Chapter 4 - Business organisations. At the end of this chapter you should understand: the essential characteristics of sole traders, partnerships, joint ventures, associations, companies, and trusts; the legal obligations imposed on each type of business entity; the liability of the parties involved in each type of business entity;...
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Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning Copyright © 2000 McGraw-Hill Australia Business organisations Chapter Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning Definitions • Sole trader - The business is owned and operated by one person with all profits or losses attributed to the owner • Partnership - A relationship between two to twenty persons who carry on business in common with a view to a profit • Joint venture - Usually a one-off enterprise with participants receiving profits separately, based on contractual agreement • Unincorporated association - A body of two or more persons who are organised for a particular purpose, which may or may not include the purpose of carrying on a business with a view to a profit Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning 4-3Australia Copyright â 2000 McGraw-Hill Definitions Incorporated association A body of two or more persons who are organised for a particular purpose, which may not include the purpose of carrying on a business with a view to a profit • Company – An incorporated body created by a process called “incorporation”, regarded by law as a separate legal entity • Trust – A relationship recognised by the law of equity, where a trustee holds property for a beneficiary or beneficiaries Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning 4-4Australia Copyright â 2000 McGraw-Hill Formation Sole trader - Simple, with little documentation • Partnership - Partnership agreement recommended; easy to form • Company - Relatively high establishment and compliance costs • Trusts - Relatively high establishment costs Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning 4-5Australia Copyright © 2000 McGraw-Hill Control • Sole trader – Makes all the decisions • Unincorporated Association – Control rests with committee of associates Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning 4-6Australia Copyright â 2000 McGraw-Hill Management Sole trader - In hands of individual; difficult to achieve absences from business • Partnership - Leave other partner in charge when absences required • Association - In hands of committee of the association • Company - Undertaken by Board of Directors • Trusts - Undertaken by trustee Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning 4-7Australia Copyright © 2000 McGraw-Hill Flexibility • Sole trader - Nature of business can be altered • Partnership - Nature of business can be altered with agreement of all partners • Company - Nature of business can be altered but may have tax consequences • Trusts - Nature of business is restricted by trust instrument Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning 4-8Australia Copyright © 2000 McGraw-Hill Expertise • Sole trader – Limited to one person’s knowledge, unless hire additional personnel • Partnership – Several areas of expertise available from individual partners Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning 4-9Australia Copyright © 2000 McGraw-Hill Taxation • Sole Trader - Dependent on level of profits Large profits will result in high taxation, as income only attributable to one person • Partnership - Profits of partnership are shared as agreed Taxed in the hands of the partners • Joint venture - Income received separately • Company - Special company tax rates Can be distributed to access tax advantages • Trusts - Income taxed in hands of individual beneficiaries Can be distributed to access tax advantages (Discretionary trusts allow changing distributions of income and capital between beneficiaries in different years.) Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning 4-10 Copyright © 2000 McGraw-Hill Australia Types of companies • Companies limited by shares - Public companies •Small - Proprietory companies (1-50 members) •Large (Shareholders will be liable for unpaid amount on their shares.) • Companies limited by guarantee • Unlimited liability companies • No liability companies (mining companies) Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning 4-15 Copyright © 2000 McGraw-Hill Australia Directors • • • • • Elected by shareholders Natural person Over eighteen years of age Power to manage company assets Upper age limit of 72yrs for public companies Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning 4-16 Copyright © 2000 McGraw-Hill Australia Duties of directors • Act in good faith for the interests of the company • Exercise powers for a proper purpose • Use discretions properly • Avoid a conflict of interest • Act honestly • Not to misuse company information • Not to obtain a gain by using their position • Use care and diligence Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning 4-17 Copyright © 2000 McGraw-Hill Australia Liability of directors Personal liability for: making false and misleading statements or omissions in prospectus • failure to appoint a company secretary • incurring debts when the company had little prospect of repaying the debts Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning 4-18 Copyright â 2000 McGraw-Hill Australia Rights of shareholders • • • • Notice of meetings Attend meetings Entitled to dividends Entitled to financial information Sue on behalf of the company Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning 4-19 Copyright © 2000 McGraw-Hill Australia Criminal offences for directors in breach of their duties For: • Recklessly or intentionally failing to act in good faith to protect the interests of the company • Dishonestly using the position of director within the company, either intentionally or recklessly, to gain an advantage • Dishonestly using company information, either intentionally or recklessly, to gain an advantage Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning 4-20 Copyright © 2000 McGraw-Hill Australia Five elements constituting a trust • Settlor - Person responsible for creating the trust • Trustee - Person to whom the trust property is given • Beneficiary - Person who will benefit from the trust • Trust property - Property that is the subject of the trust • Trust instrument - Document that details the terms of the trust Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning 4-21 Copyright © 2000 McGraw-Hill Australia Winding up a company Reasons: • The company is no longer carrying on a business • The company fails to commence business within one year of incorporation • The company has outstanding debts of at least $2 000 • Members have passed a special resolution to wind the company up • Membership of the company falls below a certain number (initiated by a director, a member, or a liquidator of a company) Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning 4-22 Copyright © 2000 McGraw-Hill Australia Trusts Express (Direct or declared trusts) Intentional act of a settlor, created by words, written or spoken • identifying the trust property • indicating the nature and purpose of trust • identifying beneficiaries (can be discretionary where trustee will choose the amount to be distributed to beneficiary in Discretionary Trust) Non-Express No intentional action by the settlor • Implied trusts (Presumptive trusts) - law draws inference from the circumstances that a trust was intended • Resulting trusts - where property returns to the creator of the trust • Constructive Trusts - Results from the operation of law (of equity) Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning 4-23 Copyright © 2000 McGraw-Hill Australia Classification of trusts • Private - For the benefit of private individuals • Public - For the benefit of some public purpose • Trading - The property of the trust is used in the running of a business • Unit - The beneficiaries own units of the trust Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning 4-24 Copyright â 2000 McGraw-Hill Australia Duties of trustee • • • • • • • • Maintain fiduciary relationship Familiarising themselves with the trust property Obeying instructions Not delegating duties Not deriving profit from their position Keeping proper accounts Maintaining impartiality Exercising reasonable skill and care Paying and transferring property only to those entitled Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning 4-25 Copyright © 2000 McGraw-Hill Australia Rights of trustee • Reimbursement for all expenses incurred • Indemnification against all costs • Seek contribution for losses • On completion of administration of trust, entitled to receive a discharge Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning 4-26 Copyright © 2000 McGraw-Hill Australia Liability of trustee • Personally liable for tortious and contractual liabilities Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning 4-27 Copyright © 2000 McGraw-Hill Australia Business names legislation Business name must be registered unless all names of operators or traders included in business name, i.e • the full names of the operators or • the surname together with: – – – – Copyright the Christian name or names the initial(s) of Christian name or names a combination of Christian name and initials the Christian name or names (or initials) by which individuals are commonly known 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning 4-28 Copyright © 2000 McGraw-Hill Australia Purpose of registering business name • Public knows who they are dealing with (Public Registry) • Impose restrictions on names registered if: - identical to or closely resemble name already registered - considered undesirable - suggest a connection with the government or banks - likely to be confused with names of companies or incorporated associations - ensure “crown” or “royal” not used Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e 4-29 by Barron & Fletcher Slides© prepared by Kay Fanning Copyright 2000 McGraw-Hill Australia • To protect the goodwill of the business ... purpose of carrying on a business with a view to a profit Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning 4- 3Australia... McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning 4- 4Australia Copyright â 2000 McGraw-Hill Formation Sole trader - Simple,... creator of the trust • Constructive Trusts - Results from the operation of law (of equity) Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher