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Raffles International Institute_Forms of business ownership AUS

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Information about Raffles International Institute_Forms of business ownership AUS
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Published on February 14, 2014

Author: sandradraskovic

Source: slideshare.net

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Raffles International Institute
Module: Design and Business Law (AUS)
Lecturer: Sandra Draskovic, M.Arch
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DESIGN AND BUSINESS LAW FORMS OF BUSINESS OWNERSHIP RAFFLES INTERNATIONAL INSTITUTE FEBUARY 2014 LECTURER: SANDRA DRASKOVIC

What to do? Defining the „what‟ of an interior design practice provides the basis of one‟s identity and will have an influence on everything that follows. Choices? Many choices need to be made: small big details like choosing a name and tricky details, such as making it a one (wo)man show or joining a team. Type of organization? In order decide on a type of organization that will match the work produced, you will need to find out what kind of product you are interested to deliver, and if your are able to deliver it.

STARTING A COMPANY –MAJOR CONSIDERATION: 1. BUSINESS TO SELL AFTER need o be structured and organized in a way that can be managed by other person with easy way of transfer of responsibilities to gain financial reward upon leaving/selling 2. BUSINESS AS A PROFESSIONAL JOB POSITION designer starts a company around his/her name and style, which can be harder transferred and sold to other person – less desirable

• Main intention for setting a company is success of a business • Owner must take responsibilities of all aspects of a business such as: salaries of employees, non paid leaves, paid leaves, vacations, sick leaves, insurance plan, running projects, public relationship and networking, marketing, social responsibilities, structuring… • Initial investment and years of devotion to a business growth and establishment – between 3-7 years is required to sacrifice with specific life style to make a successful interior design practice

• CERTAIN PERSONALITY TO START UP A BUSINESS: 1. Are you in a good health? Physical and Emotional strength? 2. Do you have energy it takes for a business to succeed? Limitless physical energy – exercise, fit, sport, recreation? 3. Are you self-started and self-motivated, who takes initiative? 4. Are you person that get things done? 5. Can you go well with other people and all kind of people‟s characters, various backgrounds, ages, nationalities, personalities?

• CERTAIN PERSONALITY TO START UP A BUSINESS: 6. Are you a leader? Can you motivate them to follow you and your ideas? 7. Are you ready to take responsibilities? Do you understand all the bits and pieces of the interior design practice and what does it mean before setting your own? 8. Are you a good worker? Can you be fully dedicated to a task in hand? 9. Are you well organized? 10. Are you capable of taking decisions? Quickly in necessary?

• CERTAIN PERSONALITY TO START UP A BUSINESS: 11. Do people have confidence in you? Do people believe you will finish the job and that it will be done properly? 12. Are you type of a committed person? It requires a lot of energy. 13. Are passionate about your profession? It takes strong motivation to carry business through. Enthusiasm is important. 14. Are you good communicator that express clearly and speak firmly in a professional manner?

• CERTAIN PERSONALITY TO START UP A BUSINESS: 15. Do you understand interior design field? Do you understand all the works you are going to do? Do you have skills to do them? 16. Have you had a business training? How to set up business in a certain environment e.g Mongolia? 17. Can you foreseen potential problems? Do you have investment? Did you choose location?

• One thing is certain: the choice of location for a new design practice is about finding adequate office space at an affordable price and deciding on where this place might be. Set up location or where to go • The current generation of designers starting up a practice can in fact fully benefit from a professional title recognized through-out the Asia and from the growing globalization of both education and job market. • Each location entails specific conditions that determine much of the opportunities and difficulties involved in starting up a practice.

Types of architectural and interior design companies? As an design student, your primary and perhaps only focus is the craft or art of design. Your dream is to make a job out of your passion, so you start your own interior design firm. Starting a successful business takes more than talent, knowledge and passion. Often, young architects forget that organization is equally important. Setting up office entails implicit choices about, for example: • business structure, and plan • working method and delivery • organization structure • type of clients

PREPARE A BUSINESS PLAN / WRITTEN ACTION PLAN: • • • • • • • PLANNING & INVESTMENT What are your area of specialties? When do you expect to start? Where you will be based? Where you will be located? How will you charge fees/. How you will base markup/hourly charges? What are you going to sell? What is the planning for earning profit? Forecast of investment and expanses?

PREPARE A BUSINESS PLAN / WRITTEN ACTION PLAN: • • • CLIENT Strategy for attracting clients, networking, marketing? STAFF How you will choose employees? What qualifications you will take into consideration? Will you organize training? People are the most important asset of the company. MARKET Understand the market, its possibilities, what is competition like?

PREPARE A BUSINESS PLAN / WRITTEN ACTION PLAN: • • RESOURCES Do you have a network of resources: dealers, contractors, manufacturers, showrooms to serve business, to produce, to build, to maintain… FINANCE Do you have funds for starting the business? Do you have saved money or you will take loans? Do you know the law related to loans and lending institutions? Maybe you will need to consult attorney or accountant to advice you and evaluate stakeholders? Foreseen business and break down analysis for 1-3 years.

ADVANTAGES & DISADVANTAGES OF RUNNING A BUSINESS: • COMPLETE CONTROL •DECISION MAKING FREEDOM • DIRECTING A BUSINESS AND ACTIVITIES IN OWN WAY/STYLE • COMPLETE FREEDOM TO ESTABLISH OWN IDEAS, VISIONS • YOU DETERMINE THE PROFIT • JOB SECURITY • GREAT SATISFACTION • GIVE TO GAIN, YOU MUST BRING INVESTMENT INTO BUSINESS • LONG HOURS OF DEDICATION TO WORK 1215H / PER DAY • BIG RISKS TO LOOSE INVESTMENT IF BUSINESS IS FAILURE • INCOME WILL FLUCTUATE •FULL RESPONSABILITIES • YOU FALL UNDER THE STATE LAW / INSURANCE / LEGISLATIONS

POFESSIONALS T ASSIST YOU DEVELOPING OWN BUSINESS: 1. ACCOUNTANT – ensure financial advices and protection, breakdown analysis of the investment and finances 2. BANKER/LENDING INSTITUTION-loan consultant 3. BUSINESS CONSULTANT-familiar with an interior design field (for planning) 4. INSURANCE ADVISOR-how to cover major risks if something goes wrong 5. LAWYER-structure the business / ownership according to the law 6. FINANCIAL ADVSOR-attorney, financial planning, profit and growth planning

Types of design firms - concept/services: 1. STUDIO 2. OFFICE 3. BUSINESS

The Design Studio Distinctive to this type of design firm is its strong leader or „guru‟, who leaves a distinct signature on each and every project. To them, projects are just a means to an end to make their precious and often most creative and innovative ideas materialize their dream. Clients are just considered stakeholders in the process of realizing the idea.

The Design Office Offices are focused on providing service, experience, and reliability. In projects, offices try to keep a balance between pleasing the client with a design that complies with the client‟s wishes and reaching an acceptable aesthetic quality. Offices make sure that the project can proceed as planned and risks are minimized. The relationship with clients is often viewed as the most important factor for the office.

The Design Business In the design business, technical expertise and quality of the product are essential. Functional and technical feasibility, legal requirements, and a devotion to efficiency are important from the very start of a project. Businesses can deliver good technical quality at a relatively low cost. This makes them reliable contractors, who are able to make design a profitable business.

WORKING METHOD & CHARACTERISTICS

STUDIO

OFFICE

BUSINESS

Employees and type of architecture firm: what is the attraction? 1. The studio attracts young, promising designers from all over the world. Most of these designers have the aspiration to leave the studio one day to become a „guru‟ themselves. 2. The design office attracts designers who are willing to commit themselves for the long run. Becoming a partner and even taking over the firm is a viable option‟ 3. The design business attracts designers that appreciate technically complex designs and want to optimize the building process. Designers that value a technically reliable result and like working in professional project structures.

Personal skills and talents of the designer: When you start your own design firm, solo or as a partnership with kindred spirits, the entire operation depends on your talents and skills. Your education has provided you with knowledge and skills concerning aesthetics, design techniques, a certain technical expertise, etc. This is an essential starting point, but in itself not enough to be successful as an architect.

Personal skills and talents of the designer:

Personal skills and talents of the designer:

FIELD OF ACTION / SERVICES Purist, All-Rounder or Cross-Breeder? For more than half of the practices surveyed, a substantial part of the work lies outside of the field of interior design. Apart from the services provided to other companies, their portfolio includes teaching (60.4 % of the practices), graphic and webpage design, journalism, and event management (41.5%). While operating in an expanded field of action may help to generate more commissions, it does not offer higher income margins than design.

Trademark / logo / name / brand

Setting the right form of ownership: 1. 2. 3. 4. 5. 6. 7. Sole proprietorship Partnership Corporation Association Joint Venture Trust Franchise

LIABILITY • Defined as an obligation of an entity arising from past transactions or events, the settlement of which may result in the transfer or use of assets, provision of services or other yielding of economic benefits in the future. •In law, a person is legally liable when they are financially and legally responsible for something.

LIMITED LIABILITY • Limited liability is a form of business ownership in which business owners or company member are legally responsible for no more than the amount that they have contributed to a venture. If for example, a business goes bankrupt an owner with limited liability will not lose unrelated assets such as a personal residence. This is the standard model for larger businesses, in which a shareholder will only lose the amount invested.

UNLIMITED LIABILITY • If the company incurs a business dept a creditor will have a right to claim against the sole proprietor‟s personal assets, such as family house or any other personal or business assets

1. SOLE PROPRIETORSHIP Nature of structure: Simple – individual proprietor owns the business Establishment: Just start – registration of a Business names Act (Australia), Business number and Taxation Governing Law: Ordinary business law (AUS) Raising Finance: Limited to the proprietors resources Liability: Unlimited liability

1. SOLE PROPRIETORSHIP •Simple organization of a one person, “one man show” o sole proprietor, • Easy to establish • All profit earned by business belongs to the owner / also who bears all the loses. • Owner - Total authority over the operation • Unlimited liability – all company debts are debts of the proprietorship, not the members of the company

ADVANTAGES • You are the BOSS with a complete control over the decision making process and running the business • Least expensive to set up •Easiest to form legally •All the profit is kept by the owner so you can withdraw money •Does not pay the income taxes •Report gain or loss on individual income tax returns & DISADVANTAGES • If owner dies, the business may come to an end •Enormous freedom •Big responsibilities and pressure “one man show” • Big risks if company fails • Creditor can claim personal assets and properties (home, car, savings) • Unlimited liability – the worst feature • Sometimes small companies doesn‟t look promising to attract big clients and high quality employees (young)

2. PARTNERSHIP Nature of structure: Carrying on business as principal and agent of each other, one or more partners. Silent partner Establishment: Written partnership agreement, lease, Business name, joint bank account Governing Law: Partnership Acts of states and territories and common law(AUS) Raising Finance: Limited to the partners‟ resources Liability: Limited liability

2. PARTNERSHIP • Association of two or more persons formed to operate a business together for a profit • Business relation which subsists between persons on a business in common with a view of profit • Legal agreement between partners “Articles of copartnership” or “Partnership agreement” to establish understanding between or among partners in a business • It can be based on a limited or unlimited liability • Partnerships can be established between different professionals to enrich the company: interior designer, lighting designer, furniture designer, wood engineer..

“Partnership agreement” defines LAWYER to be appointed • Contribution to the partnership by each party in terms of cash, property, services… • How profit or loses are going to be shared • How authority / decision making is going to be divided •Share of salaries, losses, profit • Which withdrawals can be made • How disagreement is going to be settled – introducing a independent arbitrator • How a new partner can be admitted • What happens in terms of sudden death • How assets are going to be divided in terms of partnership termination

PARTNERSHIP 1. GENERAL – all partners have unlimited liability 2. LIMITED - all partners are liable only to extent of their investment in the company One partner must be general with unlimited liability active in a operations of a business while limited liability partners can contribute to the management of the company

ADVANTAGES • Two head are always better than one – usually  • Sharing duties, responsibilities, delegation of a work : one person can do better design part while other can be complement for management part or public relationships • partnership is easy to start • “partnership agreement” • more human resources are available • sharing profit, ownership • attracts skilled employees & DISADVANTAGES • unlimited liability as the worst case – major disadvantage • e.g. an individual may be willing to invest but because of unlimited liability refuses to become a general partner in a company • tax is paid by individual partners in their own returns • partnership property and shares : real estate, physical property, intangible property-intellectual property in terms of termination or leaving of one of the partners

3. CORPORATION, INCORPORATED COMPANY • association of people set up for a common object to carry on a business o other activities like manufacturing or doing design execution. • after Registration a company becomes a separate legal person • A corporation is a separate legal entity that has been incorporated either directly through legislation or through a registration process established by State law. •Incorporated entities have legal rights and liabilities that are distinct from their employees and shareholders.

3. CORPORATION Nature of structure: Body corporate with separate legal personality. Director(s) and shareholders. In a large company organization is complex Establishment: Registration under Australian Securities Investment commission (ASIC) Governing Law: Corporation Act 2001 Raising Finance: Limited to shareholders‟ equity, borrowings Liability: Limited liability of the shareholders, a shareholder's personal liability is limited to the value of their shares in the corporation

CORPORATION (shareholders directors) 1. C COPORATION – corporation as a legal entity is a subject to a federal corporation icnome taxes 2. S CORPORATION- shareholders has certain % of the ownership, has limited liability, profits or losses are passed through shareholders, doesn‟t pay income taxes 3. LLC – shareholders have limited liability protection, profit, losses pass through shareholders individuals, shareholders with the structure of ownership

CORPORATION (STUCTURE) 1. CEO – chief executive officer, chairman of the directors‟ board 2. CFO – chief financial officer, supervising financial record 3. COO – chief operations officer 4. Chairman of the board 5. President 6. Boards of directors – represents shareholders (members) 7. Outside directors Directors’ duty is loyalty and good faith

ADVANTAGES • limited liability as amain advantage •Shareholders are liable for business debt to the extent of their investment • benefits available to shareholders •It is easier to transfer ownership to the new owner – selling the company or shares or ownership transfer – business continues • easier to raise capital and attract investors without a need to get involved as partnes & DISADVANTAGES • more complex and numerous regulations and requirements • lot of formalities and sometimes it can affects business processes ( who is taking decision, layers of reporting) • “shareholders agreement” • if shareholder wants to withdraw, sell or return shares is obliged to offer them to other shareholders fist at specific or determinable prices. • right to vote for board of directors & policies

5. JOINT VENTURE • is a business agreement in which the parties agree to develop, for a finite time, a new entity and new assets by contributing equity. • two or more firm make agreement to work together under the same contract while each firm remains independent and responsible for own professional performances, expanses, profit, losses. • It is often formed to accomplish certain task on a large project for a definite time, while the partnership operates indefinitely. • There are other types of companies such as JV limited by guarantee, joint ventures limited by guarantee with partners holding shares.

5. JOINT VENTURE • CASE STUDY: • PROJECT OVERSEES – one-off project • LARGE PROJECT – limited number of staff, inadequate professionals, services •AGREEMENT – Identify roles and shares of the companies with clearly defined roles in a project, the roles, responsibilities and obligations of each venture, establishment of a management structure and decisionmaking process

5. JOINT VENTURE Nature of structure: Carrying on business separately Establishment: Written joint venture agreement Governing Law: Contract Raising Finance: No investment needed Liability: Limited liability separately for all the debts of the join venture

ADVANTAGES • access to financial services, new technologies, new management practices – chance for improvements • competitive goals and improved competitiveness through challenging project • limited liability only for own activities and not responsible for the act of venture • can maintain privacy of a work separated from other ventures • strategic goals • separate income taxes & DISADVANTAGES

4. ASSOCIATION Nature of structure: Body corporate with separate legal personality. It can be incorporated or unincorporated as a group of people Establishment: Establishment of the “Association constitution” Governing Law: Registered by the State law, Associations Incorporation Acts of states and teritories Raising Finance: Limited to the member resources Liability: Members liability, Limited liability

4. ASSOCIATION a. Incorporated association(Inc.) is the forming of a new corporation (a corporation being a legal entity that is effectively recognized as a separate legal entity or person under the law). The association may be a business, a nonprofit organization, sports club, art club, design club, or a government of a new city or town. b. An unincorporated association consists of two or more members bound by the rules of a society which has at some point in time, been founded. A Group of people with a common interest with a purpose)

4. ASSOCIATION – “Association constitution” 1. 2. 3. 4. 5. 6. 7. 8. Who you are? What you do? How you operate? How to become a member and how to deal with disputes? What are the purposes or functions of the association? Is there a need for an association? Is there any similar association in the area? Is the association likely to attract members and be supported? How it will be financed? Who will do the work inside association? Who are the interested people, group of people, professionals to support association? What name should be used for commenced association? Inc = Incorporated or Voluntary association

ADVANTAGES •CAN ACCEPT GIFTS AND FUNDS •CAN BORROW MONEY FOR THE PURPOSE •CAN BUY, OWN PROPERTIES UNDER ITS COPORTAE NAME RATHER THAN THE NAME OF PERSON •CAN CONTINUE REGARDLESS OF THE CHANGE OF THE MEMBERS • CAN ENTER INTO THE CONTRACT WITH CORPORTATION •CAN MAKE PROFIT BUT CANNOT BE DIVIDED AMONG MEMBERS •CAN HAVE BANK ACCOUNT, NAME, ENTITY & DISADVANTAGES •FORMALITIES ARE UNDER LEGISLATION: RULES, RECORDS, AGM, ARBN, AUDIT •PUBLIC LIABILITY INSURANCE IN CASE OF BREACH OF ITS MANY OBLIGATIONS •ASSETS, RIGHTS AND LIABILITIES AS A SEPARATE LEGALE ENTITY •EXPANCES AND PROFIT ARE NOT BEARED BY THE MEMBERS AND NOT GOING BACK TO MEMBERS YET TO ASSOCIATION

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