2.

5 CLASSIFICATION BY LEGAL STRUCTURE

W. Naicker

GLOSSARY
INCORPORATED

refers to the process companies go through to become a separate legal entity from the owner/s. SOLE TRADER is a business owned and operated by one person. PARTNERSHIP is a legal business structure owned and operated by 2-20 people. PRIVATE COMPANY is an incorporated business and usually has between 2-50 private shareholders. CONT. next slide .

GLOSSARY
PUBLIC

COMPANY is an incorporated business and has at least one shareholder. GOVERNMENT ENTERPRISES are govt owned and operated. FRANCHISE refers to a business arrangement whereby a person buys the right to use the business name and distribute the goods or services of an existing business.

Fig 2.1
LEGAL STRUCTURE

SOLE TRADER

PARTNERSHIP

PRIVATE COMPANY

PUBLIC COMPANY

UNINCORPORATED

UNINCORPORATED

INCORPORATED

INCORPORATED

CHARACTERISTICS
SOLE TRADER 1 person sole trader All profits PARTNERSHIP 2-20 persons partners Share profits PRIVATE COMPANY 2-50 persons Private shareholders Share in dividends PUBLIC COMPANY 1.. Public shareholders Share in dividends Limited liability Legal entity Name end with Ltd

Unlimited liability Unlimited liability Limited liability Personal entity Name: no Pty, nor Ltd Personal entity Name: no Pty, nor Ltd Legal entity Name ends with Pty Ltd

ADVANTAGES
SOLE TRADER Full control High personal satisfaction Simple decisionmaking Less govt regulation All profits Low start-up costs No tax on profits PARTNERSHIP Access to more expertise Shared responsibility Pooled funds & talent Death, continuity Low start-up costs No tax on profits PRIVATE COMPANY Access to more expertise Shared responsibility More funds Limited liability PUBLIC COMPANY Access to more expertise Experienced management Very large funds - public Limited liability Greater spread of risk Low co. tax rate

DISADVANTAGES
SOLE TRADER All risks Lack of continuity PARTNERSHIP Divided loyalty & authority disputes PRIVATE COMPANY Incorporation costs Legislative requirements PUBLIC COMPANY Incorporation costs Legislative requirements

Unlimited liability Personal Double tax Unlimited liability

Liability for all debts Directors personal liab for debts, if

Double tax
Directors personal liab for debts, if inefficiencies

Suitable partners Hard to sell shares

takeovers

ACTIVITY
WORK

IN 4 SEPARATE GROUPS. FOCUS AREAS:

GROUP 1: SOLE TRADER GROUP 2: PARTNERSHIP GROUP 3: PRIVATE COMPANY GROUP 4: PUBLIC COMPANY

Present

to the class, arguments why your legal structure is superior to the other three. (10 minutes prep time)

TASK: EXTENDED RESPONSE

Compare

and contrast incorporated and unincorporated forms of business; and recommend which legal structure is most appropriate to an Australian business wanting to enter the e-commerce market. Give sound reasons. NB: Due Thurs, Period 3 (17 Feb 11) No late papers will be accepted Neat handwriting. Max: 4 x A4 pages

Marking criteria
Introduction

(outlines response) - 5% Defines relevant concepts 10% Similarities and differences between:

Sole trader and partnership 15% Private and public companies 15% Incorporated and unincorporated entities 15%

e-commerce

business assumptions 10% 3 well-stated reasons for selecting an appropriate legal structure 3 x 10% (30%) NB: Marks will be deducted for:

Illegible writing, poor spelling and grammar. Bullet points. Plagiarism.