SBM3104: Business Law - A Comparative Analysis of Business Structures

This case study provides a comparative analysis of different business structures—sole trader, partnership, and company—to assist Mr. X and Mr. Y in making informed decisions about their business venture. It explores the advantages and disadvantages of each structure, including tax liabilities, responsibilities, and legal implications. The study also identifies potential legal issues associated with each structure, such as compliance with fair trading laws, partnership agreements, and employee rights. Ultimately, the analysis suggests that a company structure offers the most benefits in terms of limited liability and potential for growth, while also acknowledging the importance of considering all factors before making a final decision. Desklib is a great platform to find similar solved assignments and past papers.

Introduction to Business Law
Comparing the advantages and disadvantages of different
business structures
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Table of Contents
Issue............................................................................................................................................3
Provisions...................................................................................................................................3
Applicability...............................................................................................................................4
Conclusion..................................................................................................................................7
References..................................................................................................................................8
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Issue
Mr X has appropriate funds and wanted to invest in the venture or to initiate a business in
order to get appropriate returns. Further, Mr Y also wants to invest or to join some existing
business to make appropriate profits from existing funds. The issue in the present case is that
both Mr X and Mr Y are confused to take a decision about the business structure with which
they should form their organization. Every business structure has its own pros and con. In
order to resolve the issue a detailed assessment on four structures have been done,i.e. Sole
trader, Partnership, and Company.
Provisions
The main key decision while initiating a business is relating to its structure. The structure of a
business determines the size and type of business and the manner in which the business can
be grown (Gibson, 2013). The four main business structures are sole trader, company,
partnership and trust. The variants which are dependent on the type of business structure are
tax liabilities, responsibilities as business owner and legal expenses relating to business. The
four options which can be applied by Mr X and Mr Y have been discussed below in order to
assess advantages as well as disadvantages of each structure. Further, legal issues relating to
each business structure has also been analyzed in detail manner (Bell, Bryman, and Harley,
2018).
Sole Trader: The specified business structure is operated as the sole person. The owner of
the business is legally responsible for all aspects of the business. It is the most common
business structure adopted by online store owners. Moreover, it is the easiest form to be
established as well as to operate. The business does not have a separate entity as in case of
company. The owner of the company is liable for all the debts/ obligations along with the
legal action which has been taken against the business. Sole trader business is optimum for a
shop with limited risk and liability (Burgess, 2017).
Partnership: It is another form of business structure for small business. The same is
construed when two or more individuals take the decision to run a business venture together.
The partnership allows the partner to invest assets as well as to pool their skills to business in
order to enhance the chances of success (Burns, 2016). In order to initiate a partnership firm,
it is necessary to draft an appropriate agreement which comprises, names of partners, the
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investment made by each partner, profit sharing ratio between partner, outline of the business
and clause relating to the situation in case partnership is dissolved. The common feature
between partnership and the sole trader is that both the structure does not have separate legal
entity from its owners (Gibson, 2013). In other words, it could be stated that partners are
personally held liable for all the debts and obligations relating to business (Connolly, La
Cava, and Read, 2015).
Company: The fact cannot be denied that procedure relating to forming a company is
complicated,but it does have many potential benefits and advantages. In order to operate as a
company, it is necessary to be registered with ASIC. In order to operate throughout the
country, it is necessary to get registered under individual states (Enright and Petty, 2016).
The most notable characteristic of this business structure is the company does have a separate
entity from its owner. The owner is not personally liable for financial crises in case faced by
the company. The structure provides personal protection to a significantextent;however, it is
not appropriate for every business. The cost relating to the operation and setting up the
structure is quite expensive in comparison to other business structure (Erdiaw-Kwasie, and
Alam, 2016).
Applicability
Assessment of advantages and disadvantages in various legal structures and business
Sole Trader: This business structure has appealing tax aspects as the income of the business
is included in a personal income tax return. This feature is specifically attractive because in
case any loss is suffered by business than the same can be adjusted against income which has
been earned from other sources (Haski-Leventhal, and Mehra, 2016). Sole trading has
various advantages. A person who possessed the business in the owner or a boss, all the
profits which are achieved in the business belongs to him, cost of establishing a business is
low, all the dealing and transaction are done privately, the business that is operated by a solo
person is quite simple and apart from this it can change its legal structure whenever he feels
to do permission is not taken in such business from anyone as it is sole trade. When business
is not working,or it needs to swift business can be easily wind up (Johnson, and Rose, 2015).
On the other hand, there are various disadvantages of sole trading. In solo business there is
unlimited liability for debts as there was no legal difference within the business and private
assets, there was limited capacity for raising the capital, all the decision are made by a single
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person because of which whole liability is it's own. It’s hard to keep high calibre employees,
can’t take off from the work as he is alone, he taxed as a single person, as well as the life of
such business are not very long.
Partnership
Advantages of partnership businesses are there are two minds working together which is
better than one, cost of establishment is law and can be started easily, in such business more
capital is required, partnership business hasan increased capacity of borrowing, high calibre
partners are be made easily. They can greatly split their incomes and have a benefit of
particular importance as of ensuring tax savings; they have to follow limited external rules
and regulation that can also change business structure easily whenever it is needed (Potts and
Nazarian, 2015). Another advantage which can be availed in this form of structure is tax
treatment enjoyment. The partnership does not require paying tax on the revenue earned and
can pass the profits or loss to the individual partners. Thus, while filing a return each partner
reports his share in his own return and the same can be adjusted against other sources of
income in case of loss.
Disadvantages of the partnershipinclude the responsibility of the partners for the debts of the
business is limitless. All the partners are equally responsible for the debts that occurred in the
business whether one partner is liable for the cause or not he had to suffer and liable for the
debts. All the partners are agents of the partnership and responsible for the actions of other
partners. In case one partner joins or leave they maybe have to value all the assets of
partnership which might be expensive. Thus, it can be assessed that personal liability is one
of the major concern of partnership structure business. Along with the same, it requires an
appropriate source of funds in order to accomplish legal and accounting services.
Company
Advantages of the company are there is limited liability for shareholders in the company;
ownership can be transferred easily and making its shares to another party, the company can
employ shareholder that can be family members also. The company can do its business
anywhere in Australia, apart from this the rates of taxations can be more favourable (Price,
2017).
Disadvantages of the company are the establishment of the company needs a huge capitaland
its maintenance and windupbeing quite expensive. The structure of reporting is multifaceted
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and monetary affairs of companies are connected with the public. In case the director was
unable to fulfil the legal obligations then in the situation they are personally liable for the
debts of the company. Apart from all the profits that are distributed to the investors are
taxable (Rammal, and Zurbruegg, 2016).
Identification of legal issues and problems relating to the different business structure
Sole trader
Establishing a business as a sole trader in Australia it is important being aware of rules and
regulation which are legally applied in the business. For initiating the business making the
registrations is a primary step further it needs to register an Australian Business Number
(ABN), the Goods and Services Tax (GST), a tax file number (TFN) and Pay as you go
(PAYG) withholding . If a sole trader needs to have exclusive rights to a business he needs to
register it as a trademark. For setting a website, the domain name should be registered.
Business should fulfil the fair trading laws for operating its business competitively and
moderately as well as customers must be protected. For meeting the fair trading laws
following things should be considered Australian Consumer Law and your business, Fair
trading laws, Australian standards, Codes of Practice and People those are operating its
business in Australia are affected by Australian Consumer Law (ACL).
Partnership
For doing the partnership business, it is important to make an agreement in the document
which includes all the commercial arrangements relating to business (Gibson, 2013). Before
starting a partnership lawyer must be hired that prepare the binding agreements which consist
of following things. Authority and role of each partner in the business, financial contributions
of the partner, the process of decision making, the procedure of making solutions regarding
the disputes arise in the business furthermore the process of leaving the partnership. There
should be a formal agreement within both the parties as personal responsibility is limitless for
every partner. All the partners associated with the business are accountable for shortfalls in
case business fails as well as a realization of partnership assets is inadequate for paying out
all business creditors, rather they are a partner or not can afford to pay. Moreover, every
partner is mutually accountable for any debts whether he incurred or not or doesn’t have
knowledge about the issues (Ruseckaite, at.el 2016).
Company
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In Australia, there is a national regulatory system which assumes fair trading for business and
customers. The whole system is enforced and directed by the Australian Competition and
Consumer Commission (ACCC).Moreover, the consumer's protections are governed by the
state and territory law as well as government legislation. Advice on business rights and
obligation is provided by a fair trading office in every nation (Wrigley, 2017).
Legal issues that are generated while doing business through companies are the question of
which laws will apply in disputes, Rules of competition, Extra-territoriality of overseas
legislation, Differences between legal systems and Product Liability. In the case of a
company, the business is developed at a large scale for which it might have to face legal
issues relating to disgruntled employees. The rights of an employeeare different from country
to country and if unions are available than the situation might be more miserable in case of
wrongful termination. In case an employee is allowed to terminate without any final
termination that the company might have to face a variety of legal actions which could
impact on the brand image of the company. Discrimination and Harassment are the other two
common legal issues which can lead the business to serious problems. Thus, it is necessary to
make assure that human sources and legal department are appropriately well-equipped in
order to handle issue relating to same.
Conclusion
After analyzing various aspects of all the business structure have been analyzed and
according to which conclusion can be made that the best and successful business structure is
a company. The debts of the company are not considered as its owners as various investors
are associated with the company;therefore the personal assets are not at the risk of the owner.
A company can also keep its income without paying tax by the owner. It does follow the
strong rules and regulation, and huge preparation of accounting and tax is required. Though,
the other phase of the decision is also required to be considered before taking the final
decision that business with company structure does have significant legal formalities relating
to incorporation as well as operation.
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References
Bell, E., Bryman, A., and Harley, B. (2018). Business research methods. Oxford university
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Burgess, M. (2017). Subdivision 328-G: The limitations become apparent — taxation in
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Burns, P. (2016). Entrepreneurship and small business. Palgrave Macmillan Limited.
Connolly, E., La Cava, G., & Read, M. (2015). Housing prices and entrepreneurship:
Evidence for the housing collateral channel in Australia. In Small Business Conditions and
Finance, RBA Annual Conference Volume, Reserve Bank of Australia.1(1), Pp. 15-20.
Enright, M. J., & Petty, R. (2016). Australia's competitiveness: from lucky country to a
competitive country. John Wiley and Sons.
Erdiaw-Kwasie, M. O., and Alam, K. (2016). Towards understanding the digital divide in
rural partnerships and development: A framework and evidence from rural
Australia. Journal of Rural Studies, 43, 1 (1) Pp.214-224.
Gibson, A. (2013). Business Law,10th Edition. Australia. Pearson Edition.
Haski-Leventhal, D., and Mehra, A. (2016). Impact measurement in social enterprises:
Australia and India. Social Enterprise Journal, 12(1), Pp.78-103.
Johnson, M., and Rose, G. 2015. Extending life on the bike: electric bike use by older
Australians. Journal of Transport and Health, 2(2), Pp.276-283.
Potts, C., and Nazarian, A. (2015). Small businesses and graduate recruitment in Australia
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Pp.61-69.
Price, J. (2017). The regulator: Get your books in order — company Director, 33(2), P. 8.
Rammal, H. G., & Zurbruegg, R. 2(016). Awareness of Islamic banking products among
Muslims: The case of Australia. In Islamic Finance (pp. 141-156). Palgrave Macmillan,
Cham.
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Ruseckaite, R., Collie, A., Scheepers, M., Brijnath, B., Kosny, A., and Mazza, D. 2016.
Factors associated with sickness certification of injured workers by General Practitioners
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Wrigley, D. 2017. News from the Australian seedbank partnership. Australasian Plant
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