Appropriate Business Structure for James & Jane - Case Study Example

Dear Jane & James I am writing this letter to provide you information about the different type of business structure which is present and the most appropriate business structure that you should adopt keeping in mind the nature of business you are undertaking. Type of Business Structure There are different type of business structure which I am providing with so that you can understand the different form of business structure present and is as Sole Trader: This is the simplest form of business structure where an individual controls the business and has all right over all assets and liabilities arising out of the business. Setting a business as a sole trader would require selecting a business name according to the business registration Act of 2011; getting a TFN number from the tax office and getting an Australian Business Number (ABN) from the Australian Business Register. Since both of you are looking to set up a business together sole trader business cannot be set as there will be only one owner. Partnership: This is a form of business where two or more partners mutually agree to carry on business together or one acting for all. A partnership deed is entered into which mentions the clauses and terms of the agreement. This is a form of business which both of you can adopt as you can enter into a partnership and carry out the desired business. The profit and loss sharing can be determined by mutual consensus. Joint Venture: This is a form of business structure which is adopted by business which has a high risk capital. In this form of business people with different capabilities come together and combine their skills so that the common objectives can be achieved. A joint venture is usually agreed upon a particular venture and the joint venture ceases once the objective is achieved. The control over the business is determined by the joint committee and each member of the joint venture have an individual liability in case the business underperforms. This is a form of business structure which both of you can adopt but since joint ventures are carried out for a specific objective it is not recommended for a continuous business. Incorporated Associations: This is a non-governmental organization and is set up for the purpose of social, sporting and community activities and doesn’t look towards making profits. This form of business structure is created for a special purpose. This is a form of business structure which I don’t recommend you to adopt. Trust: This is another form of business structure where a trust is developed and the trustee controls the assets of the business for the benefit of the beneficiary. The trustee has legal rights over the use of assets and can use it to generate profits for others as well. This is a form of business structure which in not applicable for the type of business you are looking to undertake and is not recommended. Company: This is a form of business structure where a company is formed and is registered under the Corporation Act of 2001. The act provides right as the company has limited liability, has perpetual existence, can sue and can be sued and has the right to hold property. Two type of companies are formed one is private limited and other is public limited. Private limited companies do not issue shares to the general public where as public limited do. In case of public limited companies the shareholders are the owner of the company but in private limited companies the members are the owners and have limited liability as towards the company. Both of you can look towards creating a company as it would be beneficial to them and would reap long term rewards. At the present moment you can create a private limited company and in the future if the business grows then you can raise money from the public by converting the private limited company into a public limited one. Appropriate Business Structure for James & Jane The form of business structure which is appropriate for both of you is the company form of business structure. In the company form of business structure the most appropriate form of business structure would be private limited company. Forming a private limited will provide the following gains for the business Private limited company has limited members which ensures that member know each other which helps to exercise better control. The overall business is controlled by the owner of the business Increased flexibility is achieved with regards to the decision making as the management size is limited and all issues can be discussed so that quick decision can be taken. The organization doesn’t have to carry out a statutory meeting which thereby increases the opportunity to take better decisions and don’t have to undergo the different legal process The number of directors which a private limited company has is minimum two which would help both of you to become the director thereby ensuring that you control the business The liability of the members of private company is limited which thereby prohibits using personal belongings in case of a business debt. The Salomon v Salomon & Co Ltd (1897) brought forward the debts of the company are not the personal debt of the person as a company is a separate legal entity. This thereby limits the overall debt as the personal property cannot be used to pay the debt of the company. The person is only limited to the payment of debt in accordance with the amount that has been contributed by each member. This will thereby benefit both of you as your liability will be limited to the amount contributed to the business The business can be started immediately after receiving the certificate of incorporation. This thereby delays the mechanism of starting business and provides an opportunity to start business quickly. Despite the different gains which a private limited company provides there are certain limitations which you need to be aware of. Some of the limitations are as The business limits the transferability of shares as mentioned in the article which would thereby restrict the members to transfer their shares in favour of another person The number of members cannot be more than 50 which thereby limits the number of members The private limited company cannot issue prospectus to the general public and thereby cannot raise money from the general public through the issuance of shares which would limit the source of finance The private limited company is not quoted in the stock exchange and is not traded in the market Both of you can thereby look towards adopting the company form of business structure where you can form a private limited company. This is the most suitable form of organizational structure as their liability will be limited according to Salomon v Salomon & Co Ltd (1897) brought forward the debts of the company are not the personal debt of the person as a company is a separate legal entity. Further the form of business is a small form of business structure so it will be bounded under the statutory requirements of Section 181, 182 and 185. The statutory requirements are little for a small company which would thereby help both of you to carry out the business effectively. Reason to form a private limited company I recommend that you should look towards forming a private limited company over other form of business structure as it has advantage over other business structure and would help to garner better results. Some of the prime reason to form a private limited company is On the forefront a private limited company has a separate legal entity in compared to other form of business structure. The company as a result can sue and can be sued. Having a separate legal entity will ensure that the business is treated separately from its member thereby restricting the rights and liabilities of the members The private limited company structure limits the liability of the members to the amount contributed while forming the company. The Salomon v Salomon & Co Ltd (1897) brought forward the debts of the company are not the personal debt of the person as a company is a separate legal entity. This thereby limits the overall debt as the personal property cannot be used to pay the debt of the company. The person is only limited to the payment of debt in accordance with the amount that has been contributed by each member. This will thereby benefit both of you as there liability will be limited to the amount contributed to the business There is ease in running the business as every member is not required to carry out the operations. This will thereby help to ensure that the business can be carried out easily thereby helping to garner better results in the future Creating a private limited company will help to improve credibility of the members and the business. Since, the process of company creation requires different legal procedures to be carried out so it will help to ensure that the business is carried out after fulfilling all the legal formalities that the government has prescribed. Thus, forming a private limited form of company will be beneficial for both of you as it would fetch you long term rewards and provide an opportunity to ensure that the business can be carried out for long period of time. I hope that I have provided the details about the most appropriate form of business structure that you should adopt and it will act as a guide in solving in your queries. In case you need any other information you can revert back and I will look to provide all the information to assist you. Thanking You Yours truly Read More