LAWS19032 Sole Proprietorship And Sole Proprietorship And Trader

1.Outline the possible business structures available to Harry, Meghan, William, and Kate, and the advantages and disadvantages of those structures.
2.Discuss the applicable laws in relation to the possible business structures, and make a recommendation with reasons as to the best structure for Harry, Meghan, William and Kate.
3.Describe the obligations, rights and liabilities that Harry, Meghan, William and Kate will experience in your recommended business structure.

 

Australia is a business country and in this country, various business structures can be found. Considering the brief of the case study, it can be stated that the main purpose of the case is to recommend perfect business structure for the mentioning parties of the case. In this report, not only the structure of various business models bit the benefit and shortcoming of the models have been discussed. Considering the business mentality of the country, there are certain kinds of structures are present. However, the structure can be divided into following parts:

• Company or corporation;
• Sole proprietorship;
• Partnership

A brief description of all the structures has been made underneath:

It is a general verse that a company is a separate legal entity and it will not held responsible for the acts of the directors or any of the shareholders. This principle has been established in the famous case of Salomon v Salomon Co. Ltd. However, its director regulates a company. The directors are considered as the minds of the company. 

A company can be of two types such as public company and private company. There are certain differences in between the private company and public company. The maximum members of a private company is fifty where there is no ultimate limit regarding the membership of a public company. Further, in case of private company, the directors are enjoying more power compare to the public company. A private company could not issue the shares but a public company can do it. Therefore, it can be stated that the scope and powers of the public companies are more valuable compare to the private companies. The regulatory requirement of the company is higher to the private company and all these essentials are decided the veracity of both of the companies.

Therefore, it has been observed that there are certain differences in between both the companies. Now, the advantage and disadvantages of both the companies are required to be discussed.

The advantages of the company can be categorized as follows:

• In the continents of Australia, companies are the most common structure of business. it is quite recognized in the society and there are several Acts that regulate the activities of the company;
• The members of the company are known as stakeholders. The word stakeholders include directors and shareholders. Directors are the minds of the company and companies are one of the most trusted institutions for the investors who are engaging their capital in the companies for making future profits;
• Due to the separate nature of the company, no members of the company are held liable for the debts of the company. However, there are certain exceptions to this rule;
• A company can use its name in case of business contract and can take active participation in case of any deal. 

Therefore, it has been understood that a company enjoys certain advantages. However, there are certain disadvantages too. The disadvantages or the loopholes can be stated as follows:

• In Australia, there are certain legislations that are regulating the acts and conduct of the directors and the shareholders and therefore, the directors are obliged to perform their duties according to the provision of the law. According to the Corporation Act 2001, all the directors of the company are required to do their business in good faith. There are certain provisions that state the director of a company has to face civil and criminal liabilities in case of non-performance of their duties. Therefore, it can be stated that the rules of the company legislations are strict and this is great disadvantage of a company in respect of the directors.
• The onerous nature of the company has become one of the disadvantages regarding the operation of the company. In Australia, it can be observed that the owner of the company has less power compare to the director of the company and all the vital decision of the company are taken by the directors.
• The maintenance charge of a company is quite exclusive.
• The posh regulatory compliments of a company are another disadvantage. 

In case of a company, there can be more than one manager and the profit of the company has been distributed in between the directors and the shareholders. However, in case of sole proprietorship, the sole proprietors enjoy all the profits of the business. the proprietor has not to share his profit with anyone.

There are certain advantage and disadvantages in this case too that are discussed as under:

• All the operation of the trade is regulating by the sole trader and therefore, the sole proprietor is the manager and shareholder of the trading. If any profit has been gained, he is enjoying all the profits and he does not have to share the profit with anyone.
• The framework of this type of business is very simple and not complex like the company. The administrative cost is very low in this case.

• The sole proprietor has to bear all the losses sustained from the business and he could not take the plea of separate entity like the company;
• The capitalistic scope of the sole trading is quite limited in nature and therefore, the growth of the trade is average in nature;

In case of partnership, two or more partners operate a business. In this case, the rights and liabilities of the partners are divided among them. However, in this case, the rights and obligations of the partners are regulated by the agreement signed in between them.

• The process of partnership is quite sufficient and less expensive in nature;
• All the partners can take important decision for the betterment of the business;
• The capitals necessary for the partners and therefore, the burden or additional pressure of the investors invests the business are not present in this case.

• All the partners are liable for any mishap;
• All the partners are jointly liable for the wrongful act of any one of the partners;
• The partnership agreement can be amended at any time and this creates complexities for the partners and for their interest;
• The principle of separate entity is not applicable in this case. 

It has been mentioned earlier that there are certain legislations in Australia that regulate the activities of the business structures. As Australia is a federal state, the rules regarding the businesses are different in different states. However, there are certain provisions that have been implemented on national basis. 

Companies are the most common version of the business structure in Australia and therefore, the rules regarding companies are quite strict in this country. The most effective provision in this case is Corporation Act 2001. The rights and duties of the members of the company and the process of incorporation have been detailed in this Act. The provisions of this Act are mandatory in nature and it has been observed that there is a regulatory body that supervises the applicability of this Act. The body is known as Australian Securities and Investment Commission or ASIC. It investigates the duties and responsibilities of the director and in case of any adverse situation; the body has all the powers to file case against the alleged director. There are number of cases pending before the court where the directors have failed to maintain the rules of the Act and held liable for the same. It has further been observed that this Act deals with the managing structure of the business. the appointment and termination of the directors, managers and shareholders have been mentioned in this Act. Further, the responsibilities of the Australian Securities Exchange have also been mentioned and it has been demanded by the Act that the corporate governance of Australia should inform the ASX about their activities. The Corporation Act deals with the implementation provision of the constitution of the company.  

Unlike the company, the sole trader is responsible for all the acts and responsibilities of the business. However, in Australia, there is no specified Act for the sole proprietorship. The registration process of the proprietorship has been mentioned in the Goods and Services Tax. Further, after the registration process, the trader is required to obtain the number and certain provisions of the Fair Work Act have been applied in this case.

In Australia, the Partnership Act governs the provision of the Partnership firms. However, in case of partnership, the partners are liable by the terms and conditions of the agreement. The law relating to the partnership is based on the provision of the federal structures and the main purpose of the partnership that is to carry on business with the common intention of making profit. The Partnership Act discusses about the definition of the terms of partner and all the other relevant terms. The rights and liabilities of the partners are mentioned under the Act. Further, the process of agent and principle drives the base of the partnership. It has been observed by the Federal government that the partners are liable for the acts of any of the partners and the rules of “all for one and one for all” is applicable in case of partnership. The liabilities of the partners are made on the legal terms and no partners are allowed to be acted beyond their course and authorities.

In the given case, it has been observed that Harry and Meghan chalk out a plan to start up a business. in any business, capital is an important thing and in this case too, they want to raise their capital by joining William and Kate in their business. The liabilities in this case are limited by nature. however, it can be recommended that the parties to the case can be go for the private limited company and their share should be limited in nature. it has been prescribed by them that they will transfer half of their share to the refugees and they will take active part in the charitable case. it is not necessary that all the investors should be a part of the management and Kate and William can hold the position of the shareholders. The profit earned from the business will be divided in between the two on the basis of their investment criteria. In case of Meghan and Harry, they will take active part in case of management and they will share their profit as decided by them. in case of charitable purpose, they will make an agreement regarding the same to avoid any kind of intervention. 

In the above noted paragraph, it has been observed that the parties are recommended to open private limited companies and therefore, it is necessary to talk about the rights, duties and obligation of the parties. This will help to understand the scope and limitation of the members in the company in a better way. The duties and rights of the directors, managers and shareholders of a company have been discussed in the Corporation Act 2001. Provisions mentioned under section 180 to section 184 of the Act discuss about the duties of the directors. Under the Act, it has been mentioned that every director of the company is required to act in good faith and their intention should act on behalf of the best interest of company and for the shareholders. Further, it has been mentioned under the Act that in case of any failure, the directors should have to face the civil as well as criminal trials. Civil penalties are mentioned under section 1317E of the Act and criminal penalties have been discussed under the section 184 of the Act.

The directors are the minds of the company and they take all the important decisions. Therefore, it is required that the directors will perform their acts with due care and diligence. Duties relating to this provision have been discussed under section 180 of the Act. In Australia, there are many cases where the Federal Court was pleased to pass an order that the directors who are not acting in good faith and do not represent them diligently, should be tried in the court. This particularity is mandatory in nature and the Australian Securities and Investment Commission are the main regulatory authority in this case.

It is obvious to state that the directors are holding an important position and therefore, they do not required to misuse their position. The provision of section 182 and section 183 are discussing about the same. According to both of these sections, the directors are restrained to misuse their position and they should not hand over any confidential information or share it with any other person. Confidential information includes financial information and all the other information that can be proved as harmful for the interest of the company. It is the primary duty of the directors to act on behalf of the company and he should have to engage him in such a way so that no conflict of interest can arise. However, it is to be kept in mind that the duties and obligation mentioned in the Act do not impose on the directors only, but on the managers of the company too.

In this case, it has been observed that the idea for setting up a business was generalized in the minds of Harry and Meghan. However, they involve William and Kate for increasing the money standard and investment. However, as the founding members of the company, they can choose the post of directors and shareholders in the company. According to the provisions of the Corporation Act 2001, it can be stated that they have to follow all the rules and obligations of the directors. Further, they are required to use their position in a fair way. It has been mentioned in the case of ASIC v Adler, in case any directors has failed to perform all their duties in good faith and diligently, he will be tried under the prohibitory sections of the Act and the alleged director should have to face penalties for the same. The directors are obliged to act for the interest of the shareholders and they are restricted to earn their own profit negligently. It has been observed in the case of ASIC v Cassimetis that a director should be liable under the Act in case he has failed to act for the best interest of the shareholders.

Therefore, it is suggested to the parties of the case to maintain all the rules and duties mentioned in the Act. Further, it has been observed that Kate and William will be appointed as the non-executive director of the company. It has been mentioned under the Act that the rules of the Act will impose on every kinds of directors of the company. Therefore, Kate and William are also liable to maintain the provisions of the Act. It has been mentioned under section 191 of the Act that in case of any clash in between the personal interest of the company and interest of the company, a director is required to disclose all the matters and statement to the Board of Directors and this mentality will help them to resolve the conflict of interest. Therefore, it can be stated that the parties of the case is also liable to maintain the same.

The term best interest of the company means any method by which a company can gain profit and therefore, the directors of the company are restricted to act against the interest of the company. According to section 588G of the Act, the directors must not involve them in any case by which a company can be insolvent or must not create any situation by which any threat regarding the insolvency of the company can be cropped up. However, under the Corporation Act, certain defenses are also mentioned so that the directors can defend them against any false complaint or allegation. Therefore, the parties to the case can take the plea of those defenses in all the appropriate matters. 

ASIC v Adler and 4 Ors [2002] NSWSC 171

ASIC v Cassimatis [2016] FCA 1023

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