Business Structure Types in Business Law; What is Business Structure? It refers to the legal structure of a company that’s recognized during a given jurisdiction. associate degree organization’s legal structure could be a key determinant of the activities that it will undertake, like raising capital, responsibility for obligations of the business, furthermore because of the quantity of taxes that the organization owes to tax agencies. Before selecting the kind of legal structure, business house owners ought to initial contemplate their desires and goals and perceive the options of every business structure with their types.
Here is the article to explain, What are the Types of Business Structure in Business Law?
First of all, there are four types of business structures to consider when starting a T-shirt manufacturing business including Sole Proprietorships, Partnerships, corporations, and Trust. To determine what business structure types are best operatable under such conditions, each type of structure shall examine carefully.
Types of Business Structure;
Firstly, the sole trader as the only operator of the business has one important downside and that is the owner of the business has unlimited liability over everything. It is a generally good choice for a very small business but not for a T-shirt manufacturing business which will properly employ a great number of workers.
Secondly, a partnership rarely works well in a business structure and friendship may not survive a partnership, the reason behind it is that people are generally self-service. Moreover, there are other disadvantages of partnership including:
- It is not a separate legal entity, which means the individual has unlimited liability. Partners’ possessions could be lost if the business goes bankrupt.
- The profits have to share among all the partners even though not every partner contributed equally.
- One might not have as much control over the business because every partner has equal authority in the management and decision-making process.
- Disagreements between the partners can cause major difficulties as partners are bound by one single partner’s commitments.
Thirdly, setting up a business in a structure of the trust is a great way of preserving company assets and avoiding liability. However, due to its complex business structure, it would be quite difficult for one to manage their business. Also, such a setup might not hold proper moral, ethical standards for business practices.
In my humble opinion, a mixture of trust and company is the best way. A company is a separate legal entity that limits the liability of shareholders. A trust allows the owner of the company to set up an offshore company to protect the company’s assets. Hence, a mixture of trust and corporation structure is the best way to manage resources and reduce the risk for the benefit of the company and its investors.
Set up;
A company would set up and then goes public, for the company to grow and make more money, shares will stand made available for the public to trade. Therefore, as the owner of the company, I can float as many shares as the company requires. Another company would stand incorporated as a trusted company under the Panama Companies to hold all assets of the dummy company.
Then, my business partners would appoint me as manager of development who is in control of the T-shirt manufacturer production process. This way he could feel like has contributed but does not have total control over the company. On the other hand, I will be posing as a potential investor of the business thus becoming the shadows director of the company. Therefore, the company would follow the directions or instructions that I made. However, if anything goes wrong, hopefully, I can simply exclude myself from the company.
Separate Legal entity;
The principle from the Salomon v Salomon & Co Ltd (1897) AC 22 is very simple – a company is a separate legal entity and thus a juristic “person” in the eye of the law. Under the separate entity concept, the corporation exists treated as an artificial being; therefore, it has to manage by people in different capacities such as directors or managers.
It takes its responsibilities itself; owners are free from their liabilities and owners hold limited personal liability. A shareholder’s financial liability for the company stands limited to a fixed sum; which indicates that a shareholder in a limited company is not personally liable for any of the debts of the company; other than for the value of his investment in that company.
The duties of the shareholders;
In general, the corporate world believes shareholders have no fiduciary duties to a company because they merely invest in a company passively. A shareholder holding the majority of stock in a company usually has total control over leadership and decisions.
The duties of the managers;
The duties of a manager are many and include:
- Ensure that procedures are being followed
- Track schedules and budgets
- Moralize the team and Set priorities
- Plan and decide what gets done and when
- Hire and fire team members
The duties of the directors;
Directors have several common law and statutory duties and obligations such as:
- Duty to act in good faith in the best interests of the company (replaces duty to act honestly)
- Duty to act with care and diligence
- Prohibition against the misuse of information obtained by directors
- Duty to avoid a conflict in the position of a director or any interest that a director may have
- Duty to prevent insolvent trading
All In all, my friend as the manager of development will have limited control of the company. To protect the company’s assets and ideas, another company will stand set up in Panama as an offshore trust. Most of the company’s assets will transfer to my lawyer who is the company’s trustee. To minimize the damage when a business stands deemed unable to pay its debts; the creator of the trust has the power to revoke the trust at any time.
Property;
In the initial stage of setting up a business, ideal, invention, and trademark would be our business’s major assets. Therefore, it is essential to protect Intellectual Property. Anyway, one of our engineers has come up with an idea to manufacture a T-shirt; which will generate power when in contact with human skins. It is also capable of making sounds and acts as an alarm clock when timers exist set. The name of the business is “Ink-shirt” which stands protected by Business Names Act 1962 (NSW). To set up this business, registration of a business name and trademark can ensure one has exclusive use of the business name.
Copyright act, Designs act, Patents, and Trademarks;
The copyright is concerned with exclusive rights concerning the doing the prescribed acts regarding works of a musical or literary. The copyright in certain works and other subject-matter exists regulated solely by the Copyright Act 1968 (Cth). Copyright stands meant to protect original creative works, only actual works themselves can exist copyrighted, not the methods used to create them. A breach of copyright will stand committed by the person; who without authority reproduces the work in which the plaintiff has copyright.
As the owner of the copyright has the extent power to prevent acts of infringement. The designs act protects all designs which are features of shape, configuration, pattern, or ornamentation applicable to an article, being features that, in the finished article, can stand judged by the eye, but does not include a method or principle of construction. To register it at the Designs Office, it will require the product to be new and original. A prescribed procedure includes the lodgement of representations of the T-shirt.
Upon lodgement, a statement of novelty stands also required. Patents take two forms, standard and innovation patents. They exist a documented set of specifications for the invention. Application for a standard patent by the inventor is to exist made under the provisions in the Act. Specifications for the invention also require an application to stand filed at the relevant patent office. Moreover, a patent application must include one or more claims defining the invention; which must be new, non-obvious, useful, or industrially applicable. As the patent owner, monetary compensation can exist sought for past infringement; and seek an injunction prohibiting the defendant from engaging in future acts of infringement.
Other things;
The law considers a trademark to be a form of property. A registered trademark confers a bundle of exclusive rights upon the registered owner, including the right to exclusive use of the mark about the products for which it stands registered. A business may use a distinctive identification mark about their products; this mark has the potential to be a pivotal element in securing a business’s goodwill.
Registration must exist made in the prescribed form and to exist examined by the Registrar. As most of the company’s assets exist registered as Intellectual Property assets. If someone breaches it without a valid license for the use of the specific intellectual property and fair use; they can exist sued in the name of the business to collect compensation for potential loss.
To raise money on intellectual property, we have to get our invention into the marketplace. However, it is unlikely to turn it into a commercial product at first; but we can use this property as security to borrow money to fund the business. Another way to raise money for the T-shirt business is to have friends, family, or potential investors become part-owners instead of simply lending money.
