Law for Small Business Partnership in Australia

Interview Summary

The owner of the business operates a small business that is co-owned by two partners making it a partnership. This means that the owner has a legal liability over the liabilities. Based on the interview, the legal structure of the business is a partnership. According to the owner, this type of business was chosen because pooling of capital and resources required for setting that kind of business was needed. However, the owner had to consider some factors before starting this kind of business. The owner had to consider the capital and financing aspect of the business. Since the capital was much, the owner had to borrow some funds from lending institutions after raising the amount with the partner. Short term funds were borrowed and used as part of the initial capital.

The rules, regulations and laws of setting and running a business were considered. The business had to comply with the Australian laws and regulations in relation starting up the business. Laws considered were tax law in Australia and how partnership is operated under the same laws. The owner considered the type of skills that would be required in running the business. This led to the acquisition of the skilled employees required in the running of the business. The owners have an operating plan that acts as a guideline for day to day operations. The operations guidelines include the terms of agreement that controls the partners and the activities that takes place in the organisation. Some of the aspects that were considered in the partnership agreement were, the amount of each partner contribution was considered. Others included are the mode of sharing the profits, paying debts, sharing bonuses, salaries that each employee would get, and how disputes would be handled among other agreement considerations.

Based on individual opinion, the business is faced with potential legal risks like unforeseeable contracts and lawsuits that could arise later. This could adamantly affect the business negatively and even the banking organizations and clients involved in the business. Other legal risk is adverse judgements from either of the partners leading to legal complications. The company operates under the liability insurance that protects the company from any form of liability that may arise like settling of reasonable claims, indemnification purposes, defence and breach of contract issues. The business has entered into a limited agreement liability for contractual purposes. The owner was aware of the factors that made a contract enforceable in a court of law. Some of the factors that make a contract legally binding are offer and acceptance, considerations, capacity, conditions and statue of frauds. Supposing that a breach/non-performance of the contract had occurred, the owner would have sued the partner for breach of contract. With strong evidence, nonperforming open claims to claim for damages. Then after, the non-breaching party may be relieved off their obligations. Compensations made after a breach of a contract are made in form of damages.

Small business and law several legal principles

Based on the gathered information on small business and law several legal principles have been identified. Businesses are guided by laws that govern the operations that take place. A business is guided by a contract that relays the terms of agreement. A business contract has to be written and signed by the parties who come in an agreement. Nearly all businesses operate under particular contract that govern the operations. A contract is an agreement between two or more people where an offer is made to an offerer. It should be enforceable by the law and fulfil the principle of acceptance for it to be valid.

Offer and acceptance

One of the principles of a contact is offer and acceptance.¹ For a contract to be valid it has to be accepted. In any business, an offer has to be made by an offeree by an offerer who can either decide to accept or not through a signing. The offer made should be communicated to the offerree through a means that is recognised by the law. An offer is usually a promise that should be bound given that the terms offered are accepted. On the other hand, acceptance occurs when the party being given the offer agrees to the terms through an act or a statement.² For the parties involved in a business contract, have to demonstrate either through deeds or words that a reasonable expectation of being in a contract is present.³ In case an offer is changed in due process, it is usually regarded as counter –offer. The business discussed has satisfied this principle.

Considerations

Legal considerations have to be exchanged which displays an interest or right to something. Through a consideration, a price is paid which acts as a promise in relative to the other party.⁴ Price attached to, should be based on consideration and hold a value that should not be necessarily money. Some of the attached values are interest, benefits, and forbearance, given responsibility, detriment or suffering taken by the other party.⁵

Capacity

Parties in an agreement should be in a state of sound mental capacity for the contract to be legally binding.⁶ By sound mental capacity it implies that each of the parties should be mentally competent so as to understand consequences and nature of any actions they may take. This ensures that all parties involved safeguard the contract. Other aspects that are classified under the legal capacity is that people entering in a contract should not be minors, prisoners, bankrupts or in some instances corporation heads.⁷ Minors are ranked as persons who under are18 years with no legal obligations. On the other hand, bankruptcy implies that a person cannot enter in a contract without disclosing their bankruptcy.

Conditions

All business contracts have terms and conditions that need to be satisfied for the execution of a contract⁸. Based on the business, the parties had terms and conditions that needed to be followed for the full time they remained partners. Conditions act as guidelines or requirements that must be fulfilled by either party that has entered in a contract.

Statute of Frauds

As required by the law, contracts should be in writing and signed by the respective parties involved for easy enforcement.⁹ Each state in Australia has different statute in regard to fraud. Provisions in regard to the statute of fraud are provided which are followed by the parties. The statute of fraud ensures that incidences of fraud do not arise as copies that have legitimate business parties are provided. Before enforcement of a contract, the parties should be able to consult with the authorities before signing a contract.

Breach of a contract

A breach of a contract arises when one of the parties in a contract fails to honour their end of bargain. When this happens, the non-performing party is sued and if the proof is found to be valid, action is taken upon. The compensations made after a breach of a contract are referred to as damages.

Legal Precautions/Protection for a Partnership

In a partnership there are many legal protections/precautions that should be put into place to safeguard the business.

Legal protection for intellectual property protects the business and the owner from liabilities related to ownership. Some of the legal protections for intellectual property that the business would have considered are trademarks and patents. The trademarks represent a business, services or goods in particular ways that need to be protected. Some of the forms that trademarks are represented are in form of brand names, logos, words, symbols, and slogans among others. This prevents anyone else from using the same trademark for their benefit given that the company had built a goodwill and repetition in it.¹⁰ The small business requires this form of legal protection.

Indemnity agreement

In an indemnity agreement, the financial responsibility between the parties in a contract is agreed upon.¹¹ This implies that an exemption is made on the party who enters into the contract and is not responsible for certain incurred costs. The costs are usually shifted to the other party who becomes liable in case of damage or any form of incurred costs. For instance, the business under the study operated in a leased property and it occurred that they had not protected the business incase damages or costs occurred to the business. A clause that protects the business owner is contained in an indemnity agreement. The clause states that incase a cost and damage occurred as a result of the leased building would be taken care of by the owner of the building. For example, supposing the building door or gate was broken and the business owner informed the landlord and no action is taken and in course of work some business property is stolen or damaged, then the business owner should demand compensation.

The Statutes of Limitation

This legal protection is used to safeguard contractors from bad debtors who may disappear though the suspension of limitation period for the time they would be hiding.¹² This applies particularly in real estate where the owners or contractors are protected from debtors. In this case no legal action can be taken during this period by limiting the legal actions that would have been taken. For instance, the business would have protected itself through the statutes of limitation

Other legal steps taken in case of breach of contract/non performance

The breach of a contract allows non performing party to take legal actions against the party that had broken the contract. The business owner would have the lawyer look into the problem before going to the court for assessment purposes. Then a comparison is carried to determine the clause that has been broken by the other party. Then it is decided to determine the form of breach which can either be by omission or by default. The form of compensations required for the breach of contract is then determined. Then damages may be awarded accordingly at a rate that would be equivalent to the degree of damages. Another option that would be taken would be taking responsibility. In this case the parties mitigate the losses so as to keep the business losses low. This can be supported by a 1996 English case of Yetton v. Eastwoods Froy Ltd where is was stated that if the plaintiff has the capacity of minimizing his loss through reasonable course of conduct, then he/she can do so to proof it could have been done.¹³

Conclusion

Before entering into a business it is essential for the involved parties to come into an agreement that has to be in form of a contract. For a contract to be viable it has to be enforceable by business law of that particular country. However, there are major principles that have been identified in relation to a business contract especially in a partnership structure. These principles are offer, acceptance, condition, considerations, legal capacity, breach of contract, and statute of fraud. When an offer is made it has to be accepted by parties who have the legal capacity. They should obey the statute of fraud by not involving in breach of contract.

Some of the legal precautions and protection that the business would have considered before setting the partnership is intellectual property. This includes aspects like trademarks and patents that protect the business from threats by other businesses. It should also have considered the indemnify agreement where the company would be protected from costs and damages that would result from any of the damages. This protects the business from any unwarranted financial liabilities that would affect the business negatively.

Bibliography

Business Link, Protecting intellectual property, Web.

Duhaime, L, Part 8: Time Limits, Breach & Remedies, 2011, Web.

Ellis-Christensen, T, What is an indemnity agreement?, 2003, Web.

Field, C, ‘Elements of a contract’, The Law Hand Book, 2010, Web.

Kinsley, K, Legal principles of business contracts, 2011, Web.

Footnotes

1. Field, C, ‘Elements of a contract’, The Law Hand Book, 2010, Web.
2. Field.
3. Kinsley, K, Legal principles of business contracts, 2011, Web.
4. Kinsley.
5. Field, C, ‘Elements of a contract’, The Law Hand Book, 2010, Web.
6. Kinsley, K, Legal principles of business contracts, 2011, Web.
7. Field.
8. Kinsley.
9. Field, C, ‘Elements of a contract’, The Law Hand Book, 2010, Web.
10. Business Link, Protecting intellectual property, Web.
11. Ellis-Christensen, T, What is an indemnity agreement?, 2003, Web.
12. Kinsley, K, Legal principles of business contracts, 2011, Web.
13. Duhaime, L, Part 8: Time Limits, Breach & Remedies, 2011, Web.