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Fundamentals of Law (BL502)
Types of Business Structure Sole trader Partnership Corporation Joint Ventures Trusts Franchise Agency
Fundamentals of Law (BL502)
Factors Influencing Structure Choice Purpose of Business Duration Cost
Formation Maintenance
Types of Asset to be acquired
Fundamentals of Law (BL502)
Factors Influencing Structure Choice Financial participation in:
Capital Profits Losses
Taxation National or overseas activity Liability for risk Lending Institution requirements Professional requirements
Fundamentals of Law (BL502)
Sole Trader An individual Small cost to set up and maintain Personally liable for all business debts
Fundamentals of Law (BL502)
Partnerships Still used by many small businesses Required by some professions Not a separate legal entity Partners have unlimited and vicarious liability for
debts of partnership Unsuited to risk taking Limited in size to 20 partners Allow pooling of resources and assets Allow income splitting
Fundamentals of Law (BL502)
Partnerships Governed by State law To be a partnership (s5 Partnership Act)
Carry on a business In common For profit
No formalities Partnership Act provides the terms of the
partnership agreement if there is no agreement
Fundamentals of Law (BL502)
Corporations Creatures of Statute Come into existence when registered Closely regulated by government Independent legal entity Different types
Fundamentals of Law (BL502)
Corporations (cont.) Limited Liability
Salomon v A Salomon & Co Ltd (S&OR p 300)
Separate Entity Lee v Lee’s Air Farming (S&OR p 301)
Piercing the corporate veil
Fundamentals of Law (BL502)
Corporations (cont.) Has all the powers of a natural person (s124 (1)
Corporations Law) Able to hold property Able to sue and be sued
Acts through agents (sections 126 & 126 Corporations Law)
Continues in perpetuity Has additional powers relevant only to corporations
(S&OR p298)
Fundamentals of Law (BL502)
Corporations (cont.) Types:
Proprietary Company (S&OR p298) Public Company (S&OR p299) Company limited by shares (S&OR p299) Company limited by guarantee (S&OR
p299) Unlimited companies (S&OR p230) No liability companies (S&OR p230)
Fundamentals of Law (BL502)
Corporations (cont.) May also be created, and regulated, by:
Associations Incorporations Act Co-operatives Acts Industrial Relations Acts Acts creating Government organisations Special Acts of Parliament
Fundamentals of Law (BL502)
Joint Ventures Definition:
Association of persons (natural and corporate) Agree by contract To engage in a common undertaking (usually ad
hoc) For joint profit By combining resources
Not governed by specific legislation No registration requirement
Fundamentals of Law (BL502)
Joint Ventures (cont.) Differences with partnerships
Liability is individual No authority to bind one another Receive profits separately
Used in: Mining Property development Manufacturing Research and development
Fundamentals of Law (BL502)
Franchise Contract whereby franchisor provides
product, trade name, ingredients, know how and\or whole business format to franchisee for a number of years
Usually franchisee’s activities are strictly controlled by franchisor
Regulated by a variety of laws and a mandatory code of conduct
Fundamentals of Law (BL502)
Franchise (cont.) Business can benefit from
an existing successful name management support greater marketing penetration and tried and tested business system
Problems: Lack of control Inadequate support from the franchisor Misrepresentations about worth of
business
Fundamentals of Law (BL502)
Trusts Old type of structure originally used to protect
family assets and provide for maintenance of widows, orphans etc.
Definition A person Holds the legal estate in property For the benefit of another
Fundamentals of Law (BL502)
Trusts (cont.) Parties
Settlor Trustees Beneficiary (need not sign)
Governed by Trustee Acts, common law and equity
Not a separate entity Not governed by contract
Fundamentals of Law (BL502)
Trusts (cont.) Separates ownership and control from the
person who benefits from the enterprise The Trustee-beneficiary relationship is a
fiduciary relationship The Trustee, not the beneficiary, is liable for
the debts Corporate trustees are often used Tax advantages – income splitting
Fundamentals of Law (BL502)
Trusts (cont.) Trustees
Can be more than one Can be replaced New ones can be appointed A trust will not fail because there is no
trustee Can be the Settlor or one of the
beneficiaries but cannot be the sole beneficiary
Fundamentals of Law (BL502)
Trusts (cont.) Trust Property
Real property Personal property May include a business
Equity imposes a duty to administer the trust property for the benefit of the beneficiaries
Beneficiaries can bring an action to force the trustee to administer the trust properly
Fundamentals of Law (BL502)
Trusts (cont.) Beneficiaries
May be for a charitable purpose Otherwise, must be for a specific person or
a class of people Must be able to be identified with sufficient
certainty Need not all exist at the time the trust is
created Beneficiaries interest in the trust may be
fixed or an expectancy
Fundamentals of Law (BL502)
Trusts (cont.) Duration
Trusts cannot last indefinitely At common law, no longer than a life in
being plus 21 years By statute, 80 years (Perpetuities and
Accumulations Act 1968 (Vic)) Types of trust
Discretionary trusts Fixed trusts Unit trusts
Fundamentals of Law (BL502)
Agency Definition
An agent Has legal authority To affect the legal rights and obligations Of the principal
A person cannot always act personally Agencies are usually created for the making
of contracts in commercial situations It is a fiduciary relationship
Fundamentals of Law (BL502)
Agency (cont.) Agent or independent dealer
International Harvester v Carrigan’s Hazeldene (S&OR p 239)
Use of the word “agent” is not conclusive
Indicators of agency Who keeps the profits? Is the agent paid a commission? Is the agent required to account to the principal? Potter v Customs & Excise Commissioners (p239)
Fundamentals of Law (BL502)
Agency (cont.)Functions of an agent A person who has no authority to make
contracts on behalf of a principal may be an agent if he has authority to Receive money on behalf of the principal Pay money on behalf of the principal Make representations for which the
principal will be responsible Receive representations on behalf of the
principal
Fundamentals of Law (BL502)
Agency (cont.) A principal will be liable for the acts of an
agent that are committed within his real or apparent authority
Authority can be express Implied Ostensible Arise from estoppel Arise from necessity