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Introduction
Before starting any business, it is essential to consider the legal issues that are likely to influence its operations. Each business has its own legal procedures that must be followed during establishment. In addition, each business has its own legal acts and statutes which govern its operations. It is, therefore, the obligation of any potential investor wishing to invest in a certain business venture or a certain type of business to recognize and understand all the statutory provisions as well as principles that are relevant to the business. Once he understands the legal requirements, he will be able to make a worthy decision. He will also be able to formulate procedures that will ensure that he complies with the applicable business laws and review the registration requirements (Gillies, 2004).
If one wishes to invest in business activity, the first this is to make a decision on the type of business venture. One needs to consider the costs and benefits associated with the business venture. For example, it is important to consider the liabilities as well as the registration requirements. This essay presents a case study on how to make a business decision in a legal context.
Business activity
I have always wished to start a business, but capital has been a great challenge towards attaining this ambition. Recently, I won $ 1 000 000 from a lotto. This has presented the perfect chance for me since I got the capital to start my own business. I would like to venture into used cars sales. This is a business where I will be buying used cars and selling them to third parties at a profit.
For the purpose of this business, I prefer a partnership as my business structure. I will, therefore, form a partnership with entrepreneurs who have similar business ideas. After through considerations, consultations, and analysis, I settle for a partnership. The following are the advantages and disadvantages of a partnership that were considered before making this decision.
Advantages of a partnership
Partnerships are some of the most common forms of business in Australia. In a partnership, each partner will bring in additional capital. Sale of cars is a business that requires a relatively high amount of capital to start (Duncan, 2005). As a sole trader, it might be difficult to meet the capital requirements in such a business. In addition, a limited company will require sales of shares to raise the capital required. This would be difficult and complex. A partnership business is relatively easy to start. One does not have to go through numerous procedures before acquiring a business permit. Registration of the business is significantly easy compared to registering a limited company. Despite the fact that starting a sole trader business is relatively easy, considering capital requirements makes it less preferable to a partnership (Gillies, 2004).
It is cheap to start a partnership as compared to starting a company. Starting a company requires a huge amount of money. Also, comparing the cost required to start a partnership to that required for a sole trader, a partnership is inexpensive since the cost is shared among partners unlike in a sole trader where only one person will bear the burden alone (Gillies, 2004). In terms of tax liability, a partnership has possible tax advantages. These advantages are realized in that there is income splitting. The tax burden is shared among partners (Gillies, 2004). In the case of sole trader, the owner of the business will bear the full tax burden.
There is less government regulation in partnership businesses. The government intervention in partnership operations is less compared to the interference and regulations in limited companies. Limited companies are governed and regulated by company acts, which are followed strictly by the government. They are required to hire lawyers, accountants, as well as consultants by the law. Hiring these professionals is expensive and failure by a company to adhere to such rules will call for a legal action. There is less paper work when compared to starting a limited company (Duncan, 2005). This makes a partnership more favorable.
In a partnership, better decisions can be made. Each partner brings his own expertise hence providing a wider pool of knowledge. The management base is also broadened. This spreads the management risk. It is better than a sole proprietor where one person bears all the risk (Duncan, 2005).
Disadvantages of a partnership
In a partnership, there is an unlimited liability. Therefore, in case the business is in a debt, each of the owners will have a share of responsibility. Each of them will be held responsible for the partnership debt and other liabilities. In addition, unlimited liability does not put into consideration the amount one has invested in the partnership. A limited company has limited liability and liabilities of the company are separate from those of owners. It is important to note that despite these facts, it is possible to have a limited liability partnership (Latimer, 1992).
In a partnership, there are possibilities of executive management problems. It is not easy to determine who has more control over the other (that is) who is the boss. Each partner may want to be the boss hence making decision making process difficult. In a sole trader, there is only one boss who is the owner of the business. In a limited company, on the other hand, there are legal directors and managers to oversee its operations. In a partnership, there is the lack of continuity, which is not the case in a limited company (Latimer, 1992).
Liabilities involved in a partnership
Unlike in the case of a limited company where the liabilities of owners are limited, owners of a partnership have unlimited liability. This means that each partner in a partnership is equally and jointly responsible for any obligations by the partnership. Therefore, there can be a legal proceeding against all the partners in relation to an obligation by the partnership. Partners are responsible for the, actions and inactions, mistakes and errors of others partners. In addition, partners can bear several liability where by each partner is individually liable. Therefore, partners have joint liabilities (Duncan, 2005).
The liabilities in a partnership can be classified into three. First, every partner should be held liable for his or for her own actions. In this case, if a partner does anything that is against the law, he will be held liable individually, and the other partners will not be affected. Secondly, every partner should be held liable for the other partner’s actions. This means that if one partner does wrong while acting for the partnership, all other partners will be liable for the action. Thirdly, partners are responsible for the actions and inactions of their workers. Therefore, if the employees of the business does wrong while working for the partnership, the partners will be held liable for those actions (Duncan, 2005).
Legal requirements for registering a business in Australia
In Australia, registration of any business is regulated at the federal and state level. Legal advice as well as guidelines on taxation is very essential when registering a business. For a company to be registered in Australia, it is required to prepare its constitution and articles of association. It is also required to register its name as well as its Australian Company Number (ACN). All these are to be registered with the “Australian Securities and Investments Commission (ASIC)”. Details relating to its officers and those relating to its share capital should be provided during registration (Australia & CCH Australia Limited, 2011).
In a sole trader or partnership, they are not necessarily required to register with the ASIC. However, they are required to register with their relevant states. They should register their business name and acquire an Australian Business Number (ABN) from the relevant authorities. However, there are some partnerships which might be required to register with the ASIC (Organisation for Economic Co-operation and Development, 2011).
Conclusion
I prefer a partnership as my business structure. There are factors that must be considered when starting a business. Also, it is important to make a decision of the business structure that best fits your intended business. To make a decision on the business structure, the advantages as well as disadvantages of each structure are very essential.
References
Australia & CCH Australia Limited. (2011). Australian corporations & securities legislation 2011. North Ryde: author.
Duncan, W. D. (2005). Joint ventures law in Australia. Sydney: Federation Press.
Gillies, P. (2004). Business law. Sydney: Federation Press.
Latimer, P. S., & CCH Australia Limited. (1992). Australian business law. North Ryde, N.S.W: CCH Australia.
Organisation for Economic Co-operation and Development. (2011). Australia 2011. Paris: Author.
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