Legal System in Australia for Businesses
Discuss about the Advantages and Disadvantages of Different Business.
Australia is a parliamentary democracy, and the constitution of 1901 provides provisions for the establishment of a federal government system in the country. The legal system divides power between national government (Commonwealth) and six states (UTAS, 2018). The constitution distributes the law-making powers between Commonwealth and States. The legal system in Australia is heavily influenced by the English, and the two major sources of law include cases and legislation (Australian National University, 2018). The cases include decision given by judges in the courts and legislation includes laws made by the parliament. The national and state government has implemented different laws for businesses to protect customers and to promote fair trading and competition. While starting a new business, owners have to decide the legal structure based on which they have to comply with different requirements. This report will analyse the legal system in Australia in context to businesses and assesses different business structures. This report will evaluate the business structure of Woolworths Limited and discuss its advantages and disadvantages. Further, the report will compare the merits and limitations of different business structure and examine how legal system affects their operations.
There are four different legal structures for businesses operating in Australia.
- Sole trader: In this structure, a person is responsible for all aspects of the business. A sole trader can hire other employees for performing business tasks, however, only he/she is responsible for its actions. In case the business failed to repay its debts, the court can use personal properties of the sole trader to pay such debts (Department of Industry, Innovation and Science, 2018).
- Company: A company is created as per the provisions of Corporations Act 2001, and it has a separate legal entity from its owners or shareholders (Department of Industry, Innovation and Science, 2017a).
- Partnership: It is referred to an association of individuals who joined together to run a business (Department of Industry, Innovation and Science, 2017b).
- Trust: It is referred to an arrangement whereby an entity holds income or property as a nominal owner for the benefit of others (Department of Industry, Innovation and Science, 2017c).
As per the legal system in Australia, businesses have to register themselves before commencing any business activities. However, the registration requirement differs based on the structure of the business. Businesses also have to comply with different legal requirements such as taxation laws, fair trading regulations, employment laws, consumer acts, the law of torts, contract law, privacy act and others (JD Supra, 2015). Based on the structure of a business, different liabilities and obligations are required to comply by a business relating to tax liability, asset protection, expenses, reporting and others. Businesses are requiring assessing the legal context in which they operate and ensure that they comply with its requirements to avoid legal consequences.
The laws in Australia are created, changed and applied by the parliament in Australia. Firstly, a draft of the proposed law is presented to the parliament in the form of a bill. Generally, proposed laws are presented in the parliament by the government. A bill can be presented in either of the house (Skwirk, 2018). The ministers than discuss the bill and make necessary changes to it and opinions from the public regarding the bill are considered as well. After making requirement changes, the bill is presented in the parliament to be passed in identical form by both the houses of the parliament. After passing the bill in the parliament, it is presented to the Governor-General for royal assent after which the bill becomes law (Parliamentary Education Office, 2018). Businesses have to assess both old and new laws which apply to their structure and comply with them in order to avoid legal liabilities.
Business Structure in Australia
Woolworths Limited is an Australia company which was founded in 1924; the corporation operates in retailing industry and offers its services in different parts of Australia, New Zealand and India (Woolworths Group, 2018). It is the largest supermarket chain situated in Australia, and its head office is situated in Bella Vista, New South Wales, Australia. The legal structure of Woolworths Limited is a public company. Being a public corporation, shares of Woolworths Limited are registered on Australian Securities Exchange (ASX) and people can purchase them through ASX (Woolworths, 2018). Woolworths has to comply with the provisions of Corporations Act 2001 and other regulations while performing its business activities. For example, as per the tax regulations in Australia, the tax rate for companies is 30 percent, and the company has to comply with the same (Australian Taxation Office, 2018). It has to comply with Food Safety Act 2001 in order to ensure that food products offered by the firm are safe and healthy to use. The company also comply with Fair Work Act 2009 for ensuring health, welfare and safety of its employees. As per the Fair Pay Act 2005, the firm has to provide minimum wage to its workers which is currently AU$18.29 per hour (Fair Work, 2018).
- A company has a separate legal entity which means it can enter into contracts and hold property under its name.
- The liability of shareholders in a company is limited, and they cannot be held personally liable for repaying the firm’s debts.
- A corporation can sell its shares and raise capital for its operations. A public company can list its share on Australian Securities Exchanges, and people from all across the country can purchase its shares.
- Taxation rates for the companies are more favourable than compared to other structures (Woellner, Barkoczy, Murphy, Evans, & Pinto, 2012).
- Corporations follow functional or hierarchy strategy in which decision-making occurs at the senior level of management, and they control all the operations in the organisation. It facilitates stability and efficiency in the operations. Companies take assistance from professionals in different fields while taking decisions which improve their effectiveness.
- Companies receive great flexibility in terms of cancelling or reducing the paid-up capital of shares under Corporations Act 2001.
- Corporations have to comply with more rules and regulations as compared to other business structure.
- The legal structure of a company is more complex than other business structures. It is also relatively expensive to start a new company than compared to other business structure (Du, Bhattacharya & Sen, 2011).
- It is relatively difficult to control the operations of a corporation, and senior level executives have to delegate their powers in order to regulate a firm properly.
- Profits distributed by a company are the form of a dividend to its shareholders is taxable.
- The reporting requirements of a corporation are complex and also resulted in increasing the firm’s overall operating costs.
- Directors can be held personally liable for legal obligations or debts of the company based on the doctrine of piercing of corporate veil.
- The financial affairs of a company are public, and it has to make a public statement in case of any major change occurred in the firm.
- Sole trading business is operated by a single person whereas a number of people run a company; therefore, the cost of operating and running a sole trading business is considerable lower than compared to a corporation (Department of Industry, Innovation and Science, 2017d).
- The expenses occurred while starting the business is also relatively lower in sole trading business structure. The formation process of a company is more expensive and longer than a sole
- The privacy of a sole trader is maintained because it did not have to publish its financial affairs. On the other hand, financial affairs of a corporation are public, and it has to publish its books of accounts.
- It is easier to control a sole trading business because the owner is responsible for all aspects of the business. A company follows a functional or hierarchy structure in which decisions are taken by top-level management which is followed by subordinates. However, it is difficult to manage subordinates if the number of employees is high.
- The owner of a sole trading business retains all the profits of the business, except for paying employees’ salaries, if any. In a corporation, the profit is distributed between a number of stakeholders which include shareholders, employees, investors and others.
- Due to lack of complexity, a sole trader can take business decisions efficiently. On the other hand, the decision-making process in companies is longer because top-level management has to consider different opinions.
- The owner of a sole trading business is personally liable for its debts and liabilities, whereas, shareholders are liable up to the extent of the capital invested by them.
- The owner is the only investor in sole trading business, and it is considerably difficult to raise finance. On the other hand, companies can list their shares on the stock exchange to raise money (Department of Industry, Innovation and Science, 2017d).
- In a sole trading business, the owner has to take all business decisions, and success or failure of the business entirely depends upon his/her decision. In a corporation, the decisions are taken by top-level management after consulting with professionals from different fields which reduces the risk of failure.
- Sole traders are taxed as individuals whereas corporations are taxed as a separate entity. The tax regulations in Australia are more favourable towards companies.
- The starting cost of a partnership firm is relatively lower than compared to a corporation.
- A partnership is created by a contract between the partners which is a relatively easy process, whereas, a corporation is registered under the Corporations Act 2001 which is a complicated process (Business Victoria, 2015).
- In partnership, the flexibility in operation is higher than compared to a corporation. The decisions are taken by partners through voting whereas top-level management takes business decisions in corporations.
- Partnerships are divided into two categories; general and limited. In general partnership, partners’ liability is unlimited whereas, in limited liability, partners’ liability is limited. The liability of both limited liable partners and shareholders are limited, and they cannot be held personally liable.
- Partners are responsible for taking business decisions, whereas, directors take decisions in a company after consulting with different professionals.
- In a partnership, disputes between partners might lead to negatively affecting the business. Conflicts can also lead to disagreement between the partners which might result in dissolving the partnership. However, a corporation cannot be dissolved based on the disagreement between directors (McKnight, 2014).
- The income of a partnership firm is taxable as per the income of partners whereas profits of a company are taxed separated from its shareholders.
- Partnership firms face difficulty in raising capital for business expansion whereas it is relatively easy for companies to raise capital.
- Trusts are more flexible in operations than compared to partnerships and corporations.
- The liability of trust is limited unless the director commits insolvent trading. Similarly, the liability of shareholders is limited as well (Rogerson Kenny, 2014).
- Trusts provide more privacy than compared to a corporation because its accounts are not public. On the other hand, companies’ accounts are public which can be accessed by anyone.
- The structure of trust is more complex than compared to Sole traders or partnerships. However, the structure of corporations is more complex than a trust (Moroney, 2018).
- The income of a trust is treated as personal income of the trustee, and no tax deductions are allowed. However, tax rates of corporations are more favourable.
- The provisions of the trust deed restrict the power of a trustee. Whereas, the provisions of Corporations Act 2001 restrict the power of companies.
Conclusion
In conclusion, businesses have to comply with legal regulations in Australia based on their business structure. While starting a business, owners can choose between four different business structures in Australian which include sole trader, partnership, company and trust. This report discussed the business structure of Woolworths Limited which is a public company. The firm has to comply with the legal system in Australia along with the provisions of Corporations Act 2001. There are different advantages of a corporate structure such as a separate legal entity, limited liability, favourable taxation laws, listing of shares, hierarchy structure and others. Along with merits, there are different limitations of a company structure as well such as complex legal structure, many legal requirements, difficulty in management, directors can be held liable, and others. Further, advantages and disadvantages of other legal structures were compared with the structure of a company. Owners should carefully select the business structure by analysing its advantages and disadvantages to ensure that they comply with its legal requirements effectively.
References
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Department of Industry, Innovation and Science. (2017a). Company. Retrieved from https://www.business.gov.au/Info/Plan-and-Start/Start-your-business/Business-structure/Business-structures-and-types/Company
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