Question

In: Operations Management

Bibek has a successful newsagency business in Sydney. His customer base is becoming wider because he...

Bibek has a successful newsagency business in Sydney. His customer base is becoming wider because he manages the business very well and because his customers like his friendly smile and manner. Bibek’s income is increasing, as his tax, but he wants to expand his business. Bimana is one of Bibek’s best customers. Bimana tells Bibek that he should incorporate his business as a sole trader. Bibek comes to your office seeking your advice. Bibek wants to know if what Bimana has told him is true and what you would suggest he do (that is, what is the best legal structure for his business) together with details of the steps and costs involved in setting up that business structure. Advise Bibek

Solutions

Expert Solution

As per the question, Bimana told Bibek that he should convert and start up a sole trader form of business. This is not considered as an intelligent decision.

According to me, Bibek if thinking of expansion should go for setting up a partnership form of business. There will be additional benefits attached with starting a partnership firm:

  • In order to expand, more number of employees will be needed. This will help in dealing with large number of customers with ease.
  • Setting up partnership firm is an easy process, there are less number of legal formalities attached to it.
  • Every partner brings along with him certain portion of capital. This will increase the amount of investment and thus availability of more money for expansion.
  • The risk will be shared equally by all the partners and not borne by only one partner. Thus running a business becomes easy.
  • Registration of the partnership firm is not compulsory, hence less legal formalities attached while setting up the business.

Steps involved in setting up partnership business:

  • Selecting the name for the business: the first step involves deciding on the name under which the business will be operating.
  • Deciding on which state the business need to be set up: the owner should decide under which state the business will operate. This will help in registration.
  • Deciding on all who will be the partners: one should decide on who all will be the partners and with whom the business will be carried out.
  • Preparing the partnership deed with the partners: next step is the preparation of the agreement between the partners, containing all the terms and conditions about the business. The deed is signed by all the partners.
  • Getting the partnership firm registered: the partners need to contact the registrar of the state where they are setting up the business, and get their business registered by the registrar.
  • Obtaining certificate of incorporation: the registrar then issues the certificate of incorporation to the partnership business. After obtaining this certificate, the business is said to be legally incorporated.
  • Obtaining certificate of commencement: after the certificate of incorporation, the business gets certificate of commencement from the registrar, thus getting permission to officially start the business.
  • Getting employer identification number: this number is issued to the employer. Doing this will help the business create separate account for settling taxes in future

Costs involved in setting up partnership business:

There is no particular pre defined amount decided for setting up the partnership form of business. Although there are number of costs involved in setting up the business:

  • The cost of getting the firm registered requires certain registration fee that need to be deposited with the registrar.
  • The cost of stamp duty while registration is must to be incurred.
  • Getting the partnership deed ready also involves certain amount of money that need to be borne in advance.

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