What’s a ‘person’? Legal entities in hospitality businesses
You may have heard the idea that a person includes companies. That sounds a little odd. Lawyers, on the other hand, don't blink at that sentence.
Section 2C of the Acts Interpretation Act 1901 (Cth) says that a reference to a "person" (amongst others) in a piece of Federal legislation includes a reference to individuals, bodies politic and corporations.
Why does this matter? It's all about referring to the correct thing. Precision. In this case, we're talking about kinds of legal entities.
A legal entity is a reference to the thing that can sue and be sued, and can own property in their own right.
The most common legal entities in business are:
Sole trader
An individual trading on their own.
They can employ employees.
They have unlimited liability.
Partnership
A number of individuals or corporations running a business together.
Each partner has unlimited liability for the actions or omissions of the business which includes the other partners.
Corporation
These are those things with "Pty Ltd" or "Ltd" at the end of their name.
There are three types of 'persons' when talking about a corporation:
- the corporation itself;
- its shareholders or members; and
- its directors.
Each are separate.
Trust
A trust involves:
- the trust, which owns the property;
- the trustee, who administers the trust; and
- the beneficiaries of the trust.
There are many different kinds of trusts: fixed unit trusts, discretionary family trusts, hybrid trusts - the list goes on.
It's becoming more common to see a corporation as the trustee of a trust.
Incorporated Association
Another is an incorporated association, which is common for sports clubs and for charitable organisations. Profits can't be distributed to members - they must be used in a way consistent with the objectives of the incorporated association, which are defined in the association's constitution or rules.
Your business structure
Choosing the legal entity to operate your hospitality business is best informed by:
- your business goals and visions;
- your personal financial circumstances;
- advice from your accountant; and
- legal advice from us.
Things that are not legal entities includes:
Business names
A registration which lets the legal entity use a different name.
a.k.a. trading name.
ACN
An identifier for a corporation.
Find out about the corporation using the ACN and ASIC.
BN
An identifier for a legal entity which has an ABN.
Find out about the legal entity behind an ABN or business name using ABR.
Joint ventures
Although some JVs may create a corporation, trust or partnership.
Unincorporated association
A way to describe a group of people who want to sound organised.
Franchise
A name for a contractual arrangement where (put simply) a franchisor grants a franchisee a right to use a trade mark.
Want more information?
Contact us for advice tailored to you.