BUSN2101 EXAM NOTES
LECTURE 1Sole Trader: An individual who runs their own business.
- Keeps all profits and suffers all loss
- Tax advantage if income is under $130,000 - Full management authority
- Unlimited liability
Partnership: Business structure of up to 20 people, S115 Corporations Act.
Partnership Act 1963 ACT
- No separate legal entity – no limited liability
- Usually created by written partnership agreement contract
- s6: Relationship which exists between persons carrying on business in common with a view of profit
- Co-ownership does not amount to partnership even if profits are shared
- Receipt of a share of the profits of a business is prima facie evidence that the person is a partner
- s9: Law of agency. Each partner is an agent of the firm and of other partners for the purpose of the firm’s business. Meaning that a partner is liable to 3rd parties for the actions of another partner who as acting as an agent of the firm in the ordinary course of business.
- s13: Contractual liability. Partners are jointly liable for partnership debts incurred.
- s16: Liability for torts. Partners are jointly liable for torts
- s15: Liability for partner’s misapplication of property. Partners are liable to make good the loss if a partner receives money in the course of the firm’s business and misapplies it.
- Partnership not taxed separately
Limited partnership: General partners and limited partners who are effectively investors with limited liability.
Incorporated limited partnership: Separate legal entities with at least 1 general and 1 limited partner. Is used in relation to venture capital because of tax advantages offered to venture capitalists who structure themselves in this way
Joint Ventures: Consists of unincorporated joint ventures or incorporated joint ventures.
Unincorporated Joint Ventures: Contractual arrangement between an association of persons or different business structures to undertake a one-of project.
Incorporated Joint Ventures: New company. All parties hold an equal number of shares in the new company and appoint an equal number of directors to the board. Typically set up for a particular project of limited duration.
- Participants remain legally separate
- Participants can sell individual interest (e.g. shares)
Trust: A trust is an obligation imposed on a person or other entity (legal owners) to hold property for the benefit of beneficiaries (beneficial owners).
- Fixed trusts: Beneficiaries receive a fixed share of trust income
- Unit trusts: Entitlement depends upon number of units held which can be sold e.g. cash management trust, equity trust, property trust
- Discretionary trusts: no fixed entitlement – depends on discretion of trustee, typically used in families for tax minimization.
- Other types of trusts e.g. testamentary trusts
- Advantages: Tax minimizations, asset protection, superannuation.
- Disadvantages: Costs of establishment and operation, costs of dismantling the trust, compliance and disclosure obligations, trustee has limited powers, cannot retain profit.
Company: Legal entity that is governed by the Corporations Act 2001.
- Separate legal entity (can enter contracts, own property, can sue or be sued) - Members have limited liability
- Perpetual succession (identity and existence of company unaffected by changes in membership)
- Ownership via transfer of shares
- Ability to raise funds via share and debenture issues and ability to give a charge over circulating assets
- Tax rate of 30% if earning about $130,000
- Disadvantages: Compliance costs, public disclosure obligation, significant regulation and oversight, taxation.
Companies limited by shares: Members liability limited to amount if any unpaid on shares.
Companies limited by guarantee: Members liability limited to amount of guarantee.
Unlimited companies: No limit on member’s liability.
Public companies: Listed on ASX
Proprietary companies: Max of 50 members, can’t raise funds from the public.
Unincorporated association: subject to the powers of the association's constitution, capable of entering into contracts and doing things on behalf of other people in the association. They are also individually and personally responsible for any debts incurred in the name of the association. Where a contract is signed on behalf of an unincorporated association, the individual members are
responsible and may be sued. Similarly, if someone is injured through an unincorporated association's negligence and there is no insurance, the association cannot be sued but individual members may be sued.
Incorporated associations: has no legal identity, it cannot hold assets in its own name. It must appoint individuals as trustees, who own the assets but hold them for the benefit of the association.
Associations Incorporations Act 1991 ACT