Law and applicability of law. Application to the business of David and Liam

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Cover Page
Name of the student
Student ID
word count

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Contents
Solution 1................................................................................................................... 3
Issue A..................................................................................................................... 3
Law and application............................................................................................. 3
Issue B..................................................................................................................... 4
Law and application............................................................................................. 4
Conclusion............................................................................................................... 6
Solution 2................................................................................................................... 6
Issue........................................................................................................................ 6
Applicable law......................................................................................................... 6
Application of law.................................................................................................... 7
Conclusion............................................................................................................... 8
Reference List........................................................................................................... 10

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Solution 1
Issue A
The first issue is to decide whether company is the right choice for Richard and his son’s (David
and Liam) to conduct their business.
Law and application
The choice can only be made after comparison the pro and cons of a company with a sole trader
ship and partnership.
A company is a business entity which is framed once a company is registered as per the statutory
requirements of lay down by ASIC. A sole trader ship is a business wherein the owner and
management lies in the hands of one person and there is no requirement of any kind of
registration, but, a partnership is a business wherein two or more people join together with a
common objective and with the aim to earn profits and share losses. (Gov, 2017)
However, it is found that a company as a business structure is found to be preferable because of
several reasons: (Cleardocs, 2010)
i. Limited Liability – In a company, the liability of the shareholders is limited to the
extent of their value of the shares. Thus, in case the company incur any liability then
the shareholders will only liable to pay to a limited extend;
However, in case of a sole trader ship or the partnership, the liability is not limited but
the sole traders or the partner are liable to face the liability to the fullest. The chances
of bankruptcy is very high when the business is not able to meet its financial
constrains.
ii. Loan – In a company, loan can be secured on the assets of the company and at times
upon the guarantee of the directors. thus, the personal assets of the shareholders or the
directors are not at risk;
But, in case a loan is to be taken by a sole trader or a partnership then it is the assets
of the sole trader or the partners which are at risk and thus makes them less favorable
when compared with a company;

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iii. Capital rising – In case of a company, the capital rasping is easy as the company can
offer its shares and thus raise capital. But, in case of a sole trader ship, raising capital
requires taking loan from banks and other financial institution which requires lots of
paper work and is expensive; (Price, 2014)
iv. Tax – The tax rate for a company is 28%-30% flat. A sole trader pays tax as per their
marginal rates. Whereas in the case of a partnership each partner is liable to pay their
own tax on their partnership income. Thus, there is no personal tax that is imposed on
the shareholders and the same is borne by the company as a separate legal entity.
v. Retain profits – The company has the power to retain profits which can later be used
for the growth of the company, but, the same is not permissible in case of a
partnership or a sole trader.
vi. Separate legal entity – The Company has a separate legal entity, thus, the directors
and shareholders are not same as a company and the acts of the company is its own
(Salomon v A Salomon & Co Ltd [1896]). But, in case of partnership and the sole
trader the acts of the partnership or sole trader are not separate but are considered the
acts of the partnership or the trade ship.
Now, Richard has a grove and has purchased his neighbor’s adjoining property with a view to
expansion. His two sons, David and Liam, want to establish business and need finance to expand
the business.
Sole trader ship is not possible as it can be operated only when there is a single person but now
including David and Liam and Richard, there are three people who intend to establish a business.
Also, they need require capital for expansion. Thus, operating by way of a company is a better
choice and it provides tax gains which is not present in case of a partnership.
Thus, operating by way of a company is a better choice.
Issue B
The next issue is the requirements that must be met in order to register the company.
Law and application