Advice to the Client on Structuring Business - Assignment Example

Advice to the Client on Structuring Business

Part 1: Questions with client’s answers

Question 1: Are you capable enough to start the new business by partnership mode?

Answer: Starting a new business whether through partnership or any other mode necessitates of bearing the qualities like determination, courage, integrity, and energy. In addition, while starting a new business with any specific structure, it must have the desire to derive favourable and/or positive outcomes and likewise obtain several significant benefits, In this regard, one of such outcomes and benefits can e reckoned as attaining maximum level of profits. With this concern, I must say that I do possess these qualities, which make me potential enough to conduct the new business successfully through partnership form.

Question 2: Why do you want to start your new business in a partnership mode?

Answer: I want to start the new partnership business for attaining maximum profit at the end of every financial year and likewise ensuring long-term sustainability by distributing profit in a proportionate way amid the respective partners of the stated business. More importantly, my desire to start the new business is that it requires low start-up costs with sharing distinct sorts of responsibilities equally and minimum workload for each partner involved in performing business operation.

Question 3: Under what circumstances your new business will exist?

Answer: Based on my understanding, the new intended business through partnership will exist under the conditions of making relevant acts in a repetitive way instead of relying on a single investment and ensuring that the business partners have mutual rights. Apart from this, the other circumstances based on which the new business will be performed through partnership mode are presence of minimum regulations of the existing government, no application of taxes on profits earned by the business partners and ongoing conduct of business even if one of the partners get financially bankrupt and/or insolvent.

Question 4: What factors you will consider for maintaining better association with the business partners?

Answer: Several factors need to be focused upon for establishing, maintaining, and developing better interrelation with the potential partners of the new business. For instance, in order to derive better business results, I would like to ensure that such partners do act faithfully while performing their individual business actions, and serving the interests in a mutual way rather than concentrating on an individual perspective.

Question 5: How will you share profits as well as remuneration with your partners?

Answer: For my newly intended business, the obtained profits will be shared amid the partners in an equal manner without being entitled towards remuneration.

Question 6: What will be the relationship of the partners particularly with the outsiders i.e. the Third Parties?

Answer: The relationship of business partners specifically with the third parties can be duly measured through several ways. One of such association of the partners with the third parties can be considering them as the firm’s agent and likewise performing various relevant business and/or operational transactions. Such relationship of the new business partners with the outsiders can be measured in the form of determining their individual liabilities towards clearing obligations as well as debts. The partners of the new business with that of the respective third parties or the outsiders must maintain the relationship in a much soothing way for adding more figures of investment and/or capital to the existing partnership business.

Question 7: What will you do if any of the partners become insolvent in terms of finance and thus is declared bankrupt?

Answer: If a partner is declared as bankrupt, such partner is likely treated as a creditor to other financially strong partners. In addition, in case of clearing all the debts and other outstanding as well, such existing potential partners are likely to perform the stated activity from the profits being earned by them in the respective years of business operations.

Question 8: According to you, what are the methods through which the dissolution of partnership in relation to your new business can be witnessed?

Answer: I can say that there are several ways through which dissolution of partnership businesses can be witnessed. Some of the ways can be dissolution through notice or termination, dissolution by court and most importantly the acts being entitled amid the partners. These acts can largely be determined as mutual agreement, any sort of change witnessed in membership structure, close of business project and termination of fixed partnership term among others. Such situation of dissolution might eventually be emerged under the condition of raising conflicting situation among the business partners.

Question 9: Why don’t you like to start your business in sole trading or joint venture?

Answer: I don’t like to start my business in sole trading or joint venture mode, as this require huge investments and the responsibilities to be performed are also deemed to be quite wider as compared to that of partnership structure.

Question 10: If your partnership business would go big in future, will you change to company business structure?

Answer: I must say that if my partnership business goes well and gets big in future, I can change this mode to company business structure for expansion and likewise attaining superior level of profitability and developing overall operational productivity as well.

Part 2: Relevant law

Based on Partnership Act 1891 of Queensland Legislation, partnership is as association persisting amid the individuals who intend to perform a specific business in common with the objective of accomplishing maximum profits (State of Queensland, 2013). As per Section 5 of the Partnership Act, there are certain conditions based on which a partnership business exists that support the respective members in attaining their predetermined targets, which predominantly encompass increased profitability, reduced operational costs, and ensuring long-term sustainability. Such aforementioned conditions can be reckoned as the intention to make profits that will be shared amid the respective business partners and focusing much on the acts being performed by the partners instead of relying on making single investments. Apart from these, the other condition can be reckoned as considering any new business to be a form of occupation and trade along with profession as well (Australasian Legal Information Institute, n.d.). One of the cases i.e. Smith v Anderson (1880) can be duly considered while elaborating the main facet of a partnership business is to represent repetition of activities, rather than making a solitary investment. In such case, the partners do not hold any mutual right along with obligation, but still constituted an association, as they were noted to serve their common individual interests as per the desired level with the intention of accomplishing adequate levels of profit (Adams & Nehme, 2015).

From the perspective of assessing the relationship of the partners amid themselves while conducting the new business, Section 24(1)(a) of Partnership Act 1891 of Queensland Legislation asserted that such partners are liable for sharing profits and losses uniformly particularly during the business and the time when the same gets dissolved due to any issue. On the other hand, Section 27(1)(f) of the stated Act proclaims the fact that the partners being entitled to any new business are not provided remuneration, instead they allocated with the profits earned from the respective business (Queensland, 1994). According to Section 27(1)(e) of Partnership Act 1891 represents the fact that every partner of a particular business is eligible to participate in the management procedure, ensuring the formulation of a better governance control in future. On the other hand, the other section i.e. 27(1)(h) of the stated Act implied that any sort of relevant ordinary matter pertaining to a partnership business can be decided with the help of taking into concern majority decisions. This eventually helps such kind of businesses to generate better level of financial control by making optimum utilisation of the accessible resources by the suitable partners of a specific partnership business (Australian Taxation Office, 2005).

A business partnership can be dissolved through number of ways that entail expiry of the partnership agreement, death along with declaration of financial insolvent by one of the partners, and the issuance of a court order (Australian Government, n.d.). Therefore, in the context of explaining Australian based law, there lays the presence of several legislations based on which a partnership firm may get dissolved. In this context, Section 36A Part 5 of Partnership Act 1963 provided certain circumstances under which a partnership firm is dissolved specifically in Australia. These circumstances fundamentally comprise expiration of the scheduled partnership agreement and making of such an agreement by the respective business partners for a fixed term, which got lapsed due to financial or any other related constraint. On the other hand, Section 38 Part 5 of Partnership Act 1963 affirms that the dissolution of a partnership firm may also happen due to bankruptcy and death of any of the partners. This is mainly owing to the reason that with the declaration of financial liquidation or impoverishment of any one partner of a specific business, the debts level is likely to increase, imposing crucial threat towards its sustainability and likewise results into dissolution. Certain suitable legal regulations are identified to be persisted in Australia with respect to the fiduciary duties that need to be performed by the members of a new partnership business with profit motive. In such case, Section 33 of the Partnership Act 1891 of Queensland provides a better understanding to the fact that the involved partners in any business render true as well as fair accounts, which related to partnership matters. Also, in alignment with this legal guideline, Section 23 of the stated Act revealed that any partnership property should be executed for serving partnership purposes only, which in turn, ensures utmost transparency in the entire business procedure (Australian Capital Territory, 2015).

It will be vital to mention that apart from following varied legislations or legal frameworks while conducting a specific partnership business, there are certain business structural requirements that can help to set up the new partnership business successfully. In this similar concern, such requirements are identified to be Australian Business Number (ABN), Business Name Registration, and Trademark Registration. From a conceptual standpoint, ABS is regarded as an application procedure, which is managed by an authority named Australian Taxation Office, while starting a new business irrespective of any structure i.e. partnership or sole proprietorship. However, it can be noticed that the Australian Securities and Investments Commission (ASIC), which also denotes as one of the pre-requisites of initiating a new business, typically manages the Business Name Registration. This registration procedure can be made possible in Australia both in offline and in online modes. Finally, IP Australia manages as well as controls Trademark Registration, which takes at least 7 months to generate relevant outcomes and the costs being associated with the same are deemed to vary based on the intended business structure and mechanism (The State of Queensland, 2015). The above stated requirements are also quite relevant for the stated partnership business that help in setting up a new venture in Australia and likewise attain predetermined targets in future.

Apart from the partnership business structure, relevant law are also being present in Australia with respect to company mode. For instance, in order to incorporate a company in Australia, Section 117 of Corporations Act 2001 is quite applicable. Most crucially, with respect to certain uncertain risks that is likely to be faced while conducting a business through company mode, certain relevant law that are being present in Australia can be duly followed. For instance, in relation to the uncertain risk of corporate veil or shield, Section 588G and Section 588v relating to Corporations Act 2001 are deemed to be applicable, stating that a company is duly considered to be a legal entity, which is detached from its respective Directors as well as shareholders. Under this law, the case of Salomon v Salomon can be taken into concern, wherein the court arrived into a decision that an individual who is entitled into controlling a company entirely can still undergoes a contract (Anderson, n.d.).

In relation to other uncertain risk factor i.e. fraud on minority, a major proportion of the shareholders are likely to use their own votes for promoting their self-interests in Australia. This can be related to the case of Gambotto v WCP Ltd, wherein expropriation in minority shares or rights can be witnessed and no expropriation takes place when conflicts mainly arose amid majority and minority interests. With respect to statutory remedy for oppression, Section 232 with respect to Corporations Act 2001 is applicable, stating that an individual can raise voice in opposition to oppression only when if members’ interests are affected and treated as unjustly biased. With regards to the case of liability for insolvent trading, Section 588G of Corporations Act 2001 states that the Director of a company is mainly liable for insolvent trading, only if the company is not able to clear debts during the time of falling due (Duffy, 2008).

Recommendations to the client

Advices will be provided to the client as a legal advisor about how to set up a new partnership business structure in Australia without making any sort of comment regarding tax assumptions and their implications on such a selected business arrangement. Therefore, it must be mentioned in relation to the above stated context that from the perspective of legal personality and corporation law, the new partnership business needs to enter into a contract at the initial stage and providing individual rights along with obligations amid the respective partners. Therefore, according to Section 115 of Corporations Act, a maximum of 20 members are authorised to get involved in a partnership business (1Australasian Legal Information Institute, n.d.). In terms of business incorporation, the client needs to follow a procedure under Section 117 of Corporations Act. As per this particular Section, the new partnership business will require lodging an application specifically to the responsible authority of ASIC in particular. In such application, the client needs to incorporate certain important elements including proposed company’s name such as ABC Limited, rules, detailed names of the office holders as well as the initial shareholders or members, registered office address and the lodgement charge as well. After the approval of ASIC, the new partnership business may obtain a Registration Certificate at the initial conduct of the business (WIPO, 2015).

The client may duly consider a general sort of partnership business structure, as with the help of this constituent, the main facet of partnership i.e. earning extensive level of profits is substantiated as per the expectation level. In terms of rationale, it can be affirmed that the client may adopt general partnership business agreement, as this does not require anything to put into writing and/or file documents that are to be submitted to any responsible local or state authority (Wasserman, 2010).

It is thus strongly believed that by the adoption and execution of a general partnership business structure, the client do not have to pay additional administration and accountancy fees, which was deemed to be evident while considering the trusts business arrangement previously. This might certainly contribute into lessening operational costs, thereby raising profitability levels of the new partnership business at large in terms of enlarged profits. Considering this adverse situation, which the client has already experienced, it can be recommended that setting up a general business partnership arrangement will enable the client to derive favourable and/or positive outcomes and obtain several significant benefits. Such outcomes and benefits can be duly measured in the forms of simplifying the taxes, evasion of management related issues and reduced legal liabilities. Apart from these, the other outcomes along with benefits are deemed less paperwork and minimum cost expense (Sergi, 2015).

If the client desires to change his partnership business mode to company or sole trader for ensuring enlarged expansion of the business, then there will lay the requirement of acquiring an Australian Business Number (ABN) and registering the business at the initial stage. Despite of having certain limitations within the sole trader and company modes that are related to excessive set up costs and amplified responsibilities to be performed, it will be advisable to the client to continue the business in the partnership mode, as this will help to control the operational expenses at large in future.