ACC1200 Lecture Notes - Lecture 6: Legal Personality, Limited Liability, Milk Bar
22 May 2018
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Week 6: Business Structure
Types of Business Structures:
• Sole traders: one person only controlling, managing and owning the business (eg. Milk bar,
hairdressers, plumber)
Advantages
Disadvantage
• Inexpensive to set up
• Manages and controls individually
• Does not need to pay separate income
tax
• Owner claims all profits of the business
• Solely responsible for the taxes that the
business must pay (unlimited liability)
• Limited by time, skill and investment
• Restrictive for businesses trying to secure
opportunities with the government
• Partnership: 2 or more persons or entities that carry on business as partners and share profits
or losses according to ownership structures (eg accountant, lawyers, chemists)
Advantages
Disadvantage
• Access to more resources
• Relatively inexpensive
• Not required to prepare financial
statements in accordance with
accounting standards
• Combines the skills, talents and
knowledge or 2 or more people
• Decision making and workload to be
shared
• Not a separate legal entity
• Unlimited liability
• Partnerships have a limited life
• Automatically dissolves if one
partner leaves
• Mutual agency: when each partner is
seen as being an agent for the business,
having the right to enter into contracts
for the business and being bound by any
partnership contract
• Company (eg. Airlines, Woolworths, Telstra)
o Owners are called shareholders
o Taxed in their own right
o Heavily regulated
o Separate legal entity
o Distribution of profits is at the discretion of the Board and is known as a dividend
Advantages
Disadvantage
• Access to more resources
• Annual company tax return
• Pay as you go installments
• Limited liabilities, greater protection
• Separate legal entity
• Continuity
• Company tax rate may be lower than
individual
• Set up and administrative costs are higher
• Heavily regulated
o Proprietary limited
• Limited by shares
o Public Limited
• Limited by shares
• Limited by guarantee
• No-liability company
• Unlimited company
find more resources at oneclass.com
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• Trust: involves a special entity (trustee) holding a sum of money or other assets for the benefit
of other (eg. Family (discretionary) and unit) for one or more beneficiaries.
Advantages
Disadvantage
• Taxation benefits
• Limited liability
• Relatively simple to form and are
subjected to government regulation
• Laws can be quite complex
SOLE TRADER VS PARTNERSHIP
Similar to a sole trader, a partnership is still relatively simple and cheap structure to establish and
run. However it allows for a greater amount of resources more knowledge, skills, money and loaning
capacity.
Financial Statement differences
Income statement
• Sole trader
find more resources at oneclass.com
find more resources at oneclass.com
