Different Types of Incorporated Structures - Assignment Example

Types of incorporated structures and the roles of organisations in regulation of the company structures in Australia Name Course Instructor Date Distinguishing between the different types of incorporated structures and discussion of the roles that various organisations play in the regulation of the company structures in Australia Introduction Different companies operate on different structures. Every structure is distinct from one another and has its own drawbacks and benefits. Opting for a given structure is at the discretion of the businesspersons. The paper answers various questions relating to different types of incorporated structures and the roles that various organisations play in the regulation of the company structures in Australia. It as well explores on the differences between small and large companies. Question one 1: Different types of company structures Different types of incorporated structures do exist in Australia. Incorporation refers to the formation of a limited liability company or a corporation that has a distinct and separate legal business entity (Leo, Hoggett, Sweeting & Nicholson, 2012). There are a number of these business structures and they include corporations, s corporations, and limited liability companies. Corporations Corporations are companies controlled by a number of people that have shares that translate to their ownership stake in the company. These shareholders have a voice in the operation of the business as they participate through their voting rights. They have a right to dictate the running and overseas how the business is carried out. The shareholder receives profits based on the shares of stock they own in the company (Leo, Hoggett, Sweeting & Nicholson, 2012). The highest individuals with shares are therefore entitled to more profits compared to those with low shares. When it comes to raising of funds, the money is readily available compared to other structures such as partnership hence it is easier for them to get money as their starting capital. Corporations exist separately from the people that work therefore, there is no personal liability as the company continues operations even if the founder dies or retires. This is yet another difference between the corporations and other business structures. Nevertheless, for corporations to function, they require input from many people hence leading to act slow as decision-making requires consultation. They are as well bureaucratically as they must adhere to various organisational standards such as organising of annual shareholders meetings that makes them function at a slow pace. The corporations like any other business must pay taxes as well as other fees to ensure that they get a license and a go ahead with their operations. S Corporation These corporations have slight differences compared to the standard corporations. As opposed to other corporations the profits, tax deductions, and losses are passed to the shareholders rather than being absorbed as their own entity. Shareholders are required to declare their entire earnings on their personal tax returns as opposed to reflecting them through the entity/company. Limited Liability companies These kind of companies structures arose in 1977 and combine various elements of corporation with sole owned business and partnerships. Like corporations, limited liability companies, owners are not personally responsible for the debts as well as other liabilities (Leo, Hoggett, Sweeting & Nicholson, 2012). Therefore, such entities will continue operating even if the owner or the founder is dead. In comparison to the partnerships, these business structures are simple and easy to operate. They as well have few legal precedents controlling their actions and this leads to anticipated problems in their operations. This incorporated business structure is a separate legal entity and members have limited liability. They are as well more flexible as they provide options on the way they would like to be taxed. For instance, they can adopt flexible taxation, and or liability protection or creation of own management structure. There is also an option of a partnership style management whereby members are the ones operating the business. There is also a standard corporation style of management structure also known as manager managed. In this format, the manager runs the business operations. The company under this structure of LLC can as well be run as a partnership similar to corporate officers and board of directors. Comparison of LLC to corporations, it is evident that corporations have existed for quite a long period than LLC and therefore, they have been tested in courts and proved reliable. Capital rising is more traditional in corporations compared to LLC, as sell of corporate stock to raise equity capital is more straightforward. It is therefore evident that these different business structures in Australia have a number of differences. They are even though formed to help members to invest; they differ in their operations in terms of their income generation, tax implications, formation among many others. The laws that govern their formation as well as distribution of revenues vary across the companies. It therefore, becomes vital to be acquitted with these company structures to make decisive decisions pertaining to the kind of structure to consider adopting to help run a business. Question 2: Differences between large and small companies A number of metrics are employed to measure whether a company is small or large such as the total sales within a particular time, the number of employees that work for the company, the value of assets among others. The metrics used for measurements sometimes do vary from one country to another One of the differences between a small and large company is assessed on their legal structure. The legal structure of an entity determines the way a business is taxed, managed and whether owners are liable for the debts in the business. In most of small business, they start either as sole proprietor ship or as partnership (Leo, Hoggett, Sweeting & Nicholson, 2012). These businesses owners therefore pay their income taxes for the profits from the business as their personal income tax returns and as well are liable for the business debts. In case the owners run bankruptcy, the business closes. On the other hand, large companies operate as corporations and pay taxes separately from the owners. Shareholders are the owners of the corporation, vote to appoint the executive board members, and do not directly manage the businesses. Therefore, analyzing the legal structure will help to identify whether a business is small or large. Another way is to consider the way the company finances itself. The way business raises its money to fund for its new projects and operations differs between small and large company. Small companies receive their funding from personal savings of the owners, gifts or loans from friends and family members and small business loans from banks. Well-established medium sized companies may get financing from investors and venture capital firms. While large companies raise their money through sell of shares of stock to the members of the public or through sell of corporate bonds (Kobras, 2010). The amount of money required to run and finance operations or activities of large company is huge in comparison to the small companies. Furthermore, to identify small and large companies it is important to look at the market niche of each. For instance, small company will focus on a niche market as opposed to larger corporations that offer more products and services to a wider range of customers. Small companies may deal in single product that they sell to specific market while large companies have a wide market span as they create new markets while offering products that are more new and services. The capacity of a company to produce products and offer its services rests on its capability to serve the markets. Appropriate and enough machinery must be in place to ensure that the targeted markets are served adequately. A small company in Australia together with the entities it controls is required in any given year to meet a number of things. One of them is that its consolidated gross operating revenue should be less than $25 million and or, the value of the consolidated gross assets at the end of the financial years and its entities it controls need to be less than $25 million or the number of employees should be less than 50 (Leo, Hoggett, Sweeting & Nicholson, 2012). On the other hand, a large proprietary company in any particular financial years is required to have met at least two of the following tests (Kobras, 2010). One of them is that the consolidated gross operating revenue together with its entities it controls should be $25 million or more. Second is that the value of the company consolidated gross assets and the entities that it controls must be $25 or more and lastly the company must be having more than 50 employees at the end of the financial year (Leo, Hoggett, Sweeting & Nicholson, 2012). In addition, a small proprietary company is expected to prepare its annual financial report including statement of cash flows, annual profit and loss statements and balance sheets as well as directors report concerning the operations of the company the options issued and dividends paid if the shareholders that have more than 5percent votes or ASIC directs them to do so. On the other hand, it is mandatory for a large company to vanish the financial statements as well as directors’ report which must be audited and then provided to the shareholders of the company. Question 3: The roles that organisations play in the regulation of companies in Australia There are many organisations in Australia charged with role of regulating the operations of companies in Australia. These organisations have specific roles and duties they perform to ensure that companies adhere to the set standards and rules. These organisations include, the Australia parliament, Financial Reporting Council, the Australia Accounting standards Board (AASB), the lobby groups, accounting bodies, Australian Securities Exchange, Institute of Directors and Australia Securities and Investment Commission (ASIC) (Leo, Hoggett, Sweeting & Nicholson, 2012). Others include Auditing and Assurance Standards Board, Australia Financial Security Authority, Australian Prudential Regulation Authority, Financial Reports and Analysis Center, Insolvency notices, Financial Reporting Council and standard Business Reporting (SBR) (Australia Government, 2014). Financial Reporting Council (FRC) is one of the organisations that play a key role in regulation of companies in Australia. It overseers and acts as an advisory body to AUASB and AASB. The body also determines broad strategic directions for the companies and as well monitors priorities for the company as well as appoints competent members. It also helps in monitoring the audit independence in Australia to ensure that the companies adhere to the expected laws. It as well monitors development of international accounting standards and ensures that the standards of AASB are aligned with the international standards. Australia Accounting Standards Board (AASB) is also instrumental in ensuring that it develops conceptual frameworks and accounting standards that helps companies to report their financials and manage their accounting standards. International Accounting Standards Board (IASB) is also instrumental, independent, and private funded body that sets accounting standards that companies need to abide by their reporting to ensure correct and accurate reporting (Leo, Hoggett, Sweeting & Nicholson, 2012). Financial Reporting panel (FRP) is another corporate regulator established in 2006 under CLERP9 to help resolving of disputes between the ASIC and companies on issues relating to accounting treatment in financial reports (Leo, Hoggett, Sweeting & Nicholson, 2012). Australia Securities Exchange (ASX) is another organisation that helps in the regulation by administering listing rules. It as well played a crucial role in helping influence the movement towards AASBs adoption of IASB standard. The organisation is as well instrumental in providing vital information on the performance of various stocks listed on Australia stock exchange. Investors have an opportunity to make decisive decision based on this performance and the advised of the organisation. Australia Securities and Investments Commission (ASIC) is also very important organisation in regulation of corporations in Australia. It helps in the administering of the corporate acts, promotion of confidence with the financial systems and in monitoring the implementation of the various corporations acts (Australia Securities & Investment Commission (ASIC), (2014). It as well investigates, and prosecutes those companies that breach various acts. The organisation is as well responsible for ensuring that law is administered effectively, and with less procedural requirements. Conclusion There are noticeable differences in the business structures in Australia. These structures include corporations, S corporations, limited liability companies, and trusts. Corporations are established to achieve various objectives and are governed by different laws as discussed. It is as well important to understand the differences between small and larger companies to ensure that one makes informed decisions when it comes to decisions pertaining to investments. Differences between small and large corporations can be understood by evaluating, the number of employees, total returns, legal structure, and financing, reporting requirements among many others. Companies as well must be regulated to ensure that they adhere to the set rules and standards. In Australia, there are various organisations mandated with the responsibility to regulate corporations such as ASIC, ASX, Parliament, and Financial Reporting Panel among many others. References Australia Government. (2014). Financial Regulation. Retrieved from: http://australia.gov.au/topics/economy-money-and-tax/financial-regulation Australia Securities & Investment Commission (ASIC), (2014). Our role. Retrieved from: http://www.asic.gov.au/asic/ASIC.NSF/byHeadline/Our%20role Kobras, S. (2010). Business structures in Australia. Retrieved from: http://www.schweizer.com.au/articles/Business_Structures_in_Australia_%28SK001254 45%29.pdf Leo, K., Hoggett, J., Sweeting, J., & Nicholson, G. (2012). 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