Letter of Advice on How a Company is Registered and Set up for Operations
Your clients' instructions are in your In Tray. You are to write to your clients, Peter Delaney and Pamela Sue Martin:
Confirming their instructions to you;
Advising on the different types of commercial structures available to them and the advantages and disadvantages of each structure;
Advising on what steps need to be taken to incorporate Colby Pty Ltd;
Advising what costs will be incurred when incorporating a company, i.e. professional costs and outlays (including ASIC fees); and
Advising of the legal obligations of the company and the company officers upon incorporation
I write to you Peter Delaney and Pamela Sue Martin, drawing from our earlier meeting regarding the registration of your business as a small proprietary company, other than operating as you do today. The intention is to name the company Colby Pty Ltd., using that name for all business transactions. As you would be aware from our earlier engagement, there are many things expected to change when operations change into a company. The business will operate under a different structure, perform under different legal obligations, and require a different registration from the one it exists on currently. I acknowledge the instructions you gave me earlier in my office. They will be expedited in accordance with the law and your desires. Most importantly, I would want you to understand a few issues as we progress, as will be outlined herein.
When most small businesses open and operate, they do so at the level of sole proprietorships. In this case, the business operates at the behest of the owners. They are the sole decision-makers and funders and enjoy the profits alone. Further, they would suffer the losses alone when they occur. The business's existence is only guaranteed by the business owner's existence. The main merits of a sole proprietorship include quick decision-making, low start-up costs, few legal obligations, and simplicity in operations. Nonetheless, it has drawbacks like limited capital access, no separation of the business and the owner, and a lack of liability protection. It is the most simplistic way to operate a business.
The fast-food business is owned by two people and could qualify as a partnership business. In this regard, the business would have graduated into a form with shared responsibilities. A partnership has its merits and demerits and could be used as the next structure for the fast-food business. Some of the merits include shared liability, improved capital source as compared to a sole proprietorship, and a bigger pool of alternative decisions from the partners. Nonetheless, it has its fair share of drawbacks. One of them is a longer decision-making process because partners need to consult. Further, the liability of the business still remains among partners as individuals. Also, the business may require more legal processes than the sole proprietorship.
The business could be registered as a company other than a sole proprietorship or a partnership. Companies are either limited liability companies or corporations. In the case of Colby Pty Ltd, it would fit in as a limited liability company. A limited liability company (LLC) has its merits and demerits. The directors and shareholders can decide to incorporate the business where the merits outweigh the demerits. In an LLC, the owners are not personally liable for the liabilities incurred by the business. Further, they have more options available to them for access to capital. The business can also bring on board other investors to become part of the firm as shareholders.
Nevertheless, an LLC has its fair share of disadvantages. First, an LLC will incur more cost to form and operate since it operates at a larger scale than partnerships and sole proprietorships. Second, the transferability of ownership in an LLC is quite difficult to execute because of the legal handles in place. An LLC's decision-making is time-consuming and sluggish since consultations have to take time until they reach the highest decision-making organ in the business.
Colby Pty Ltd is to be incorporated as a limited liability company. All companies are regulated by the Australian Securities & Investments Commission (ASIC) in Australia. The commission sets the rules and regulations of registration and operation, and its guidelines must be fully followed. For Colby Pty Ltd to be incorporated as a proprietary company, it must follow the laid down process of the law as follows [Australian Securities & Investments Commission ];
Choose a name for the business, in this case, Colby Pty Ltd
Check with ASIC and ensure the name has not been registered with another business, as such making it available for use.
Lodge an application for registration as an Australian company with ASIC.
When lodging the application, do it with the prescribed fee
If the application meets the laid down criteria by ASIC, it is approved for incorporation.
Upon incorporation, ASIC will issue to the company a certificate of incorporation and an Australian company number (ACN)
The officer shall undertake the incorporation process following the steps prescribed above until such a time that ASIC approves registration of Colby Pty Ltd. Whenever there are clarifications that need to be made in the approval process, this office shall liaise with you to get the details in the most convenient manner possible.
In any business registration process, the involved costs are undertaken to complete it as intended. The directors of Colby Pty Ltd must beware of all the cost implications of this incorporation process from the beginning to the end. Table 1 below summarizes the costs that the business partners will incur in the incorporation process of the business.
When getting into the business registration process, the company's directors must be ready for the costs beyond the investment capital. The registration process may come across as cheap, but $646 is quite a sum for a fast-food business. Therefore, it is important to budget for the registration as part of the expenses the business must incur before roaring into life as a proprietary company. Failure to budget for these costs may see the business leave loopholes that require plugging along the way.
A proprietary company is a legal entity with obligations as guided by the law. Just like an individual has to follow specific guidelines of the law, businesses registered independently from the owners are treated as independent legal persons. They can sue or be sued in their own name. When Colby Pty Ltd is incorporated, it qualifies to be regarded as a legal entity with its rights and legal obligations.
As a business entity, one of the legal obligations that shall bind Colby Pty Ltd is the payment of taxes. The business is oversighted by a board of directors, who are legally responsible for all the decisions made by the firm. The directors are required by the law to apply for a director identification number. Meeting this requirement is part of the process of abiding by the law. As part of the law, changing the details of office location, officeholder, and share structures requires lodging official clarification documents with ASIC for approval and updates. Under the Corporations Act 2001, the business is required to keep books of accounts. The important records under this law are the company's transactions and the company's financial position and performance [Australian Securities & Investments Commission ]. The law also requires that a company must display the company name at every location where you carry on business and are open to the public. While in operations, the Australian Company Number (ACN) must be included in all documents. Some of the documents that need the ACN are the company seal, public documents, negotiable instruments like cheques, and every document filed with ASIC [Australian Securities & Investments Commission ].
The business is obligated to conduct annual reviews, after which the directors must lodge a solvency resolution. The resolution could either be positive or negative and is lodged with ASIC using From 485. A time comes when the company may decide to close business and wind up voluntarily. At such a point, the directors must ensure there are no debts with ASIC, assets are below $1000, all due debts have been cleared, all members have agreed to deregister, and that the business is not part of any legal proceedings [Australian Securities & Investments Commission ]. At all times, the business must be on the lookout for any legal developments that demand attention.
I hope that we shall have a smooth registration process and that the business will be up and running within the shortest period possible.
In this thought-provoking response, the author's perspective is skillfully backed by an extensive body of comprehensive research and readily available information, offering a well-informed and compelling exploration of the subject matter.