Business and Corporations Law

TLLB203/607 Business and Corporations Law
PART B: CORPORATIONS LAW
Week 6:
Business Structures
Lecture Notes
Topics for week 6
Weekly textbook reading: Business and Corporations Law (BCL) chapter 7
The topics to be covered in this class are:
● Choosing a business structure
● Characteristics of common business structures in Australia
(a) Sole trader
(b) Partnership/Firm
(c) Company
(d) Joint Venture
(e) Trust
● Licences and registration
● Property of the Business
1. Introduction: Choosing a business structure
There are many considerations involved in setting up a business. One important
consideration is the
legal structure of the business. The range of legal obligations
and liabilities will vary depending on the structure chosen by a business person. We
will be considering the characteristics of some of the most common business
structures operating in Australia today from the simplest to the more complex.
These are
(a) Sole trader
(b) Partnership
(c) Company
(d) Joint Venture
(e) Trust
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The company is the most common business structure in the contemporary
economy, but we shall be considering structures from the mostsimple through to the
most complex. The simpler the form of business structure, the less legal regulation
is involved. In contrast, more complex forms of business structure have many more
obligations imposed by government regulation, usually in the form of statutory rules.
Characteristics of common business structures
(a) Sole trader (Textbook pages 360-363)
(i) Characteristics
The word “sole” is derived from the same Latin word from which we
derive the word “solo” (alone). This can be useful to remember, as
the key characteristic of a sole trader is
that he or she carries on
his or her business alone
. This means that as the only owner of
the business, the sole trader has all the responsibility for setting up
and running the business. The sole trader will also have all the liabilities associated
with the business.
Note: the characteristics of each business structure refer to the responsibility and
liability for owning and running the business. It does NOT mean that a sole trader
cannot have employees to work in the business. We need to distinguish here
between
owning and working in the business.
(ii) Advantages and disadvantages
If we reflect on the advantages and disadvantages of being a sole trader in business
we can see that on the one hand a sole trader in a successful business will be able
to:
● Maintain ownership and control of his/her business
● Keep all the profits from the business
● not be too worried about legal formalities in setting up the business (there is
no need for a formal agreement or any form of registration)
● keep costs down in the set up
● change the business fairly easily if needed.
However, it is also important to remember that a sole trader will also be liable for all
debts owed by the business. This is known as
unlimited liability. Sole traders rely
significantly on personal reputation in running a business and sometimes this can
make a business more difficult to sell. Further, it may be more difficult to raise large
amounts of capital to expand the business of a sole trader.
(b) Partnership (Textbook pages 363-390)
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(i) Characteristics
A partnership is a much more formal type of business structure than a sole trader.
Each state and territory has a
Partnership Act which provides the legal definition of a
partnership
. In NSW the definition of a partnership is found in s 1(1) Partnership
Act 1892 (NSW):
A partnership is the relation which subsists between persons carrying on
a business in common with a view to a profit.
This means that there are four main legal elements which characterise a
partnership as a business structure
● There must be
persons, (which means that you cannot have a partnership of
one).
● The persons must be
carrying on a business
It must be in common
● The business is being carried on with a view to a profit.
Note: Because a partnership is given a legal definition in the legislation, that is what
is essential. The existence of a partnership does not depend on the wishes or
desires of the parties in a business, it depends solely on whether the definition in the
legislation is satisfied.
Persons
● There must be 2 or more people and no more than 20, unless it is a particular
professional partnership eg accountants = 1000, lawyers = 400, vets = 100.
Carrying on a business
When the courts look at whether someone is carrying on a business, they are
look at factors such as:
– profit motive
– scale of activity
– are ordinary commercial principles applied in running the business?
– Repetition of activities eg selling the same product over an extended period
– permanent character, continuity and system of work.
– No one factor is decisive:
Smith v Anderson
● in common
Each of the persons in the business must be acting on behalf of the others as
well as themselves. This results in
mutual liability. Each partner is both the
principal and the agent of the other partners
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You can be carrying on a business together with another person, but it might
not be in common eg
Degiorgio v Dunn (AC/DC cover band) (2004)
Degiorgio v Dunn [2004] NSWSC 767 (26 August 2004)
NEW SOUTH WALES SUPREME COURT: Equity Division
Barrett J:
FACTS
AC/DC was a rock music band enjoying significant popularity in Australia in the 1970’s and
1980’s. The fact that AC/DC and the music it played developed and retained a substantial
following meant that, after AC/DC had ceased performing, there were opportunities for
others to provide entertainment by presenting the same musical items in the way in which
AC/DC had presented them. A group thus emulating another band is known as a “tribute
band”.
The plaintiff and the defendant are musicians. The plaintiff is a guitarist. The defendant plays
drums. In the period 1995 to 1999, they were both members of a band known as “Dirty
Deeds The Band” which was a tribute band emulating AC/DC. The plaintiff portrayed Angus
Young, one of the AC/DC band members. Dirty Deeds The Band (which I shall call “the first
band”) performed at venues in various parts of Sydney, principally hotels and clubs in the
western parts of the metropolitan area. It is accepted by the parties that the four members of
the first band – the plaintiff, the defendant, Jeff Ervin and Curtis Bryant – were members of a
partnership the business of which consisted of staging band performances in which the four
of them participated. Some frictions developed among certain members and it is accepted
that the performing group was disbanded in or about December 1999.
There remains a
question whether there was a dissolution of the partnership as between the plaintiff and the
defendant.
This question forms the basis of the secondary case the plaintiff seeks to make.
Shortly after the first band disbanded, the defendant took steps to put together another
group to perform AC/DC music. The plaintiff was approached by the defendant for this
purpose and became one member of a new band. At about this time,
the defendant alone
registered the name “Dirty Deeds AC/DC Tribute Show” under the
Business Names Act. He
was the only person described as “person carrying on the business”.
All activities of this
“second band”, as I shall call it, were conducted under this name.
The primary case the
plaintiff advances is that, upon the formation of the second band, the plaintiff and the
defendant entered into a new partnership of which they were the only members and
that, as partners, they carried on the business of the second band.
ISSUE
The plaintiff claims a declaration that he and the defendant commenced trading as a
partnership in or about January 2000, a declaration that the plaintiff and the defendant
traded in partnership in the business known as “Dirty Deeds AC DC Tribute Show” from
about January 2000 and a declaration that the registered business name “Dirty Deeds AC
DC Tribute Show” is an asset of the partnership.
To succeed in these claims, the plaintiff must discharge the onus of showing that there has
been, since about January 2000, a relationship between himself and the defendant within
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the description in s.1(1) of the Partnership Act 1892: “Partnership is the relation which
exists between persons carrying on a business in common with a view of profit”
Relevant to that task are the matters set out in s.2 of the Act:
Rules for determining existence of partnership
In determining whether a partnership does or does not exist, regard shall be had to the
following rules:
(1) Joint tenancy, tenancy in common, joint property, or part ownership does not of itself
create a partnership as to anything so held or owned, whether the tenants or owners do or
do not share any profits made by the use thereof.
(2) The sharing of gross returns does not of itself create a partnership, whether the persons
sharing such returns have or have not a joint or common right or interest in any property
from which or from the use of which the returns are derived.
(3) The receipt by a person of a share of the profits of a business is prima facie evidence
that the person is a partner in the business, but the receipt of such a share, or of a payment
contingent on, or varying with the profits of a business does not of itself make the person a
partner in the business; and in particular:
(a) The receipt by a person of a debt or other liquidated demand by instalments or otherwise
out of the accruing profits of a business does not of itself make the person a partner in the
business or liable as such:
(b) A contract for the remuneration of a servant or agent of a person engaged in a business
by a share of the profits of the business does not of itself make the servant or agent a
partner in the business or liable as such:
(c) A person being the widow, widower or child of a deceased partner, and receiving by way
of annuity a portion of the profits made in the business in which the deceased person was a
partner, is not by reason only of such receipt a partner in the business or liable as such:
(d) The advance of money by way of loan to a person engaged or about to engage in any
business on a contract with that person, that the lender shall receive a rate of interest
varying with the profits, or shall receive a share of the profits arising from carrying on the
business, does not of itself make the lender a partner with the person or persons carrying on
the business or liable as such: Provided that the contract is in writing and signed by or on
behalf of all the parties thereto:
(e) A person receiving by way of annuity or otherwise a portion of the profits of a business in
consideration of the sale by the person of the goodwill of the business is not by reason only
of such receipt a partner in the business or liable as such.”
A business was undoubtedly carried on by the operation of the second band. That business
was obviously carried on “with a view to profit”.
The central question to be answered by
reference to the evidence is whether the business was carried on “in common
”.
REASONING
An explanation of the meaning and significance of the words “carrying on a business in
common” is found in paragraphs 952 to 956 of the joint judgment of Doyle CJ, Duggan J and
Bleby J in
The Duke Group Ltd v Pilmer (1999) 73 SASR 64:
“In order to meet this criterion, it is not necessary that each of the alleged partners should
take an active part in the direction and management of the firm. The business may well be
carried on by or on behalf of the partners by someone else.
The person carrying on the
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business must be doing so as agent for all the other persons who are said to be partners.
Lord Wensleydale stressed the need for an agency relationship in Cox v Hickman (1860) 8
HL Cas 268:
A man who allows another to carry on trade, whether in his own name or not, to buy and
sell, and to pay over all the profits to him, is undoubtedly the principal, and the person so
employed is the agent, and the principal is liable for the agent’s contracts in the course of his
employment. So if two or more agree that they should carry on a trade, and share the profits
of it, each is a principal, and each is an agent for the other, and each is bound by the other’s
contract in carrying on the trade, as much as a single principal would be by the act of an
agent, who was to give the whole of the profits to his employer. Hence it becomes a test of
the liability of one for the contract of another, that he is to receive the whole or a part of the
profits arising from that contract by virtue of the agreement made at the time of the
employment. I believe this is the true principle of partnership liability.’
However, more than mere agency is required. There must be mutuality of rights and
obligations
. James LJ said in Smith v Anderson (1880) 15 Ch D 247; at 275:
‘Persons who have no mutual rights and obligations do not, according to my view, constitute
an association because they happen to have a common interest or several interests in
something which is to be divided between them
.’
Those requirements of agency and mutuality are reflected
in ss 5 and 6 of the Partnership
Act
as being the consequences of entering into a partnership.
PLAINTIFF’s EVIDENCE
The plaintiff gave evidence that, in mid-January 2000, after the first band had separated, the
defendant telephoned him and suggested: “Would you like to restart ‘Dirty Deeds’, with just
you and me? Let’s continue where we left off. We can make a lot of money with this band.”
The plaintiff says that, after he had signified general agreement with this proposal, the
plaintiff and the defendant made arrangements to meet later the same day to discuss it
further. The meeting was held in the garage of the defendant’s home at Fairfield. No one
else was present. Findings in relation to the conversation at that meeting are pivotal to the
case. It is pertinent to set out in full what the plaintiff deposed to his affidavit as the content of
that conversation:
“The defendant said:
I want you back in the band as lead guitarist.
I said: “Yes, Greg, but I won’t play with Curt or Jeff in the band.
The defendant said: Don’t worry, I have bought them out of the band and they don’t own a
share of the name ‘Dirty Deeds’ any more. We can employ some other guys as band
members. Curt and Jeff signed out of the business name registration of Dirty Deeds.
I said: So it will be ‘Dirty Deeds The Band’ under your name and my name only. I will never
play again if Curt and Jeff come back into the band.
The defendant said: That suits me fine
.
I
said:
This is really important to me. The band broke up because of those guys and outside
influences and I don’t want to go through that again
Page 6 of 16
.T
he defendant said:
I showed them our road case with all our gear, and said it was worth
about $2,000 all up. They accepted $500 each to leave the band. If you want to I’ll give you
$500 and we can call it quits. But I am offering you to be equal partners in ‘Dirty Deeds’
when you and I start up the band again.
I said: Good, I agree.
The defendant said: I will do the management and organise merchandise and publicity. We’ll
pay a wage to Vince and whoever else we get as rhythm guitarist and bass player. What’s
left over goes into the kitty for publicity and merchandise. You and I will own the band 50-50
and we will split all profits and money from merchandise 50-50.
I said: That sounds fair to me. I accept.
The defendant said: Our agent will be Craig Thompson now, not Sphere. Craig’s left Sphere
and started his own business.
I said: Okay.
The defendant said: I want to start performing in February.
I said: I can’t start right away. I am going overseas on 21 January but will be back in April.
We can get things started then.”
DEFENDANT’S EVIDENCE
The defendant does not deny that such a meeting took place. Nor does he deny that he
proposed a partnership to the plaintiff. It is the context of that proposal and the subsequent
events on which the parties differ. As the extract above indicates,
the plaintiff says that he
accepted the offer. The defendant says that the offer was not accepted by the plaintiff, who
cited financial considerations for his decision.
The defendant deposed to the conversation at
the meeting in these terms:
“At the meeting John had relayed that he was adamant that he never wanted to play in a
band with Curt and Jeff. I said to him words to the effect: ‘That’s fine. Are you interested in
being my partner in Dirty Deed AC/DC Tribute Show. There would be an upfront cost to get
the band up and running plus you won’t be able to take a wage for about six (6) months that
would include having money for a float to cover expenses such as wages, PA’s, advertising
etc.’ John replied to me with words to the effect: ‘No. I want to get paid from the start. I want
$150.00 per show because I’m going overseas for a couple of months to Canada and when I
get back I won’t have any money. So I would need to get paid as soon as possible.’ I then
said to John words to the effect: ‘That’s fine. Listen, I have also given both Jeff and Curt
$500.00 each being their share of the lights we had bought as Dirty Deeds the Band. Here’s
your $500.00 share.’ I then proceeded to hand to John the $500.00 share. John said to me
words to the effect: ‘This will go towards my trip’.
OTHER EVIDENCE
The first and perhaps most telling element of the other evidence concerns the
manner in which the plaintiff was remunerated for his performances in the second
band. The defendant produced a number of
invoices submitted by the plaintiff for
particular performances. Each claimed a sum of $150. The defendant also produced
remittance advices evidencing the corresponding payments of $150 per
performance. The invoices begin in July 2000, and clearly state in the heading that
the payment was claimed from “Dirty Deeds The AC/DC Tribute Show”.
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The starting date of these payments (some six months after the alleged agreement
reached in the garage) is consistent with the defendant’s stipulation that as partners
neither of them would be able to be remunerated for the first six months. However,
the nature of the payments tells against the existence of any partnership. The
procedure under which the plaintiff claimed a fixed payment per performance
as a “performance fee” is indicative of the plaintiff’s being merely an employee
or independent contractor
.
There is no evidence of the plaintiff declaring any income from the supposed
partnership in his income tax returns. For the financial year ended 30 June 2000,
both the plaintiff and the defendant returned business income and claimed related
deductions described as referable to “Dirty Deeds”.
There is in neither tax return
reference to a partnership.
Each taxpayer appears to have represented himself as
the proprietor or operator of the business and to have given his own home address
as the business address. In the plaintiff’s return of income for the year to 30 June
2001, there are no similar items. Rather, there is reference to an income item
described merely as “professional fees” and to a single deduction, being for
depreciation in respect of “equipment”. For the same year, by contrast, the defendant
continued to return income and claim deductions on the previous basis, with
deductions listed for items such as agents’ fees, PA systems, equipment hire and
support bands. Significantly, one of the deductions identified in the defendant’s return
is “musician fees” of $18,040. In the same year, the plaintiff, one of several band
members, returned as income “professional fees” of $6,550.
The entries in both the
2001 returns tell against the plaintiff’s having carried on a business in partnership in
the same way as indicated in his earlier return. They point to the defendant’s having
carried on such a business and having paid fees to musicians including the plaintiff.
The plaintiff’s actions at and after the time at which the new partnership is said to
have been formed are inconsistent with the existence of any partnership. He
conceded during cross-examination that soon after the supposed partnership was
formed he went to Canada and remained there for 17 months. While in Canada he
showed no interest in the second band.
There was thus a period of 17 months during
which the plaintiff did not involve himself in any way in the business he now
maintains was, from January 2000, carried on by the defendant and him in common.
Also inconsistent with the existence of any partnership is the fact that while in
Canada, and upon his return, the plaintiff approached performers in the second band
and attempted to persuade them to join him in a new band called “High Voltage”
which was also to be an AC/DC tribute band.
These are not actions consistent with
partnership. In fact, the soliciting of employees of or contractors to the supposed
partnership business with a view to their forming a new band in competition would
have constituted what would have been an obvious breach of the fiduciary duty owed
by a partner
.
The defendant gave evidence that he never paid payroll tax or workers compensation
insurance in respect of persons performing in the second band. Even if there was a
partnership between the plaintiff and defendant, the other performers in the second
band were not partners. There is also evidence that the defendant requested the
other performers to obtain an ABN so that they could be paid as independent
contractors. The plaintiff’s own tax records show that his fees were paid to the
business “John Degiorgio” consistent with this practice. Payroll tax and workers
compensation insurance considerations do not arise in relation to independent
contractors.
Lack of payroll tax and workers compensation insurance payments
therefore do not point positively to partnership.
● Concerning conflicting evidence of plaintiff’s performance on stage in
Canada
:…These two matters directly contradict the plaintiff’s statements that he
never performed before an audience in Canada. Whether he did so has a significant
bearing upon the issues in the case.
It is a breach of the fiduciary duty owed by a
partner to become involved in a business competing with the partnership business.
Page 8 of 16
Perhaps the distance between Australia and Canada would reduce the significance
of such competing behaviour. But the fact remains that someone who believed
himself to be a partner in a particular field of activity would not normally engage in
that activity outside the confines of the partnership.
APPLICATION AND REACHING A CONCLUSION
Against the plaintiff’s evidence stands a body of evidence at odds with any
conclusion that a partnership was formed in or about January 2000. The receipts the
plaintiff sought and obtained for playing with the second band were labelled by both
parties as merely “fees”. The plaintiff, having returned business income for tax
purposes while the first band was in operation, changed to returning “professional
fees” after the second band commenced. This is at odds with the notion that any
partnership subsisted. The defendant, on the other hand, returned business income
and claimed business deductions throughout. The plaintiff’s actions in going to
Canada soon after the second band began operations, remaining there for 17
months and playing in another band in at least one staged performance in Canada is
not consistent with a commitment of the kind a partner should have. The same is true
of his actions in trying to recruit musicians to join a new band he was attempting to
establish after he returned to Australia.
The extract above from the joint judgment in
The Duke Group Ltd v Pilmer (1999) 73
SASC 64 emphasises
the central role of mutual agency in partnership, with mutuality
of rights and obligations.
Those elements were, in my opinion, conspicuously
absent from the relationship between the plaintiff and the defendant after the
garage conversation in or about January 2000
. The plaintiff obviously did not
regard himself as pursuing an enterprise in common with the defendant when he
went to Canada, remained away from the activities of the second band for 17
months, performed with a Canadian group and, on his return to Sydney, made moves
towards establishing a new band. He did not accept the constraints that go with
partnership and cannot be regarded as having had any genuine expectation of the
benefits of partnership. Likewise with payment: the fixed “fee” of $150 he charged
and received for each performance with the second band before he went to Canada
do not reflect the aspect of partnership mutuality that sees rewards fluctuate with the
fortunes of the business.
In summary, the plaintiff has clearly failed to establish the essential elements
of the alleged formation of a partnership in or about January 2000.
The
plaintiff’s claims are dismissed in their entirety.
with a view to a profit. This means that you might not be making a profit, but
it is your intention
If there is doubt about whether a business structure is a partnership, the
legislation provides some further rules to assist (see
s 2 Partnership Act
1892 (NSW):
1. Co-ownership of property as joint tenants or tenants in common does not
create a partnership.
2.
Sharing of gross returns from an enterprise does not create a partnership.
It is more likely that this is a
joint venture (Cribb v Korn)
Page 9 of 16
3. Receipt of a share of the profits of a business is prima facie evidence of a
partnership, although there are some exceptions
.
In addition to the legislation about partnerships, this form of business structure is
governed by the
contract between the partners, which is called the
partnership agreement (CACL4 p 436). This is not essential to the legal
existence of a partnership, but it is a sensible commercial action so that each of
the parties is clear about the nature of the business and everyone’s obligations.
(
ii) Advantages and disadvantages
If we reflect on the advantages and disadvantages of partnership as a business
structure, we can see that
● Formation of a partnership for a business is relatively easy and cheap
● It can maximise expertise, skills and financial resources of the partners
● There can be flexibility in the distribution of income
However, it is also clear that a partnership relies critically on the identity of the
partners, like a sole trading situation. There is no separate legal entity (like a
company) and there is the significant issue of mutual liability and the unlimited
liability of partners for the debts of the business. The size restrictions can be a
problem for some businesses. There can be difficulties if partners have
disagreements about running the business, or when a partner(s) decide to retire.
(c) Company/Corporation (Textbook chapter 8)
Please note: there will be much more detailed information provided on
companies in weeks 7-11.)
(i)
Characteristics
This is the most common business structure in Australia today. Companies are
types of
corporation.
A corporation is an artificial legal person separate from its owners. It is able to
own property, enter contracts and engage in litigation in its own name.
It is the separate legal personality which distinguishes the corporation from all
other business structures.
Page 10 of 16
There are different types of corporation, including companies, statutory
corporations, incorporated associations and body corporates.
A company is a corporation which is incorporated under and regulated by
Corporations Act 2001 (Cth).
Amongst the types of companies, a major distinction is between public
companies
and proprietary companies. NB Watch the spelling of proprietary!
Types of companies ()
All companies
must have at least
● One owner (often shareholder)
● One director, who manages the company
● Most companies also have a secretary to do administrative work
Proprietary companies are
● Privately owned
● Less than 50 non-employee shareholders
● Cannot sell shares to the public.
Public companies are companies which are NOT proprietary companies.
They must
● Have at least 3 directors
● Hold an annual general meeting every year
● have an auditor
● produce annual financial records
● Can call for public investment
Companies can also be classified according to
members’ liabilities. The
most common type of company is one limited by
shares, where the members
are called shareholders
Corporate personality
ie the separate legal personality which is characteristic of a corporation
This means that a corporation is a legal person (albeit an artificial one) which is
separate from its owners.
For example, a company, Ozzy Pty Ltd, sells designer made swimwear. It is a
proprietary limited company which can sue and be sued in its own name regardless
of who the directors or shareholders are, it can enter contracts to buy and sell things
(eg showrooms, stock in trade, vehicles, stationery etc).
Page 11 of 16
The principle of separate legal personality of a company is a long-established legal
rule determined in
Salomon v Salomon (1897) (Textbook pages 420-421)
Limited liability (Textbook page 426)
is one of the key characteristics of a
company and one of the reasons that it is such a popular business structure. This
means that members/shareholders will not be liable for debts of the company
beyond the subscription price of their shares.
(d) Joint Venture (Textbook pages 391- 395)
A joint venture is created whenever two or more people enter into an agreement to
progress a business opportunity in relation to a particular, (“one-off”) project. Joint
ventures are common in mining and other businesses where a wide range of skills
and resources are required. Joint ventures allow the parties to exploit resources,
experience and funding to take advantage of business opportunities. Some joint
ventures may be structured as partnerships, but others are in non-partnership form.
This is often because the joint venturers do not wish to be subject to unlimited
liability, which is a characteristic of partnerships.
Sometimes it can be difficult to distinguish between what is a joint venture and what
is a partnership. Here are two examples which have been considered by the courts.
In
Cox v Coulson (1916), two people agreed to hire a theatre, put on a show and
divide the proceeds 60:40 between them. One person paid the expenses of the
venue and the other paid the actors. The court held that there was no partnership
involved here as each party had to discharge his own separate liabilities in relation to
the venture. The mere sharing of the gross profits does not turn a joint venture into a
partnership.
In
Canny Gabriel Castle Jackson Advertising v Volume Sales (Finance) (1974)
(Textbook pages 392-393) the High Court considered a situation in which a
promotions company borrowed money from both Volume Sales and Canny Gabriel
separately to finance a tour of Australia by two famous singers. The arrangements
were described in the contract as a “joint venture”. A legal dispute arose when there
was not enough money to pay both of the lenders and the court had to decide who
should be paid first. In order to decide the dispute, it was necessary for the High
Court to characterise the legal relationship between Volume Sales and the
promotions company. Although the parties described this arrangement as a “joint
venture”, the court found that all the elements of a partnership were present in the
profit sharing and the more integrated business structure adopted by the parties.
(e) Trusts (Textbook pages 399-410)
A trust involves an equitable obligation binding a person (the trustee) to deal with
property over which he/she has control
(trust property) for the benefit of other
people
(the beneficiaries), who may enforce the obligations created by the trust.
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Elements of an express trust
1. The settlor: this is the person creating the trust by settljjing property/
2.
The trustee: this is the person in whom the trust property is vested and is the
legal owner of the property. There may be more than one trustee. The
trustee may be required to manage and control the property, or to sell and
convert the property into money, which can be invested.
3. The trust property: this may be real property (ie land and buildings on the
land) or personal property (eg chattels, copyright, shares, debts etc).
4. The beneficiary: this is the person for whose benefit the trust created and is
called the equitable or beneficial owner of the trust property.
5.
An obligation enforceable in equity: this is the obligation the law imposes
on the trustee to deal with the trust property for the benefit of the beneficiary
and separately from their own money.
There are
three types of trust: express, implied and constructive (see Textbook
pages 401-403)
In creating an express trust there must be certainty of intention, certainty of subject
matter and certainty of objects in order for the trust to be valid.
Duties of Trustees (Textbook pages 404-408)
The primary duty of a trustee is to carry out the terms of the trust instrument.
Trustees must carry out the following duties:
● Duty to preserve trust property
● Duty to exercise reasonable care
● Duty not to make a profit out of the trust
● Duty to keep accounts
● Duty to provide information to the beneficiary
● Duty to act in person
● Duty to act impartially between beneficiaries
Rights and Liabilities of Trustees
● Right to remuneration (be paid) is this is allowed in the trust instrument or by a
court
● Right to settlement of account
● Right to indemnity
● Right to apply to the courts for advice.
Rights of beneficiaries (Textbook pages 408-409)
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● If all beneficiaries are of full legal capacity and direct the trustee to transfer the
trust property to them, the trust is terminated. This means that beneficiaries
of full capacity have the right to end the trust.
● the rights conferred on them by the trust instrument
● the right to be shown accurate accounts relating to the administration of the
trust and to be fully informed about trust affairs
● the right to compel performance of trust duties by trustees
● the right to restrain a breach of trust by trustee(s)
● the right to sue a trustee for breach of trust
● the right to appoint and remove a trustee
● the right to seek the advice of the courts in relation to issues of the
administration of a trust.
3. Licences and registration
Before commencing business, a businessperson must register a business
name UNLESS
the business is to be carried on in the person’s own first
name, surname or initials). A business name must be registered if it is
different from the company name.
(Textbook pages 411-413)
For example
Business name not requiring registration
: Katherine Lindsay, KAL, KA
Lindsay
Company name: Meerkat Pty Ltd
Business name requiring registration: Cute Corner Café
Since 2012 business names have been registered nationally
http://www.asic.gov.au/bn-apply. It is important to check before registering a
business name whether it has already been registered, or other names very
similar have been registered as the same name will not be registered twice. A
business does not “own” the business name even if it is registered. However,
it does have permission to use the name whilst registered and object to a
business replicating their registered name.
Keeping a register of business names is part of the work of the Australian
Security and Investment Commission (ASIC). Part of ASIC’s work is to
protect the public in different ways. The register permits the identity of the
person or company behind a business to be available publicly. This is
important because not all businesses are run on ethical lines and if customers
have a problem with a business they may need to know who it is that they can
sue.
For example,
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Joe Bloggs runs a business with the registered name of Saturna Slimming
Teas. Joe has adopted a corporate structure and the company involved is
SST Pty Ltd. The advertisements for the teas make extreme claims about
weight loss after consumption of quantities of the tea which is only available
by mail order from SST. Hundreds of customers are duped by the false
claims and want to get their money back when the consumption of the tea has
not weight loss results.
4. Property of the Business
Businesses may own property of various kinds. They might be land or
buildings, warehouses, or other types of property such as furniture, fittings,
stock in trade, motor vehicles, electronic equipment, or a variety of other items
which are essential for the business to function effectively such as shares or
intellectual property rights.
The law divides property into two basic classes:
real property (which is land
and things attached to land). Property which is not real property is known as
personal property,
In the case of real property, a business may decide to own the land and
buildings on which its business is situated or
lease office space. In each
case, the law will identify a particular bundle of rights which are associated
with ownership, title to land, possession of land and leasehold interests.
One of the areas where property rights can be the subject of dispute in the
case of businesses or tenants is the area of
fixtures, that is, where things
have been attached to the land. Do these stay with the land or can they be
removed from the land when a lease ends?
For example
Ozzy Pty Ltd, sells designer made swimwear. It has been leasing premises in the
CBD for 10 years. During the course of this time, Ozzy has made improvements to
the building and surrounds, including installing a swimming pool and spa which is the
site of its annual swimwear fashion shows. It has also painted the walls, installed
air-conditioning in the offices (where previously there were only ceiling fans) and
installed a dishwasher in the staff tearoom.
When the lease ends, staff at Ozzy Pty Ltd wish to transport the swimming
pool, spa, air-conditioner and dishwasher to their new premises. The owners
of the premises argue that these items have become fixtures and they must be
left where they are.
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Legal Issue: Have the items installed by Ozzy Pty Ltd during the term of the lease
become fixtures or are they fittings?
Rules:
A fixture is something which has been or is intended to be permanently attached to
the land in order to enhance the land in some way.
A fitting is an object that has been attached to the land or a building but is not a
fixture.
If a chattel is actually fixed to the land to any extent, by any means other than its own
weight, then prima facie it is a fixture.:
Australian Provincial Assurance v Coroneo
Courts will look at
● Can the item stand on its own weight or is it fixed to the land
● How fixed is it (eg bolted down or set into a wall?)
● What damage might be done by removing the chattel
● What is the normal function and usage of the chattel?
Is Ozzy correct in the scenario above?
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