Advise on the Most Appropriate Business Structure for John Smith

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Contents
Reference List.............................................................................................................................................6

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LETTER
To,
John Smith
XYZ
Subject: Advise John on the most appropriate business structure to operate his new venture.
To whom the letter may concern,
In Australia, there is no single manner in which any business organisation can be carried out.
Every interested person has three options to choose from, that is, sole trader ship or a partnership
or a company.
Now, when any single person wants to conduct business on his own then, it is advisable that he
must operate the business by way of a sole trader. A sole trader is the sole owner of the business
and he is in charge of all the benefits and liabilities of the company. Generally, business of very
small scale can be operated by way of a sole trader. In sole traders, it is the owner who has to
invest all the finances and must bear all the consequences of the same. (Hunter, 2010)
Now, considering the status of John Smith, John Smith is considering to formulate his own
business in the fashion industry, mainly in men’s clothing. Now, though John wants to start a
small business, but, if he has to invest in the business then it is he who has to buy all the finances
and must bear all the losses individually. Also, as soon as John dies or will leave the business,
the business ceases to exists.
Thus, it is advisable that John Smith should not carry on his business by way of a sole trader.
Apart from sole trader ship, there are two other kinds of business amongst which a business
structure can be chosen by John Smith and which includes a partnership and a company.
A partnership is the second most important kind of business structure that can be established by
any interested parties. A partnership is the business structure wherein two or more than two
persons may start any business to carry on the business with common intention and of
continuous nature with a sole intention of earns profits and share losses. The persons who carry
on the business of a partnership are called partners.

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There are several points of consideration that must be kept in mind when initiating a partnership
form of business, that is, firstly, that the partnership does not have perpetual succession. A
partnership might get dissolved because of death of any partner or because of incoming/outgoing
of any partners; secondly, the liability of the partnership is unlimited; thirdly, the acts that are
carried out by any partner are taken in the name of the partnership and will hold the partnership;
fourthly, the partners have to raise finance on their own; fifthly, the acts of one partner will hold
all the other partners liable for the same. Even at times when the partner is acting outside the
authority but still the form is liable if the acts are carried out under ostensible authority.
(Sheridan, 2006)
Apart from the partnership form of structure, there is yet another kind of business structure
which can be availed by John Smith is in the form of a company.
A company is a business entity which can be established in Australia, only when the same is
incorporated as per the rules and regulations of the Corporation Act 2001 and the guidelines laid
down by Australian Investment and Securities Commission.
When any company is made then it has a distinct personality in the eyes of law and is treated as
an artificial person. There are several points of consideration that must be kept in mind when
initiating a company form of business, that is, firstly the company has perpetual succession, that
is, a company does not die even if there is no surviving personnel’s in the company; secondly,
the liability of the owners of the company are limited to the value of their unpaid shares and thus
there s limitation of the liability; thirdly, finance can be raised by issuing shares of debentures
and thus the finance can be raised easily; fourthly, experts can be appointed by the company
without making them part of the organization. (Henderson, 2008)
Now, these are some of the points of consideration that must be kept in mind while deciding the
form of business the person would like to establish, that is, a partnership or a company.
However, considering the position of john Smith, It is advised to him that he must establish his
business by way of a company and not by way of a partnership. This is because of the following
reasons:
i. It is advisable that he must operate his business by way of a company because if the
company is made by him then his business will have limited liability. The liability of
John is only to the extent of the shareholding that he shares in the company and if the