Business Structure: Partnerships, Cooperatives, and Companies - Coursework Example

Business Structure Name Institution Date Business Structure Introduction Business structures taking the form of partnerships, co-operative and companies differ by ways of their formation, management and ownership. According to Hanrahan et al (2013), business structures must be registered before they are allowed to operate legally. Process of registration for each of the structure also differs in terms of procedures and requirements for registration. This essay compares the three business structures in terms of their merits and demerits, formation, alternatives or types, capital, regulation and management or governance. Part A Partnerships Partnerships have an advantage in flexibility such that they are easier to form and manage compared to companies. Losses of a partnership just like responsibilities and profits are shared between partners and therefore one party does not bear the entire burden. Partnerships involve more brains in decision making and support. However, partnerships have disadvantage in decision making since it is time consuming due to consulting more people. This might result to disagreements and in case of a partner’s death; its continuity might be affected. Unlimited liability in case of ordinary partnerships is a disadvantage. Level of personal taxation in partnerships is higher than companies (Business Victoria, 2013). The Australian regulation requires that parties are between 2 to 20 visit registrar’s offices and fill registration form stating name of company, partner detail, business nature and location and witnesses. A partnership agreement is then prepared and submittedto the registrar which involves some payments. Next is verification of documents which include partners’, partnership documents andprofoma accounts reflecting taxation and other account details. They should state basis for dissolution of the partnership. Lastly, all partners are required to visit the registrar’s office and it takes three days for this to be formalized. A license for business operation and certificate of the partnership is then handed to the partners. Partnerships are dissolved by law through a court order by a process referred to as liquidation, for instance if partners are involved in significant crimes that may provoke closure or bankruptcy. Partners may agree to end the business. Creditors must first be paid in order of preference after preparation of the partnership financial accounts reflecting current asset ownership and liabilities. The partnership is then wound up after any remaining profits or losses are shared among partners in ratio of sharing (Hanrahan et al, 2013). The Australian legislation on partnership provides general, family, incorporated limited partnerships and limited partnerships. General partnerships involve equal management responsibilities for all partners who usually are covered by unlimited liability provision against partnership debt and obligations. According to the Australian partnership Act of 1958, limited partnerships are registered under Consumers Affairs Victoria (CAV)and include general and limited partners. General partners are involved in running of partnership including transacting business on behalf of partnership while limited partners are passively involved while their liability to partnership obligations is limited to contributions. Incorporated limited partnerships involve highly risky capital ventures and must also be registered with CAV. Family partnerships involve members of a common family. Dissolution must comply with Australian partnership Act of 1958 section 41. Initial capital in partnerships is majorly contributed by partners from their personal savings. Small business loans from banks and financial institutions can be sought depending terms of loans in the institutions. Some partnerships have been started from grants and donations from friends, family and other sources. Partners can decide to add more partners to increase their capital base. After starting the business, profits can be ploughed back to the business as capital although it will not be referred to as initial capital. Partnerships in Australia are regulated by the partnership Act of 1963. Section 6 and 7 of the Act defines partnership and requirements of all partnerships in Australia. Part 3 of the act provides for partners relations with other parties who have interest in the firm such as liability by partners. Part for defines relationships between partners which partners must consider while preparing the partnership agreement since it states different duties and responsibilities of partners. Section five provides for dissolution of a partnership where it ceases to exist. Sections 37 to 40 state circumstances on which the partnership might be dissolved (Fletcher & Fletcher, 2007). Internal management of partnerships is done by the partners themselves depending on the agreement as stated in the partnership agreement. Partnership agreement governs the partnership internally. Generally, all partners are equally responsible in case of management of the partnership. Unlike companies where a board of directors is elected, partners agree on who will be involved in conducting business transactions and decision making for the partnership, for instance, general partners in a limited partnership. General partners must have unlimited liability (Partnership Act section 67(1). Professional communications might be used to the partnership advantage in management. Co-operative The advantage of co-operatives is easy formation in terms of registration and legal formalities and requires only ten adults. Liability in co-operative societies is limited to members’ capital contribution, meaning personal property cannot be used to settle co-operation’s debts. They involve democratic management by elected members and assured continuity despite death of a member. However, co-operative might have limited financial resources having only member contribution and loans from government banks.Another demerit is the risk of insufficient management since only members manage it. Government interference is also a major problem for co-operatives (Mancuso, 2013). First step in forming a cooperative is deciding which form the business structure will take, whether it will be a distributing or a non-distributing co-operative. A formation meeting is held with an acting chairman and secretary to present a disclosure statement that qualifies section 16 provisions and rules approved according to section 17. Application form is signed by the authorized members and initial directors elected. An application for the proposed cooperative must be sent to the registrar by a person elected in the meeting. After the registrar approves the disclosure statement and rules, the next step is registration where a certificate for registration is issued. Winding up of a co-operative might be by the court or voluntary by members or creditors where assets are reclaimed, sold and proceeds paid to creditors. Members might get a portion after creditors are settled and the co-operative ceases to exist(Latimer & CCH Australia Limited, 2011).  Cooperatives according to section 12 of the cooperatives Act may take the form of distributing or non-distributing cooperatives. Distributing cooperatives involve share capital and the rules allow distribution of returns. Non distributing cooperatives have rules that impede them from extending returns in surplus, a concept that does not apply in partnerships and companies where profits are distributed unless agreed otherwise. Capital in cooperatives is raised from member contribution through subscription. Cooperatives also borrow money from the public through fundraising or lending institutions. Borrowing may also include debenture holders who are ranked in the creditors’ priory. Section 255 provides that co-operatives can acquire compulsory loans from members which is payable at an interest. Financial accommodation is provided under restrictions by the Act. Co-operatives in Australia are regulated by the Victorian Cooperatives Act of 1996 and the law of corporations. Registration of cooperatives must also be approved by the Consumer Affairs Victoria (CAV). Co-operatives Act of Western Australia (WA) for 2009 also has provisions for co-operative capital units. The cooperative Act of 2009 has addressed amendments in the previous provisions on cooperatives. Section 6 of the Act provides the principles of cooperatives and part 2 illustrates how cooperatives are formed, registration and conversions. Part 4 gives cooperatives guidelines on memberships(Hanrahan et al, 2013). Management of cooperatives as provided by the cooperatives Act of 1996 is carried out by a board of directors. The directors are elected by cooperative members who are usually not less than five as per the Act requirements and duties are defined to them by the Act in terms of liabilities and rights to remuneration. However, all members and shareholders are required to actively participate in the operations of the cooperative. Internal management is on the basis of democracy, applying the one man one vote principle in voting. Company A major advantage for companies is limited liability for members and in case of a loss, only their capital will be taken. Companies are quite accessible to loans from banks and financial institutions unlike partnerships. Continuity is assured for companies unlike in partnership since it is a separate legal entity from members. A disadvantage of companies is the high risk exposure to operations compared to other business structures including initial business operations. Companies require more legal formalities during formation. Companies luck privacy of their operations and accounts since publication is a requirement for them (Mancuso, 2013). Step one for forming a company involves registration by submission of documents after an idea is settled on. A memorandum of association is submitted stating details of the company including its name and location while the article of association is a statutory regulatory requirement that all companies adhere to. Another step is attaining consent from elected interim directors who must fill consent forms and sign. This list is then submitted to the registrar of companies. A statement of nominal share capital must be submitted together with a declaration of compliance form signed by an advocate. When the registrar’s office approves of these documents and operation, the company is granted legality to operate. A company can be wound up or liquidated subject to the court, by the court and voluntarily by members or creditors. Creditors must be paid in order of priority and remaining balance distributed to owners (Latimer & CCH Australia Limited, 2011).  A company can take the form of a proprietary or limited company where a maximum number of owners are fifty and must be non-employees either limited by shares share Capital Company that is unlimited. Chartered companies are formed when the authorities issue a charter to people who intend to carry on a business as a chartered company.A statutory company is formed by a specific Act of parliament primary as a means of conferring on it some powers which would not be available if it were registered under the companies Act. At formation statutory companies have no shareholder and there initial capital is provided by the treasury.There are alsoregistered companies which are formed by registration under the companies Act. Companies raise capital from a combination of equity and debt. Companies issue shares to the general public for subscription. Proceeds acquired from the subscriptions are capital used to finance company operations. Equity financing results to ordinary shareholding and holders of the shares become owners of the company. Debt involves borrowing from the public, other firms and lending institutions such as banks. This includes preference shareholders and debenture holders. The latter are paid first before dividends are extended to owners (Hanrahan et al, 2013). Companies in Australia are regulated by the corporations Act of 2001. Volume 1 of the Act illustrates the basics of a company, providing a definition in chapter 2B and registry details in chapter 2A and 2C. Chapter 2H of volume 1 provides for shares and 2D illustrates employees and officers details. Sections 283AA to 601DJ provide for debentures, financial reports and audits, lodgments and registration schemes. Chapter 5 involves external administration of companies while chapter 5A explains how registration transfers and deregistration of companies are done. Companies are managed by the board of directors who are usually appointed by shareholders, who are owners and are entitled to remuneration. The memorandum of association governs a company’s internal operations. All registered companies must have directors and normally there must be at least two though one suffices for a private company. The directors have fiduciary duties to act bona fide to the company interests. First directors are appointed initial formation of the company and can be re-elected in the first Annual General Meeting (AGM) of the company. The corporations Act of 2001 provides that, company directors can be personally liable in cases of negligence or fraud. A person adjudicated to be bankrupt by a competent court cannot be a director(Latimer& CCH Australia Limited, 2011) Part B 1. A partnership business is the most appropriate business structure for Bio Breads operations set up in Australia. The partnership Act of Australia requires that between two to twenty people can form a partnership on agreement, a provision which Bio Breads meets since it has only four members. A partnership suits the interest of Liam, Nisha, Jing and Saul who prefer a small business structure that will acquire supplies from the suppliers. The parties involved in this business also resist the idea of developing into a multinational corporation which is likely to occur in case of a company (Hanrahan et al, 2013). General partnership will best suit Bio breads since the partners intend to share their profits equally and are equally responsible in operations of the bakery by way of their active participation in baking and selling the produced bread. This will require that both have unlimited liability. Registering as a partnership will enable them to expand and meet the demand. Partnerships provide for equal sharing of responsibilities and profits or losses that arise from business operations. The four parties involved in Bio breads ownership have choose to share their profits equally from selling bread among them. since they are the bakers and also do selling by themselves, they think that they require financial returns like compensation for their work instead of employing other parties and have to pay salaries. However, laws of partnership also allow partners to hire another party for compensation to carry out activities who must be paid and partners must actively participate too. Since they are also students, they can hire someone to sell or do baking for them and pay the person (Fletcher & Fletcher, 2007). 2. Bio Breads operations cannot operate as a co-operative since the co-operations Act requires members to be at least five before registration and the business has only four parties to it, Jing, Nisha, Saul and Liam.Generally, having to register as a company or cooperative, Liam, Jing, Saul and Nisha will have to make major adjustments which might be extremely involving and might also affect operation of the current business compared to a partnership. Although a cooperative is easier to register, it is expensive compared to registering a partnership (Western Australia Numbered Acts, 2009). According to the company Act, public companies require listing and private companies are big in size or have potential of growth to bigger businesses. Interests of the four parties are on small operating business and do not suit descriptions of companies. Registration of a company or a cooperative might be less convenient for the parties especially because they are students and operating a business which is demanding of their time since registration requires more formalities and procedures compared to partnership. A company will require governance by a board of directors or a sole contractor in case of some situations which the parties are not interested in. They baking themselves and having a board of directors will mean having more members in the business (Hanrahan et al, 2013). Conclusion Partnerships, cooperatives and companies differ in setting and formalities. Partnerships are likely the easiest to form since they involve less regulation and formalities. A case study of Bio breads is more appropriate being a partnership considering the number of members, their interests and provisions of the Australia partnership Act. References Hanrahan, P., Ramsay, I. & Stapledon, G. (2013). Commercial Applications of Company Law. (14 thed). Sydney, NSW: CCH . ISBN: 978-1-922042-61-3 Mancuso, A. (2013). Incorporate your business. Berkeley, Calif: Nolo. Fletcher, K. L., & Fletcher, K. L. (2007). The law of partnership in Australia. Pyrmont, NSW: Lawbook Co. Latimer, P. S., & CCH Australia Limited. (2011). Australian business law 2012. North Ryde, N.S.W: CCH Australia. Western Australia Numbered Acts.(1963).PARTNERSHIP ACT 1963.Australian government. Business Victoria.(2013). Partnerships. Australia, State government victoria Western Australia Numbered Acts. (2009). Co‐operatives Act 2009 (WA) (NO. 24 OF 2009). Australian government. Read More