Sam and George want to go into business with each other. They want to open up a new bakery which will supply a new kind of bread onto the market. This new bread is similar to those breads from the Middle East. As far as George and Sam are aware, these types of breads are not currently available anywhere in Australia.
George has a $100,000 cash which he recently inherited. He is also a qualified baker and has been working for BreadsRUs, a local bakery as its head baker for the last 4 years. George owns his own home which is valued at $500,000.
Sam is an accountant. He worked as an accountant for the last 4 years and whilst e has a wealth of accounting knowledge, he has no available cash (accounting salaries are minimal). Sam does however have an AppleMic Computer which is set up with the latest accounting and bookkeeping software. Sam owns a car which is valued at $80,000. He has no other assets.
Sam and George want to start their business immediately. Sam has found the perfect premises. It’s an old bakery which is already set up with the equipment. The asking price for the business assets is $20,000. The landlord is willing to enter into a new lease with Sam and George for $20,000 pa for 3 years with a 3 year option.
Advise George and Sam of the most suitable business structure for their purposes and its basic requirements. Explain why this would be the best structure for their current operations. What are the advantages and disadvantages of your chosen structure?
Options for business structuring
George and Sam wanted to form a new business of bakery shop. The breads which they were finding were not available in the market. George has experience of bakery as he used to work for Breads R Us. He has a home of $500,000 value. Sam is an accountant and he is an owner of a care and Apple Mic Computer. There business assets price is $20,000. The landlord is ready to enter the lease with George and Sam for 3 years at $20,000 pa.
Issues and question arise that what can be the business structure for the formation of their new business. Legal advice can be given that George and Sam can for contract in a partnership of the business. Another way through which they can form the business is to incorporate the company.
If they do the partnership for the business, then they have to sign a written contract paper where terms and conditions are present. All the rules of the contract are needed to be maintained because breach of the contract is not allowed. The guilty party has to give punitive damage to the innocent party. For the Partnership business Structure number of people is involved in the business. Sole trader structure can be chosen for such business. There are two types of business limited ad general partnership. According to Partnership Act 1997 Australian Business Number (ABN) and Tax File Number (TFN) is needed to be followed with the sole trader entity. Super annotation is the responsibility of each partner in the business.
There are some advantages and disadvantages of Partnership Business:
- Capital: The partners fund starts up with the capital. There is more money of the partners which helps in flexibility of the potential growth of shares of the partners with equally shared partnership.
- Flexibility: It is easy to form a partnership and there are less strict regulated companies in terms of governing business. Interferences of shareholders are necessary which is flexible in terms of management.
- Shared responsibility: For running the business responsibility is needed to be maintained. Major abilities are needed to be managed with equal share with accounts and main sales through which the formulation of business is managed.
- Decision Making: Decision making of partner’s share is made, so that ideas related to business encounters are solved in a modified structure which helps in forming the criteria of a business.
- Disagreement: Danger disagreements are one of the disadvantages of partnership. In a business two or more partners have different business ideas, so it is sometimes observed that disputes between the thought processes are the main reason of disagreement. For an advisable draft during the formation period procedures of disagreement is needed to be dissolved through partnership.
- Agreement: For the partnership agreement business management is needed to rub jointly where the sole traders need to work with the flexibility of business. The will of the shareholders in the company has to taken by the director before forming the business.
- Liability: Unlimited liability is needed to be maintained in ordinary partnership. Formation of limited liability partnership works with the benefits of limited liability which is needed to be stopped by partnership model.
- Taxation: Self Assessment taxation is one of the major disadvantages of business. For the HM Revenues and Customs registration for self employed persons are needed to be managed in the value of personal taxation of the company. In the limited company in case of partnership subjects of greater level creases issues in limited company.
- Profit Sharing: Equal profit is shared by the partnership and inconsistency is carried with the share which is fair. It is necessary that management rules are needed to be applied which cannot be applied in profit sharing.
Another way of structure formation of business is incorporating a business. For incorporating a business it is necessary that contact should be done by the secretary of state. Articles are needed t be incorporated by acquiring documentation. Incorporate fees is needed to be paid. Internal Revenue service is needed to be collected with registration event. Online registration is needed to be done with Companies Intellectual property Commission (CIPC). There are 10 steps for this business structure.
- A business is needed to be written in the business plan. Certain resources and tools are needed to be set which may help in starting the business.
- Training and assistance is needed to be provided with counselling services and free training for the preparation of business plan for relocating and securing business.
- It is necessary that customer friendly location is needed to be maintained with advising roles and criteria.
- Finance of the business is needed to be maintained with capital research and government back loans.
- Legal structure of the business is needed to be planned with cooperative, corporation, limited and corporation rules.
- Business name is needed to be registered.
- Local and state tax is needed to be maintained.
- Permits and business license is needed to be maintained.
- Employer responsibility is related with the legal steps.
- Local assistance is needed to be maintained with SBA.
The business can be launched by venturing the company with the shield of professional aspect. The structure to incorporate a company falls under Australian Securities and Investment Commission (ASIC) which compiles the rules of Corporation Act 2001. For conducting the beneficial obligations with enforced obligations ASIC rules are needed to be applied. If any company is incorporated certain rules are applied which helps in formation of business in an authentic way. There are certain plans of ASIC business which is needed to be followed with the structural balance which helps in carrying forward the structure of the organization.
As Sam and George are trying to formulate the structure of a business for their baker business so incorporate business is suggested to them. While forming the incorporated business certain rules and regulations are needed to be followed.
There are some advantages and disadvantages of incorporated business structure:
- Raising Capital: Indication of the owner’s business is followed in the incorporation of the company. For the owners of the business enterprise consideration on the time period is followed. Formidable financial resources of the person can be incorporated in the company. Registered companies raise capitals by selling the shares to the financial market.
- Corporate existence is independent: For the incorporation of the company the ASIC rules are applied for the registration. Legal personality can be embellished by this way. When the separate legal entity is maintained it is needed that decisions of the director of the company should be taken with the influence of the company. If there is separate legal entity of each business partner then conflict may not arise in this case.
- Limited Liability: It is the most significant advantage for the company. As the interpolation of the company takes place so the owners or the shareholders are liable to the debt of the company where shares extended Partnership is controlled in this situation where legally the liability coordinates with the investor’s rules. The business corporate system is carried with the lawsuits of the company. In this case recovery cannot be taken for the debt of the company following the legal entity of separate law which helps in formulating the lawsuits with liabilities. To face the lawsuits regarding liabilities recovery can be taken by the creditors and investors who help in carrying forward the entity of the company in a coordinated manner with absorbed technology.
- Tax benefits: For the incorporation of the company, tax benefits are mandatory which can be enjoyed in a lower rate which helps in solving the issue in a collective way. Corporate taxes are needed to be paid by the company in sole trade of partnership. Gradually the motivated parts are needed to be illustrated through which the customer application is taken. Lower rates are needed to be given with corporate tax which helps in carrying forward the business structure of the company with the appraisal. By the tax benefit the pension plans of the business are needed to be formulated which is progressed with tax benefit. Tax benefit also helps in constructing the structure of the company with relevant cases which helps in motivating the structure formation of the business in necessary terms and wide discussions of the subject.
- Incorporation of cost: Comparing to the establishment of proprietorship of sole trader, partnership is needed to be followed. Record keeping is important but additional investments are the reason that legal requirements are followed with the ensurance. Problem arise when application of proprietorship of the company can be followed with different application based on the proprietorship and partnership of business followed with the cooperative direction but problem arise on the structure of the company in an authentic manner through which the consequences are needed to be followed with the situation where abstract of the cost can be calculated.
- Personal ownership loss: For the incorporation of the company the retain control of the company is formulated with the shareholders of the company.
- Ongoing Paperwork: Annual reports work with accounting reports which reports the financial status. In this case ongoing paperwork is present which has tax returns and license with permits for conducting business. There are certain steps of ongoing paperwork which is the main reason of conflict in the determination of corporation with fixed plan which influence in building the framework of business but sometimes perplexities arises on the online paperwork process which creates problem in the industrial plans and structure.
Conclusion
There are lots of advantages of incorporate of company which is easier to be accessed than partnership act, so legally it is advised to George and Sam that for establishing a business of bakery the rules of incorporating business structure is perfect. Sam and George can rise up the capital if this structure of business is followed by them. In this case it has been described that George has much more cash than Sam which is inherited by him. Even both of them can evaporate the company and in that case their personal assets will be not in a risk. As George owned house of $500,000 and Sam has owned the car of $80,000, so if they run business structure by incorporating the company then their assets and investment will not fail in the business. By the help of incorporation of the company they will be allowed to use the resources in the beginning of their business. Even the company can form the contract by the own name. So George and Sam entered the contract with the landlord with the name of the company and they used the incorporated structure of the business formation.
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