New Business Venture for Han - Assignment Example

Case Study Name of Student Student Number Institution Course Code Name of Lecturer Date of Submission Question One: Bob’s Case Study (10 marks) Facts to the Case Bob is a sole trader owning a very successful business name ‘Bling Bling’ specialising in custom made jewellery. The Business is insured with Lucky Charm Ltd against fire, theft and the like to the value of $5,000,000. After five years of operation, Bob incorporated his business structure and registered a company with ASIC named “Bling Bling” Pty Ltd. In January 2016, Bob enters into a sale contract with Bling Bling Pty Ltd purchasing the business from him. For the purchase price, a substantial block of shares as fully paid, and debentures for a further substantial sum secured by a charge (security) over all of the company assets were issued. Bob later caused the company to take out workers compensation insurance policy with Safety Ltd after incorporation. Issues at stake involve a theft that took place at the premises in February resulting in loss of stock valued at $500,000 followed by the injury to Bob in the store resulting in substantial medical costs. Further, the business has gone under and is place under a liquidator due to the Global Financial Crisis. In line with these facts, the liquidator has refused Bob’s claim against Bling Bling Pty Ltd in respect to enforcing of the charge security interest. Subsequently, Safety Ltd has rejected Bob’s medical bill compensation, as well as Lucky Charm Ltd has refused the insurance claim to recover stolen goods. 1a) Bob Enforcing Charge [Security Interest] against Bling Bling Pty Ltd From the sale agreement, Bob was issued with a substantial sum in security interest over the company assets. However, with the circumstances of the company being placed under a liquidator, enforcing the charge security interests appears to have challenges. Seeking interventions to resolve the standoff is necessary as per the Australian corporations’ principles. In line with the case of Salmon v Salomon Co Ltd1, Bling Bling Pty Ltd is a separate entity to Mr. Bob. Further, having been given the debentures by the limited company, which in this case is under receivership, the charge security was valid and thus, Mr. Bob has a valid claim to enforce against the company as a secured creditor. The fact that there are debts amounting from the company’s insolvency; that does not make Bob liable for the company’s debts and his charge security cannot accessible based on those facts.2 The Bling Bling Pty Ltd acquired full entity upon inception and thus, cannot be held in together with Bob in respect to debt liability.3 Thus, Bob is entitled to his security interests based on the fact of being a secured creditor at the expense of the financial state and obligations of the limited company. The Australian Securities and Investment Commission Act 2001 (Cth) and the Corporations Act 2001 (Cth)4 mandates ASIC to enforce charges with respect to the investment of property and assets in Australia. The two Acts overrides all States’ and Territorial jurisdictions when it comes to resolving investment issues in Australia. The state of the business is that it already under and placed under the watch of a liquidator. Thus, the enforcing of the security interest will majorly rely on the fact that Bob is a secured creditor enjoying substantial debentures and benefits in the company. Further, based on the fact that Bling Bling Pty Ltd and Bob as a creditor are two separate entities, Bob is at liberty to make a claim and enforce charge of security interest. 1b) Bob Enforcing Claim against Safety Ltd for the Payment of his Medical Bills From the case scenario at hand, payment of workers compensation is legislated through the Workers Compensation Act 1987, the Workplace Injury Management and Workers Compensation Act 1998 and the Workers Compensation Regulation 2010. In respect to Part 8 of section 44 (2)5, the employer makes a notification to the insurer of the nominal insurer of the workplace injury to effect compensation. Although each state and territory in Australia has relevant Workers and Compensation Act, the legislative basis for the Commonwealth Government’s compensation scheme is the Safety, Rehabilitation and Compensation Act 1988. The underwriting company for the workers compensation is mandated to pay effectively the benefits towards the medical bills of Mr. Bob based on the terms and conditions of the policy. Insurance companies as entities under the ASIC and thus, based on the facts presented by Bob in respect to his medical bills claim, the commission is at liberty to invoke its powers and investigate the viability of the claim. Under the ASIC Act (Part 2 Di 2) (s 13 (6)), the commission is mandated to evaluate the contravention of consumer protection provisions. Bob as an employee of Bling Bling Pty Ltd is entitled to the benefits entrenched in the workers compensation for the insurance policy with Safety Ltd. With the facts and legal standards indicated thereof, it is pertinent to state that, Bob is at liberty to claim compensation for the medial bills incurred due to the injury acquired at the workplace. The employer will notify Safety Ltd, that is, the liquidator being the acting manager to the company as it under receivership. The review of the claim follows with the underwriting company evaluating whether the claim satisfies the terms and conditions of the insurance policy underwritten. With a confirmation of the claim, the underwriting company will make a payment towards the benefit of the Bob. In essence, the compensation is to take back the worker to his former state before the theft took place. Irrespective of jurisdiction, workers compensation in Australia is provided whenever it occurs in the course of employment. The various jurisdictions have set out special provisions for worker’s compensation. In this regard, the claim for medical bills payment is paramount for Bob with the employer doing the right thing of notifying the underwriting company for compensation failure to which Bob can seek legal redress to allow the court give orders for the liquidator to initiate the claim. Question Two: Han’s Case Study (20 marks) What Type of Business Structure would Best Suit the Needs of Han? Case Overview Han is a sole trader operating a successful restaurant business in Sydney. He has acquired the following assets from the profits: a home in Ashfield, a BMW car and an investment property in Hurstville. The wishes of Han are to expand his business with a view that his income and income tax are rising. Han has a business structure of opening a new yum-cha restaurant in Chatswood and has $200,000 and requires an extra $300,000. He is single and wishes to marry and have children in the future. To successfully establish and maintain a successful business, it is imperative for Han to have a clear analysis of his financial needs and future obligations. This will be followed by creating a stronger foundation to achieve the set life-long goals. In line to these facts, the following advice is crucial to come up with a credible, workable and rewarding investment for his future financial stability. Best Business Structure The convenient business structure would be a partnership establishment for a yum-cha restraint as he envisioned. Establishing a business where one has experience or is aware of the dynamics and the requirements in the operations help one break even at ease.6 In essence, coming up with a business structure in line with restaurant industry would be a very good idea for Han but in partnership with a person who will pump in capital to actualise the idea. Being an established restaurant owner makes Han experienced in the field of the hospitality industry, hence no need for technical expertise or orientation to bring up the business. Thus, the idea of opening a yum-cha restaurant is incredible since Han has immense experience in the operation of a restaurant. Nevertheless, the need for getting extra $300,000 for capital seems to be an impediment that requires borrowing of money. In this regard, creating a partnership offers a solution to the capital, as well as there exist procedures to be followed and brings up other hosts of benefits as discussed below. Requirements for a Partnership Business Structure Partnerships are governed by Partnership Act 18957 in Australia. The creation of a partnership involves mutual understanding between partners to work together in the same business enterprise to make shared profits.8 In context, the law of fiduciary obligations regulates the business partnership based on mutual trust and confidence of partners. The partnership is created under the partnership agreement making it a contractual affair. The contract is termed as a partnership deed and sets out the rights and obligations of the partners. Nevertheless, partnerships can be established even without any express oral or written statement. Benefits of Engaging in a Partnership Partnerships ensure acquiring of more capital with each party coming in with a share of start-up capital. Getting into a partnership would ensure getting the required capital start-up as the other party would come in with more capital for consolidation.9 This would bring in more capital without the risks of interests rates, coupled with more human capital being injected by the other partner for management and operationalization of necessary requirements to make the business efficient. Being a sole trader, getting into a partnership gives Han similar advantages with respect to partners to the business are treated as individuals for income tax purposes.10 Thus, engaging in this business with a second party does not obligate Hans to the tax of the second partner. The only variance arising from the sole trade business structure is the aspect of income splitting with more parties to the profits in the business earnings. However, with respect to management and bringing in skills and expertise, a partnership enables diverse ideas and experiences helping in overall business running.11 In respect to tax implications arising from the partnership itself, the partnership is not a separate entity from the owners and thus no income tax is levied to the business structure.12 Every partner pays tax from their share net partnership income just like in the sole trade business structure where losses reduce the income of the owner. Subsequently, profits and losses in the partnership will be brought back to the individual partners’ tax returns. The business affairs of each partner in the business are private, and hence no conflicts of interests. Further, the operationalization of the business structure is flexible with easy ways of changing the legal structure if circumstances change in the future.13 Nevertheless, there is the need for getting into the business with a flexible mind based on the few demerits in line to this business structure. Risks of disagreements are common in partnerships and thus, there need to work in harmony and have consultative discussions to make decisions concerning the business. Further, in the event of one partner leaving, valuing of all assets has to be done which is a costly affair. Finally, each party is jointly liable for the debts arising from the partnership business. Conclusion In conclusion, based on the need for a new business venture for Han, and consideration to his capital needs, engaging in a partnership is the most efficient investment. This will ensure consolidation of capital needed to establish the yum-cha restaurant. Actualising the restaurant idea is imperative based on the background of Han being a sole trader in a successful restaurant and hence, will bring in a host of experience in respect to the technical expertise needed in the industry. The benefits of the partnership are immense and the legal requirements being not complex and relates to the sole trade structure. This will help Han in respect to adjusting and subsequently realising better returns for future financial growth. Reference List Articles/Books English, L.M., 2006. Public Private Partnerships in Australia: An Overview of their Nature, Purpose, Incidence and Oversight. UNSW Law Journal, vol. 29, no. 3, pp. 250-262. Harris, J., Hargovan, A. & Adams, M., 2016. Australian Corporate Law, (5th edn.). London: LexisNexis/Butterworths. Hay, N., BuchBach, V. and Ohlin, J., 2006. Improving Public Private Partnerships in NSW. UNSW Law Journal, vol. 29, no. 3, pp. 328-333. Legislations/Cases Andar Transport Pty Ltd v Brambles Ltd (2004) 206 ALR 387 at 403-4; (2004) HCA 28 at [50] Australian Securities and Investment Commission Act 2001 (Cth) Australian Securities and Investment Commission Act 2001 (Cth) s 1(2)(g) (ASIC Act) Partnership Act 1895 (59 Vict. No. 23) Safety, Rehabilitation and Compensation Act 1988 Salmon v Salomon Co Ltd (1897) AC 22 House of Lords UK. Workers Compensation Act 1987 Workers Compensation Regulation 2010 Workers Compensation Regulation 2010. New South Wales Government. Workplace Injury Management and Workers Compensation Act 1998 Read More