Legal forms of Business Enterprises

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Legal forms of Business Enterprises

• Un-incorporated associations are associations
  that may be used to carry on a business or a
  non-business project. These include
• Sole Trader
• Partnership
• Trust
• Unincorporated not-for profit association and

• Unincorporated joint venture
• Sole Trader- is the simplest form of business
  organisation. It involves an individual
  personally conducting his/her own business.
  However an individual may employ staff, he or she
  owns and probably manages the business.

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Benefits of sole trader

• It is the simplest form of business organisation.
• The formalities and costs of creating and using
  this structure are minimal.
• No requirement to audit the business finances or
  to file annual financial reports etc

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• Disadvantages
• A sole proprietorship is not a separate legal
  entity
• Debts must be incurred in the sole traders name
  and his or her liability is unlimited. Recourse
  is not confined to business assets. Liability
  may extend to personal assets whether wholly or
  jointly owned.
• There is no formal legislative process to enable
  another person to inherit the business. Death or
  incapacity of a sole trader may bring the
  business to an end

• The only requirements to comply with are those
  provided under the general legislation, such as
  taxation laws, registration of business names
  (ABN)
• High degree of commercial privacy

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• The size of the business is generally limited. It
  may be difficult to obtain finance to expand the
  business as the trader can only provide personal
  forms of security

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Partnership

• Partnership is defined under common law as the
  relationship which subsists between parties
  carrying on a business in common with a view to
  profit. See Partnership Act (Vic) 1958, s 5(i).
• There is a contract between the parties as to how
  they will conduct the business.

• The agreement can be partly or wholly written or
  oral and express or implied

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• The rights and duties of the partners are
  governed by the Partnership agreement, general
  law and by State or Territory legislation. E.g
  The Partnership Act (Vic) 1958

• A partnership like sole trader, does not have a
  separate legal entity.
• Each partner pays tax at the appropriate tax rate

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Benefits of Partnerships

• A partner can assign his or her interest in the
  partnership but the assignee only has the right
  to receive the assignors share of profits and has
  no right to take part in the management of the
  partnership
• No formal steps are required in the formation of
  a partnership

• No on-going public filing requirements, only
  required to obtain an ABN and if necessary
  registering for GST
• However, Partnerships may be required to register
  as limited liability partnerships

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• No formalities to form, maintain or dissolve
• Low costs
• Each partner can take an active part in the
  management of the partnership
• Tax losses can be offset against each partners
  individual income

• A partnership is automatically dissolved on the
  retirement, death or bankruptcy of a partner,
  unless the partnership agreement provides
  otherwise.

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Disadvantages

• No separate legal entity
• The liability of a partner binds other partners
• Any change in the composition of the partnership
  dissolves the partnership
• A partner can call for the dissolution of the
  partnership

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Trust

• A Trust exists when one party (Trustee) is
  obliged to hold or invest property on
  behalf of another (Beneficiary).
• Trusts are created by a declaration by one party
  that he or she holds property for the another

• There are three parties a settlor, a trustee,
  and a beneficiary. A settlor can also be a
  trustee.
• A trust is not a separate legal entity. The
  existence of a trust rests on fiduciary
  obligations imposed on the trustee to hold the
  property for the beneficiarys best interests

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• The trustee is personally liable.
• There are different types of trusts Express
  trusts implied trusts constructive trusts
  fixed Unit trusts and discretionary trusts

• A trust does not require any formality although
  it can be in writing
• No on-going public filing requirements
• Tax is paid by the trustee or by the beneficiary

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• No limits to the number of beneficiaries and the
  death of a beneficiary does not affect the
  existence of the trust.
• A trust can exist for the duration of the life of
  a nominated person plus 21 years.
• Death of beneficiary does not dissolve the trust

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Not-for-profit associations

• these are associations in which members agree to
  be bound by mutual rights and duties.
• The association is not carried on for business
  unlike a partnership or
• other forms of associations.

• If a Not-for-profit association makes a profit,
  such profit which is a result of its activities
  must be used for the purposes of the association.
  Examples of Not-for-profit associations include
• Social or sporting clubs
• Not a Partnership and do not have to register as
  an outsize partnership under s115 of the
  Corporations Act.

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Unincorporated joint venture-

• Is when individuals
• agree to work together on a single project rather
  than
• on a continuing basis as the case with
  partnerships
• The structure is based on the parties
  contractual relations with a view to profit.
• If a joint venture has more than 20 participants,
  it is required to incorporate. See Corporations
  Law, section 115(a)

• Benefits of a Joint venture
• Inexpensive to create, maintain and dissolve
• Greater flexibility compared to companies and
  unit trusts
• Not subject to fiduciary duties

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• Parties not agents for one another
• Parties are only severally liable not jointly
  liable
• Suitable for isolated ventures, where perpetual
  succession is not an issue and financial risk is
  not paramount.

• Disadvantages
• Not incorporated. No limited liability but each
  individual liable for her or his loss