Type of Business Structure

1641 words (7 pages) Essay in Business Law

02/02/18 Business Law Reference this

Last modified: 02/02/18 Author: Law student

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First of all, there are four types of business structures to be considered when starting a T-shirts manufacture business including Sole Proprietorships, Partnerships, Corporation and Trust. To determine what type of business structure is best operatable under such condition, each type of structure shall be examined carefully.

Firstly of all, the sole trader as the only and one operator of the business has one important downside and that is the owner of the business has unlimited liability over everything. It is generally good choice for a very small business but not for a T-shirt manufacturing business which will properly employed 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 mean individual has unlimited liability. Partners’ personal possessions could be losing if the business goes bankrupt.

The profits have to be shared 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, to set up a business in a structure of 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 set up 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 which limits the liability of shareholders [1] . A trust allows the owner of the company to set up a offshore company to protected the company’s assets. Hence, a mixture of trust and corporation structure is the best way to manage resources and reduce risk for the benefit of the company and its investors.

Set up

A company would be set up and then goes public, for the company to grow and make more money, shares will be made available for public to trade. Therefore, as the owners of the company, I can float as many shares as the company require. Another company would be incorporate as a trust company under the Panama Companies to hold all assets of the dummy company. Then, my business partners would be appointed as manager of development which in control of T-shirt manufactures production process. This way he could feel like have contributed but does not have total control over the company. In the other hand I will be posing as a potential investor of the business thus become 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 separate entity concept, corporation is treated as an artificial being; therefore, it has to be managed by people in different capacities such as director or managers. It takes its responsibilities itself; owners are free from their personal liabilities and owners hold limited personal liability. A shareholder’s financial liability for the company is limited to a fixed sum which indicate that shareholder in a limited company is not personally liable for any of the debts of the company, other that 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 ahead and decide what gets done and when

Hire and fire team members

The duties of the directors

Directors have a number of 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 limit control of the company. To protect company’s assets and ideas, another company will be set up in Panama as offshore trust. Most of the company’s assets will be transfer to my lawyer which is the company’s trustee. To minimum the damage when business is deemed unable to pay its debts, as the creator of the trust, have the power to revoke the trust at any time.


In the initial state 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 ideal to manufacture a T-shirt which will generate power when in with human skins. It is also capable of making sound and act as an alarm clock when timers are set. The name of the business is “Ink-shirt” which is protected by Business Names Act 1962 (NSW). In order to set up this business, registration of a business name and trade mark can ensure one have exclusive use of the business name.

Copyright act, Designs act, Patents and Trade marks

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 is regulated solely by the Copyright Act 1968 (Cth). Copyright are meant to protect original creative works, only actual works themselves can be copyrighted, not the methods used to create them. A breach of copyright will be committed by the person who without authority reproduces the work in which the plaintiff has copyright [2] . As the owner of the copyright, has the extent power to prevent the 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 be judged by the eye, but does not include a method or principle of construction [3] . In order to register it at the Designs Office, it will require the product to be new and original [4] . A prescribed procedure includes the lodgement of representations of the T-shirt. Upon lodgement, a statement of novelty is also required.

Patents take two forms, standard and innovation patents. They are a documented set of specifications for the invention. Application for a standard patent by the inventor is to be made pursuant to the provisions in the Act. Specifications for the invention are also requiring for an application to be 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, and useful or industrially applicable. As the patent owner, monetary compensation can be seek for past infringement and seek an injunction prohibiting the defendant from engaging in future acts of infringement.

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 in relation to the products for which it is registered. A business may use a distinctive identification mark in relation to their products; this mark has the potential to be a pivotal element in securing a business’s goodwill. Registration must be made in prescribed form and to be examined by the Registrar.

As most of the company’s assets are register as Intellectual Property assets. If someone breaches it without a valid license for the use of the specific intellectual property and without fair use, they can be sued in the name of the business to collect compensation of potential loss.

In order to raise money on an 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 to become part-owners instead of simply lending money.

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