Business Structure Recommendations: Bibek's News Agency Expansion Plan

This report examines business structures, focusing on the case of Bibek, a news agency owner in Australia, who seeks to expand his business. The analysis begins with a discussion of sole proprietorships, highlighting their advantages and disadvantages, and then recommends incorporation as a company under the Corporations Act 2001. The report details the steps involved in company formation, including choosing a name, deciding on operational rules, understanding officeholder obligations, and registration. It then differentiates between proprietary and public companies, covering shareholder limits, director requirements, revenue raising, shareholder liability, and disclosure requirements. Further, the report contrasts companies limited by shares and companies limited by guarantee. The report concludes with an overview of Section 249D of the Corporations Act 2001, addressing the obligation of directors to call general meetings when requested by company members, and outlining the consequences of non-compliance, including potential director liability and member rights.

1
Contents
Contents......................................................................................................................................................1
Topic 1........................................................................................................................................................2
Topic 2........................................................................................................................................................4
Topic 3........................................................................................................................................................6

2
Topic 1
Bibek has a news agency business in Australia. With passage of time his customer base is
increasing. The income of Bibek is increasing along with his tax. But, Bibek now
wants to expand his business. One of the best customers of Bibek, Bimana
submitted that he must incorporate his business as sole trader.
It is thus important to advice on the best business structure that Bibek must comply with.
A sole trade is one of the business structures that are adopted by an individual. In sole trading the
owner is the boss of the business and can keep all the profits of the company. The
startup cost is very low and there is maintenance of confidentiality. (ASIC, 2018)
However, there are several disadvantages that can also be attributed to a sole trader ship, that is,
the liability of the owner is unlimited and is accountable for all the debts of the
business. He is not able to raise much capital if intend to expand the business. The
owner is taxed as single person which is very high. The responsibilities are too
much to handle. (Justin & Bishop, 2006)
It is submitted that Bibek is already managing the business independently and without the
involvement of any other person and thus facing taxes problems. Since he intends
to expand his business which requires capital, expert personnel and limitation in
liability then it is advisable that he must initiate his business by way of a
company.
In Australia, to operate by way of company it is necessary that the same must be incorporated as
per the provisions of the Corporation Act 2001. There are several steps that are
required for the formation of the company. The same includes: (Mills & Woodford,
2015)
i. It is very important to decide whether the company is the right choice for
operating as a business.
Once a company is established, it has several advantages that can be attributed, which includes:

3
a. Separate legal entity of the company which emphasize that a company is distinct from its
members and the acts of the company are of its own and not of the company
members and is rightly held in (Salomon v A Salomon and Co Ltd , 1897);
b. The corporate taxes are applicable on the company and thus tax advantages can be gained
if a company is incorporated;
c. The liability is limited to the extent of the shareholding value of the members and thus
their personal assets are not attached to satisfy the dents of the company and is
held in (Briggs v James Hardie & Co Pty Ltd);
d. It is very easy to transfer the shares of one company to another;
e. It is very easy to trade anywhere in Australia;
ii. Once it is decided that a company needs to be formed, then, the next step is to
decide the name of the company. It is necessary that the name that is selected
must not be existing or identical with an already existing name. However, there
are few words that cannot be used without the permission of the government
minster, that is, trust, bank, royal, incorporated. Offensive words are also not
registrable. A name can also be reserved in Form 410.
iii. It is then necessary to decide as how a company will operate. A company can
operate by way of replaceable rules or by the constitution of the company or by
both.
iv. It is necessary that the officeholder obligations must be understood. The
obligations includes:
a. That the company details must be upto date;
b. The records and register of the company must be maintained;
c. The lodgment and annual review fees must be paid.
v. It is then necessary to seek the consent of the members, officeholders and
occupiers. The written consent is required from the following people.
a. A director must be 18 years of age;
b. A secretary must be 18 years of age;
c. Member consent required and every company must have minimum one member
vi. When all the requirements are met then the company must be registered. The
registration of the company can be done in two manner:

4
a. With the help of private service provider – (Australia, Australian Corporations &
Securities Legislation 2011: Corporations Act 2001, ASIC Act 2001, related
regulations, 2011)
b. Directly with ASIC – this can be done by filing Form 201.
vii. When the application is made, then, an ACN number is provided, the register of
the company is provided and a certificate of the registration is provided.
It is thus submitted that Bibek is operating as an individual and now since wants to expand his
business thus establishing the business by way of company is most appropriate.
Bibek is then able to raise capital, limit its liability, appoint professional
employees and secure tax advantages. He is regarded as distinct that from the
company.
Thus, it is advisable that the company must be incorporated by Bibek by following the above
mentioned procedure of registration.
Topic 2
a) Difference between proprietary company and public commonly
There is significant number of difference that can be attributed to a proprietary and public
company. The same includes: (Tomasic, Bottomley, & McQueen, 2002)
i. Shareholder size limit – Every private company is limited in its size and is
governed by its constitution. Every private company has at least one shareholder
and maximum 50 non-employees shareholders.
But, every public company must have a minimum of 1 shareholder and normally has more than
50 non-employees shareholders and has no maximum limit.
ii. A private company must have at least 1 director and no company secretary. But,
in public company there is at least 3 directors (two of them must ordinary reside
in Australia) and one company secretary.
iii. Raising Revenue – The private companies are unlisted companies and have no
capacity to raise capital by selling shares to the public. Funds can only be raised
by these companies either with the help of the directors or by availing commercial

5
lines of credit. Finance can also be generated with the help of giving shares to the
employees or shareholders of the company.
However, a public company can raise finance by selling the shares to the public. However, the
public companies must disclose corporate financial information.
iv. Shareholder Liability – The shareholders category in the private company is
divided in two categories, that is, limited by shares or unlimited by share capital.
However, shareholder liability in public company is divided into four categories that is, limited
by shares; unlimited share capital; limited by guarantee; or no liability. (Tomasic,
Bottomley, & McQueen, Corporations Law in Australia, 2002)
v. Regulatory bodies - The regulatory body of a private unlisted company is ASIC.
The regulatory body of a public unlisted company is ASIC or APRA. The
regulatory body of a public listed company is ASIC and APRA.
vi. Disclosure requirements – The small private companies hardly have any
disclosure requirements. There is no requirements of any financial statements,
audit or directors report. But, a large private company must have disclosure
requirements, that is, financial statements, audit or directors report.
Public companies must have disclosure requirements, that is, financial statements, audit or
directors report. Along with these requirements the company must also provide a
shareholders report, hold an annual general meeting.
b) Difference amid company limited by shares and company limited by guarantee
There is significant number of difference that can be attributed to a company limited by shares
and company limited by guarantee. (Dagwell, Wines, & Lambert, 2007)
A company limited by shares
This is the most common type of company that is prevalent and is governed by the provisions of
the Corporation Act 2001. It is applicable to all kinds of companies and mainly
attributes limited liability to the shareholders of the company. Both private and
public company can be a company limited by shares. In order to identify a
company limited by shares, the word limited is used at the end of the name of the

6
company. It gives a warning to every person who intends to deal with the
company that the liability of the company is limited in nature.
Simply a company limited by shares signifies that the liability of the shareholders of the
company is limited to the extent of their value of shares in the company.
Also, the directors are not accountable to the acts of the company or any debt that is incurred by
the company. The directors are only liable for the violation of their directorial
duties and obligations. (Lonergan, 2003)
Company Limited By Guarantee
There are no shareholders in a company limited by Guarantee but there are members in a
company limited by Guarantee. In this the liability of the members is static to a
specific amount which is guaranteed by the constitution of the company. It is
when the company is at the stage of winding up that the guarantee of the members
is called for. In this situation, the members are obligated to pay a specific sum
when the assets of the company fall short to pay the dents that are incurred by the
company. When the present members of the company are not able to contribute to
the debts then the past members are called to contribute to the liabilities that are
attained by the company. These are the companies that are normally for non-for-
profit companies. (Sievers, 1996)
Topic 3
Section 249D of the Corporation Act 2001 is a very relevant provision that deals with the
obligation on the directors of the company to call for general meeting when the
same is requested by the members of the company. (Australia, 2011)
Section 249 (1) submits that when the members of the company makes a request to the directors
of the company to calla and arrange a general meeting then the same must be
complied with by the directors of the company. The request must be made by at
least 5% of the votes casted at the general meeting.

7
As per section 249 (2), the request that is made under sub section 1 must be made in writing
wherein the resolution must be stated at the meeting. The resolution must be
signed by the members who have made the request and should be given to the
company.
Section 24 (5) submits that it is necessary that the directors must call the meeting within 21 days
after the request is given to the company. The maximum time for the conduct of
the meeting is 2 months after the request is given to the company. (Bottomley,
2016)
Now, what happens when the directors does not call the meeting within the stipulated time of 21
days as motioned under section 249 (5) of the Act. In such case, members with at
least 50% of all the votes may cast votes and call for the meeting. However, the
meeting must not be held more than three months after the date of the demand
notice was delivered to the company. It is necessary that the company must pay
the expenses that are incurred by the members while holding the meeting. Also, if
the directors do not call the meeting as requires under section 249D of the Act,
then the directors can be held personally liable for the coasts that is incurred by
the member to call the meeting. The directors can protract themselves by proving
that all reasonable steps are taken by them in order to comply with provisions of
section 249 D of the Act. If the directors do not pay the expenses that are incurred
upon, then, the amount can be deducted from the remuneration or the fees that is
given to the directors for the compliance of his services.
The members themselves have the power to call a meeting without telling the directors of the
company. This right is provided under section 249F of the Act. Members with 5%
of the votes that are present in the general meeting can hold a meeting themselves.
Thus surprise element is present when the members themselves call the meeting
and thus can also exercise the control upon the company. However, the expenses
that are incurred by the members by calling the meeting is faced by the members
themselves. (Cassidy, 2006)

8
ASIC. (2018). Steps to register a company. Retrieved May 16, 2018, from ASIC: http://asic.gov.au/for-
business/registering-a-company/steps-to-register-a-company/
Australia. (2011). Australian Corporations & Securities Legislation 2011: Corporations Act 2001, ASIC Act
2001, related regulations. australia : CCH Australia Limited.
Australia. (2011). Australian Corporations & Securities Legislation 2011: Corporations Act 2001, ASIC Act
2001, related regulations. CCH Australia Limited.
Australia. (2011). Australian Corporations & Securities Legislation 2011: Corporations Act 2001, ASIC Act
2001, related regulations. CCH Australia Limited.
Bottomley, S. (2016). The Constitutional Corporation: Rethinking Corporate Governance. Routledge,.
Briggs v James Hardie & Co Pty Ltd (1989).
Cassidy, J. (2006). Concise Corporations Law. Federation Press.
Dagwell, R., Wines, G., & Lambert, C. (2007). Corporate Accounting in Australia. Australia: UNSW Press.
Justin, M., & Bishop, B. (2006). Australian Export: A Guide to Law and Practice. Australia: Cambridge
University Press.
Lonergan, W. (2003). The Valuation of Businesses, Shares and Other Equity. Allen & Unwin.
Ltd, B. v. (1989).
Mills, A., & Woodford, W. (2015). Company Accounting. Australia: Pearson Higher Education AU.
Salomon v A Salomon and Co Ltd , 22 (AC 1897).
Sievers, A. (1996). Associations and Clubs Law in Australia and New Zealand. Federation Press.
Tomasic, R., Bottomley, S., & McQueen, R. (2002). Corporations Law in Australia. Australia: Federation
Press.
Tomasic, R., Bottomley, S., & McQueen, R. (2002). Corporations Law in Australia. Federation Press.

9