Advice on Formation of Business Structure for Small Business in Fashion Industry

Running head: COMMERCIAL LAW
COMMERCIAL LAW
Name of Student
Name of University
Author Note

1COMMERCIAL LAW
To
Mr. John Smith
Sub: Advice on formation of appropriate business structure used for small business related to
fashion industry
Respected Mr. John Smith,
It has come to our knowledge that you have been planning on establishing a small
business in relation to the fashion industry and you have been interested in particular to enter in
the men’s clothing section. We will be providing you in this letter with guidance as requested by
you for the needs of your business. In this letter advice will also be given to you briefly for the
establishment of the business for avoiding any complexities and misunderstandings that may
arise in the future. Further knowledge of the appropriate structure of business that was sought by
you would be advised in this letter for helping you in the incorporation of your business while
avoiding any future legal issues or business risks (Sadgrove 2016).
In this letter you would be informed about the few basic business structures that can be
considered by you as perfect idea for your business. These business structures include- sole
proprietorship, partnership, joint ventures and company.
A sole proprietorship can be defined as the business that is controlled by a single person.
Since it has been mentioned by you that you want to manage your business alone this business
structure would be best for you to consider. In selecting this business structure you will be able

2COMMERCIAL LAW
to exercise total control over the affairs of the business. Further in choosing this structure there
will be available to you the advantage of low cost as this form of business is the cheapest. No
registration cost is required in this type of business and the business can be run only on your own
name. There are fewer chances of legal issues compared to any other business structure. As there
are advantages there are however certain disadvantages too in this business structure. The
disadvantages of are discussed for your knowledge. First of all the business and owner has no
separate identity. The concept of limited liability is absent in the sole proprietorship indicating
that you will be liable for the liabilities of the business and vice versa (Valencia 2016). You will
be subjected to any loss that has been incurred in the name of your business. Secondly since both
your and the income from your business is assessed together you might be falling in the upper
tier of taxation. This will mean that you will be liable to pay more tax. Moreover in choosing this
business structure you will be rendering your personal assets in risk. Thus by considering both
the advantages and disadvantages of this business structure we will advise you for opting out of
this type of business structure at it can be risky for your personal assets.
The second type of business structure that we are going to discuss is the partnership
business structure. This type of business structure, as the name suggests, is carried out by two or
more people in partnership with each other. The business has the option for registration and is
liable under the provisions of the Partnership Act 1963 (Cth) and the rules mentioned under the
Common Law. However for selecting this business model you will have to conduct your
business in partnership with at least one other person. As the registration of this company is not
compulsory the cost of establishment of the business would be comparatively low. Although the
process of the company’s formation and registration is easy yet a partnership deed that contains
in itself all the information about the rights, duties and all other terms and conditions that the