University Assignment: Business Structure for Fashion Industry Startup

This report provides comprehensive legal advice on selecting the appropriate business structure for a small fashion business. The assignment addresses a client's inquiry regarding the best structure for a men's clothing startup, comparing sole proprietorship, partnership, and company structures. The analysis includes the advantages and disadvantages of each structure, such as liability, taxation, and operational complexities. The report recommends a proprietary company structure, highlighting its benefits like limited liability and management control, while also acknowledging registration requirements and compliance obligations. References to relevant legislation such as the Corporations Act 2001 (Cth) and Income Tax Assessment Act 1997 are included to support the recommendations. The report concludes with an offer to address any further client queries.

Running head: BUSINESS STRUCTURE
BUSINESS STRUCTURE
Name of the Student:
Name of the University:
Author Note:

1
BUSINESS STRUCTURE
To
Mr. John
Sub: Advice on business structure to be used for small business in fashion industry
Respected Mr. John,
We came to know that you are planning to establish a small business in the fashion
industry and particularly you are interested to enter into the segment of men’s clothing (Burns,
Mullet and Bryant 2016.). In this letter, we will guide you for your business need. We will also
advice you for the establishment in brief to avoid any misunderstandings and future
complexities. You want to know which business structure will be perfect for your business idea
and thus we will advise you to choose the appropriate business structure and help you to
incorporate your business to avoid any legal issues and business risk in future (Sadgrove 2016).
Among various business structures present, we will be informing you about few basic
structures that may be perfect to your business idea.
 Sole proprietorship
 Partnership
 Joint ventures
 Company

2
BUSINESS STRUCTURE
As suggested by the name, a sole proprietorship is controlled by a single person. Since
you want to manage your business alone, you can opt for this type of structure (Valencia 2016).
If you select this, you will be having total control on the way you want to control your business.
Moreover, if you choose this structure, you will be an advantage of low costing because it is the
cheapest form of business. No cost of registration will be required in this type. The business can
run smoothly by using your personal name only. The legal aspects will be comparatively less
than other business structures. However, there are some concerns that must be considered.
Firstly, you and your business will have no difference. There will be no limited liability in sole
proprietorship (Valencia 2016). It indicates that you and your business will be having same
liability. All the losses incurred by the business will be subjected to you. Secondly, since your
income and income out of your business will be assessed together, you may fall in the upper tier
of taxation for which you have to pay more tax. Moreover, your personal assets will be rendered
risky if this business structure is being chosen by you. Thus considering its pros and cons, we
will not advice you to opt for this type of business structure as it will risky to personal liabilities.
There is another business structure that you can choose is the partnership structure. As
per the nomenclature, it is carried out by two or more persons who are known as partners if one
another (Tikhomirov et al. 2016.). The business can be or cannot be registered but it is liable to
the provisions containing rules of the Partnership Act 1963 (Cth) or the rules enumerated under
the Common law. If you want to choose partnership structure for your business you have to
conduct your business with another person (s). The cost of establishing the business will be low
comparatively as the registration is not compulsory. Moreover, the process of formation as well
as registration is also very simple. However, a partnership deed is to be created which will
comprise of the rights and duties and other terms of the partnership business and the partners will

3
BUSINESS STRUCTURE
be bound by it. If you choose partnership structure, you will be having the option of increasing
the capital as well as skill as the other partner will contribute to the business like you. However,
there are few important disadvantages you must consider if you are planning to choose
partnership as the business model. Similar to the sole trading, partnership also has the perils of
absence of limited liability. Like sole partnership, you can be held liable for the act of the
business debts. Apart from this, you will be subjected to the principle of ‘jointly and severally
liable’ principle which renders a partner liable to all the acts done by the other partners in the
business course. The partner is regarded as the principal as well as the agent of the partnership
business. It indicates that you can be made liable for the act done by your partner. Such liability
may encroach upon your personal assets. Moreover, inclusion of a partner will welcome
additional and unnecessary interference and interventions in the process of making decision and
business management as both of you have the right to involve in business affairs as partners.
The company structure is not a common mode of business structure used in Australia and
also in any other countries. This structure has some features which cannot be applied and used in
other business structures. These features include separate legal entity, limited liability, perpetual
existence and transfer of ownership.
The separate legal identity aspect means the identity of the owner or members are distinct
and separate from that of the business. When a company is created, it assumes a separate legal
entity in the eye of law and is to be treated separately. The company makes its own rights and
liabilities according to the provisions enumerated in the Corporations Act 2001 (Cth). The
company can be separately liable for the contract breach. The company can sue as well can be
sued for any breach of contract. As per section 9 of the said Act, a company is usually controlled
and governed by persons known as directors. The company can enforce any document in its

4
BUSINESS STRUCTURE
name by using a common seal or by any other person who has the authority to act on behalf of
the company. Hence, the company can keep assets like property, buildings in its own name. The
company also can be different from its directors. The members or owners of the company may or
may not participate in the management of the company. In Australia, there few particular kinds
of company but as per your need the most appropriate will b the public or the proprietary
company. A public company has an extra advantage to collect funds from the public. The
proprietary company however, does not have such benefit of collecting funds from public. The
compliance need of the company is more than the proprietary company. By considering all these
aspects, we will suggest you to choose the proprietary structure as it will be more suitable and
perfect for you as you are planning to operate a business in small scale. The main feature of the
limited liability company is that your liability will be proportionate to the contribution you made
and your personal assets will remain safe from encroached to satisfy the liability of the company
(Bainbridge and Henderson 2016). However, there lies a condition that unless the company
incurs loss for your act of breach of duty as a director, your personal assets and money will
remain safe. Moreover, you can be the sole director of the company as a result of which the
controlling and managing power of the company will be vested in you and will be free from any
interference. You can also seek for private investment to be issued to some shares in the
business. These shares can also be transferred from one person to other. However, there lie some
disadvantages too. The Australian Securities and Investment Commission, popularly known as
ASIC constantly checks the functioning and operation of the companies under the provisions of
the Corporations Act (Ramsay and Webster 2017.). Moreover, the business has to be registered
compulsorily and the process of registration is very complex. It is provided in section 112 of the
Act. Form 201 given by the ASIC has to be filled. You also have to a distinct name for your

5
BUSINESS STRUCTURE
company and it shall not bear any strong resemblance with other company. This name of the
company is required to be registered too. Thus it can be clearly seen that the disadvantages
imposed by this type of business structure is comparatively more visible in the high cost of
establishment and maintenance together with other legal compliance. But when both advantages
and security it provides are considered, it can be regarded as the best available business structure.
Thus you are advised by us to choose the business structure available for proprietary company in
order to carry out your business in the fashion industry. Such structure will give you protection
against your personal liabilities. It will also reduce your tax burden as tax is calculated on the
turnover and will be either 27.5 percent or 30 % percent of the profits incurred in the business.
You can also claim for deduction of tax for any losses which the business can face in upcoming
years under the Income Tax Assessment Act 1997. Kindly let us know if you still have any
questions as we will be happy to solve your queries.
Yours sincerely,

6
BUSINESS STRUCTURE
References:
Bainbridge, S.M. and Henderson, M.T., 2016. Limited liability: a legal and economic analysis.
Edward Elgar Publishing.
Burns, L.D., Mullet, K.K. and Bryant, N.O., 2016. The business of fashion: Designing,
manufacturing, and marketing. Bloomsbury Publishing USA.
Ramsay, I. and Webster, M., 2017. ASIC Enforcement Outcomes: Trends and
Analysis. Company and Securities Law Journal, 35(5), pp.289-321.
Sadgrove, K., 2016. The complete guide to business risk management. Routledge.
The Corporations Act 2001 (Cth).
The Income Tax Assessment Act 1997.
The Partnership Act 1963 (Cth).
Tikhomirov, E.A., Bykovskiy, M.A., Veselova, N.Y., Mkrtumova, I.V., Malofeev, I.V.,
Ryazantsev, S.V. and Luk’yanets, A.S., 2016. Public-private partnership: The model of
interaction of regional socio-economic systems in the trans-regional space. International review
of management and marketing, 6(1S), pp.255-260.
Valencia, V.S., 2016. Small firm survival: an Australian perspective. Advances in Management
and Applied Economics, 6(5), p.1.