LAW 603: LAW OF

ASSOCIATIONS
TRIMESTER 3, 2015

TOPICS 1 & 2:
INTRODUCTION TO FORMS
OF BUSINESS OWNERSHIP
This topic provides a general
description of many forms of
business organizations and identifies
some of their advantages and
disadvantages. It provides
information on how the organization
is created, liability for the owners,
managing the organization, and

The Basics Legal

Structures
To put your business on a proper footing with Fiji Inland Revenue
Custom Authority (FIRCA) and other authorities, you need to make
sure that it has the right legal structure. It is therefore worth
thinking very carefully about which structure best suits the way
that you want to do business, as this will have affect on:
the tax and insurance that you need to pay
the records and accounts that you have to keep
your financial liability if the business runs into trouble
the ways your business can raise money
the way management decisions are made about the business
There are several structures to choose from, depending on your
situation. This guide will help you understand the differences
between them.
If you are not sure which legal structure would best suit your

Sole Proprietorships
The sole proprietorship is the oldest, most common, and simplest form of business
organization. A sole proprietorship is a business entity owned and managed by one
person. The sole proprietorship can be organized very informally, is not subject to
much state regulation, and is relatively simple to manage and control.
The prevalent characteristic of a sole proprietorship is that the owner is
inseparable from the business.
Because they are the same entity, the owner of a sole proprietorship has complete
control over the business, its operations, and is financially and legally responsible
for all debts and legal actions against the business. Another aspect of the "same
entity" aspect is that taxes on a sole proprietorship are determined at the personal
income tax rate of the owner. A sole proprietorship does not pay taxes separately
from the owner.
A sole proprietorship is a good business organization for an individual starting a
business that will remain small, does not have great exposure to liability, and does
not justify the expenses of incorporating and ongoing corporate formalities.

Sole Proprietorships
Points to Consider
Easiest type of business organization to establish. There are no
formal requirements for starting a sole proprietorship
Decision making is in direct hands of owner.
All profits and losses of the business are reported directly to the
owner's income tax return.
The startup costs for a sole proprietorship are minimal.
Owner has unlimited liability. Both the business and personal assets
of the sole proprietor are subject to the claims of creditors.

Sole Proprietorships
Because a sole proprietorship is not a separate legal
entity, it usually terminates when the owner becomes
disabled, retires, or dies. As a result, the sole
proprietorship lacks continuity and does not have
perpetual existence like other business organizations.
It is difficult for a sole proprietorship to raise capital.
Financial resources are generally limited to the owner's
funds and any loans outsiders are willing to provide.
Owner could spend unlimited amount of time
responding to business needs.

Sole Proprietorships
Key Attributes
Creation (minimum requirements) - No Formalities for creating a
sole proprietorship.
Profits / Losses / Distributions - Owner may use all profits and
losses for business.
Liability - Owner faces unlimited personal liability.
Capital / Financing - All capital obtained from owner or through
loans based on owner's creditworthiness.
.

Sole Proprietorships
Duration - Usually no continuity upon disability, retirement or death
of owner.
Transfer of Ownership - Assets may be sold in entirety or in part.
Management and Control - Owner manages and controls the
company.
Taxation - The business does not file or pay taxes.
Reporting Requirements - None.
Fees - None.

Sole Proprietorships
Business income is counted alongside your existing personal
income, so the accounting side of your business will be very
straightforward.
As the name suggests, you will be personally liable for any debts
you incur in the running of your business.
In terms of accounting, you will need to submit an annual self
assessment form to FIRCA and keep accurate and up-to-date records
of all business transactions and accounts. You will also pay income
tax on all profits. Losses can be offset against tax on other income.
FIRCA needs everyone to have a tax identification number or TIN

Sole Proprietorships

Value Added Tax (VAT)

Even though you will have registered as 'self
employed' when setting up, you won't automatically
be VAT registered.
You dont usually need to register for VAT until
your turnover reaches a certain limit in any 12
months, or you expect it to do so.
The standard rate of VAT is currently 15%
Previously it was 12.5%.

Sole Proprietorships
Tax rates for sole traders in Fiji
The tax threshold for sole traders is FJ$16,000 with effect
from 1st June, 2009.
Income below $15,999 will not attract tax.
Normal tax is levied on Chargeable income (i.e. total
income less allowances). There are separate rates of normal
tax for resident and non resident sole-traders.

Sole Proprietorships
The Basic Legal Structure: Self-employment
To be a sole trader, a partner, or a member of a limited liability
partnership as an individual rather than a company, you must be selfemployed - and registered as such with FIRCA. This does not mean
that you can't also do other work as an employee, but the work you do
for your own business must be done on a self-employed basis.
If you are not sure whether your work counts as self-employment, ask
yourself these questions:
Do you present your clients with invoices for the work that you do
for them?
Do you carry out work for a number of clients?
Are you responsible for the losses of your business as well as
taking the profits?

Sole Proprietorships
Do you have control over what work has to be done,
how the work has to be done and the time and place
where the work has to be done?
Have you invested your own money in your business
or partnership?
Do you provide any major items of equipment which
are a fundamental requirement of the work you carry
out?
Do you have to correct unsatisfactory work in your
own time and at your own expense?
If you can answer 'yes' to most of these questions
then you are probably self-employed already, and
should let FIRCA know this immediately if you have not
already done so. You may be fined if you fail to register
when you become self-employed.

Sole Proprietorships
Before you start
Anyone can set up in business as a sole trader. For certain types of
work you may need a licence or permission from your local
municipality for example restaurants, child minders, cab drivers and
street traders - all need to have a local authority licence. Your
qualifications and business premises may be inspected beforehand to
ensure you comply with regulations.
Working from home
If you run a business from home, you may have to pay business rates
for the part of your home that you use for your business. This mainly
depends on whether the business area of your home is also used for
domestic purposes. If you simply work on a computer in a bedroom,
for example, you will probably not have to pay business rates.

Sole Proprietorships
You may need to get planning permission to set up a business at
home. For example, if your business could cause a nuisance to your
neighbours, or if you intend to do any building work to adapt your
home. If in doubt, contact the planning department of your local
authority as you are setting a commercial business in a residential
area. Also bear in mind that there may also be restrictions in the
deeds of your property or, if you rent, in the rental or lease agreement.
Choose a name for your business
You can trade under your own name, e.g. M.Y.Self, or use another
business name, e.g. Peerless Promotions. Your trading name should
not be the same as, or too similar to, that of a business which already
exists. Be careful that it does not contain words that people might find
offensive or misleading.

Partnership
The Basic Legal structure: Partnership
In a partnership, two or more people share the risks, costs and
responsibilities of being in business. Each partner is self-employed
and takes a share of the profits. Usually, each partner shares in the
decision-making and is personally responsible for any debts that the
business runs up.
Unlike a limited company, a partnership has no legal existence distinct
from the partners themselves. If one of the partners resigns, dies or
goes bankrupt, the partnership must be dissolved - although the
business can still continue.
A partnership is a relatively simple and flexible way for two or more
people to own and run a business together. However, partners do not
enjoy any protection if the business fails.

Partnership
Set-up
Each partner needs to register as self-employed.
It's a good idea to draw up a written agreement
between the partners. For further advice, consult an
accountant or solicitor.

Management and raising finance

Partners themselves usually manage the business,
though they can delegate responsibilities to employees.
Partners raise money for the business out of their own
assets, and/or with loans.
It's possible to have 'sleeping' partners who contribute
money to the business but are not involved in running
it.

Partnership
Records and accounts
The partnership itself and each individual partner must
make annual self-assessment returns to FIRCA.
The partnership must keep records showing business
income and expenses.
Profits
Each partner takes a share of the profits according to
their agreement.
Losses
Each partner takes a share of the losses according to
their agreement.

Partnership
Tax and National Insurance
As partners are self-employed, they are taxed on their share of the
profits.
Liability
Creditors can claim a partner's personal assets to pay off any debts even those debts caused by other partners. In Fiji, partners are jointly
liable for debts owed by the partnership and so are equally responsible
for paying off the whole debt. They are not severally liable, which
would mean each partner is responsible for paying off the entire debt.
However, if a partner leaves the partnership, the remaining partners
may be liable for the entire debt of the partnership. Also, a creditor
may choose to pursue any of the partners for the full debt owed in the
case of insolvency.

Partnership
Tax treatment for partnership in Fiji
A partnership business is one that is operated by two or
more persons who have a common goal of making profits.
The partnership business should lodge a return of the
business income. Each partner shall be severally and
individually liable for lodging a tax return.
The income of the partners from the partnership business for
any income year shall be deemed to be the share of income
to the partner. Each partner will declare their own income
separately for the purpose of this Act.

To be continued in
Lecture 2