Private Funds Business Structure Operations - Features, Advantages & Disadvantages

Discuss About The Private Funds Business Structure Operations?

In this case the issue which has arose in that which type of business structure should be followed by John, Tom and Raj for the purpose of carrying out their business activities in a proper manner. It has been provided through the situation that they want to carry out business activities on a day to day basis and they also want to keep the control of the activities to themselves only. In addition the situation states that they also want to be restricted to a particular amount which they may lose in case there is any loss in the business. This advice is in relation to the several business structures which they may select in relation to their business activity and which is the best structure suited in relation to their activity.

In relation to the issue it must be stated that there are primarily three kinds of business structures which are available to a person when they are about to carry out business activity. These are namely sole proprietorship, a partnership firm and an incorporated organization (Public or private). This paper discusses the features, advantages and disadvantages of the different form of business structures so that the best suited structure to John, Tom and Raj can be derived.

This is the simplest and the most easily to operate form of business structure which can be availed by a person to get into a business activity. The features of the sole proprietorship are as follows. This form of business is owned by a single person. There is no distinction between the business and the owner’s identity. All elements of this business organization is directly controlled by the owner. The employer is entitled to all profits and also liable for all losses which had been incurred by the business personally. All the assets which are present in this form of business structure are owned by the “sole proprietor” (Schell, 2017). This form of business structure can only be run by one person although he may have employees. The biggest advantage of this form of business is that it provides great deal of control over the business. The greatest disadvantage which is possessed by the business is that the liability of the sole proprietor is unlimited. This means that the sole proprietor may be personally liable for the loss incurred by the business. In this given situation it has been provided that there are three people who want to carry out the business activity, however sole proprietorship is only for one person and thus this is not suited. In addition there is unlimited liability in this form of business and thus this is not a suitable structure.

A sole proprietorship

This is a form of business structure which can only exists if a minimum of two people are associated with its functioning. The owner in a partnership business is known as partners. There are several features in relation to the business and the most prominent of which is joint liability. The partners who are involved in a business are bound to each others’ actions just as in case of an agency. In other words there is an agency relationship between the partners. In this form of business also the liability of the partners is unlimited. This means that they can be personally liable for the losses which have been incurred by the business. The control which the partners have in this form of business depends upon the partnership agreement. The business is progressed through the terms of the partnership agreement which contain terms such as the profit sharing ratio. The partners get the help of each other in this form of business which is not available in sole proprietorships. The biggest advantage of this form of business is that it is easy to form, and has control (Dorrill et al., 2017). The biggest disadvantage of this form of business is the application of agency law were one can be held liable for the actions of others and the unlimited liability which the partners have. Thus as John, Tom and Raj want to limit their liability in relation to the business this form of structure is not suited for them.

This is also a form of business structure which is used for carrying out business. A company may be private or public. The features of a company are as follows. One of the primary and most distinct feature of the company is that it has a “separate legal entity”. The existence of the company is totally different for that of its owners. In addition the liability of the partners in relation to the company is limited to the about of investment which have been made by them into the company only. However there is lot of legal formalities which needs to be followed in order to incorporate a company (Hannigan, 2015). These obligations are much more in relation to a public company where considerable legal compliance is required. In addition the level of control which a person has in relation to a private company is much more than what is there within a public company. There are several duties which are imposed on the directors as well as various financial disclosure obligation.

A partnership

The best form of business structure which has been indentified for John, Tom and Raj is a private company. With the use of this structure John, Tom and Raj would be able to have control on business, limit their liability and carry out their day-to-day activities.

Thus advice is in relation to the several business structures which they may select in relation to their business activity and which is the best structure suited in relation to their activity is that they should indulge in a private company form of business.

Negligence is the failure of observing duty of care by one person which results in an injury to another person. The provisions of establishing negligence in Singapore are governed by the rules laid down through common law. Establishing negligence requires the satisfaction that all the three elements which are associated with it are present. These three elements as set out through common law provisions and particularly the case of Donoghue v Stevenson (1932) AC 562 are “duty of care”, “breach of duty of care” and “causation”. The eligibility of damages for which the aggrieved party needs to be compensated is established through the element of remoteness which was primarily brought to existence through The Wagon Mound no 1 [1961] AC 388 case.

The presence of such elements is objective in nature rather than subjective and thus is done though subjecting the situation in hand to various tests.  Every element may be analyzed by the application of a different kind of test which have been introduced into the legal world through common law cases on negligence.

The first element which has to be established is of “duty of care”. Only when a “duty of care” is identified can negligence be established. The presence of the element in the situation can be done by applying the neighbor principle as set out by the Donoghue v Stevenson case or the “caparo test” which is set out through the Caparo Industries pIc v Dickman [1990] 2 AC 605 case. The neighbor principle states that a neighbor has “duty of care” towards another neighbor who may be injured by his actions. On the other hand the “caparo test” states that the element of Proximity, reasonability and Foreseeability has to be satisfied before a “duty of care” can be identified. This means that the person who has been injured has to be in proximity with the alleged wrongdoer and, the wrongdoer must reasonably be able to foresee that the injured person could have been harmed because of his actions.

A company

“Breach of duty of care” needs to be established when a person has a “duty of care”.  This means the person who owed a duty of care was careless while complying with their duties. The breach may be established through the application of a test provided through the case of Vaughan v Menlove (1837) 3 Bing. N.C. 467  which is famous as the “objective test”. In this test in order to analyze the breach, an objective approach as suggested by the name is taken. A person reasonably would have taken more care than the wrongdoer is considered to state whether there is a breach or not.

Causation refers to the actual harm or injury which has been borne by an aggrieved person. In terms of a physical injury a test which has been provided by the case of Barnett v Chelsea & Kensington Hospital [1969] 1 QB 428 and is commonly called the “but for” test.  As per the ruling of this case negligence is to be established only where the injury incurred by the other person has been caused only because due care had not been observed. In the given situation the application of the test helps to determine whether the act has caused the injury to the other person and causation can be established.

Contributory Negligence is a form of defense which can be availed when a person has been charged with negligence. This defense can be applied in situation where the injured person has done an action which can be considered as contributing towards his own injury as discussed in the case of Revill v Newbery [1996] 2 WLR 239.

The “damages” in negligence is determined based on its reasonable foreseeability and remoteness. This means that a wrongdoer is only liable to compensate the aggrieved party for those damages which can be reasonably foreseen by them. The provisions has been provided in the Jolley v Sutton [2000] 1 WLR 1082 case.

In the case of Watts v Rake (1960) 108 CLR 158 the court provided the “thin skull rule” where it was stated that all injury occurring out of a negligent activity has to be compensated by the wrongdoer irrespective of unusualness.

The situation provided that Sue was walking with her mother who was 82 years of age. They tow very big dogs barking at them who were behind a fence. It was noticed by Sue that although the gate of the fence was closed it was not unlatched. The two dogs managed to get out of the fence and attempted to injure Sue and her mother.  A dogs were not able to bite them as their owner arrived in due time. However a severe heart attack was suffered by Sue’s mother in relation to the shock and she died.

It is clear while applying the caparo test and the neighbor principle that a duty of care was owed by the owner of the dogs to any person who passed the fence as the dogs may have injured such person. Thus the test of proximity, reasonability and foreseeability has been satisfied and “duty of care” exists.

In is clear while applying the objective test that a reasonable person would have not kept the gate unlatched while having two vicious dogs inside it. Thus the duty of care has been breached in the situation.

In addition while applying the “but for” test it is evident that Sue’s mother would not have died if the dogs were in the fence. In addition although the dogs did not harm her she had died due to the heart attack caused from shock of the dogs. In addition a reasonable person could foresee that dogs can kill a person a person may be shocked by their aggressive nature. Thus negligence is present. Thus Dogs owner is liable to pay compensation for the death of Sue’s mother as per the skull rule and element of remoteness.

Conclusion

There is negligence done by the Dogs owner and he is liable to pay compensation for the death of Sue’s mother

References

Barnett v Chelsea & Kensington Hospital [1969] 1 QB 428

Caparo Industries pIc v Dickman [1990] 2 AC 605

Donoghue v Stevenson 1932 AC 562

Dorrill, J., Schindel, M., Christensen, T., Ingle, A., & Lewey, J. (2017). Partnership Law. SMU Annual Texas Survey, 3(1), 321.

Hannigan, B. (2015). Company law. Oxford University Press, US

Jolley v Sutton [2000] 1 WLR 1082

Revill v Newbery [1996] 2 WLR 239.          

Schell, J. M. (2017). Private equity funds: Business structure and operations. Law Journal Press.

The Wagon Mound no 1 [1961] AC 388 case

Vaughan v Menlove (1837) 3 Bing. N.C. 467

A sole proprietorship