The Formation of a Company in Australia - Essay Example

30 November Company Formation of a company in Australia is governed by the Australian Securities and Investment Commission. A company is a juristic person and is having a distinct legal entity .It is having an intricate business setup and will have higher cost for incorporation and reporting formalities as compared to other forms of business. The procedures, rules, reporting and accounting needs for companies are governed by the Corporations Law. Since it is a juristic person, a company can hold, sell or buy property, be sued or can sue and engage in contracts in its own name. A company is having a perpetual existence. Director may be held personally accountable for any debts when a company is not able to clear its debts. (Penrith&Seal352). Under Australian Corporation Law, two types of Australian companies namely public and proprietary / private which have limited liabilities and there are also foreign companies and no-liability companies. Public company can go for public issue whereas proprietary companies must have two members and not more than fifty members and not allowed to go for public issue. (Penrith&Seal351). Benefits: A company is having a superior access to capital markets and financing viabilities. Shareholders are not accountable for the debts of the company. Drawbacks: Little say for shareholders in the day-to-day running of business. Intricate tax reporting commitments. Sole Trader: If one wants to run his business as a sole trader, he can control, trade and administer all features of his business, including whether to have employees or not. Benefits: There are lesser formalities associated in establishing the business. The business set up is less expensive to establish. The owner can have full control and administration over his business. The owner can enjoy the whole of the revenue generated by the business after meeting expenses and taxes. If a business is sold, the owner can have all the after-tax advantages with him. Drawbacks: The owner has to pump in his personal finance and may have restricted access to debt. No sharing of business losses and debts. In case of insolvency, the owner may lose his personal assets like house, vehicles etc. (www.ato.gov.au). A Partnership A partnership form of business is normally established by two or more persons (either individuals or companies) to transact business for profit as joint title-holders. In Australia, this form of business is administered by the Partnership Act of specific state and terms of such partnership agreement should be in writing. Unless the partnership agreement states otherwise, each partner has the analogues liabilities, rights and powers as any other partner of the business. For debts incurred in the partnership business, each partner is jointly accountable for the same. Limited liability partnership can be devised in Tasmania, Queensland and Western Australia. (Penrith & Seal 2008 p352). In Australia, in the absence of a partnership agreement, the partnership business will be regulated by the Partnership Act of the particular territory or state which will codify how a partnership should govern or administer its affairs. Majority of the partnership agreements is either boiler plate templates or tailor made agreements to cater their own requirements. The well drafted partnership agreement will contain the details of profit sharing, partner’s salaries if any, banking account, partner’s capital, partner’s drawing, termination or change in the partnership and partner’s voting rights. (Penrith&Seal334). Advantages of Partnership form of business Any two individuals can form a partnership business and there is no requirement for formal legal filing for starting a partnership business. Capital for the business can be sourced easily as partners can pump in their investment by way of a share of their capital to fund the business. Disadvantages of Partnership business A partnership business will come to an end on the death of a partner else a redrafting of the partnership agreement is needed among the surviving partners. For the debts incurred by a partnership firm, the partners are severally and jointly liable for the same. In other words, a creditor can sue each partner for the aggregate debts of the partnership. Since, my friend is having only £20,000 to invest, I will advise him to choose sole trading. If he is able to get more number of investors , I will advise him to go for proprietary / private company form so that he can have more capital and raise debt finance so as to target wealthy clients and further company form is having a lot of advantages as it is having separate legal entity , limited liability etc. Answer to Question 1 (b) A company is a juristic person and has a separate legal identity. Since it is a juristic person, a company can hold, sell or buy property, be sued or can sue and engage in contracts in its own name. In Solomon v Solomon& Co Ltd, it was held that even though all the shares of the company were held by Solomon and his family, still it was regarded as a separate legal person as it was properly incorporated under the Companies Act. Hence, it was held that debts of a company were its own and members cannot be held liable for the company’s debts. (Walker113). In Macaura v Northern Assurance Co, the plaintiff sold all his timber stocks to the respondent in return for the shares of the company. However, the timber was stockpiled in the estate of Macaura and Macaura, in his own name insured the timber. Fire engulfed the timber stock, and insurance company refused to pay the insured amount as Macaura did not have an insurable interest in the timber. Contention of Insurance Company was agreed by the House of Lords. Since a company is a juristic person, it is the company who owns the asset and not its shareholders (Macaura). (Noussia84). Separate legal personality has many outcomes like perpetual succession, limited liability, to own property in its name, to initiate court actions on behalf of the company and in case of crime and liability, a company can be held liable. It was held in Foss v Harbottle, if a company encounters injury, and then the majority of members have the privilege to initiate a court action. A wrongdoer cannot be dragged to the court by a single member of a company. (Boyle 1). Works Cited Boyle A J. Minority Shareholders’ Remedies. Cambridge: Cambridge University Press, 2002. Noussia, Kyriaki. The Principle of Indemnity in Marine Insurance Contracts: A Comparative Approach. Tokyo: Springer, 2007. Penrith Deborah & Seal, Jodie. Live & Work in Australia. Sydney: Crimson Publishers, 2008. Walker, Gordon R. Commercial Applications of Company Law in New Zealand. New Zealand: CCH New Zealand Ltd, 2005. www.ato.gov.au . 6 March 2009. Choosing the Right Business Structure-Sole Trader. 30 November 2010 >http://www.ato.gov.au/businesses/content.asp?doc=/content/00182084.htm&page=3&H3=&pc=001/003/039/001/008&mnu=43567&mfp=001/003&st=&cy=1 Read More