Forming a Partnership - Essay Example

Business Structure Name Course University Lecturer Date Part A: Essential Characteristics of: Partnerships As Campin, Barraket & Luke (2012) observes, ppartnerships business structure involves two or more people who together enter into a business. The legal definition of partnerships views it a relationship that subsists between people carrying on in common, a business with a profit view. Precisely, all the members own the business, directly control all its issues and the money made by the business belongs to all. Forming a partnership derives various advantages including its relatively easy nature to set up, has less paperwork , is inexpensive, less government regulation and interference compared to Company, offers more privacy and no need to hire accountants, lawyers and other consultants as compared to Company. Its broad management base allows combination of a pool of expertise, sources of capital tax planning advantages and shared risk. Partnership derives its main weaknesses/disadvantages from the fact that more than one person controls the business. In case one of the partner with the consent of another contact with a third party, al other are bound to the contract regardless of whether the partner had permission from other partners. Real prospect such as liabilities and debts from the bad decisions made by one or some partners will be faced by all. If a partner pulls out after selling some business assets, the remaining partners are liable to share the debts. Consequent similar action by one of the remaining partner can add the debt burden. The business can lack continuity; have divided authority, frictions and clashes, limited size with 20 maximum numbers of people. Incidence of death and bankruptcy ends the partnership, difficult in ownership transfer, adding partners and any decision to leave is costly and time-consuming. Steps for forming First, the partners need to decide the name under which to run the business; either all their names or actual business name. Secondly, regardless of the name under which the business operates, the partners need to get an Australian Business Number for the Partnership as well as Business Tax File Number. ABA can be obtained online after applying through ATO within 30 minutes (Lowry, 2012). Dissolution Dissolution of partnership starts by paying all the creditors, sell off any remaining assets as well as resolving any other issues remaining. Voluntary dissolution follow by an agreement by all partners decides on their own to end by either a vote or simple agreement. Involuntary occur by court order due to insolvency or due to a filed case by a partner blocked by other. Requirements Limited partnership has to be separately registered with State’s Fair Trading Business & Consumer Affairs department. One partner has to be general and the other limited. General partners can be limited but no limits to limited partners. Capital rising can effectively be done among partners but there are restrictions when applying for partnership financing compared to Company. As Fittler, Lawyer & Lawyers (2012) points out, Australia is less regulatory as from 2012, partnership can register their business with Australian Securities & Investments Commission, but for limited partnership, they must register with their own State’s department. Partnership Agreement probably insures how the business and partners will operate and sets boundaries on individual practices. Companies A company is taken as a legal entity that is separate from its stakeholders or the owners as well as those who manage its affairs or directors. The shareholders and directors are therefore not liable for company’s debts. There are however some provisions in Corporations Act 2001 (Cth) that exempt the directors from the general principle of directors personally liability for debts (Campin, Barraket & Luke, 2012)). According to Defining Small Business (2012), the company is governed by the Australian Securities and Investment Commission (ASIC), the regulatory body that protect the consumers as well as businesses to ensure the companies operates in accordance to the law, reports their activities and maintain the proper records. One category of companies limits the shareholders to their shares value and can either be a pubic of private company. There are advantages as a person’s is limited from liability for company’s debt and taxation rates are favourable. It is easier to transfer ownership as one can sell shares to another party, shareholders can be employed. Apart from wider skills base, the company access capital by applying finances from different institutions in an easier way. Disadvantages arises from the fact that, company is expensive to establish and maintain due to paperwork required and cost of the parties involved in day-to-day running of the business. ASIC requires every company to provide returns and annual returns. Company’s financial affairs are always public and it can be very costly to wind it up. The directors’ activities are also closely monitored by ASIC (Lowry, 2012). Steps for forming The owners select a company name and a state to operate the business. The owner selects a management team, the number of stock shares and corporate kit. The owners have to designate an agent registered with a nationwide network to service the company needs as it grows. There are broad and a lot of flexibility which are available to change the company formation as it grows. Dissolution Campin, Barraket & Luke (2012) further demonstrates that, when a company completes its dealings, there are steps taken to dissolve it in an official way. Formal action involves assistance by legal representation or by a tax professional to avoid consequent lawsuits and liability. Written dissolution permission is needed from company owners. Contact has to be made to the Secretary of State which authorized the company, the Internal Revenue Service and State’s Franchise Tax Board need to be notified. The federal and the state’s governments have to be satisfied about the outstanding taxes. Other needs include; tax clearance, rescinded licences, bogus name permit and seller permits and alerting the federal and state employment tax agencies. Other parties in connection have to be informed to receive an official dissolution certificate from the Secretary of State. Financing Most company start when shareholders borrow money from friends or financial institutions. The company can also use its own funds but as it grows, additional capital is obtained from past earnings if there is any. They can sell securities to raise money and the purchasers become part and owners of the company. Operating at state level is least complicated and regarded as cost effective. Co-operatives A corporative is a registered legal entity which requires at least a minimum of five shareholders with equal voting rights. The concepts of delegation, democracy and sharing are applied to benefit the members and members are expected to share and participate responsibly in running the organisation. The advantages are derived from the fact that, registration is cheaper compared to a company. Shareholders have equal vote in general meeting. The shareholders, employees, managers and directors have no responsibility for debts unless there are cases of fraud, negligence or recklessness. Members less than age 18 are allowed though they cannot be directors or vote. There are quite a number of disadvantages including a requirement for a minimum of five members, limited distribution of profits to shareholders. Shareholders with greater involvement and/or investment compared to others still have one vote. The members are also actively involved as well as requirement for an ongoing education programs to the members. The nature of controlled financial returns on investment might not attract many members. Regulations As argued in Defining Small Business (2012), directors are nominated or elected by members with specific duties as defined by common law. Cooperative Act and Corporation Law apply to cooperatives and any change of rules must be passed in a general meeting. The director is required by common law to act in good faith, care, diligence, avoid conflict of interest, unauthorized use of cooperative information or property, taking unauthorised benefits, act honestly and with power granted. Steps for forming A cooperative starts by developing a business idea, holding public meetings with members and combining a feasibility study for member and a market survey that are preliminaries for registration. A business plan, set rules and formation meetings are requirements. A co-operative education is desirable after which the cooperative is registered. Dissolution There is a procedure which regulates dissolution of a cooperative. Articles of dissolution are delivered to the secretary of state expressing the board of directors’ wishes by a majority vote. They have to include the data of incorporation, confirm that any amount paid by members has been returned, all debts are paid. Requirements According to Campin, Barraket & Luke (2012), there are minimum structural options required in Australia considering the importance of cooperatives and the role they play in the society. However, co-operatives are limited when it comes to ways of raising capital. They therefore retain profits or borrow against future earnings but as they do not have equity shareholders, they cannot t access prime capital. Australia has eased the regulatory that specifically regulate cooperative operations in various jurisdictions. All States have adopted similar approach to cooperative registration, management and operations. Cross-border business barriers have been removed enabling cooperatives to have a competitive position as they are administered according to similar procedures and policies. There are guidelines for cooperative governance, directors’ duties and qualifications. There are simpler changes that are set using risk management model and principle of democratic control. Directors are controlled by the empowerment of based on concepts of democracy, transparency and regular nominations or voting (Sobel & Groeger 2012). Part B Appropriate business structure Considering the specific circumstances of Bio Breads operations and its partners, the most appropriate choice of business structure is partnership. There is various flexibility considering that partners, in this case are students. The criteria behind formation of a partnership require a minimum number of two people to a maximum of 20. This will allow continuity without the difficulties the four can encounter in search for more partners in case of other business structures. One significant problem faced by the students is difficulties in balancing their studies time and business management. However, the nature of partnership allows the partners to employ people and can as well engage other contractors. Depending on the size and growth of the business, they can get technical, labour and services assistance as the procedures governing partnership are efficient (Fittler, Lawyer & Lawyers, 2012). The employees can assume the administrative control roles and business direction where the students will minimally review their activities and assist where necessary. One benefit that can be derived by employing workers is reduction of potential disputes particularly over profit sharing. There are minimal reporting requirements needed in partnership where this can work well with time constraints for the students. Furthermore, with simplified registration facilitated by simple and inexpensive online procedures, partnership is the most appropriate (Campin, Barraket & Luke (2012)). It will also facilitate continuity of operations as the business does not have to stop its activities waiting for approval. One way to solve conflicts and spell out the rights and responsibilities of partners is to have a written partnership agreement. With the advice of a professional, the students will then use the agreement to settle conflicts and avoid disputes that springs from minor understanding. In it, they can spell out the shares of profits each partner can take, responsibilities, steps to take in case a partner leaves as well as other important guidelines. Another challenge the student faces is lack of satisfying the customers according to their fair trade food and keeping up with the demands. As customers are turned away, there might be implications in their business which might reduce profits and returns. However, since it is hard to get financing that it is for Company, the four can access capital and share the profit according to each person’s shares. In the long run, they can secure funding from financial institutions if they prove consistency in saving and repayment (Ritter & Geersbro, 2012). Bio Breads operations is cited as a profitable due to large volumes of sales. The four can consider including other significant partners who can offer capital for operation and consequently divide the profit as per the shares. Partnership is preferable as when the business expands, it will be easier to change the business structure than it would have if they set it up as a Company (Fittler, Lawyer & Lawyers, 2012). The future flexibility can highly be considered by students as the change is necessary to ensure continuity. The students have chosen to share profit equally and this is another consideration which makes partnership the most relevant business structure in line with their needs. Inappropriateness of co-operative and company There are reasons as to why co-operative would not be a preferable business structure. The requirements set for co-operative can contradict with most of the identified facts and business goals. One, a co-operative requires that the members identify an economic or another form of need that a co-operative fulfils. This means that there must be a wider community concern and not just for personal interests and profit-making objectives. The organisation has to be service-driven for the members. Contrary, the intention with Bio Breads bakery is for profit and all the members has to contribute equally without expecting other significant to offer the desirable services. As much as the members in partnership would prepare for necessary capital provision for formation and maintenance, the ultimate objective will be real-returns to be shared according to shares and set guidelines (Sobel & Groeger, 2012). The intending members are required to provide cooperative services in order to fulfil their obligation. However, the students are incapable for now considering their learning demands. The members may fail to fulfil the obligations which affect the meaning of a cooperative. The cooperative require that membership be voluntary and open where in such case, any eligible member can be permitted. The operations of the bakery and specifications of their organic products can be dissolved with such inclusions. The profit might be limited as the market may not significantly expand considering the set up of the business in a university context. Expanded operations to ensure considerable profits for all might bring about increased operations that would not work well with students. A cooperative consideration of benefit to the community makes Bio Bread operations impossible to work with these students. They might need to control the business as their novel idea which is not possible as there will be conflicting interests between the students and university community. As Sobel & Groeger (2012) argues, the Company as choice can be cumbersome as there is a lot of paperwork. The officeholders including the directors, managers and other positions must be established and understand the legal obligations. Shareholders’, occupiers and members must consent on various issues of operations before the company is registered. Considering that the level of operation is currently limited at university cafeteria, it would not be advisable to incur the expenses that relate to company formation. The positions of directors and managers will be unnecessary at such a level of operation. There is a substantial government regulations and interference with company operations including the regular financial reporting. Reporting requirements also are more public compared to partnership which is more privacy. The company has to hire lawyers, consultants and accountants which would mean more financial needs. Since the owners would not be directly involved in management, it reduces their expertise inclusion. References Campin, S., Barraket, J., & Luke, B. (2012). Micro-business community responsibility in Australia: approaches, motivations and barriers. Journal of Business Ethics, 1-25. Defining Small Business (2012). Small Business: An Economic Overview. SMALL, 1. Fittler, D., Lawyer, G., & Lawyers, T. (2012). From incorporated association to a company limited by guarantee: Part 2—the process of converting. Keeping Good Companies, 64(7), 410. Lowry, J. (2012). The Irreducible Core of the Duty of Care, Skill and Diligence of Company Directors: Australian Securities and Investments Commission v Healey. The Modern Law Review, 75(2), 249-260. Ritter, T., & Geersbro, J. (2012). Navigating in Business Relationships: Distinguishing Relationship Value, Relationship Quality, and Relationship Structure. In The 28th IMP Conference 2012. Sobel, L., & Groeger, L. (2012). Design Thinking: Exploring Opportunities for the Design Industry and Business in Australia. Macquarie Graduate School of Management (MGSM) Research Paper Series, 952-2012. Read More