Business Structures That Are Available to Henry and Henriette - Assignment Example

Running Header: LAW LAW Author’s Name Instructor’s Name Course Number Date of Submission LAW 1. The various business structures that are available to Henry and Henriette with respect to the type of business they would like to establish include; a) They can establish a partnership- Under Australian Partnership act of 1963, the two may establish a partnership which is a business involving a number of people (between 2 and 20) carrying on a business together (austlii.edu.au, 2017). In this regard, they may form a general partnership in which the two partners will be equally responsible for its management and with unlimited liability for its debts and obligations (business.vic.au, 2017). On the other hand, the could choose to establish a limited partnership in which one of the partner’s will have limited liability (Partnership Act (1958). A partnership so established has a number of features including; i) A partnership is relatively easy to establish compared to a company owing to few legal requirements ii) It will have a separate tax file number (TFN) iii) It is not compulsory to have an Australian Business Number (ABN) though one may apply (austlii.edu.au, 2017). iv) There will be shared control and management between the partners v) However, though the partnership does not pay income tax on the income earned, each of the partners will have to pay tax on the shared net income from the partnership vi) In addition, a partnership tax return will have to be lodged with the Australian Tax office annually vii) Each partner will also be responsible for their own superannuation arrangements viii) The partnership will also have to be register for GST if its annual income turnover is $75,000 or above (business.gov.au, 2017) b) They can establish a corporation- under the corporation’s act 2001, the two can establish a company which will be either a private limited company or a public limited company (austlii.edu.au, 2017). This is an entity that has a separate legal entity from its founders or those who manage it. In this regard, the corporation will be able to own property, it can sue or be sued and it can be taxed and also be held legally liable for its actions. The key benefit that the two will derive from establishing a corporation is the avoidance of personal liability. However, it requires a lot of costs to establish while a lot of record keeping and regulation is required (asic.gov.au, 2017). Despite this, they might be interested in establishing a company owing to its numerous advantages including the limited liability, ability to transfer ownership, separate legal entity, ability to raise capital through issuance of shares if need be and possible tax advantage since corporation tax might be lower. 2. Assuming that a company structure is the most appropriate business entity to operate the Health Care Center, a) The type of company the two should formulate should be a proprietary company. Based on corporations act 2001 sec 14, a proprietary company is a type of company having at least one shareholder (owner) but with no more than 50 non-employee shareholders on the basis of sec 113. In addition, the company must have at least one director (austlii.edu.au, 2017). The company is not required to have its registered office open to the public and does not need to appoint an auditor. This type of a company is ideal for Henry and Henriette owing to the fact that it allows for at least one director as opposed to a public company that has to have at least three directors based on corporations act 2001 sec 201A (2). In addition a proprietary company would be ideal to them for a number of reasons; i) The company is very simple to form and only needs at least one director as opposed to a public company that needs at least three directors. Thus, unless they coopt in a third partner, it will be impossible for them to form a public company thus leaving them with a proprietary company as their choice. ii) A proprietary company can start operations immediately after being incorporated without requiring a trading certificate. iii) The company does not have to invite the public to buy shares and this being a business between friends, a proprietary company would be ideal for them (schweizer.com.au, 2017). iv) A proprietary company as opposed to a public company does not have many regulatory requirements such as holding statutory meetings or publishing its accounts. v) A proprietary company may also grant loans to the directors without the government’s approval while unlike a public company, a proprietary company may pay remuneration to its directors and also appoint them to an office of profit. Thus, based on the above advantages, Henry and Henriette might it good to start a proprietary company as opposed to other types of companies. b) The various types of obligations and liabilities that each director is subjected to; Once Henry and Henriette assume directorship of their company, they will owe fiduciary duties to the company which if they breach will lead to personal liability for the directors that will include civil and criminal penalties and liability for damages. The duties of directors include; i) Duty to act honestly- Henry and Henriette will be required to act in good faith and in the company’s best interests and for the proper purpose. The duty to act honestly calls for more than a general sense of honesty as it requires that the directors exercise independent judgement in light of prevailing facts and materials in assessing the company’s best interests. ii) Duty not to use insider information or position improperly- They will have a duty not to make improper use of their position or the information they acquire through their position as directors in a bid to gain advantage for themselves or to the detriment of the company. Improper use of position may arise whether or not they intended the impropriety to result in certain outcomes (austlii.edu.au, 2017). A breach of this duty may also arise when the directors use the information they acquire owing to their position for their own benefit instead of benefiting the company. iii) Duty to avoid conflict of interest and that of disclosing material personal interests- as directors, Henry and Henriette will have a duty to disclose all material of personal interests that they have in relation to the company’s affairs. As soon as they become aware of a conflict of interest, they will be required to notify the board. Being a proprietary company, they may not be required to give notice of the conflict provided the other director is fully aware of the nature and extent of the conflict of interest. However, a director with a conflicting interest may be required to refrain voting on the issue (lawteacher.net, 2017). iv) Duty not to abuse a corporate opportunity –Henry and Henriette will have a duty not to take advantage of a corporate opportunity for personal gain at the company’s expense (austlii.edu.au, 2017). The director can only take advantage of such an opportunity after it has been properly considered and rejected by the company. v) Duty of care and diligence- the directors will be required to discharge their duties with the same degree of care and diligence as a reasonable person in a similar position would exercise. Failure to this, the director may be liable for the breach of the duty unless; i) They made the decision in good faith and for a proper purpose ii) They rationally believed the decision was in the company’s best interest after making all reasonable inquiries that are necessary in informing oneself about the decision’s subject matter iii) They made the decision with no personal interest in the matter The directors will also have duties to third parties whose breach will lead to director’s personal liability. The duties include; i) Duty not to engage in insolvent trading (Lester and Lovells, 2017) ii) Duty to keep proper accounts and records Vicarious liability Directors may be held personally liable for the breaches of the law by the company during their tenure as directors (asic.gov.au, 2017). This is known as vicarious liability. Instances of vicarious liability include breaches in competition and consumer act, breach of occupational health and safety laws and breach of taxation and environmental protection law. Other liabilities that Henry and Henriette might face as directors include; i) Liability for illegal acts ii) Liability for negligence iii) Liability for breach of warranty of authority iv) Liability for fraud v) Liability for breach of trust vi) Liability for personal profits made at the company’s expense c) Whether Henry and Henriette can be employees of the company; Henry and Henriette can be employees of the company and their company will be considered a small employer. Under the corporations act, 2001, proprietary companies are not barred from employing their directors as employees (austlii.edu.au, 2017). If the company wants to hire the directors as employees, then it will enter into a service contract with the directors the terms of which will make them the company’s employees under the usual common law test and hence they become the company’s employees. In this case, relevant aspects of employment law will apply in addition to the laws that relate to directors. Thus, it is possible for Henry and Henriette to be the employees of the company they form. References: austlii.edu.au, 2017, Australian Partnership act of 1963, Retrieved on 5th April 2017, from; http://www.austlii.edu.au/au/legis/act/consol_act/pa1963154/ business.vic.au, 2017, Partnership: Register the most suitable structure for your business, Retrieved on 5th April 2017, from; http://www.business.vic.gov.au/setting-up-a-business/business-structure/partnership austlii.edu.au, 2017, Partnership Act (1958), Retrieved on 5th April 2017, from; http://www.austlii.edu.au/au/legis/vic/consol_act/p84a1958135/ business.gov.au, 2017, Partnership, Retrieved on 5th April 2017, from; https://www.business.gov.au/Info/Plan-and-Start/Start-your-business/Business-structure/Business-structures-and-types/Partnership austlii.edu.au, 2017, Corporation’s act 2001, Retrieved on 5th April 2017, from; http://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/ asic.gov.au, 2017, Your Company and the law, Retrieved on 5th April 2017, from; http://asic.gov.au/for-business/running-a-company/company-officeholder-duties/your-company-and-the-law/ schweizer.com.au, 2017, Business structures in Australia, Retrieved on 5th April 2017, from; http://www.schweizer.com.au/articles/Business_Structures_in_Australia_(SK00125445).pdf austlii.edu.au, 2017, Corporations act 2001-Sect 1.5.5, Retrieved on 5th April 2017, from; http://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s1.5.5.html austlii.edu.au, 2017, Corporations act 2001-Sect 601 FC, Retrieved on 5th April 2017, from; http://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s601fc.html Lester, T&, Lovells, H2017, Corporate governance and directors’ duties in Australia: Overview, Retrieved on 5th April 2017, from; https://uk.practicallaw.thomsonreuters.com/1-502-9743?__lrTS=20170405120948604&transitionType=Default&contextData=(sc.Default)&firstPage=true&bhcp=1 lawteacher.net, 2017, Duties and responsibilities of directors, Retrieved on 5th April 2017, from; https://www.lawteacher.net/free-law-essays/company-law/duties-and-responsibilities-of-directors.php asic.gov.au, 2017, Directors liabilities when things go wrong, Retrieved on 5th April 2017, from; http://asic.gov.au/for-business/your-business/tools-and-resources-for-business-names-and-companies/asic-guide-for-small-business-directors/directors-liabilities-when-things-go-wrong/ Read More