Company Law: Sole Trader Business Structure Analysis and Advice

This report analyzes the sole trader business structure, focusing on its legal aspects, advantages, and disadvantages. The report begins with an introduction to corporate law, outlining the formation and operation of corporations, and then presents a case study of Alfred and Gina White who wish to open a bakery, examining the benefits and drawbacks of a sole trader structure. The report then explores the structure of a business, including sole proprietorships, partnerships, companies, and trusts, and delves into the specifics of sole trader structures, including liability, management, finance, taxes, and continuity. The case study of Alfred and Gina is used to illustrate how a sole trader structure can be advantageous, especially for small businesses. It discusses the legal formalities, customer relationships, and dissolution aspects of a sole proprietorship. The report also examines the concept of unlimited liability and its implications for business owners. It highlights the importance of legal compliance and provides insights into the practical aspects of running a sole trader business, including financial management and reporting. The report concludes by emphasizing the ease of operation and the flexibility that a sole trader structure offers to business owners.

Company Law

Table of Contents
INTRODUCTION...........................................................................................................................1
PART 1............................................................................................................................................1
PART 2............................................................................................................................................3
Supervising partner.....................................................................................................................3
1...................................................................................................................................................3
2...................................................................................................................................................4
3...................................................................................................................................................6
PART 3 ...........................................................................................................................................6
Oral Advice to client...................................................................................................................6
CONCLSUION................................................................................................................................7
RERERNCES .................................................................................................................................8

INTRODUCTION
Corporate law is legal study which is the operation and formation of corporations and
running them with implementing regulations. The company may have several rights,
responsibilities, obligations which are prescribed by legislations. It possesses with only those
properties which are vested upon Memorandum of Association 1. For present report, case study is
taken of Alfred and Gina White who wishes to open their small bakery in own town. In this
context, structure of business is explained that they formulate their small entity to run their
functions smoothly.
PART 1
A business can be conducted in different ways such as; by individual as a sole proprietor,
in partnership or by the medium of body corporate. In sole trader, there is an individual boss and
no involvement of other parties are there. Along with this there is also no requirement to register
their firms or accounts under specified body. They can set their business by applying for license
from business registration office. Business structure of company is depending upon size and type
of entity. But there both advantage and disadvantage of these structure which are followed by
individual.
Sole trader – In this person is trading their business as individual and they are legally
responsible for all aspects of business. If there is any loss or profit, then they cannot be share
with anyone. It is considered as less expensive of business structure when anyone is starting their
business in Australia 2. Key aspects of sole trader which are included in this: individual is having
full control on their assets and business decision, having unlimited liability, if any loss has been
occurred, then it be set off against with another income and many more.
Company – It is separate legal entity and owners of company are shareholders and they
are not generally liable for any debts. While forming any company, then it requires to get
registered with Australian Securities and Investment Commission (ASIC). Along with this, there
1 Goulding S. Principles of company law. Routledge; 2013 Mar 4.
2 Lai LW, Kwong VW. Racial segregation by legislative zoning and company law: an
empirical Hong Kong study. Environment and Planning B: Planning and Design. 2012
Jun;39(3):416-38.
1

should be minimum number of directors and must comply with all legal obligation which are
specify in Corporation Act 2001.
Partnership – It involves a limited number of people who are carrying their business
together. The person is having right to choose partnership over sole trader. For example, two or
more persons are carrying out their business and loss has been occurred, then they can share with
others also. Partnership is governed by relevant laws which is depending upon own state or
territory.
Trust – It is legal obligation which is imposed on a person to hold property or assets for
the advantage of others. These are also known as beneficiaries. It can be expensive to set and
operate business in competitive market.
With given to case scenario, Alfred and Gina White are living with their two adult
children. Alfred want to start their small bakery in same town. In this bakery, his wife will work
upon register and look over to their customer service 3. Although, they are also believing that
while working as business venture, it become also successful for them not by only profit. Now
they are wishing to use their business plan to train unemployed people. For this they can operate
their business through sole trader.
In a country there are many companies whose operating their business as sole trader. It
can be found that there are many sole traders in confectionary who are opening their small
bakery shop and operating their business in effective manner. There are almost 2,00,000 firms
who have started their business as a sole trader according to government report. In year 2014,
there were an approximately 5.2 million private business in which 2,00,000 are sole traders. By
doing business in this sector people prefer to do business because these are considered as most
profitable sector. If this will be compared with another sector such as retail, then it can be seen as
there are few number of sole trader who are operating their business individually.
By doing business as a sole trader there are some disadvantages i.e. they are personally
liable for all debts which are incurred during carried out business; it become difficult for them to
raise more capital or it can also be said that to obtain funds from financial institutions 4. The
3 Polidoro F, Ahuja G, Mitchell W. When the social structure overshadows competitive
incentives: The effects of network embeddedness on joint venture dissolution. Academy
of Management Journal. 2011 Feb 1;54(1):203-23.
4 Nam KM. Learning through the international joint venture: lessons from the experience
of China’s automotive sector. Industrial and Corporate Change. 2011 Apr 22;20(3):855-
907.
2

main advantage is that it brings flexibility in business and having full control over decision
making.
Case study on sole trader, Tax-free Children Scheme, this is an opportunity for self-
employed and for others who are not having Employer Provided Childcare Benefit in access to
certain amount of tax-free which are launched by administration. This scheme is eligible for
parents to open “Children Account” online where government will contribute additional 25% in
their deposits. These funds can be used by parents for their children. Through this it also supports
them in carrying out their business as sole trader. In order to meet with this criteria, following are
some situation which has to be qualify by parent:
 Earning should be more than pound 120 per week (less than 1,00,000 pound during year)
 It should not be receipt in name of another childcare support (Example, Child Tax Credit)
In above circumstances, anyone can carry out their business as sole trader as compared
with others. There are different legal viewpoints which has been given by government in order to
operate business in more effective manner.
PART 2
Supervising partner
1.
Sole trader is considered as simplest form of business structure where individual can
easily operate their business and it is less expensive for them. It provides legal responsibility n a
person to handle all aspects business activity. The reports which has been made by their
employees who are working with them should have to report properly to owner of business.
Along with this it should contain all information and documents which are kept by them in
directing their business 5. Following are some things which are considered in this business
structure.
Liability – If business went into insolvent, then owner is fully responsible for paying all
debt amount. Further, they should comply all laws in regard to pay all debt amount from which
they had borrowed.
5 Frankish JS, Roberts RG, Coad A, Spears TC, Storey DJ. Do entrepreneurs really learn?
Or do they just tell us that they do?. Industrial and Corporate Change. 2012 Jun
28;22(1):73-106.
3

Management – The words of owner are considered as final order or decisions. Through
this they can also monitor their activities in appropriate activities if these are executing by other
member of sole trader.
Finance – Funds are personally referring to owner money. The funds which are invested
by them is generally refers to their personal property.
Profits – All profits or earnings are belonging to owner who is controlling and operating
their business individually. Through this they are having many opportunities to invest these in
other sector or expand business with others.
Taxes etc. – The status of sale trader is normally self-employed. Even if owner has not
earned profit, then they are still liable to give tax 6. Whereas if loss has been occurred, then it can
set off against tax on which income has been earn from other business.
Continuity – The company will continue their business until and unless owner is not
dead. If there is a death or retirement of owner, then it ultimately collapses their business.
Running a business as sole trader is giving more opportunity to individual and they are
responsible to keep their profit with own. If business is considered as limited company, then they
are responsible for any debts which is occurred which is fall onto company rather than taking
personally. While operating and controlling their business, it is not required for sole trader to get
registered with companies’ house and they can also start trading as soon as possible.
This business can give also idea to individual to change their business structure in limited
company. This may give opportunity to person and they have to hire more staff which added
more responsibilities on them to run their limited company. However, all these situations are
varying and it would require legal advice to get convert into other business.
2.
Depending on the way of business which is organised and structured by owner who is
liable for entire debts. Owner of certain types of organisation such as sole proprietorships or
general partnerships are subject to unlimited liability. In this liability, investing of funds by
investors or owners are not having limit to contribute. For example, if entity had suffered from
2,00,000 pound and invested 1,00,000 pound. Since, company is belonging from unlimited
6 Pickernell D, Kay A, Packham G, Miller C. Competing agendas in public procurement:
an empirical analysis of opportunities and limits in the UK for SMEs. Environment and
Planning C: Government and Policy. 2011 Aug;29(4):641-58.
4

liability. So, their obligation is not end to pay 1,00,000 pound. In this, they have to dispose their
personal property to recover another 2,00,000 pound.
Apart from this, there are some benefits of having unlimited liability. Here is popular
phrase in financial management that “if there is high risk, then there will be a higher return” and
it is quite relevant for those companies who are working under unlimited liability.
Besides this, there is also one structure i.e. limited liability structure where owners are
having limit to contribute funds in other business or activities. The owner of this company have
to get registered and it will a safer point for them if they will suffer from bankruptcy.
The decision which is adopted by individual to run their business as sole trader under
unlimited liability. It is not essential for organisation to get registered under this act. But they are
having limit to invest funds in different activities. Owners are personally liable for loss if they
had incurred from any loss 7. They are responsible for liabilities which are held by them. liability
is unlimited which also includes all personal assets and these are jointly-owned with another
person. It became responsibility of employee who are working under sole trader to report all
things that what is happening in organisation. Along with this they can monitored their functions
in more effective manner. Following some legal characteristics of sole proprietorship in which
Alfred will get some advantage while operating business through this structure.
No legal formalities – It is considered as simplest type of business organisation and also
easiest form to establish. It does not require any legal formalities and there are also not any
restrictions which is affecting to their business.
Finance – It is required to need capital so that they can run their business. But sometimes
it also become difficult for them to arrange funds from different sources.
Relationship with customers – In this, they are trying to keep sturdy relationship with
customers in order to target their goals and objectives. Further, it is easy for them to get dissolve.
The decision which are taken by proprietor ends with that and it dissolve with death of owner.
It became responsibility of single person who have to make report on all those activities
which are performing by them 8. Along with this, they have to find alternative ways in which
they can conduct their business in more appropriate manner. Further, if they are conducting any
7 Lee N, Rodríguez-Pose A. Creativity, cities, and innovation. Environment and Planning
A. 2014 May;46(5):1139-59.
8 Menelec V, Jones B. Networks and marketing in small professional service businesses.
Journal of Research in Marketing and Entrepreneurship. 2015 Oct 19;17(2):193-211.
5

interview of clients, then it should be properly recorded and all documents should be kept
confidential whether it is related with budget and or any other.
3.
While doing business in this structure because it became easy for owner to conduct their
business. Along with this they will came to know about their competitors who are running same
business. In confectionary sector, it can be find out that there are many persons who are carrying
out their business as sole trader. It became easy for them to set off their losses from another
business income. So, they can also get relief from taxes. This structure has been chosen because
it not very much expensive and time consuming process where it wastes the time of individual to
establish their business.
There are many technical devices which is providing guidance to organisation under
company’s act. These are considered as statutory instrument which are made under this act.
Alfred is also having another option to run their business in the form of forming company 9.
Through this they can also identify all relevant aspects and principles in which they can earn
more profits. While doing business in this structure there are many advantage which can get by
Alfred such in taxes, penalties, imprisonments and many more. In this company can be form in
two ways i.e. public and private and work upon on additional responsibilities to conduct their
business in appropriate manner.
PART 3
Oral Advice to client
The case which is decided by me is that Alfred and Gina White, as want to expand their
business and helping to unemployed candidates with the help of providing them proper training.
It will be beneficial for than to do business as sole trader because they will owner of firm and
they are full control over their business. The whatever decisions which are taken by them is fully
control under them. If high profit is earning by them, then they do not distribute these earning
with others. But, there are limitations some limitation i.e. unlimited liability where all the
personal assets are at risk point if anything goes wrong. Thus, they held personally liable to pay
debt amount. Another is, they get little opportunity for doing tax planning, so they cannot split
9 Walsh F, Douglas J. No bush foods without people: the essential human
dimension to the sustainability of trade in native plant products from desert Australia. The
Rangeland Journal. 2011 Dec 20;33(4):395-416.
6

their business profit with family members and they are personally held liable to pay tax on all
income which has been earned from their business.
According, there is also another opportunity in which they can conduct business i.e. as
partnership also. In this they get several rights, if any loss has been occurred, then it will be
shared among other partners also. Through this they can expend their business in different
sectors also. Further it will be beneficial for them to target new customers and retain in market
for a long period of time.
It became easy for them to conduct business in several ways and it also depends on their
size and nature. If they are having lots of funds, then they can also do expand their business
through joint venture. Through this, they can serve their food in different countries with the
owner of another organisation.
Joint venture is the commercial enterprise which is established by two or more members.
They have to use their collective efforts in order to attain their target. At the time of
incorporation of firm, they have to follow all rules, regulation and policies which are imposed on
them and mentioned under provision of law. It has been characterized by legal ownership. It is
the legal body which consists various types of business activities.
CONCLSUION
Doing a business in modern era is difficult for person, because they need lots of funds to
establish in competitive market. Along with they have to comply with many rules and
regulations which are comply with government. So, it can be concluded from above report that,
Alfred is having many choices to establish his business in different forms so that they can serve
services. But, he has to deal with all those rules and regulations which has been framed in
context of joint venture, sole trader or partnership. So that it become easy for them to run his
own business in operational manner.
7

RERERNCES
Books and Journal
Birt J, Chalmers K, Byrne S, Brooks A, Oliver J. Business sustainability.
Frankish JS, Roberts RG, Coad A, Spears TC, Storey DJ. Do entrepreneurs really learn? Or do
they just tell us that they do?. Industrial and Corporate Change. 2012 Jun 28;22(1):73-
106.
Goulding S. Principles of company law. Routledge; 2013 Mar 4.
Lai LW, Kwong VW. Racial segregation by legislative zoning and company law: an empirical
Hong Kong study. Environment and Planning B: Planning and Design. 2012
Jun;39(3):416-38.
Lee N, Rodríguez-Pose A. Creativity, cities, and innovation. Environment and Planning A. 2014
May;46(5):1139-59.
Menelec V, Jones B. Networks and marketing in small professional service businesses. Journal
of Research in Marketing and Entrepreneurship. 2015 Oct 19;17(2):193-211.
Nam KM. Learning through the international joint venture: lessons from the experience of
China’s automotive sector. Industrial and Corporate Change. 2011 Apr 22;20(3):855-
907.
Pickernell D, Kay A, Packham G, Miller C. Competing agendas in public procurement: an
empirical analysis of opportunities and limits in the UK for SMEs. Environment and
Planning C: Government and Policy. 2011 Aug;29(4):641-58.
Polidoro F, Ahuja G, Mitchell W. When the social structure overshadows competitive incentives:
The effects of network embeddedness on joint venture dissolution. Academy of
Management Journal. 2011 Feb 1;54(1):203-23.
Sansoni A. The life of a sole trader. Plumbing Connection. 2013(Autumn 2013):114.
Singh P. Accounting enrichment program for gifted high school pupils: Self-regulated learning
strategies to develop our future business leaders. The International Business &
Economics Research Journal (Online). 2013 Jan 1;12(1):103.
Walsh F, Douglas J. No bush foods without people: the essential human dimension to the
sustainability of trade in native plant products from desert Australia. The Rangeland
Journal. 2011 Dec 20;33(4):395-416.
Online
Case Studies – Sole Traders & Partnerships. 2017. [Online]. Available through: <http://www.in-
accountancy.co.uk/category/news/case-studies/case-sole-traders-partnerships/>.
[Accessed on 23th August 2017].
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