CPL Lecture 1

2010 SP5

Todays Lecture
Contents: Required Reading:
Course Information Booklet:
- On-campus (internal) students - Off-campus (external) students

Companies & Partnership Law

(COML2005 SP5/2010)

Lecture 1
Introduction & Overview of Business Structures
Patrick Wille
July 2010

Introduction Study Materials Course Structure Expectations Business Structures Outlook

Study & Tutorial Guide: p. 1-7 e-Reader(s):

- Gibson & Fraser, pp. 610-623 - Hargovan, para [4.1]-[4.9], [4.56]-[4.136]

Textbook(s):
- Graw, An Outline of the Law of Partnership, 3rd edn, 2007, Chapters 1 & 10: pp. 1-20, 255-257
Written by Patrick Wille

Introduction (who is this guy anyway?)

Hi, I am Patrick patrick.wille@unisa.edu.au Background:
Studied law & business in Switzerland, USA & Australia Worked for courts, government, international organisations Practised commercial law for 10+ years in Australia & overseas Program director, course coordinator, lecturer University & private consulting work Company director
Written by Patrick Wille

Study Materials (1/2)

Hardcopies of the Course Information Booklet (CIB) and the Study & Tutorial Guide (STG) will be distributed in the 1st tutorial in study week 1 If you do not attend the 1st tutorial, you will have to download the materials from the LearnOnline Resources (Moodle) The LearnOnline Resources comprise e.g.:
Study & Tutorial Guide Course Information Booklets Lectures Slides & Recordings Notice Board & Discussion Boards Assignment Template

e-Readers (reading for week 1) Prescribed textbooks (buy them):

3

-Graw, Outline of the Law of Partnership, 3rd edn, 2007 -Lipton, Herzberg & Welsh, Understanding Company Law, 15th edn, 2010 Written by Patrick Wille

Study Materials (2/2)

Recommended books (no need to buy):
- Harris,Hargovan & Adams, Australian Corporate Law, 2nd edn, 2010 - Ciro & Symes, Corporations Law in Principle, 8th edn, 2009

Course Structure (1/2)

Weekly Pre-lecture Reading (see Study Guide) Lectures
- only give an overview & highlight important aspects - complement the pre-lecture readings - do not provide enough information to pass the course - will be available as podcast (audio & video)

Legislation:
- For the Partnership part of the course you will need a hardcopy of the current Partnership Act 1891 (SA) print it out - For the Corporations part of the course you will need access to a current version of the Corporations Act 2001 (Cth)
DO NOT PRINT the whole Act the Study Guide and lectures slides will point out the key sections which you will have to read and understand
Written by Patrick Wille

Tutorial preparation (Language Rich Questions)

- Prepare language rich question in writing (1 page A4) before the tutorial - Tutor can ask you to hand in your answers (bring a copy) - Unprepared students not supposed to attend the tutorials and can be sent away
5
Written by Patrick Wille

Written by Patrick Wille

CPL Lecture 1

2010 SP5

Course Structure (2/2)

Tutorials
- Tutor may shortly discuss the language rich questions - Students will work on problem based questions and develop their own answers

Expectations (1/3) 4P's

Prerequisites
It is assumed that you successfully completed either the Foundations of Business Law or the Introduction to Law course and that you know about the:
Australian legal system & doctrine of precedent difference between common law & rules of equity interplay between general & statutory law basics of the law of contract law of agency

Activities (in some weeks, see Study Guide) Assessments (details see CIB)
- 2 written assignments
worth 20% of the course grade each, due in week 4 (20.8.10) and week 10 (15.10.10) prcis/essay & problem question worth 60% of course grade mainly problem based
7

Preparation
- Weekly pre-lecture reading - Language rich questions (1 page A4) Exam preparation starts now
Written by Patrick Wille

- Final exam

Written by Patrick Wille

Expectations (2/3) 4P's

Participation
- Attend lectures and tutorials - Engage in tutorial work groups and discussions - Use opportunities to apply and test your knowledge - Form study groups with class mates - Provide feedback

Expectations (3/3) Respect

Be on time for lectures, tutorials & meetings Be polite to other students, tutors & lecturers During lectures:
- switch off your mobile - do not talk with your friends - do not leave your seat during lectures unless it is absolutely necessary

Proactive Behaviour
- Student centred learning requires proactive students - Read course materials before asking your tutor or the course coordinator

During tutorials:
- switch off your mobile - contribute and encourage others to actively participate - respect other people's opinions and be supportive
9
Written by Patrick Wille

Written by Patrick Wille

10

Lecture 1
Enough administration & rules
Sole trader Joint venture Partnership Association Trust Company

Business Structures
Main structures used to do business in Australia:

You need to able to: with the course content !!

Define the different types Outline: - ownership (who owns the business?), - control (who controls the business?), and - risk (who bears business risks?) Identify advantages/disadvantages of the different types of business structures in a given factual scenario
12

Written by Patrick Wille

11

Written by Patrick Wille

Written by Patrick Wille

CPL Lecture 1

2010 SP5

Sole Trader
The "sole trader" is simplest form of business The principal (sole trader):

Joint Venture (1/2)

Association of persons who agree by contract to engage in some common undertaking for joint profit by combining their respective resources without forming a partnership or company Joint venturers (often wrongly described as "partners") wish to join forces to undertake a particular project Not a separate form of business ownership, but a structure typically arranged between existing businesses Overlaps with and at times difficult to distinguish from partnerships Canny Gabriel case
(Australia's biggest wind farm to be built near Silverton by a joint venture of Macquarie Capital Group and Epuron)

owns the business, has sole control of the business, is entitled to all the profits, bears all the losses and risks (unlimited liability)

Sole traders may have employees to assists, but the employees do not own or control the business Examples:
a street artist working on his own an accountant practising alone a butcher running his or her butcher shop

Written by Patrick Wille

13

Written by Patrick Wille

14

Joint Venture (2/2)

Ownership: The individual joint venturers own inputs; ownership of property arising from JV will be determined on the basis of the JV agreement Control: The joint venturers control the project as determined by the JV agreement; often by a management committee comprising representatives from each joint venturer No separate legal entity; joint venturers are liable for all the debts of the JV, unless agreed otherwise in the JV agreement

Association (unincorporated)
A group of people who join together for some common purpose or interest (minimal formality, no legal entity) Associations may trade & make profits for the benefit of the association's purpose; profits cannot be distributed to members (non-profit organisation) Purpose may be social, sporting or for public benefit There is little or no state regulation beyond general law Ownership: The entire group owns any assets or debts Control: Risk:
15
Written by Patrick Wille

Risk:

The members control the association, normally through a (management) committee Committee members have unlimited personal liability for contracts and torts; members are only liable for subscription (membership fee)
16

Written by Patrick Wille

Association (incorporated)
Uncertainty regarding membership, ownership & liability causes problems for unincorporated associations State law, e.g. the Associations Incorporation Act 1985 (SA), allows non-profit associations to incorporate Association must apply to be registered (payment of a prescribed fee & lodge copy of association's rules) Separate legal entity, but less regulations and costs than incorporation under the Corporations Act 2001 Ownership: The association owns any assets or debts Control: Risk:
Written by Patrick Wille

Trust (1/2)
A device of (equity) law where one person ("trustee") holds property for the benefit of another person ("beneficiary") The trust is set up by the "settlor" The trustee can be an individual (e.g. the former owner of a business) or a company (former owner may be a director) The trustee has the legal responsibility to manage the property (business) for the benefit of the beneficiaries The two most common reasons to create a trust are: - to protect assets - for tax reasons
17
Written by Patrick Wille

The members control the association, through a management committee The committee & members are not liable for debts in excess of their agreed subscription

18

Written by Patrick Wille

CPL Lecture 1

2010 SP5

Trust (2/2)
The entitlements of the beneficiaries
- of a fixed trust are pre-determined, whereas - the trustee of a discretionary trust has discretion how to distribute profits

Company
A company registered under the Corporations Act is a legal person (i.e. a separate legal entity) distinct from its owners, directors, members, employees and agents Companies have the powers of an individual and can:
- own and dispose of assets; - enter into contracts; and - sue and be sued in their own name

Ownership: The trustee is the legal owner of any trust property,

beneficiaries hold a beneficial interest

Control:

The trustee has control over the trust assets, but must exercise the control in accordance with the terms of the trust & fiduciary principles The trustee is responsible for the preservation of the trust property (e.g. by keeping it insured)

Companies have perpetual succession Ownership: Owned by members (generally holding shares) Control: Risk:
Management control by the board of directors Limited liability
(members are generally not liable for the company's debts, their liability is limited to the issue price of the shares)

Risk:

Written by Patrick Wille

19

Written by Patrick Wille

20

Partnership
Partnership is the relationship which subsists between persons: - carrying on a business - in common - with a view to profit
Section 1(1) Partnership Act 1891 (SA)

Limited Partnership & Incorporated Limited Partnership

Limited partnerships (in most Australian jurisdictions)
overcome the disadvantage of the unlimited liability of partners are formed upon registration have at least 1 general partner with unlimited liability and 1 or more partners whose liability is limited to the paid capital limited partners are not allowed to manage & cannot bind the firm

Governed by state law, common law and rules of equity Little formalities required (e.g. no written agreement) Ownership: owned by the partners collectively Control: Risk:
each partner is able to participate in the management unless the agreement provides otherwise unlimited liability
(partners are jointly liable for contractual obligations and jointly and severally liable for any tort claims)
Written by Patrick Wille

Incorporated limited partnerships (in NSW, Vic, SA)

Used for equity investments in (high-risk) start-ups 1-20 general partners (management) and at least 1 limited partner (investors) Commonwealth responsible for registration and reporting Some tax benefits if capital invested in Australian businesses >$10 million, total assets <$250 million and >5yr existence
21
Written by Patrick Wille

22

Next Week
Partnership Law
Nature of Partnership Essential Features of Partnership Identifying Partnerships Creation and Dissolution of Partnership

Preparation (see Study & Tutorial Guide for Week 2)

Pre-lecture reading Solve the language rich questions (1 page A4)

Written by Patrick Wille

23

Written by Patrick Wille