Essay: Business Entities & Legal Consequences In NZ.

1. Recognise the categories of business entities in New Zealand.
2. Illustrate the legal consequences of the choice of each of the common business entities (company, partnership, trust and sole trader).

3. Recognise the law relating to partnerships (formation; legal consequence of organisational structure; liability in tort and contract; rights, powers, and duties of partners).
4. Outline the documentation required for forming a company.
5. Illustrate the organisational structure of companies, and the consequent legal implications

Recognising Business Entities in New Zealand

Issue: In the present given situation, the only issue involved is what corporate company/firm he create to easily manage his financial funds, which also leaves him for the day to day runnings to professionals.

Law: As per the present given situation, the various provisions of the Limited Partnership Act, 2008 is applicable.  

Application: It is submitted that Bernard who is a businessman after hard working of 40 years along with his wife. It is further submitted that Bernard and his wife were having the property worth over $ 500,000 which they wanted to use for their grandchildren upon their studies and to build up a house for them (Bisman, 2011). Bernard and his wife would form the Limited Partnership Firm within terms of “The Limited Partnership Act, 2008.” It is furthermore submitted that under the Limited Partners the liability of the partners are only to the increase their financial assistance to the partnership. It is furthermore submitted that as per section 8 of the Limited Partnership Act, 2008, the limited partnership should have one partner called as general partner and one partner called as limited partner and they are required to apply under section 52 of the Limited Partnership Act, 2008 for the registration of the Limited Partnership (Bullians, Teulon, Laws, Perry & Hill, 2018). The application form under section 52 of the Limited Partnership Act, 2008 requires all the details of the General and Limited Partners to be provided by the applicant (Baldwin, 2014).

Conclusion: In the end it is concluded that from the present facts and circumstances, it is prima facie established that Bernard should form the  Limited Partnership firm so that he may not get much involved in the day to day runnings and requirements of professions (Ceil, 2015).

Issue: In the present case, the only issue arises that what type of company will Rick create so that he may not get much involved in the day to day affairs and got time to go to mountains whenever he wanted to.

Law: As per the present given situation, the various provisions of the Limited Partnership Act, 2008 is applicable.

Application: In the given situation, Rick had purchased the large property which is near to the Mt Richmond Forests Park and wanted to make the great mountain biking park on the said property but he wants to keep himself on low profile and not wanted to involve himself in the daily management and affairs of the business. It is submitted that as per the given situation, the Rick needs to form one Limited Partnership to run his business properly (Devonport, 2008). As per the terms of the Limited Partnership Act, 2008, there should be one partner called as General Partner and one partner called as Limited Partner. As from the given situation, it is clear that Rick does not wanted to get involved in the day to day management of the business as he can go to mountain biking whenever he feels like. As per section 8 of the Limited Partnership Act, 2008, the limited partnership should have one general partner and one limited partner (Finnane, 1989). The General Partner is the one who is creditworthy for the daily management of the business and the limited partner enjoy the limited liability and do not interfere in the management of the limited partnership but subject to some exceptions the limited partner can be allowed for the strategic control. The role of the limited partner is to provide the capital to the Limited Partnership (Fowler, 2012).

Legal Consequences of Different Business Entities

Conclusion: In the end it is concluded that as per the above said discussion, the partnership under the Limited Partnership Act would be suitable for Rick and he may become limited partner in the same.

Issue: What type of corporate should Petra starts which she got not much problems in handling and which demands less finance?

Law: from the facts of the present, the various provisions of companies Act 1993 is applicable.

Application: The facts of the instant problem are that Petra who is a widow wanted to raise income by selling her pottery in the local market and to raise the income about $10,000 per year. As in the given situation, she would be advised to run a business as the sole trader under the companies Act, 1993 (GiJin Yang, 2012). The sole traders are those persons who continued their work under their name or their trade name without making or forming a separate legal entity like the company or the partnership. It is submitted that running the business under the sole trader avoids much costs and formalities which involves in establish and operate in the separate legal entity (Grayburn, 2008). It is furthermore submitted that there is no legal filing requirements or the profession advice for setting up the same.

Conclusion:  In the end it is concluded that as per the requirements of Petra she must go for sole trader as it not needs much financial assistance and also not required much paper work or legal professionals advice (Johns, 1995).

Issue: The type of corporation so that the Erica, Joe, Charles and Gina would have the equal ownership in the business and would share equal profit?

 Law: As per facts and circumstances of the case, they all would required to registered a company as per Section 15 of the Companies Act, 1993.

Application:  As in the given preposition, they were advised to set up a company duly registered under the Companies act 1993(JoonhyongLEE, 2011). That as per the requirement of all, the set up a company under the companies act would be the great step as they wanted to have the equal share in the ownership initially. The companies are the artificial person created under the law and raise their funds from the contribution by the shareholders. It is submitted that the shareholders are those who pay the amount to the company for each share. It is furthermore relevant to mention here that under the company they are the equal shareholders initially and in case they wanted to raise the capital of the company, they may issue more shares to raise the funds of the company. It is furthermore pertinent to mention that the company is a separate legal entity which allows the company to hold the property in its own name. Further Section 15 of the Companies Act, 1993 deals with the company is the legal entity in its own right separate from the shareholders and the same would be continuance in existence unless and until it be escaped from the New Zealand register ("Lawyers’ petitions within criminal procedure act. Comparative Legal Studies", 2015).

Law Relating to Partnerships

Conclusion: In the end it is concluded that  they all would create a company under the provisions of the companies act, 1993 which facilitates them with the obligations and liabilities of the company are of its own and not of the shareholder and the directors (McAndrew, 1970).

Issue: The issue involved in the present case are that under what category they would create the firm/company so that they may provide services jointly?

Law: Section 4 of Partnership Act, 1908.

Application: After going through the facts and circumstances of the given preposition, it is advised to Jeremy and Andrea to set up a business under the Joint venture. That the joint venture in the simplest form is the company having two shareholders holding the 50% shares each (Stent, Bradbury & Hooks, 2015). It is furthermore relevant to mention here that both the parties should agree on everything i.e. the percentage of share, the profits and loses etc. It is furthermore submitted that the joint venture is generally a partnership though it would not be appreciated widely. Section 4(1) of the Partnership Act 1908 talks about the partnership as the relation which exists between the individuals carrying on business with a motive to earn profit. The importance of the joint venture is that it comes under the ambit of the partnership and they are liable for the actions of each other and have the duty of the good faith and loyalty to each other (Subramaniam, Kansal & Babu, 2015).

Conclusion: In the end it is concluded that it would be beneficial for both of them to work under the joint venture so, they can provide their services better.

Business partnerships are normally controlled  by the Partnership Act, 1908. As per Section 4(1) of the Partnership Act 1908 talks about the partnership as the relation which exists between the individuals carrying on business with a motive to earn profit.  But all business relations are not the partnerships such as owning a property with others does not give rise to partnership. Under the Partnership Act, 1908 it creates the different provisions for the special partnerships and further the special partnerships are the limited partnerships. Under the limited partnerships, the special business vehicles are for the venture capital purposes. It is most important to mention here that there are no special formalities for creating a partnership. Normally many partnerships have the formal partnership deed and the parties to that deed acted on that partnership deed and work accordingly. Furthermore it is the considered view that the partnership firm is not considered as the separate legal entity as like of companies and their entity can be identified from their partners. The relationship between the partners of the partnership firm is fiduciary relationship and they are under the obligation to treat the other member fairly and to act under the good faith. The partners are liable for the act and conduct done under the due course of the partnership and their liability should be joint and several(Ceil, 2015).

Documentation Required for Forming a Company

That from the date of establishment of Partnership Act, 1908 the law and accounting firms were not allowed to incorporate and they were only working as the partnership firms. The basic reason behind the same was that till the 19^th Century there was very less demand for the professional accountancy and the legal services in the New Zealand. At that time there very few people who earn their livelihood from the legal and accounting services provided to the large institutions such as banks etc(Bullians, Teulon, Laws, Perry & Hill, 2018). At that time, the New Zealand law does not require the small private companies to audit independently. But by the end of the 19^th Century the businessmen required the full time professionals for their funds management, which caused the legal and accountancy profession to develop speedily (Barber, Staveley & Down, 1991).

That the partnerships are the natural vehicles for the professions. Traditionally the professions such as the accounting, legal and medical professions were only required to practice as a partnerships though the reason behind the same was already discussed above  (Subramaniam, Kansal & Babu, 2015). It is relevant to mention here that since 2000, the accounting firms have been permitted to incorporate as per rule 19.8 to 19.14 of the Rules of the New Zealand Institute of Charted Accountants and since August 2008, the solicitors i.e. law firms were also allowed to incorporate as companies and the Lawyers and Conveyance Act, 2006 was passed to able the lawyers to incorporate. That it is relevant to mention here that after the 2000 and 2008, the profession accounting and legal got the exact status which was never given to them before. After the passing of the legislations in favour of the said professions they were allowed to incorporate as companies.

The major advantages of incorporation are that the incorporation is with regard to the indication that the owners are serious regarding their business and also they have the intention to give their time and resources to the venture for the fixed time. The major advantage for incorporation is that it helps in raising the capital and easy to avail the financial resources. The second advantage is of the ease of the ownership transfer. It is very easy to transfer the ownership of the corporation simply by selling the stocks of the corporation. The another advantage is that there is tax advantage (Corgnet, 2016). It is pertinent to mention here that some of the business enjoys the lower tax rates specially under the incorporated designation then it would have operated as the partnership. Furthermore the another benefit of incorporation is the liability. As it is clear law that the company/ corporation is separate legal entity and can sue and can be sued on its name. So the liability of the same can not be put on the directors of the company. Section 17 of the Lawyers and Conveyancers Act, 2006 deals with the liability of director or the shareholder of the incorporated firm. It is pertinent to mention here that it was specifically mentioned in Section 17 of the said Act that the legal practitioner who is the director or the shareholder of the incorporated firm can not be held liable for illegal act of any other director on the joint or several basis (Hochberg & Rauh, 2011).  But the partners of the partnership firm can be held liable as jointly as well as severally liable for the acts and conducts of the firm and also the partner of the partnership firm is liable for the act and omission done by the other partner and they both are jointly and severally liable (Schaan, 1988).  It is furthermore submitted that as per section 8 of the Limited Partnership Act, 2008, the limited partnership should have one partner called as general partner and one partner called as limited partner and they are required to apply under section 52 of the Limited Partnership Act, 2008 for the registration of the Limited Partnership (Bullians, Teulon, Laws, Perry & Hill, 2018). It is well said by one of the economist that in comparison to the incorporation, the partners of the partnership firm are legally liable for all the debts and unpaid dues of the partnership firm but in regard to the corporation, there is no such liability of the directors of the company. The company itself is a separate legal entity and also known as artificial individual(Menkhoff & Schmeling, 2010).

Organisational Structure of Companies and Legal Implications

It is furthermore submitted that with the advantages there are also some of the disadvantages for the incorporation such as there are requirement of the record keeping. The corporation under the state are required to maintain the records and books of accounts. Further the control of the corporation is generally in the hands of the shareholders but in the partnership firm the control in the hands of partners only(Martin-Mercier, 2015). The major difference for incorporating a company is a legal person and having the different legal entity from the shareholders. The Section 15 of the Companies Act, 1993 deals with the same. The Section 15 of the Companies Act 1993 deals with the company having the legal entity in its own right which is separate from the shareholders and will continues in existence till the company can be escaped from the register of the New Zealand(Corgnet, 2016). In Salomon V Salomon & Co Ltd (1897) AC 22, the  person namely Salomon is the manufacturer of the boots as the sole trader. Salomon incorporated one company in which his family members are the shareholders and transferred all his business in the name of the company. During the transfer of the business with the company, the part of the purchase price remained unpaid and he took the debenture over the assests of the company. Thereafter the debentures were sold to the Broderip. The business of the Salomon failed and the broderip wanted to enforce the debenture so that the balance of purchase price could be paid to him. In this the House of Lords held that the company was a separate legal entity and charge was valid thereof(Bullians, Teulon, Laws, Perry & Hill, 2018).

Conclusion

In the end it is concluded that before 2000, the law and accounting firms were prevented from incorporating as in the earliest times in the 19^th Century there was very less demand for the professional accountancy and the legal services in the New Zealand. At that time there very few people who earn their livelihood from the legal and accounting services provided to the large institutions such as banks etc. At that time, the New Zealand law does not require the small private companies to audit independently. But by the end of the 19^th Century the businessmen required the full time professionals for their funds management, which caused the legal and accountancy profession to develop speedily. Thereafter the society also demands the change in law and in view of this, in the year 2000, the accounting firms were allowed to incorporate and in August, 2008, the law firms were allowed to incorporate. It is relevant to mention here that the accounting firms have been permitted to incorporate as per rule 19.8 to 19.14 of the Rules of the New Zealand Institute of Charted Accountants and since August 2008, the solicitors i.e. law firms were also allowed to incorporate as companies and the Lawyers and Conveyance Act, 2006 was passed to able the lawyers to incorporate. It is the admitted fact that the incorporation helps in raising the capital and easy to avail the financial resources.  It can be argued that the company/ corporation is separate legal entity and can sue and can be sued on its name. So the liability of the same can not be put on the directors of the company. Moreover, the partners of the partnership firm are jointly and severally liable for the acts and conducts of the firm. It is well said by one of the economist that in comparison to the incorporation, the partners of the partnership firm are legally liable for all the debts and unpaid dues of the partnership firm but in regard to the corporation, there is no such liability of the directors of the company. The company itself is a separate legal entity and also known as artificial individual. In the end, I am of the considered view that the incorporation is the better step for the development of the society and today it is also the demand of the society as there was much increase in the business class which required much financial management(Bisman, 2011).  

References

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