Construction Law and Ethics (16022)

Week 2 – The Nature of the Construction Industry

Tutorial Questions

1. Are small businesses important in the construction industry?

Supporting the WHS of businesses that support our economy: In
NSW, the highest number of small business (5-19) employees
are in construction about 97% are small businesses

2. What is a sole trader?

A sole trader is a simple business structure in which one
individual run and owns the entire business. They are entitled to
keep all profits after taxes have been deducted.

3. What are the advantages of a sole trader?

- You’re the boss
- You keep all the profits
- Start up costs are low
- You have maximum privacy
- Easy to change legal structure later if circumstances change
you can wind up your business

4. What are the disadvantages of a sole trader?

- You have unlimited liability for debts as there’s no legal
distinction between private and business assets
- Your capacity to rise capital is limited
- Retaining high calibre employees can be difficult
5. What is a partnership?
A partnership Is a formal arrangement by two or more parties to
manage and operate a business and share its profits.

6. What are the advantages of partnership?

- Two heads are better than one
- Business is easy to establish and start-up costs are low
- More capital is available for the business.
- You will have greater borrowing capacity

7. What are the disadvantages of partnership?

Potential liabilities
Loss of autonomy
Emotional issues
Conflict and disagreements
Higher taxes
Splitting profits

8. What is a joint venture?

A business arrangement in which two or more parties agree to
pool their resources foor the purpose of accomplishing a specific
task

9. What are the advantages of a joint venture?

Access to new markets
Shared costs
New market penetration
 Intellectual property gains
Shared costs
A marketing joint venture
Flexibility

10. What are the disadvantages of joint venture?

The objectives of the venture are unclear
The communication between partners is not great
The partners expect different things from the joint venture
The levels of expertise and investment isn’t equallt matched

11. What is a trust?

A fiduciary relationship in which one party gives a second party
the right to hold a title to property or assets for the benefit of a
third party.

12. What is the difference between a fixed trust and discretion

trust?
A fixed trust also known as a discretionary trust, determines the
amount and terms of each beneficiary share at the beginning. A
discretionary trust lets the trustee or trustees make decisions
about who becomes a beneficiary and how much each
beneficiary gets.

13. What are the advantages of a trust?

Avoid probate
Asset protection
Tax benefits
Controlling distributions
 Selling assets to the trust
Trusts provide tax benefits

14. What are the disadvantages of a trust?

Structure is complex
The trust can be expensive to establish and maintain.
Problems can be encountered when borrowing due to additional
complexities of loan structure

15. What is a franchise?

A joint venture between a franchisor and a franchisee. The
franchisor is the original business. It sells the right to use its
name and idea. The franchise buys this right to sell the
franchisor’s goods or services under an existing business model
or trademark.

16. What are the advantages of a franchise?

Reduced risk of failure
Ongoing business support
Market expertise
Brand recognition and loyalty
Increased buying power
Higher profits
Better chance of finance
Being your own boss.

17. What are the disadvantages of a franchise?

Limited control
 Initial cost
Franchise agreement terms
Franchise costs
Costs
Decreased profits

18. What is a company?

A legal entity formed by a group of individuals to engage in and
operate a business enterprise in a commercial or industrial
capacity. A company’s business line depends on its structure
which can range from a partnership to a proprietorship, or even
a corporation.

19. What are the advantages of incorporating?

Raising capital
Liability protection
Credibility
Tax benefits
Tax advantages
Ownership transfer

20. What are the disadvantages of incorporating?

Double taxation
Cost
Lack of ownership
Pay more taxes
Corporate formalities administrative burden