LAW603 Law of Association Lecture 1

7/25/2019 LAW603 Law of Association Lecture 1

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LAW 603: LAW OF

ASSOCIATIONS

TRIMESTER 3, 2015


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TOPICS 1 & 2:INTRODUCTION TO FORMS

OF BUSINESS OWNERSHIP

This topic provides a general

description of many forms ofbusiness organizations and identiessome of their advantages and

disadvantages. It providesinformation on how the organizationis created, liability for the owners,

managing the organization, and


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The Basics e!a"S#$%c#%$es

To put your business on a proper footing with Fiji Inland evenue!ustom "uthority #FI!"$ and other authorities, you need to ma%esure that it has the right legal structure. It is therefore worththin%ing very carefully about which structure best suits the waythat you want to do business, as this will have a&ect on'

the ta( and insurance that you need to paythe records and accounts that you have to %eep

your nancial liability if the business runs into trouble

the ways your business can raise money

the way management decisions are made about the business

There are several structures to choose from, depending on yoursituation. This guide will help you understand the di&erencesbetween them.

If you are not sure which legal structure would best suit your


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*ole +roprietorships

The sole proprietorship is the oldest, most common, and simplest form of business

organization. A sole proprietorship is a business entity owned and managed by one

person. The sole proprietorship can be organized very informally, is not subject tomuch state regulation, and is relatively simple to manage and control.

The prevalent characteristic of a sole proprietorship is that the owner is

inseparable from the business.

Because they are the same entity, the owner of a sole proprietorship has complete

control over the business, its operations, and is financially and legally responsible

for all debts and legal actions against the business. Another aspect of the "same

entity" aspect is that taxes on a sole proprietorship are determined at the personal

income tax rate of the owner.A sole proprietorship does not pay taxes separately

from the owner.

A sole proprietorship is a good business organization for an individual starting a

business that will remain small, does not have great exposure to liability, and does

not justify the expenses of incorporating and ongoing corporate formalities.


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Points to Consider

asiest type of business organization to establish. There are no

formal re!uirements for starting a sole proprietorship

ecision ma#ing is in direct hands of owner.

All profits and losses of the business are reported directly to the

owner$s income tax return.

The startup costs for a sole proprietorship are minimal.

%wner has unlimited liability. Both the business and personal assets

of the sole proprietor are subject to the claims of creditors.


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ecause a sole proprietorship is not a separate legal

entity, it usually terminates when the owner becomesdisabled, retires, or dies. "s a result, the soleproprietorship lac%s continuity and does not haveperpetual e(istence li%e other business organizations.

It is di-cult for a sole proprietorship to raise capital.Financial resources are generally limited to the ownersfunds and any loans outsiders are willing to provide.

/wner could spend unlimited amount of timeresponding to business needs.


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Key Attributes

Creation&minimum re!uirements' ( )o *ormalities for creating a

sole proprietorship.

Profits / Losses / istributions( %wner may use all profits andlosses for business.

Liabi!ity( %wner faces unlimited personal liability.

Ca"ita! / Finan#in$( All capital obtained from owner or through

loans based on owner$s creditworthiness.

.


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uration( +sually no continuity upon disability, retirement or death

of owner.

Transfer of O%ners&i"( Assets may be sold in entirety or in part.

'ana$e(ent and Contro!( %wner manages and controls thecompany.

Ta)ation( The business does not file or pay taxes.

*e"ortin$ *e+uire(ents( )one.

Fees( )one.


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Business income is counted alongside your existing personal

income, so the accounting side of your business will be verystraightforward.

As the name suggests, you will be personally liable for any debts

you incur in the running of your business.

n terms of accounting, you will need to submit an annual self

assessment form to *-A and #eep accurate and up(to(date records

of all business transactions and accounts. /ou will also pay incometax on all profits. 0osses can be offset against tax on other income.

*-A needs everyone to have a tax identification number or T)


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,a!ue Added Ta) -,AT.

ven though you will have registered as $selfemployed$ when setting up, you won$t automaticallybe 1AT registered.

/ou don2t usually need to register for 1AT untilyour turnover reaches a certain limit in any 34months, or you expect it to do so.

The standard rate of 1AT is currently 3567reviously it was 34.56.


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Ta) rates for so!e traders in Fii

The tax threshold for sole traders is F126000with effectfrom 3st 8une, 499:.

ncome below ;35,::: will not attract tax.

)ormal tax is levied on hargeable income &i4e4 tota!

in#o(e !ess a!!o%an#es'. There are separate rates of normal

tax for resident and non < resident sole(traders.


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T&e 5asi# Le$a! Stru#ture: Se!fe("!oy(ent

To be a sole trader, a partner, or a member of a limited liabilitypartnership as an individual rather than a company, you must be self(

employed ( and registered as such with *-A. This does not mean

that you can$t also do other wor# as an employee, but the wor# you do

for your own business must be done on a self(employed basis.

f you are not sure whether your wor# counts as self(employment, as#

yourself these !uestions=

o you present your clients with invoices for the wor# that you do

for them>

o you carry out wor# for a number of clients>

Are you responsible for the losses of your business as well as

ta#ing the profits>


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0o you have control over what wor% has to be done,

how the wor% has to be done and the time and placewhere the wor% has to be done1

2ave you invested your own money in your businessor partnership1

0o you provide any major items of equipment whichare a fundamental requirement of the wor% you carry

out1

0o you have to correct unsatisfactory wor% in your

own time and at your own e(pense1If you can answer yes to most of these questionsthen you are probably self3employed already, andshould let FI!" %now this immediately if you have notalready done so. 4ou may be ned if you fail to registerwhen you become self3employed.


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5efore you start

Anyone can set up in business as a sole trader. *or certain types ofwor# you may need a licence or permission from your local

municipality for example restaurants, child minders, cab drivers and

street traders ( all need to have a !o#a! aut&ority !i#en#e. /our

!ualifications and business premises may be inspected beforehand toensure you comply with regulations.

Wor7in$ fro( &o(e

f you run a business from home, you may have to pay business ratesfor the part of your home that you use for your business. This mainly

depends on whether the business area of your home is also used for

domestic purposes. f you simply wor# on a computer in a bedroom,

for example, you will probably not have to pay business rates.


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/ou may need to get planning permission to set up a business at

home. *or example, if your business could cause a nuisance to your

neighbours, or if you intend to do any building wor# to adapt your

home. f in doubt, contact the planning department of your local

authority as you are setting a commercial business in a residential

area. Also bear in mind that there may also be restrictions in the

deeds of your property or, if you rent, in the rental or lease agreement.

C&oose a na(e for your business

/ou can trade under your o%n na(e, e.g. ?./.@elf, or use another

business name, e.g. 7eerless 7romotions. /our trading name should

not be the same as, or too similar to, that of a business which already

exists. Be careful that it does not contain words that people might find

offensi8e or (is!eadin$.


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Partners&i"

T&e 5asi# Le$a! stru#ture: Partners&i"

n a partnership, two or more people share the ris#s, costs and

responsibilities of being in business. ach partner is self(employed

and ta#es a share of the profits. +sually, each partner shares in the

decision(ma#ing and is personally responsible for any debts that the

business runs up.

+nli#e a limited company, a partnership has no legal existence distinct

from the partners themselves. f one of the partners resigns, dies or

goes ban#rupt, the partnership must be dissolved ( although the

business can still continue.

A partnership is a relatively si("!e and f!e)ib!eway for two or more

people to own and run a business together. owever, partners do not

enjoy any protection if the business fails.


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Partners&i"

Se#%'

5ach partner needs to register as self3employed.

Its a good idea to draw up a written agreementbetween the partners. For further advice, consult anaccountant or solicitor.

Ma(a!e)e(# a(* $aisi(! +(a(ce

+artners themselves usually manage the business,

though they can delegate responsibilities to employees.+artners raise money for the business out of their ownassets, and6or with loans.

Its possible to have sleeping partners who contribute

money to the business but are not involved in runningit.


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Partners&i"

Rec$*s a(* acc%(#s

The partnership itself and each individual partner must

ma%e annual self3assessment returns to FI!".

The partnership must %eep records showing businessincome and e(penses.

P$+#s

5ach partner ta%es a share of the prots according totheir agreement.

sses

5ach partner ta%es a share of the losses according to

their agreement.


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Partners&i"

Ta) and Nationa! Insuran#e

As partners are self(employed, they are taxed on their share of the

profits.

Liabi!ity

reditors can claim a partner$s personal assets to pay off any debts (

even those debts caused by other partners. n *iji, partners are jointly

liable for debts owed by the partnership and so are e!ually responsible

for paying off the whole debt. They are not severally liable, which

would mean each partner is responsible for paying off the entire debt.

owever, if a partner leaves the partnership, the remaining partners

may be liable for the entire debt of the partnership. Also, a creditor

may choose to pursue any of the partners for the full debt owed in the

case of insolvency.


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Partners&i"

Ta) treat(ent for "artners&i" in Fii

A partnership business is one that is operated by two ormore persons who have a common goal of ma#ing profits.

The partnership business should lodge a return of the

business income. ach partner shall be severally and

individually liable for lodging a tax return.

The income of the partners from the partnership business for

any income year shall be deemed to be the share of income

to the partner. ach partner will declare their own income

separately for the purpose of this Act.


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To be continued in

Lecture 2

Documents

LAW603 Law of Association Lecture 1