Kinh tế học - Chapter 4: Business organisations

This is the prescribed textbook for your course.Available NOW at your campus bookstore!Copyright © 2000 McGraw-Hill AustraliaBusiness organisations Chapter 41Copyright © 2000 McGraw-Hill AustraliaDefinitionsSole trader - The business is owned and operated by one person with all profits or losses attributed to the owner.Partnership - A relationship between two to twenty persons who carry on business in common with a view to a profit.Joint venture - Usually a one-off enterprise with participants receiving profits separately, based on contractual agreement.Unincorporated association - A body of two or more persons who are organised for a particular purpose, which may or may not include the purpose of carrying on a business with a view to a profit.2Copyright © 2000 McGraw-Hill AustraliaDefinitions Incorporated association – A body of two or more persons who are organised for a particular purpose, which may not include the purpose of carrying on a business with a view to a profit.Company – An incorporated body created by a process called “incorporation”, regarded by law as a separate legal entity.Trust – A relationship recognised by the law of equity, where a trustee holds property for a beneficiary or beneficiaries. 3Copyright © 2000 McGraw-Hill AustraliaFormationSole trader - Simple, with little documentationPartnership - Partnership agreement recommended; easy to formCompany - Relatively high establishment and compliance costsTrusts - Relatively high establishment costs4Copyright © 2000 McGraw-Hill AustraliaControl Sole trader – Makes all the decisionsUnincorporated Association – Control rests with committee of associates5Copyright © 2000 McGraw-Hill AustraliaManagement Sole trader - In hands of individual; difficult to achieve absences from businessPartnership - Leave other partner in charge when absences requiredAssociation - In hands of committee of the associationCompany - Undertaken by Board of DirectorsTrusts - Undertaken by trustee 6Copyright © 2000 McGraw-Hill AustraliaFlexibilitySole trader - Nature of business can be alteredPartnership - Nature of business can be altered with agreement of all partnersCompany - Nature of business can be altered but may have tax consequencesTrusts - Nature of business is restricted by trust instrument7Copyright © 2000 McGraw-Hill AustraliaExpertiseSole trader – Limited to one person’s knowledge, unless hire additional personnelPartnership – Several areas of expertise available from individual partners8Copyright © 2000 McGraw-Hill AustraliaTaxationSole Trader - Dependent on level of profits. Large profits will result in high taxation, as income only attributable to one person.Partnership - Profits of partnership are shared as agreed. Taxed in the hands of the partners.Joint venture - Income received separatelyCompany - Special company tax rates. Can be distributed to access tax advantages.Trusts - Income taxed in hands of individual beneficiaries. Can be distributed to access tax advantages. (Discretionary trusts allow changing distributions of income and capital between beneficiaries in different years.)9Copyright © 2000 McGraw-Hill AustraliaLiabilityLiabilityLIMITED UNLIMITED limit no limit to the liability of the owners for the business debts10Copyright © 2000 McGraw-Hill AustraliaLiabilitySole Trader - Unlimited liability. Personal assets available for business debts.Partnership - Unlimited liability. Personal assets of partners available for business debts.Joint venture - Unlimited liability for individuals who may be sued collectively or individually for the debts of the joint venture. No liability for actions of other participants.Unincorporated Associations - Limited to the amount of a member’s subscription. Liability for agents and breach of warranty of authority may fall on members of committee.Incorporated - Limited to payment of outstanding fees of members.Companies - Limited by shares of guarantees.Trusts - Limited, if trustee is a company, to the assets of the company. If not a company, trustee personally liable for tortious and contractual liabilities.11Copyright © 2000 McGraw-Hill AustraliaLimitations of business lifeSole trader - For life of owner, without interruption. Partnership - Death, bankruptcy or withdrawal of a partner will end partnership.Association - Perpetual succession.Company - Separate entity from owners; perpetual succession.Trust - Terminate if trust property rests in person ultimately entitled to it. If trust property has been transferred to beneficiaries, continued administration of trust would be illegal.12Copyright © 2000 McGraw-Hill AustraliaCapitalSole trader - Limited to ability of one person to gain finance.Partnership - Limited to ability of partners to individually gain finance.Private company - Limited to ability of directors to gain finance.Public company - Capital raised by way of a share of debenture issue.13Copyright © 2000 McGraw-Hill AustraliaTypes of companiesCompanies limited by shares - Public companies - Proprietory companies (1-50 members) (Shareholders will be liable for unpaid amount on their shares.)Companies limited by guaranteeUnlimited liability companiesNo liability companies (mining companies)SmallLarge14Copyright © 2000 McGraw-Hill AustraliaDirectorsElected by shareholdersNatural personOver eighteen years of agePower to manage company assetsUpper age limit of 72yrs for public companies15Copyright © 2000 McGraw-Hill AustraliaDuties of directorsAct in good faith for the interests of the companyExercise powers for a proper purposeUse discretions properlyAvoid a conflict of interestAct honestlyNot to misuse company informationNot to obtain a gain by using their positionUse care and diligence16Copyright © 2000 McGraw-Hill AustraliaLiability of directorsPersonal liability for:making false and misleading statements or omissions in prospectusfailure to appoint a company secretaryincurring debts when the company had little prospect of repaying the debts.17Copyright © 2000 McGraw-Hill AustraliaRights of shareholdersNotice of meetingsAttend meetingsEntitled to dividendsEntitled to financial informationSue on behalf of the company18Copyright © 2000 McGraw-Hill AustraliaCriminal offences for directors in breach of their dutiesFor:Recklessly or intentionally failing to act in good faith to protect the interests of the companyDishonestly using the position of director within the company, either intentionally or recklessly, to gain an advantageDishonestly using company information, either intentionally or recklessly, to gain an advantage.19Copyright © 2000 McGraw-Hill AustraliaFive elements constituting a trustSettlor - Person responsible for creating the trustTrustee - Person to whom the trust property is givenBeneficiary - Person who will benefit from the trustTrust property - Property that is the subject of the trustTrust instrument - Document that details the terms of the trust20Copyright © 2000 McGraw-Hill AustraliaWinding up a companyReasons:The company is no longer carrying on a business.The company fails to commence business within one year of incorporation.The company has outstanding debts of at least $2 000.Members have passed a special resolution to wind the company up.Membership of the company falls below a certain number (initiated by a director, a member, or a liquidator of a company).21Copyright © 2000 McGraw-Hill AustraliaTrustsExpress (Direct or declared trusts)Intentional act of a settlor, created by words, written or spokenidentifying the trust propertyindicating the nature and purpose of trustidentifying beneficiaries (can be discretionary where trustee will choose the amount to be distributed to beneficiary in Discretionary Trust)Non-ExpressNo intentional action by the settlor.Implied trusts (Presumptive trusts) - law draws inference from the circumstances that a trust was intended.Resulting trusts - where property returns to the creator of the trust.Constructive Trusts - Results from the operation of law (of equity)22Copyright © 2000 McGraw-Hill AustraliaClassification of trustsPrivate - For the benefit of private individuals.Public - For the benefit of some public purpose.Trading - The property of the trust is used in the running of a business.Unit - The beneficiaries own units of the trust.23Copyright © 2000 McGraw-Hill AustraliaDuties of trusteeMaintain fiduciary relationshipFamiliarising themselves with the trust propertyObeying instructionsNot delegating dutiesNot deriving profit from their positionKeeping proper accountsMaintaining impartialityExercising reasonable skill and carePaying and transferring property only to those entitled24Copyright © 2000 McGraw-Hill AustraliaRights of trusteeReimbursement for all expenses incurredIndemnification against all costsSeek contribution for lossesOn completion of administration of trust, entitled to receive a discharge25Copyright © 2000 McGraw-Hill AustraliaLiability of trusteePersonally liable for tortious and contractual liabilities26Copyright © 2000 McGraw-Hill AustraliaBusiness names legislationBusiness name must be registered unless all names of operators or traders included in business name, i.e.the full names of the operators orthe surname together with:the Christian name or namesthe initial(s) of Christian name or namesa combination of Christian name and initialsthe Christian name or names (or initials) by which individuals are commonly known.27Copyright © 2000 McGraw-Hill AustraliaPurpose of registering business namePublic knows who they are dealing with (Public Registry)Impose restrictions on names registered if: - identical to or closely resemble name already registered - considered undesirable - suggest a connection with the government or banks - likely to be confused with names of companies or incorporated associations - ensure “crown” or “royal” not usedTo protect the goodwill of the business28Copyright © 2000 McGraw-Hill Australia