LAWS20059 Assessment 1: Business Structure for Indian Sweet Business

This assignment analyzes the optimal business structure for a client who wants to start a business making Indian sweet dishes. The report explores three main business structures: sole trader, partnership, and company. The analysis considers the client's preferences for simplicity, family involvement, and control. The report recommends a partnership structure, detailing its advantages in terms of ease of formation, capital contribution, and control within the family. It contrasts this with the limitations of a sole trader (lack of family involvement) and a company (increased complexity and compliance requirements). The report references relevant legislation, such as the Partnership Act 1958 (Victoria), and discusses the pros and cons of each structure, including liability issues. The conclusion reinforces the suitability of the partnership structure based on the client's specific needs and provides alternatives, such as sole trader, if the client has different preferences.

LAWS20059
Assessment 1
09-Mar-18
(Student Details: )

LAWS20059
Part 1
One of the neighbours in our locality is from Indian heritage, and she makes delicious Indian
sweet dishes. For a long time, she has been advised by a number of people on starting her own
business and to make money out of her skill. For the purpose of this assignment, I visited my
neighbour. The following part covers the detail of the questions put before the neighbour and the
answers presented on the queries which were raised.
Q. You have been advised by a lot of people on starting up your own business. Have you ever
thought about it?
A. I am glad that you asked. Yes, lately I have been thinking a lot about opening up my own
business. However, I am not sure on how to start and where to begin. I have no legal or business
knowledge to go forward with my dream and I feel helpless right now.
Q. Would you like me to help you on this matter? To give you a brief insight on the world that
lies in front of you.
A. Yes, I would be glad.
Q. I would like to tell you that in order to start up your business I can help you; this is
particularly from the perspective of selecting the type of business structure you can opt.
However, I will not be able to help you up on the details of the food business or anything related
to the pricing of products.
A. Yes, that part I can do easily. But I am not sure on what you mean by type of business
structure.
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Q. There are different business structures in the nation, which a person has to select, before they
start up their business. These business structures are unique and come with their own
characteristics, which results in certain advantages and disadvantages. The choice of business
structure is crucial as changing the business structure later on is a difficult task. More
importantly, an improper business structure could result in issues being raised, which could have
been avoided by selecting the correct business structure in the first place. Based on the history
you have, you need to opt between the three business structures of sole trader, partnership and
company. However, I need to know what your requirements are before any particular business
structure could be shortlisted for you.
A. I have not given any thought about it. But I would like to keep everything simple.
Q. Okay, so do you want to work alone and would you like to have some other people sharing
the control with you?
A. I am not sure if I will be able to control the entire business alone. I would thus like to take
help from my family members, but would want to keep control within my family only.
Q. Do you have any other requirements or parameters which you have in your mind and would
like to be fulfilled in this business?
A. I am not sure but I just want to keep everything simple. I do not want a lot of legal hassle or
requirements to be fulfilled. What business structures do you think would suit my requirements?
And could you explain to me the different features of the structures which are present in our
country?
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Q. Well, there are three key business structures as I told you earlier. The first one is sole trader.
In this structure, a single person runs the entire business. Therefore, has the entire control over
the business. However, the entire responsibilities have to be managed by the sole trader,
particularly in terms of contributing capital. The next form is partnership, where two or more
people come together to run a business for common purpose. This allows for pooling of
resources, but is marked with unlimited liability. The last form is a company structure, which is
bigger than the earlier two structures. As a result of this, it offers more advantages and even
certain number of disadvantages. I want to ask you one last question; would you like to take
funds from public for your business?
A. I am not sure. I do not have plans to make this business very big, I want to keep it simple and
small.
Part 2
Introduction
The choice of business structure is a crucial one. This is the reason why all the factors
surrounding the client, their needs and their requirements are carefully analysed, before any
business structure is selected. Last week, one of the clients of the firm was visited to get insights
on their situation. This report highlights the research undertaken based on the needs of the client
regarding the laws which apply on the business structure which best suits the client.
Business Structure
The needs of the client were to keep the business simple, to involve her family in the business
and to have control over the business. Based on these requirements, the most suitable business
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structure for the client is partnership. There are a number of reasons for stating this. The first
thing is that the client wants to keep the business simple. For this, a sole trader form can be
selected. However, the key matter is that the client does not want to run the entire business by
herself and wants to involve her family members in the business1. And due to her needs of
keeping the business simple, a company form does not suit her, due to the plethora of legal
compliances which have to be fulfilled under this business structure. The Companies Act, 20012
provides the details on the requirements of starting up a business and the compliances which
have to be met. These are complex and not suited for small businesses3.
When the client decides to opt for a partnership form of business structure, she would have the
ease of business formation. In Australia, each region has its own partnership legislation. For
Victoria, the Partnership Act, 19584 becomes applicable. Section 5 of this act gives the definition
of partnership, where the individuals carry on business for earning profits and in common
manner5. Section 6 gives out the rules which are used for determining if a partnership is present6.
Where these requirements are fulfilled, the partnership is deemed to be present, even when there
is a lack of written agreement, or the partnership deed. This act also presents some of the
disadvantages of being in a partnership form of business. This is the unlimited liability of the
partners; and the liability to be bound by the acts of other partners7.
So, in partnership, there is the disadvantage of unlimited liability and liability for other partners
is unlimited. This means that in the event when the partnership is unable to pay off its liabilities,
1 Andy Gibson and Douglas Fraser, Business Law (Pearson Higher Education AU, 2013)
2 Companies Act, 2001 (Cth)
3 Phillip Lipton, Abe Herzberg, and Michelle Welsh, Understanding Company Law (Thomson Reuters, 18th ed,
2016)
4 Partnership Act, 1958 (Vic)
5 Partnership Act 1958, s5
6 Partnership Act 1958, s6
7 Paul Latimer, Australian Business Law 2012 (CCH Australia Limited, 31st ed, 2012)
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all the partners would have to pay the debts of the partnership, and this includes their personal
assets being attached or sold off to pay the debts. They are jointly and severally liable for the
debts of the partnership. Further, owing to the operation of agency law, the acts of one partner
bind the others. There is also the risk of partnership coming to an end due to disagreement
between thee partners8.
However, there are a number of advantages of partnerships, which particularly suit the
requirements of the client in the present instance. The first is the ease of formation of
partnership. The client can simply draw up an arrangement on a document, and this would be
effective document and would be considered as partnership deed. Further, the partners can be
named in this deed, along with the money which is being contributed by them in the partnership,
which would become the capital of the business. By restricting the number of partners to three or
four, the entire control can be in the hands of the client, or in that of her family. There is just the
need of fulfilling the criteria laid down under the partnership act, where there is a need to show
that the partners are running business for common purpose and for earning profits9.
The other advantage of partnership is that the client and her family can contribute the capital
required for starting the business. They can distribute the functions between them to bring a
proper structure in the partnership, where one person handles the cooking and the other person
handles the financing. Where they require more capital, they can add in more partners, or
contribute more capital. The start-up costs of partnership are minimalistic and the business can
be kept small as per the needs of the client. This business form allows the business to keep the
matters private, which would enable the client in keeping their recipes and other information
8 Joseph Story, Commentaries on the Law of Partnership, as a Branch of Commercial and Maritime Jurisprudence,
with Occasional Illustrations from the Civil and Foreign Law (The Lawbook Exchange, Ltd., 2007)
9 Roger Vickery and MaryAnne Flood, Australian business law: compliance and practice (Pearson Australia, 2012)
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away from public eye, along with the financial position. The business can be kept simple owing
to the limited external regulations10.
Conclusion
Thus, from this discussion it can be concluded that by opting for partnership, the clients would
have to follow the Partnership Act, which is way less complex then the legislation governing the
companies; and would also suit their requirements.
Part 3
Introduction
The choice of business structures requires evaluating the different options and weighing in the
pros and cons of each structure. This report weighs up the alternatives and presenting the
arguments for the recommendation made for the client for choosing a partnership form of
business.
Business Structure
In the previous report, the recommendation to the client for choosing up partnership form of
business structure was given, based on this structure fulfilling the requirements of the clients.
This report also highlighted the pros and cons of getting in a partnership, along with the relevant
law applicable on partnerships in Victoria. However, where the client still wants to consider the
other forms, this discussion would be of help.
The client can opt for a sole trader form of business structure. This is because the client wants to
keep the business simple and have the control over the business. However, as they want to share
10 Ann Carrington, Business Structures and Incorporation (Aauvi House Publishing Group, 2012)
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the burden of work with her family, she was suggested to opt for partnership. There is one
alternative here. The client can employ the family members as workers in sole trader. This would
allow her to distribute some of the work to the family members working as workers and at the
same time, keep control over the business. This would though, restrict the capital pool and for
funds, the client would have to rely on external sources alone11.
The client also has the option of creating a company. This would allow the client to raise money
from public. Where they want to restrict the raising of money for business from her family only,
she can opt for a propriety company. These companies can only raise funds from friends and
families and not from general public. In comparison to public companies, the affairs of
proprietary companies are still more private. Unlike partnership and sole trader, the shareholders
and owners of company have limited liability. Further, the work of the company is undertaken by
key personnel like CEO, directors and the like, which would take the control away from the
present client. A company form though would come with increased compliance requirements and
would make the business complex, which is against the key focus of the client12. Owing to these
reasons, despite the different advantages of company form of business structure, it would not suit
the client, based on their requirements. Though, this mode can be kept as an alternative for
future, where the business grows and the clients of feel the need of expanding their business.
Conclusion
Thus, on the basis of the discussion undertaken in the previous segments, it can be concluded
that the best suited business structure for the client is partnership. Where the client wants to opt
for an alternative business structure, they have to go for sole trader. And where in the future the
clients want to expand their business, they can opt for company form of business structure.
11 At 1
12 Julie Cassidy, Concise Corporations Law (The Federation Press, 5th ed, 2006)
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Bibliography
Articles/ Books/ Journals
Carrington A, Business Structures and Incorporation (Aauvi House Publishing Group, 2012)
Cassidy J, Concise Corporations Law (The Federation Press, 5th ed, 2006)
Gibson A, and Fraser D, Business Law (Pearson Higher Education AU, 2013)
Latimer P, Australian Business Law 2012 (CCH Australia Limited, 31st ed, 2012)
Lipton P, Herzberg A, and Welsh M, Understanding Company Law (Thomson Reuters, 18th ed,
2016)
Story J, Commentaries on the Law of Partnership, as a Branch of Commercial and Maritime
Jurisprudence, with Occasional Illustrations from the Civil and Foreign Law (The Lawbook
Exchange, Ltd., 2007)
Vickery R and Flood M, Australian business law: compliance and practice (Pearson Australia,
2012)
Legislations
Companies Act, 2001 (Cth)
Partnership Act, 1958 (Vic)
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