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Lecture – Week One MGMT20144 Management and Business Context Introduction Welcome to MGMT20144 Management and Business Context Dr. Shahid KHAN Role: Unit Coordinator and Lecturer Contact:
[email protected] Unit Moodle Site Learning resources mailto:
[email protected] Lecture – Topic 1 Organisational and governance structures Topic 1: Organisational & governance structures • What is an organization? • How do organizations emerge? • What are the various forms of business organisation? • What are the various choices that a potential business owner needs to consider in establishing a business and selecting an appropriate structure under which to operate now and into the future? • What is Corporate Governance? • What is the role of boards and executives in governance of business organisations? MGMT20144 – Management and Business Context 4 Business organisation • Definition: A business organisation is an individual or group of people that collaborate to achieve certain commercial goals. • Business organisations are one form of the many organisations operating in our society. • They are a key form designed to facilitate human interactions, conversions and exchanges of tangible or intangible resources. • Some business organisations are formed to earn income for owners. • Other business organisations, called nonprofits, are formed for public purposes. MGMT20144 – Management and Business Context 5 Emergence of the business organisation • Business organisations emerged as civilisations became more complex and reliant on trade between differing regions for needed products or services. • The corporation or company as a business structure came into reality during the time of the Roman Empire. • By the mid sixth century A.D. Roman Law recognised a range of corporate entities. – The state itself (the populus Romanus), – municipalities, – political groups, and – guilds of craftsmen or traders. • Such bodies commonly had the right to own property and make contracts, to receive gifts and legacies, to sue and be sued, and, in general, to perform legal acts through representatives. • Private associations were granted designated privileges and liberties by the emperor. MGMT20144 – Management and Business Context 6 Emergence of the business organization… • Two of the major refinements to the legal view of corporations over time has been – (i) the limitation of liability and (ii) the expectation of obligation to society. • Corporations, are regarded as legal persons (entity) with many of the same rights and responsibilities as natural persons/human beings. • Corporations can exercise human rights against real individuals and also the state. Corporations can also be held responsible for human rights violations. • Corporations if found guilty under the law are certainly censured and are fined. Depending on the nature of the violation governments may pursue a regulatory response to attend to what may be seen as a market failure. MGMT20144 – Management and Business Context 7 What to consider when choosing a business structure? MGMT20144 – Management and Business Context 8 Source: Chapple, E., Copp, R., Baumfield, R., Cunningham, R., Harpur, P., Baumfield, Richard, & Cunningham, Rosemary. (2016). Company Law (1st ed.). Melbourne: Wiley. Module 1: Business Organisations - Introduction 1.1 to 1.8 Types of business organization structures Sole trader Partnership Joint venture Trust Company Incorporated association Cooperative Short video on business structures in Australia at the ATO website: https://www.ato.gov.au/Business/Starting-your-own-business/Before-you-get- started/Choosing-your-business-structure/ MGMT20144 – Management and Business Context 9 https://www.ato.gov.au/Business/Starting-your-own-business/Before-you-get-started/Choosing-your-business-structure/ Sole trader – the simplest structure • An individual runs a business. The trader is the only owner, who controls and manages the business • Few legal and tax requirements. • Income is treated as the owner operators’ individual income. • Can trade on individual Tax File Number (TFN). • Responsible for any tax the business is liable to pay. • Must register for GST (Goods & Services Tax) if the expected or current turnover is $75,000 or over. • Not necessary to register a business name if the owner uses their own personal name. • An Australian Business Number (ABN) is compulsory if the business collects GST. MGMT20144 – Management and Business Context 10 Sole trader… Name and describe an organisation that is a sole trader. • Registering a business name does not give ownership or legal protection of that name. • Trademark will legally protect the business name and stops others from trading with it. MGMT20144 – Management and Business Context 11 Source: Chapple, E., Copp, R., Baumfield, R., Cunningham, R., Harpur, P., Baumfield, Richard, & Cunningham, Rosemary. (2016). Company Law (1st ed.). Melbourne: Wiley. Module 1: Business Organisations - Introduction 1.1 to 1.8 Source: Chapple, E., Copp, R., Baumfield, R., Cunningham, R., Harpur, P., Baumfield, Richard, & Cunningham, Rosemary. (2016). Company Law (1st ed.). Melbourne: Wiley. Module 1: Business Organisations - Introduction 1.1 to 1.8 Partnership – easy to establish and operate • An association of people who carry on a business as partners or receive income jointly from ownership of a business. • Requires its own TFN in order to file a business tax return. • Not a separate legal entity and does not pay income tax on the income it earns. • The partners however do pay tax on their relative share of the net partnership income from the business that each receives. • A general partnership is one where all partners are equally responsible for the management of the business, and each has unlimited liability for the debts and obligations it may incur. • A family partnership is where two or more members are related to one another. MGMT20144 – Management and Business Context 13 Limited partnership • A limited partnership is one where the liability of one or more partners for the debts and obligations of the business is limited. – Limited Liability means the owners' private assets are not at risk if the company fails. • A limited partnership consists of one or more general partners (whose liability is unlimited) and one or more limited partners (whose liability is limited in proportion to their investment). There is no maximum number of limited partners. • An incorporated limited partnership is a special type of limited partnership, primarily used by businesses engaged in high- risk venture capital projects. • Name and describe an organisation that is a partnership. • How does a partnership differ from a sole trader? MGMT20144 – Management and Business Context 14 MGMT20144 – Management and Business Context 15 Source: Chapple, E., Copp, R., Baumfield, R., Cunningham, R., Harpur, P., Baumfield, Richard, & Cunningham, Rosemary. (2016). Company Law (1st ed.). Melbourne: Wiley. Module 1: Business Organisations - Introduction 1.1 to 1.8 Source: Chapple, E., Copp, R., Baumfield, R., Cunningham, R., Harpur, P., Baumfield, Richard, & Cunningham, Rosemary. (2016). Company Law (1st ed.). Melbourne: Wiley. Module 1: Business Organisations - Introduction 1.1 to 1.8 Joint venture • A joint venture is another way to structure a business involving multiple people. • A joint venture is where two or more people or parties come together in business. • The parties in a joint venture are only responsible for their respective obligations, not for the obligations of any of their joint partners. • So how about resource contribution, control, returns and risks of the joint venture? • Joint ventures are used mainly in commercial settings including mining, property development, agriculture, entertainment and industrial research. MGMT20144 – Management and Business Context 17 Trust • A trust is a relationship or association between two or more parties, whereby one party holds property (e.g., investments or assets) in trust for the other. • A trust in its simplest form has: – A settlor (who sets up the trust) – A trustee (who manages the trust property) – Beneficiaries (the people or person for whom the investments or assets are held and to whom income is paid). MGMT20144 – Management and Business Context 18 Source: Chapple, E., Copp, R., Baumfield, R., Cunningham, R., Harpur, P., Baumfield, Richard, & Cunningham, Rosemary. (2016). Company Law (1st ed.). Melbourne: Wiley. Module 1: Business Organisations - Introduction 1.1 to 1.8 Source: Chapple, E., Copp, R., Baumfield, R., Cunningham, R., Harpur, P., Baumfield, Richard, & Cunningham, Rosemary. (2016). Company Law (1st ed.). Melbourne: Wiley. Module 1: Business Organisations - Introduction 1.1 to 1.8 A company has members (shareholders and investors) who are owners and Operators (directors or managers and employees) who run it. Company • A company is a legal entity with higher set-up and administration costs. • Companies also have additional reporting requirements. • A company is run by its directors and owned by its shareholders. • While a company provides some asset protection, its directors can be legally liable for their actions and, in some cases, the debts of the company. • Companies are regulated by the Australian Securities & Investments Commission (ASIC). Source: https://www.ato.gov.au/Business/Starting-your-own-business/Before-you-get-started/Choosing- your-business-structure/company/ MGMT20144 – Management and Business Context 21 https://www.ato.gov.au/Business/Starting-your-own-business/Before-you-get-started/Choosing-your-business-structure/company/ Company… • must apply for a tax file number (TFN) and use it when lodging its annual tax return • is entitled to an Australian business number (ABN) if it is registered under the Corporations Act 2001. A company not registered under the Corporations law may register for an ABN if it is carrying on an enterprise in Australia • must be registered for GST if its annual GST turnover is $75,000 or more • owns the money that the business earns - the individuals who control the business cannot take money out of the business, except as a formal distribution of the profits or wages • must lodge an annual company tax return • usually pays its income tax by instalments through the pay as you go (PAYG) instalments system