Background Information

Q 1. How many persons are going to start the new business?

Answer: In this case, 4 persons are going to take part in the new business. They did also expected that more persons will join the business later on. 

Q2. How are the clients going to raise funds for the business. Are they going to use their own resources or outside resources?

Answer: A part of the funds required for the new business will be raised by the clients however they are also going to use outside sources to arrange a large part of the sums required for the business. For this purpose, the clients are looking forward to raise loan from the bank. Therefore, while the clients are going to contribute some of the funds required for the business from their own resources, the other part of the funds will be enraged by them from outside sources like a bank loan. 

Question 3. Do the clients for the benefit of limited liability concerning the obligations of the new business?

Answer: In this case, one client has inherited a piece of land from his uncle. Similarly, another client has purchased a home. Similarly, another client owns a small shop, jointly with his wife. As a result of the circumstances it is natural that the clients are looking forward to the benefit of having limited liability towards the debts of the business. Hence they want that their personal assets should be safe even if the new business is facing problems in repaying its debts. Hence, the benefit of limited liability is desired by the clients.  

Question 4. Will the clients be going to expand their business once it becomes a successful and it is likely that other persons are also going to join the business? 

Answer: The clients are sure that they would like to expand their business when it becomes successful. Under these circumstances it is also natural that the business will be joined by some other persons. Therefore, it is desirable that the business structure adopted by the clients should be of the nature that not only allows raising the capital. Easily that will be required to expand the business, but at the same time, it is also necessary that the business structure should be flexible enough so that other persons can also join the business easily.

Question 5: The new business is going to belong to which sector of the industry?

Clients’ Needs and Circumstances

Answer: The new business will belong to the service sector. 

Question 6: Are you aware of different advantages and disadvantages that are related with different types of business structures? 

Answer: No we are not aware of the fact that they went business centers have their own advantages and disadvantages. Moreover, we do not know about these advantages and disadvantages. 

Question 7: Are you looking for any particular advantage that may be available from the business structure that you’re going to adopt?

Answer: Yes the most important advantage that we want from the business structure adopted for the new business is that our personal assets should remain safe. In other words, we do not want to be personally liable for the obligations of the new business. In this way, we are particularly looking forward the advantage of limited liability from the business structure that is going to be adopted by us.

Question 8: what are the strategies that you are going to adopt for ensuring the success of the business?

Answer: The most important strategy that we are going to adopt a knowledge to ensure the success of the business will be the strategy of following the consumer centric approach. As a result of this strategy, it will be our utmost endeavor to provide the best quality services to our customers. 

Report to supervising partner on the research

After conducting the present research and going through the answers given by the clients, it becomes clear that 4 young persons have decided to jointly start a new business. However before starting the business, the major question before them is to decide the most appropriate business structure for them. In this regard several options are available like a partnership, joint venture or the formation of a corporation. However, these days, the business structure of a company has become immensely popular, particularly in view of the benefits provided by the incarceration of a company (Austin and Ramsay, 2013). The result is that most of the business ventures starting these days are in the form of company. Although several benefits are available in case of the incorporation of the company, but there are certain disadvantages that are also associated with this business structure. As in the present case, the business will be started by 4 persons jointly, it is not possible for them to start a sole proprietorship. Hence the other option available to them is to start the business in the form of a partnership (Baxt, Fletcher and Fridman, 2008).

Options for Business Structures

It is important to note that some disadvantages are also present in case of a company. These include the cost related with the incorporation of a company. Similarly, the cost of compliance with regulations is also higher in case of company. As a result of these reasons, it is also necessary to have a look at other business ventures. But in the present case, after going through the circumstances of the clients, it is clear that the sole tradership cannot be adopted by the parties. In this way, the next option is that of a partnership. However, both partnership and the incorporation of companies have their own advantages and disadvantages (Tomasic and Bottomely, 1995). Under these circumstances, in order to decide which business structure will be most appropriate, it is important to have a look at the answers given by the clients to the questions that have been asked in part one. At the same time, it is also desirable consider the relevant law that is applicable in case of companies and also to the partnerships. Similarly, the Australian corporations’ law also needs to be considered, which is mainly present in the Corporations Act, 2001 (Cth). In this regard, the responsibility of enforcing these provisions has been given to the Australian Securities and Investments Commission. Hence it is important for the companies registered in Australia to follow the rules that has been implemented by ASIC. 

As a result of this legal fiction the law considers the liability of the members has been limited to the extent of any unpaid amount for the shares held by them. After going through the the circumstances of the present case, it becomes clear that the business sector of the corporation will be most appropriate for the clients. If they decide to incorporate a company, they will not be held personally responsible for the obligations of the company (Hanrahan, 2000). As in this case, some of the clients have their own assets. Hence it is natural that they would like to protect their personal assets in the event of the failure of the company. In any event, if they decide to incorporate the company, there liability will be restricted to the investment made by them in the company. At the same time, the directors of the company also provided protection by the law. They are only very few cases where the directors can be held personally liable, for example, where they have failed to exercise due care and diligence and also the following duties imposed on them by the common law and by the corporations’ law. This benefit will not be available to the clients in case of the decision made in favor of forming a partnership (Harris, Hargovan and Adams, 2013). The Partnership Act provides for the joint liability of all the partners. As a result, the partners are jointly and severally liable regarding the obligations of the business. Therefore in such a case, even the personal assets of the partners can be used for repaying the debts of the business.

Benefits and Drawbacks of Different Business Structures

In this way, the present research suggests the incorporation of a company for the purpose of establishing the new business. 

After conducting the present research and considering the alternatives available to the parties, the below mentioned recommendations can be made to the parties. Therefore, after considering the particular needs of the clients and also the different options available to them regarding the business structure most suitable for them, it can be recommended that the incorporation of a company will be the most suitable option for the clients. The reason behind this argument is that the major benefit that the clients are looking for is that of limited liability. The clients want to ensure the safety of their personal assets even in case of the failure of the business. Hence if they go for a company, the personal assets of the clients will remain safe even if the business fails (Sweeney, O’Reilly and Coleman, 2013).

It is clear that the advantages that are associated with the incorporation of a company are much more significant than its disadvantages (Ford, 2001). Due to this reason, this business structure is increasingly becoming popular in Australia. The most noteworthy advantage available in case of the incorporation of a company is that of limited liability.

It is well settled under the company’s law that a company employs its own separate identity. As a result of this principle, a distinction is maintained between the company and its owners or controllers. The notion of separate identity of a corporation achieved solid roots after the decision given in Salomon v Salomon (1896). In this case, the legal fiction of the separate identity of the corporation was firmly established. It also provides certain rights the company. Among these rights is the right enjoyed by the company to enter a contract under its own name. At the same time, the law allows the company to own property in its own name. Similarly, the company can join legal proceedings in its own name. Due to this principle, the shareholders and the directors of companies are not considered as being personally liable for the obligations of business. In this way, the members of the company enjoyed the benefit of limited liability. Hence the personal assets of the members remain safe even if the company is not in a position to fulfill its obligations and repay its debts.

The incorporated a company will also provide another benefit in the form of a chance to raise funds that may be required for expanding the business in the future. It needs to be noted that an incorporated company can easily raise funds as compared to sole trader or partnership (Lipton, 2001). Therefore in the present case, group of young persons have decided to start a new business. While some of the capital required for the business will be contributed by the parties themselves, most of the funds will be raised by taking a loan from the bank. Hence, the loan from the event will be easier if the parties have decided to incorporate a company. Different is strongly recommended in the present case that the clients should incorporate a company in order to establish the new business. In this way, persons who are properly skilled and qualified can also be appointed as the directors of the company. This will help in the effective management of the affairs of the company. Similarly, the incorporation of a company will also provide the benefit of perpetual succession. In this way, the company will continue to exist even if some members of the company come and go. On the other and this benefit is not available in case of a partnership (Redmond, 2000). A partnership comes to an end, even if one partner decides to leave the business. Therefore the existence of the company is not dependent on the existence of its members. 

References

Austin, RP & Ramsay, IM 2013, Ford’s principles of corporations law, 15th edn, LexisNexis Butterworths, Chatswood, New South Wales.

Baxt, R, Fletcher, K &Fridman, S 2008, Corporations and associations: cases and materials, 10th edn, LexisNexis, Butterworths, Sydney, New South Wales.

Ford H, 2001, Ford’s Principles of Corporations Law, 10th Ed. (Australia: Butterworths)

Hanrahan P, 2000, Commercial Applications of Company Law, (Australia: CCH)

Harris, J, Hargovan, A & Adams, M, 2013, Australian corporate law, 4^thedn, LexisNexis Butterworths, Chatswood, New South Wales

Lipton, 2001, Understanding Company Law, 10th ed (Australia: LBC)

Redmond P, 2000, Companies and Securities Law Commentary and Material, 3rd ed (Australia: LBC)

Sweeney, B, O’Reilly, J & Coleman, A, 2013, Law in Commerce, 6^thEdn.,2015, Australian Corporations Legislation, LexisNexis Butterworths/CCH (Vol 1)

Tomasic and Bottomely, 1995, Corporations Law in Australia, (Australia: The Federation Press)

Case

Salomon v Salomon & Co Ltd [1896] UKHL 1