minimum legislative work. Normally this type of business is mostly used for small enterprises such as carpenters, barbers and retail shop owners. Sole proprietor offers advantages such as minimal legislation and simplicity in establishment and management. However, one of the disadvantages would be an unlimited personal liability for assets and for negligence by employees errors. As per Australian law, a sole trader may need to register for GST and have a Business Number, in accordance with the type of enterprise. Also, in the case where business name is different from the proprietor’s name, the business must be registered.1 Partnership Another type of Business to be considered when starting up a business like T-Shirts is partnership. Partnership is perhaps the most common form of business organization in which a small business is carried on. Furthermore, it is the most relevant business structure to set up with a friend. In contrast to company, it has no separate legal entity. In some occasions, however, law refers to the word ‘partnership ‘as an entity. Since partnership is not a separate entity for most of the purposes, it would require the participation of all partners for many legal transactions. Additionally, each partner is exposed to unlimited liability and for the debts of the firm. The rights and obligations of the partnership are governed by a partnership agreement which may be made in writing, verbally or by implication. The structure, righst & obligation and terms and condition of the partnership is subject to partnership agreement which is devised in under the partnership Act. 2 The duties of the partners are normally stated in the partnership agreement, which would be for the benefit of the entity, selling T-shirts, and ensure conflict free and smooth execution and operation of business. One of the main advantages of partnership entity is the combination of complementary combined labour, expertise, financial resources, and management skills of two or more partners. Consequently, there is a wider range of knowledge, skills and contacts. Although the partnership mostly exists are equally divided of profits and losses, one of the partners known as a silent partner may be uninvolved in the business management but provide the resources to the entity.3&4 Partnership agreement can be made orally; however, Australian Taxation Office recommends and insists on written and formal partnership agreement. The basic outline of the partnership agreement encapsulates identification of the parties / partners, equity invested, criteria for distribution of risk and profit, procedure and process of conflict resolution and authority by each partner to enter intro contract etc. 3&4 Company It is a common form of business organization where group of people, institution and other companies raise capital to form a new company which is an entity in itself. The primary feature of the company is characterized by limited liability status and recognition of separate entity status. In Australia, company law is a derivative of UK company code is governed by the Corporation Act of 2001 which was formulated by the Australian Securities and Investments Commission (ASIC). The companies are regulated by the ASIC under section 5B of the Corporations Act 2001.5 It basic feature encapsulates separate legal entity status; greater access to finances; management of the entity being different from the owners and the system of perpetual succession meaning that life of business is not dependent of the life span of a particular owner. 5 Based on the nature and structure of the business, there are following different types of company covered under the Corporation Act, 2001: Trust Thirdly, a Trust is based on a relationship between two or more individuals as one party or individual holds property on the trust for the other. It is regarded as one of the complex business structures due to the ancient body of the law. The mechanism of the trust is that the holder of the property is called trustee, and he has legal title with no beneficial interest in the property. The other individual who holds the benefit of the property is called as beneficiary. The expression of the trust would be established if one individual sets aside a property for the benefit of another to be nominated as deed of settlement. The duty of trustee consists of maintaining the interest, no profit without beneficiary’s authorization, primary act in the best interests of the beneficiary under the trust. This type of business is governed by a Trustee Act each jurisdiction has a Trustee Act, but much of the law relating to trusts is common law and equity.6 Hence, considering that my business would be in partnership with my friend we will form equal profit and liability sharing partnership business which shall be based on our written Partnership Agreement. In order to maximize the utilization of our skills, my friends will be managing the operational side of the business whereas I will be responsible for the sales and business development side. We have decided to name the products as “Part-Ts”. These T-shirts will be a special design, most pertinent to be worn during night parties. The unique feature of these T-Shirt will be that the colour of the front will be of different from the back of the Ts. These T-Shirt will have unique lining with the material which shall “Glow in the Dark”. Intellectual Property Rights In order to make our product distinguishable and recognizable for our prospective customer we will register our brand name, logo, trademark and the uniqueness of our product under Intellectual Property Rights. Intellectual Property Right is authority to safeguard and control creation of minds. Intellectual property (IP) refers to ownership of new concepts, ideas and innovation which are derivative of one’s intellect. IPs are the set of intangible assets such designs, logo, brand name, copyrights etc. Intellectual property law grants the exclusive ownership right to the creator. In Australia’s legislation there is a comprehensive legal framework which safeguards and protects innovative ideas and designs. It provides the entrepreneurs with exclusive right to own and control their creation and mental valuable assets. IP establishes the ownership of ideas such as brand name, trademark, logo etc and the law ensures that the rights are not being infringed. The law also provides standard symbols to let others know that we have legal rights the intellectual property as ® symbolizes registered trademarks.7 Due to its nature, an exhaustive definition of IP is hard to ascertain. However, the law facilitates by providing inclusive list of legal rights that are generally recognized as Intellectual Property Law “Article 2(viii) of the Convention Establishing the World Intellectual Property Organization states that: ‘intellectual property’ shall include the rights relating to: literary, artistic and scientific works, performances of performing artists, phonograms, and broadcasts, inventions in all fields of human endeavor, scientific discoveries, industrial designs, trademarks, service marks, and commercial names and designations, protection against unfair competition, and all other rights resulting from intellectual activity in the industrial, scientific, literary or artistic fields.”8 Trademark & Logo Trademarks get strong protection under the Australian legislation. The trade mark protection is achieved through payment of relevant registration fees on the basis of which protection is guaranteed for investing in the development of goodwill. The strong legislation of the Trademarks is due to the fact that it provides incentive to the businesses to differentiate their products and design from that of competitors. Consumers also gain from this differentiation through trademark and logo as it highlights the various unique characteristics of the products for their convenience. 8 Furthermore,in establishing Trademark and logo for “Part-Ts”, with respect to law, the benefit is appliedand reaped after the investment hasbeen made and the reputation of our product has actually been developed. Hence, the law besides providing incentive to differentiate the products from the products of others also provides incentive for investment. 8 Designs A design which defines the appearance and tangible association with the consumer is one of the critical factors for the commercial success. Designs are significant both in industrial and commercial terms as they mostly have both functional as well as a visual aspect. In case of “Part-Ts”, the shirt has both functional uniqueness in terms of it quality and aesthetics in terms of glow in the dark outline and contrasting colour sides. The designs are protected by IP law for the temporary period, which in Australia is of maximum ten years. In Australia, designs which have been applied industry wide are not protected by the IP law. The designs law, like trade mark protection, is subject to a system of registration. In order to maintain balance between creating an incentive to produce new designs and preventing indefinite monopolization of functional designs, Independent creation of the same or similar design is not permitted. In addition, Australian law also provides protection for the confidential information. Besides law confidential information with commercial or other value are also supported by equitable practices in order to prevent it from being acquired, disclosed or used by others where an obligation of confidentiality arises. The imposition of such obligations provide benefits to the businesses as it encourages people to invent, create, innovate and discover valuable and useful information and share it with public and business partner for maximum commercial and business development without risk of losing control of it.8 Bibliography 1. http://www.wecancreate.com/blog/legal-issues/start-business-australia-choosing-business-structure-sole-trader/ 2. Partnership Act 1891, http://www.legislation.sa.gov.au/LZ/C/A/PARTNERSHIP%20ACT%201891.aspx 3. Partnership Act 1892, http://www.austlii.edu.au/au/legis/nsw/consol_act/pa1892154/ 4. Corporation Act 2001, http://www.asic.gov.au/asic/asic.nsf 5. Trustee Act 1936, http://www.legislation.sa.gov.au/LZ/C/A/TRUSTEE%20ACT%201936.aspx 6. 28th September, 2011 http://en.wikipedia.org/wiki/Intellectual_property 7. http://www.ipaustralia.gov.au/understanding-intellectual-property/ownership-of-ip/ 8. Mark J. Davison, Ann Louise Monotti, Leanne Wiseman, Australian Intellectual Property Law, 2008, Camobridge Read More