Advantages and Disadvantages of Incorporating a Business

This article discusses the advantages and disadvantages of incorporating a business in Australia. It explains the steps involved in the incorporation process and highlights the benefits it provides to business owners. The article also provides advice to Michael, who is considering incorporating his business.

Corporations Law

Question 1
With the increase in the number of small and medium scale businesses in Australia more and
more people are interested to incorporate their business. A n incorporated business also called a
corporation is effective as it provides number of offers to the business owners as compared to
sole trader or proprietorship business. Incorporating a business means separating the business
from others by making it a separate legal entity. There are number of different advantages to the
incorporating a business. According to the present case Michael is doing well with his business
as a sole trader organisation (Bourne, 2016). His sons have grown up and want to join the family
business as they see future prospect but the father is little skeptic. In this case it is extremely
important to make sure proper advice could be given to him.
A company is a legal entity that helps to operate smoothly across Australia. The different steps
which need to be followed to complete the incorporation process which are as follows:
 In the pre incorporation stage the organisation has to create a new company name which
would go into the application form. It is important to choose the right company name
which would help to provide effective promotion to the organisation. In the present case
Michael is persistent of not changing the business name because it would change the way
business is conducted. The present business name is quite renowned as everyone knows
this well but with a change of name the consumers wouldn’t be able to recognise the
brand anymore. Legally the existing name of the business can go in as the company name
with respective change indicating the incorporation (McLaughlin, 2018). Hence, there
would be no need to make change in the business name. Even if Michael agrees on
making a change in the company name it will have to be seen that the name they decide
in this case “Sicilian Treat” is not an existing business name registered with another
company. The ASIC portal provides the option to register the business name effectively.
It is also important to check existing trademarks or names attached with the business
name or else any other company could take legal action (Cumming and Johan, 2016).
 Internal governance has to be followed effectively by the organisation either with the
help of drafting a constitution or by following the replaceable rules of the company act.
The internal governance is extremely important hence, has to be kept in mind.

 Every person who decides to incorporate a business needs to have consent from the
directors or secretary of the company hence; it is an important step to decide the directors
of the company (French, Mayson & Ryan, 2014).
 In order to register the company every individual willing to register an organisation has to
submit the 201 form to the Australian Securities and Investment Commission to secure
company incorporation. As soon as the form and the incorporation procedure is finished
the unique nine digits number which is mandatory to have for every Australian company
known as the Australian Company Number.
 The tax registrations have to be done effectively once the company incorporation is
complete. With the Australian business number and individual tax filing number the tax
registration is done (Haldane, 2015).
 The change of the company structure is important to continue with the business
operations and hence, it is important to have a suitable company structure which would
help the organisation of Michael to run smoothly.
There are few important things which have to be kept in mind in order to run the newly formed
company in the best possible manner. For instance, the organisation and the business registration
numbers would be generated in the official address of the organisation hence, it is important to
decide on the official operating place in an effective manner. Apart from that it is important to
take consent before providing the roles of directors or members of the organisation (Lipton,
Herzberg & Welsh, 2014).
Implementing a new company structure would be important in order to operate the organisation
in a company form because it would help to operate the organisation as per the business rules
and legislations of the country. Going for company incorporation comes with its share of
advantages and few disadvantages. The advantages of company are as follows:
 Incorporating a business provides an excellent chance to raise capital in an easier manner.
Small businesses face significant problem with capital and hence, incorporating a
business provides effective opportunity of raising capital effectively. since incorporated
businesses have number of tax and liability flexibility raising capital becomes easy which
is an extremely important aspect in the field of business (Hannigan, 2018).

 With incorporated business stock options are always there. An organisation can move
from private limited to public limited which enhances the stock options as well as
increase the possibility of getting more and more followers which in return has financial
advantages. Debt financing is a realistic option for organisations and with incorporated
business it becomes easier to focus on improving that possibility.
 Incorporation of business leads to safeguarding the personal assets. In a sole trader or a
partnership firms the owners always have risk losing their personal assets but with
incorporation of the business as a corporation or a limited liability organisation it
claimants or creditors cannot claim their money from the personal property and will only
have to recover the money from the business property in case of business accidents.
Hence, it perfectly foils the personal assets in the best possible manner but it is important
to keep in mind personal guarantee would still affect personal property and hence it has
to be prevented (Haldane, 2015).
 Incorporation of a business is like financial security when selling or making transition of
the same. In the world of small business like sole trading or partnership incorporation
provides huge upper hand in the market. It largely helps to compete in the market and get
higher price if the business owners wants to sell it. It provides greater leverage during the
sales negotiations stretching on offers to get a better deal.
 Tax flexibility is another major benefit of incorporating business. The sole trader or
partnership organisations do not have complete tax benefits that corporations or LLCs
have and hence incorporating for no other reason and only for tax benefits is still a wise
decision to make.
 The key stakeholders attached to a business like the suppliers, consumers, government,
investors et cetera give higher importance to incorporated businesses and hence, it could
be said that it becomes extremely effective for a small business to incorporate as it would
help to get higher support from the stakeholders (Polyvyanyy, Smirnov & Weske, 2015).
Even though there are ample and significant advantages of the incorporation there are some
disadvantages which Michael and his sons have to keep in mind. For instance:
 Incorporation of business is a time taking and money consuming process. Even when it is
complete it involves significant recurring expenses and formalities which could be

burdening at times for the owners of the organisation. With incorporation an organisation
has to follow a number of aspects and management procedures in a strict manner or else
it will definitely affect the organisation legally.
 Incorporating a business provides added responsibilities to the organisation especially in
terms employment decision making.
 Corporate disclosure is a must for a incorporated organisation because it is directly
operating under the company act of the country and hence corporate disclosures is
extremely important for the organisation. Moreover the organisation has to be transparent
while doing the disclosure and greater corporate social responsibility. Most of the small
businesses do not have huge capital or high profit and in this scenario if they have to
invest in corporate social responsibility would be financially burdening for the
organisation (McLaughlin, 2018).
 Double taxation system is placed on the organisations incorporated especially on gross
income of the company and then on the dividend paid to the shareholders that are
financially tolling for the organisation.
 With incorporation there’s a loss of personal ownership over the organisation since it is
governed by the board of directors.
However, discussing the advantages and disadvantages it could be said that Michael should
invest to get the company incorporated because it will definitely provide him and his sons with
added advantage in the business. It will be effective to expand the business in the different
markets and will also help the organisation to ensure success due to increased possibility of
raising capital for the business. The concerns which Michael has with the name can be addressed
as the company name can be kept the same if Michael performs his activities officially as the
director of the organisation. If Michael becomes the director of the organisation he would have
maximum share of the organisation with him which would also help him to keep significant
control over the business that would largely allow him protection from his sons if in future his
predictions come true of his children trying to drive him off of the business (Hannigan, 2018).
Overall it could be said that the advantage of the incorporation of business is larger than the
disadvantages which is definitely an important aspect to consider for Michael.

Question 2
In this case it is quite clear that the fault here is only of George. George was not having a good
professional time and could not make sales for few days now and so he became desperate to sell
Poolworths Ltd GGT’s software. However, it is important to note that George was a direct sales
representative of the organisation Golden Gate Technologies where he was contracted to promise
to consumers a discount of not more than 10% against the software. In this case George
promised 15% which is clearly out of his jurisdiction as his contract with the employer states
something else (Alden, 2018). George was acting on behalf of the company in the meeting with
Brendan who is a manager at Poolsworth Ltd. In this case Brendan was clearly happy to get a
discount of 15% which is comparatively higher discount in the market and hence was relying
largely on the discount (Gan, 2015). According to the Bargain theory a contract could be
considered as established when there’s exchange of promise or execution of an action in reply of
a promise. In this case Brendan promised to sign the contract agreement to buy the software from
George’s employer Golden Gate Technologies the following week after hearing George’s offer
which clearly shows there had been an exchange of promise between the two parties (Cartwright,
2014). It is also important to note that Brendan was largely relying on the promise of discount
made by George because his company badly needed and he did not want to leave this lucrative
offer hence, he was detrimentally relying on this offer which clearly shows that this case is of
promissory estoppel and the contract is clearly enforceable because there was consideration
present in the contract in the form of a return promise made by Brendan. The case of Walton
Stores Ltd v Maher igh Court of Australia (1988) 164 CLR 387 [1988] HCA 7; (1988) 76 ALR
513 could be referred to. The plaintiff Maher brought action against the defendant for not
fulfilling the promises as discussed which the plaintiff detrimentally relied on (Lee, 2015). In this
case even though George was not the company but he represented the organisation and Brendan
by no means was supposed to know that George is not entitled to offer discount over 10% and
hence Poolsworth as an organisation clearly relied on the offer to go ahead with the contract
(Bant & Bryan, 2015). It is also important to note that Brendan was serious about his promise as
he on the mentioned day came to GGT’s office to complete the procedure (Martin, 2016).
Hence, it could be said that Poolsworth Ltd will be right to sue the organisation to ask for
remedy or for the damage caused by the detrimental reliance of the organisation on the promise
made by George the representative of GGT. In this scenario Poolsworth has the complete legal

authority to ask the defendant to either fulfill the contract or provide compensation to the damage
caused by the reliance on the promise (Alden, 2017).

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