Legal issues surrounding partnership structure
For starting a new business to manufacture and sell T Shirts, my friend and I need consider the situation where we in and to establish this new business, we must consider which type of the T shirts we are going to sell relates to the logo, brand name, trade mark and design new products, and the spending we can afford for the product marketing. Also, because this new business is operated by my friend and me, so we must consider the business structure for our business. Business Structure is a kind of relationship you have with your business. In Australia, there are four major forms of business structure consists of Sole Proprietor or Sole Trader, Partnership, Company and Trust. As we only have two people and there’s limit asset we can invest in this business, then we decide to start a partnership business structure as the partnership structure can provide the better position to raise more capital and to expand business.
We must pay attention to partnership which is a type of business entity in which an association of individuals (owners) combining their skills, resources, effort and share with each other the profits or losses of the business. In New South Wales, partnerships are regulated by the Partnership Act 1892 (“the Partnership Act”). There are similar statutes in every other State and Territory. “Generally, the liability of a partner is significantly large. Every partner or person held out to be a partner is both an agent and principal of the firm and may thus bind the firm and the partners: s.9 the Partnership Act”. It is easy to establish a business as partnership structure and in partnership the daily work is divided among the partners according to their interest and experience. Therefore the partners may perform their duties for which they are suitable and preferred which may ensure efficiency and more profits and the business can get more benefit from partners who have complementary knowledge or skills.
For our T shirt manufacture the main benefit we can get from partnership structure is the optimized use of resources, which is partners can divvy up business responsibilities. Another benefit we can get is the financial allocation which means not all partners have to assume the same amount of responsibility as other partners. Because in a general partnership, all partners have the same liability, so they lose the same amount of money if the business should fail. But in a limited partnership, one or more partners are only responsible for the specific amount of money that they invested in the business. To create a partnership agreement, I must discuss a list of requirements with my friend and we must make sure it is in writing and reviewed by a lawyer before moving to a business. For example, the requirements we need discussed are authority, capital contributions, profit and loss allocation, new partners (if there’s someone want to join the business), and length of partnership etc. As with the other business structures, there’s also have some disadvantages we need take into account. Business partners are jointly liable for the actions of the other partners which the partners are liable for the decision made by other partners. Also the profit must be shared with others. For a general partnership all partners are personally liable for business debts and liabilities, which there are some debt problems or lawsuits may occur.
The most common entity in Australia is the sole proprietorship. A sole proprietorship also known as a sole trader or simply proprietorship is a type of business entity which is owned and run by one individual and where there is no legal distinction between the owner and the business which is the only key person in the business(3). Sole proprietorship is often used for small enterprises, such as small shop or small restaurant. It is the most easily administered form of business structure which does not need the involvement of partnership, company or trust. The advantage of the sole proprietorship is it is the most simply and cheap way to set up and operate a business. The disadvantages are solely liable for any consequences of business failure or any other liability and limited capital raising ability. For our T shirt business, it is not a wise decision to choose sole proprietor as we have two people and is not a relative small manufacture for starting this business.
Furthermore, the structure of company and trust are also we need consider with. A company is a form of business organization, which involves any entity engaging in business, such as a proprietorship, partnership, or corporation. The main advantage of a company is a company is a separate legal entity which limits the liability of shareholders that each shareholder or member is liable only up to the amount he invests. Because of the complexity of the Corporations Act, running a company does have some disadvantages. For example the expense of forming and registering a company is about $1000 and is lack of control in the day-to-day management of the company’s affairs. So to form a company is not a good decision for us. The trusts structure of a business is a legal arrangement in which an individual gives fiduciary control of property to a person or institution for the benefit of beneficiaries. Family trusts structure is the major type of trust for a private nature. If the purpose is to raising funds then should set up public trusts.
First, we decided to design a new product of T shirts for our business, so we decided to print “Hi, I'm available.” on the front side of our T shirts. Also we use “KK” to be the brand name of the T shirt, and we can design a logo and trade mark. The customer of this new type T shirt is set to a person who is single and wants to see anyone.
Consider the Intellectual Property, the design of our product is new and original which can be recognized by the law as commercial property used for mass production. We need register the design of our product when we want to start this business. Also to register the product, it must not a modified version of adaptation of an existing design or product, so we need check this condition when we register it. A design cannot be registered when it is a modified version to an existing design or product. The owner will have a monopoly once the design is registered, then the owner has exclusive right to use the design. According to Property Information and Documentation, The registration is available for 12 months from the date of registration, and for up to six years extension it can be extended by the registrar application before it expires. By identifying infringement of the design after the registration the owner is constantly protected with their legal rights. The infringement consists of if someone is copied or imitated of the existing design. In s.30 the infringement is defined, authorize the owner the right to sue for damages, seeking court order to account for profits and to stop further breaches of the design by using interim injunction.
Next we need consider the copyright of the product where all design woks for a period longer than that provided by the Designs Act is protected by the Copyright Act 1968(Cth). Copyright is the set of exclusive rights granted to the author or creator of an original work, including the right to copy, distribute and adapt the work. “Copyright as a property law was initially conceived of as a "chose in action", that is an intangible property, as opposed to tangible property. Tangible property is attached to the legal ownership of a physical item; hence the purchase of a book buys ownership of the book, but not the underlying copyright in the book's content. (1. Coyle, Michael)”. Also we must consider the “Original Idea” which the design must be original and unique which gives the effort in the design by its owner who creates an idea as a result of some independent intellectual. When applying a marketing plan, we must comply with the copyright law like the logos, images and layout of the product.
Furthermore, we must consider the inventions and patents which is to encourage commercial efforts of our product. It can grant a monopoly if the designer apply for the letters patent. The patent can be seen as an effort rewarded for the inventor and a contribution to the nation for the use of commercial life and culture. The term patent usually refers to a right granted to anyone who invents or discovers any new and useful process, machine, article of manufacture, or composition of matter, or any new and useful improvement thereof. “A patent provides the right to exclude others from making, using, selling, offering for sale, or importing the patented invention for the term of the patent, which is usually 20 years from the filing date. (2. Herman v. Youngstown)” When the designer registered the patent successfully, the product will be protected. Also we need choose one type of patent from "petty" and "standard" in the simple and cost efficient patent system. We may choose type “petty” patent for our product because of petty patent has a relatively small market cycle or product life and provides a simple, cheap and fast process to protect inventions which.
Moreover, trademark is also an important part we need take into account. A trademark is a distinctive sign or indicator used by an individual, business organization, or other legal entity to identify that the products or services to consumers with which the trademark appears originate from a unique source, and to distinguish its products or services from those of other entities (Trade-mark Act). In other words, a trade mark is a word or symbol or combination used in the manufacturer to distinguish the goods or services from other manufacturers or competitors. The law considers a trademark to be a form of property. The brand name and logo has become a common feature. The brand name of our product is “KK”, and also we need register this name. The register of trademarks established under the Trade Marks Act. The owner of a registered trade mark has the right to use the mark and for their trade mark the promotion of legal proceedings for infringement may be used. Also the trade mark for our T shirt “KK” distinguishes the product from other T shirt competitors. For registration, we are responsible for the decision of whether or not the proposed trade mark observe the Trade Marks Act. For example, the name must not in an exaggerated form or is an existing name; it must be unique, specific and stand out as distinctive. “Proprietary rights in relation to a trademark may be established through actual use in the marketplace, or through registration of the mark with the trademarks office (or "trademarks registry") of a particular jurisdiction. (Trademarks Law)” Applying for Registration need to go one of the trade marks offices which is part of the Australian Industrial Property Organization (the AIPO). The owner will be authorized seven years as of the date of the application once registration is granted and the owner can renew it perpetually. The owner can against a person and may seek damages and an injunction to stop such conduct which there are anyone forges or uses the existing mark or a similar mark which may deceive the registered owner has a right of action.