LAWS20059 Business Law Report: Optimal Business Structure for a Gym

This report provides a legal analysis of business structures suitable for Bob's proposed gym business, considering his circumstances and concerns. It evaluates sole trading, partnership, and company structures, highlighting the advantages and disadvantages of each. The report recommends against sole trading due to Bob's partnerships and increased tax liabilities. It also cautions against a standard partnership due to potential mismanagement by partners and joint liability. Joint ventures are deemed unsuitable due to the ongoing nature of the business. The report suggests that a company structure, either public or private, offers the best solution due to its separate legal identity and limited liability, which can protect Bob's personal assets and minimize tax liabilities. Ultimately, the report advises Bob to carefully consider the management capabilities of his partners and the long-term financial implications of each structure before making a final decision. Desklib provides access to similar solved assignments and study resources.

Running Head: BUSINESS LAW
Business Law
Name of the Student:
Name of the University:
Author Note

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Part 1
Question 1
Hi how may I help you?
Hello, My name as Bob Smith and I have been working as system engineer for the IBM
for 20 years. I have thought about an idea of carrying out business activity of my own.
Question 2
That’s, Nice you have come to a right place for the advice. You must have thought of
about an Idea which you want to carry out as a business. Please provided me with more details so
that I can help you?
Yes of course I have made a plan for a business which I want to carry out in relation to
my wish. This is actually going to be Gym as there is a significant shortage of good gyms in my
locality. I want to start the business activity in a very planned and organized manner and I want
my Gym to be a hit. I plan to include a healthy food restaurant as well along with the gym. In
addition I would also want to have an adjacent store of body building supplements.
Question 3
That is a great Idea, do u have any place in mind where you want to set up you business
activity or you want a help in relation to this as well?
No actually I have a place in made just near my house and my wife is looking after the
purchase matters in relation to it and so I would not be requiring help.

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Question 5
That is very good; however this business Idea of yours can require a significant amount
of investment. Do you have access to such funds?
Yes, I know that the business which I am planning to set up require a significant amount
of investment. The investment which would be required for the business according to my
preliminary calculation would be that of around $2 million. This is the amount which would be
required for purchasing the property I am taking about along with purchasing the necessary
equipments for the restaurant, shop and Gym.
Question 5
This is quite a good research which has been made by you, but do u have access to the
funds which are required for the purpose of this business?
Actually I have saved up about $500,000 myself and there are two people I know who
would be willing to invest in my business idea about a sum of $500000 more.
Question 6
So you mean to say that you have partners in your business Idea as well?
Well, yes there are two people who want to carry out the business I have planned along
with me. One of them is Sara who has been my colleague for a period of five years. She has been
interested in my business. However I am worried about the fact that she has been involved a
couple of businesses in the past which have failed due to her management. She is willing to
invest about $300000 in the business.

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Another person who I know is willing to be a part of my business is Gary. I have known
Gary for the last three months. He has promised me that he is going to invest about $200,000 in
my business.
Question 7
Actually I don’t think that Gary is a good idea and there have been management issues
with Sara as well so I think I need to provide advice to you on management issues as well?
Yes of course I require advice relation to management issues of the organization as well.
This is because this is my Idea and I do not want it to be spoilt by mismanagement of others. I
want to retain most of the control in relation to the business in my own hands.
Question 8
Ok sure we will take this into consideration while preparing and advice for you. If it is
not confidential can you tell me what is your source of income and how much do you earn per
annum
Yes sure I have been working as senior officers at IBM for about 20 years and I have an
annual income of $200,000 excluding the incentives which I get.
Question 9
This means that you are going to fall in the highest slab of income tax so do you need
advice about Income Tax implications on the business as well?
Yes of course I do not want to pay more tax like any other person. I want advice in
relation to a business structure which will minimize my tax liability

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Question 10
Ok we will surely keep it in mind while preparing advice for you tell me the assets which
you own?
I have an ancestral house which is right now worth one million dollars and I have a car
which I own along with my wife which I don’t think is of considerable value right now.
Part 2
It is important for Bob to know that in order to operate a business in Australia there are
three types of business structures which are available for the parties. These include a sole trading
business, Partnership and a Company. Further a company can be subdivided into a public
company, private company and a no liability company. A company under the meaning of the
Corporation Act 2001 (Cth) can be limited by shares or limited by guarantees (Mann & Roberts,
2015).
The form of business structure which is easiest to form and simplest to carry out is known
as a sole trader. This form of business is conducted by a single person. This does not means that
the person has to do all activities in relation to the business on his own. The business owner in a
sole trading business can have employees to carry out the work. At law the identity of such
person and that of the business which is carried out by him is one and the same. The business
name and the name of the person carrying out the business can be same. The primary advantage
which this form of business structure brings to the business is that of it is very simple and easy to
establish. The amount of investment which is required for initiating a sole trading business in

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terms of set up cost is the lowest compared to other structures. In addition to the simplicity the
trader is provided with supreme control over the affairs of the company as they are not imposed
with any managerial intervention. On the other hand the sole trader is not able to avail the
benefits of limited liability and may also have restriction of funds to carry out the business.
When a sole trading business is held for contract further it cannot be carried out by more than
one person (Miller, 2015).
The next business structure which Bob must know about is a partnership. A partnership is
a type of business structure which allows the business to be carried out by more than one person.
There are certain features of a partnership which makes it different from other form of business
structures. The partnership business also does not have the features of limited liability like a sole
trading business. In addition the people who carry out the business and are known as partners are
liable jointly and severally for the action of the other business partners (Cohen, 2017). This
means that when a partner does an act it would be binding on the partnership business as a while.
The primary advantage which parties may have in relation to carrying out their chosen business
activities in form of partnership is that people having various expertise can contribute towards
the business and also provided the finding required. It is also easy and cheap to form and does
not require a registration. However a partnership agreement can be registered. The business has
significant disadvantages as well such as the partners being jointly and severely liable for the
actions of other partners. The partners can be personally liable and limited liability does not
apply (Clarkson, Miller & Cross, 2014).
A joint venture is also a partnership having the same rules but it comes to an end after the
work for which it has been initiated has been completed.

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The final business structure which the Bob may have in relation to a particular business
activity is that of a company. A company as discussed above can be public and private. This is
the most unique form of business as compared to the above discussed structures. A company has
“separate legal identity” which signifies that it is a person of its own and is different from those
who own and operate it. As a result it has a perpetual existence and comes to an end by winding
up process of law. A company being a separate person has the right to make contracts and bring
or be party to legal proceedings. It also has the unique feature of limited liability (Davidson,
Forsythe & Knowles, 2015). The feature signifies that the owners of the company can only be
held liable to contributions made by them in the company which may be in form of shares or
guarantees. The management of the organization is carried out by persons appointed by the
owners known as directors. In a public company the owners are subjected to less legal scrutiny
but they cannot raise public finding. In case of a public company fund raising can be done. The
structure can also be used to minimize tax liabilities as well (O'kelley & Thompson, 2017).
Part 3
Report and recommendation of alternatives
In order to select the best possible structure which Bob may have in relation to carrying
out his business activities we need to analyze the requirement of Bob in the light of advantages
and disadvantages which such business activities have
In relation to the research which I have carried out it is quite obvious that Bob cannot
select the business structure of a sole trader. This is because he wants to carry out a business
along with his two partners and in business of a sole trader it is not possible to carry out a
business which is operated by more than one person. In addition where such business structure is

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selected the tax liabilities of Bob will significantly increase as the business income and his own
income would be the same. He would also not be able to protect the assets which he personal
owns in case any problems which occurs to the business due to the lack of limited liability
provisions and also he would not be able to gain the additional finding required.
As Bob wants to carry out business along with two other partners he can choose the
business structure of a partnership. However Bob has provided that the partners with whom he
wants to carry out the business have a bad history of Management. In this situation there are
significant chances that Bob may be jointly and severally liable to the activities carried out by the
other partners and relation to the business. In addition his tax liabilities would be the same like
that of sole trading and he would have the same situation to his personal assets in case anything
goes wrong to the business.
It is also clear from the Research which I have conducted above that Bob cannot carry out
of joint venture business in relation to the selected business activity. This is because the activity
is not a single business transaction and cannot be done through the help of joint venture. Further
the same rules of partnership will be applicable on joint venture as well.
From the research which I have conducted I can evidently say that the best business
structure which Bob can select in the given situation is that of a private company. Through the
use of this business structure he may retain control over the management of the company as he
has more amount of investment which compared to the other partners. In addition his tax
liabilities would also be reduced as the income of the company and his personal income would
be different. Further through the feature of limited liability would be able to protect his personal

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assets from being claimed with respect to anything which goes wrong in the business. Bob can
also rise funding so sources like crowd funding with the help of this business structure.

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References
Clarkson, K., Miller, R., & Cross, F. (2014). Business Law: Texts and Cases. Nelson Education.
Cohen, G. M. (2017). Law and Economics of Agency and Partnership. The Oxford Handbook of
Law and Economics: Volume 2: Private and Commercial Law, 399.
Davidson, D. V., Forsythe, L. M., & Knowles, B. E. (2015). Business law: Principles and cases
in the legal environment. Wolters Kluwer Law & Business.
Mann, R. A., & Roberts, B. S. (2015). Business law and the regulation of business. Nelson
Education.
Miller, R. L. (2015). Business Law Today, Standard: Text & Summarized Cases. Nelson
Education.
O'kelley, C. R., & Thompson, R. B. (2017). Corporations and other business associations: cases
and materials. Wolters Kluwer Law & Business.