LAW335
International Business Law-FACULTY OF BUSINESS

Introduction
The legal system is one of the dimensions of the external environment that influences the operation of business. Managers must be aware of the legal system of their home country and the particular legal systems of the countries in which they operate, as well as the legal relationships between countries. A common approach is to employ a variety of local firms, or to work with an international law firm that International Business Law碩士dissertation定制has offices worldwideThe first thing that you must understand in relation to this topic is that there really is no such thing as a single commercial legal system. What the international business person confronts is the laws and courts of individual nation states that are quite independent of one another and often based on considerably different philosophies and practices. There are certain treaties, codes and agreements among various nations that can apply to certain areas of international business activity. This is as close as we can get to an ‘international law.’
International regulatory framework
There is no single body of laws or an international regulatory framework that applies to all areas of international business. Each country has its own system of laws, legal processes and system of courts which differ significantly from each other.
International business law consists of the collection of legal rules, conventions, treaties, domestic legislation, commercial customs and usages. These are basically the same as the sources of international law that regulate the relations between states.
The closest approximation to an international regulatory framework is the collection of bi-lateral and multi-lateral treaties, conventions and agreements that apply to selected areas of international business activity such as taxation, foreign investment and the protection of intellectual property.
Concepts and terms in international business
International business
According to O’Keefe and Tedeschi in the Law of international business in Australia, international business is a term which has no distinct legal meaning. It describes commercial transactions which involve the flow of goods, money, services, technology, information or know how across international borders. The most common forms are the sale of goods by a seller in one country to a buyer in another, and the investment of capital by an investor in one country in an enterprise or in property situated in another country.
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The term international business has a wider meaning than international trade. International trade literally involves only imports and exports of goods between traders in different countries. International business includes not only trade in goods but also services, and foreign investment, that do not fall directly under the traditional narrow definition of trade.#p#分頁標題#e#
International business then consists of:
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foreign trade, or the import or export of goods;
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trade in services such as international, banking, insurance, transportation, accounting and legal services; and
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foreign investment.
Foreign investment
There are different forms of foreign investment. It can be either direct investment or indirect investment.
Direct investment
Subsidiary Company
An example of direct investment is to set up a subsidiary: a new constituent part of the home corporation is established. It is a form of expansion; if a subsidiary is not set up to give complete control, investment may be such as to give the overseas investor enough control through ownership.#p#分頁標題#e#
Agency
If an overseas business trades through an agent located in the host country, it is regarded that the agent is merely standing in the shoes of the principal: that the principal is present in the host country. This is because in the agency/principal relationship the agent acts merely as an intermediary in order to bring about legal relations between the principal and the third person/s.
Indirect investment
Portfolio
Portfolio investment is a form of indirect investment. In portfolio investment the overseas investor acquires some interest in an enterprise with a view to deriving income, but not with a view to owning or controlling the enterprise.
Licensing
Another form of indirect investment available to the person wishing to invest overseas is through licensing agreements whereby a licensee in the overseas country is given the technological knowledge and the legal right to engage in a certain activity within specific limitations as to geographical areas and duration of the right.
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Commercial international treaties and conventions
It is true that the United Nations has the International Court of Justice at the Hague, but private individuals or corporations do not have access to this court. However, there are now an increasing number of international treaties and conventions that cover commercial and economic matters. Treaties are the more important international agreements. Conventions are of lesser importance. Either can only be enforced through the internal courts of participating countries. The spread of international commercial agreements has been much slower and less far reaching than the spread of international business.
The European Union has gone further than most other regions in developing formal commercial laws with their Court of Justice, established to apply the conditions of the Treaty of Rome.
What are some of the commercial international treaties and conventions concerned with?
The right of establishment: The idea is that a government seeks to enlarge opportunities available to its nationals to transact business in foreign countries on a non-discriminatory basis. The fundamental principle behind this is that it is a privilege rather than a right to transact business in another country and an agreement to do so has to be reached by the government of the two countries concerned.#p#分頁標題#e#
The protection of intellectual property rights: Patents and trademarks are registered by national governments and are valid only within the territorial jurisdiction of the granting government. Some countries have developed flourishing businesses by not having, or not enforcing, laws to protect intellectual property. The Uruguay Round of trade negotiations was concerned with this issue and reached agreement on the protection of international property rights against international infringement.
Taxation treaties: Again, taxes are levied by individual countries, but MNCs or parts of them may fall under the jurisdiction of more than one taxing authority. The enterprise has the right to avoid being excessively taxed but the taxation authorities of individual countries have a right to tax the revenues of companies within their jurisdiction. There is, however, no widely accepted theory of international law. This can be to the advantage or disadvantage of the MNC. Sometimes the definition of the firm’s residence and the source of income to be taxed differs among the countries concerned. A large number of bilateral tax agreements have been negotiated to provide relief from the possible double taxation of companies.#p#分頁標題#e#
Property protection in foreign jurisdictions: All nations assert the right to expropriate private property when the national welfare (‘the public purpose’) makes such a move desirable. The right of a sovereign government to expropriate is not in dispute but there are differences as to the adequacy and promptness in the payment of compensation, what compensation rules to follow, and how to settle disputes. Foreign investors often have the feeling that they will not get a fair
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hearing when matters are dealt with in foreign courts. For this reason several countries seek to establish bilateral agreements with others to give their investors a sense of security. An agreement between Australia and Hong Kong is of this type. It seeks to give added protection to Australian investments in Hong Kong.
International arbitration and dispute settlement
International business has been reluctant to rely on national courts for the settlement of disputes and the recent and growing trend is to use international arbitration. This involves the settlement of a dispute by an impartial referee selected and agreed upon by the parties concerned and according to a predetermined and/or agreed upon set of rules and procedures. It can, however, be a costly means of dispute settlement.
Mutually agreed upon arbitration clauses are often now included in investment guarantee treaties, economic development agreements, and other agreements between foreign investors and host governments. Such clauses may also be included in commercial agreements between firms from different countries.
Principal centres of international arbitration have developed in cities such as Geneva, London and New York, each with specialisation in particular areas of arbitration.#p#分頁標題#e#
Where one of the parties to a dispute is a nation state, the International Centre for Settlement of Investment Disputes (ICSID), established in 1966 under the auspices of the World Bank, offers arbitration and conciliation services. All major industrialised and many developing countries are members, but many Latin American countries are noticeably absent.
Infrastructure treaties and conventions
The international legal environment includes many areas of inter-governmental cooperation as well as conflict. Cooperation in the area of infrastructure provisioning helps promote international business and this is especially so in the areas of communication and transportation.
Specialised UN agencies that promote inter-governmental cooperation include:
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the International Civil Aviation Organisation;
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the International Telecommunications Union;
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the Universal Postal Union;
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the International Labour Office; and
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the World Health Organisation.
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New infrastructure agreements are likely to develop in the increasingly important area of environmental control and the use of deep seabed resources. Also, an issue of recent concern to international business relates to transborder data flows made possible by enhanced computer communications technology. Data protection laws are needed to restrict international data flows and new treaties are likely to be called for and developed.#p#分頁標題#e#
Doctrine of sovereign immunity
The doctrine of sovereign immunity means that the government in one state is not subject to the jurisdiction of the courts of another state against its will. This is a principle of international relations and is recognised by all legal systems. The absolute theory held that all government action was exempt from the jurisdiction of the courts of another country. The restrictive theory of sovereign immunity is more popular today and is followed in most countries. It holds that if a government department goes into the market place and buys goods as a commercial transaction it should be subject to the rules of the market place.
The business person when dealing with a foreign government should determine before entering the contract whether the defence of sovereign immunity will be raised. If a choice of forum clause is to be included in the contract, the law on sovereign immunity must be examined.
Sources of international law
Read
Reading 1: Law for global business
Reading 2: ‘The international legal environment’
Textbook: Mo, JS 2003, Regional trade organisations, Chapter 10
International law
The term international law usually refers to public international law, often called the law of nations. This is a system of laws which governs the relations between states. The relations between individuals (as opposed to states) internationally is referred to as private international law.
Is international law really law or mere morality? These questions arise because of the fact that there are no supranational bodies to make or enforce international law as there is in municipal (national) law. But international law is law, because it is accepted as such. It is in the interest of states which are interdependent to agree to rules of international law. It is argued that the absence of a legislature is a source#p#分頁標題#e#
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of strength for international law: states create the law for themselves cooperatively; it is less likely that there will be a concentration of power in the hands of a few.
International law is largely based on custom. Whenever nations have come into contact with one another, they have felt the need for some sort of international order to govern their relations.
Modern international law began to develop at the same time as the modern system of states in the sixteenth and seventeenth centuries. It has expanded greatly and changed since the period of decolonisation and even more so since the fairly recent increase in international trade.
Article 38(1) of the Statute of the International Court of Justice provides:
The court, whose function is to decide in accordance with international law such disputes as are submitted to it, shall apply:
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international conventions, whether general or particular, establishing rules expressly recognised by the contesting states;
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international custom, as evidence of a general practice accepted as law;#p#分頁標題#e#
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the general principles of law recognised by civilised nations; and
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judicial decisions and the teachings of the most highly qualified publicists of the various nations, a subsidiary means for the determination of rules of law.
This provision is usually accepted as constituting a list of the sources of international law.
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‘International conventions’ Convention means treaty. Treaties are of growing importance in international law generally and in international trade and business. A treaty applies only between the parties to it.
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Custom The second source of international law listed in the Statute of the International Court of Justice is ‘international custom, as evidence of a general practice accepted as law’. Customary law is found in the actual practice of states. This can be seen in newspaper reports, and other writings, statements made by government spokespeople internally and internationally as well as in a nation’s laws and judicial decisions. Evidence of customary law may sometimes be found in the writings of international lawyers and in judgements of national and international tribunals.
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Codification of customary law
Customary law may be codified into international conventions, the work for which is done by international bodies representing numerous nation states.
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General principles of law The third source mentioned above is ‘the general principles of law recognised by civilised nations’. New areas of international law may be filled by using principles which are common to all or most national systems of law. Although specific rules of law may vary between countries the basic principles are often similar.
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Judicial decisions Articles 38(1)(d) of the Statute of the International Court of Justice directs the Court to apply ‘judicial decisions… as subsidiary means for the determination of rules of law’. This direction is made ‘subject to the provisions of Article 59’ which state that ‘the decision of the Court has no binding force except between the parties and in respect of that particular case’. International courts are not obliged to follow previous decisions, although they almost always take previous decisions into account. We have already said above that judicial and arbitral decisions can be evidence of customary law. (There is little difference between judicial settlement and arbitration in international law). The International Court of Justice is important in creating new law and has produced innovations into international law which have subsequently won general acceptance.#p#分頁標題#e#
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Domestic law Another important source of international law is the domestic laws of each country that regulate certain areas of international business activity such as import and export control, foreign investment, repatriation of capital and taxation. In addition international treaties and conventions are required to be adopted and ratified by domestic legislation.#p#分頁標題#e#
International treaties and organisations
International treaties and organisations play an important role in the development of international business. International treaties and organisations are closely linked. International organisations are based on international treaties and conversely international treaties require a mechanism such as an organisation to implement the treaty or convention.
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Managers involved in international business need to be aware of the existence and functions of a number of supranational organisations and institutions that can have a considerable impact on shaping and moulding the international business environment. These institutions affect the degree of risk that is associated with international commerce and the returns that a firm engaged in international commerce can earn from its efforts.
Some international organisations or treaties concerning trade and commerce are presented below. These extracts are from Mo, JS 1997, International commercial law, Butterworths, Sydney, pp. 34-55.
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Asian-Pacific Economic Cooperation (APEC) Australia initiated the idea of establishing regional economic cooperation in the Asia-Pacific region. Based on the governmental discussions between the interested countries, it appears that the cooperation, will be carried out at a low level under which the contracting parties will not undertake substantial obligations to coordinate their tariffs and customs policies. Given the diversity of the political, economic and cultural interests of the countries in the Asia-Pacific region, it is less likely that APEC will become a regional customs union. The idea is yet to be developed by the countries which are interested in a sort of forum to improve economic cooperation between them.
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Association of South East Asian Nations (ASEAN)
ASEAN was established in 1967. Its Secretariat is located in Jakarta. Its members are Indonesia, Malaysia, Singapore, the Philippines, Thailand, Brunei, Vietnam, Cambodia, Laos and Mayanmar. The ASEAN countries adopt low tariffs on the products sold between the members, and may move to a non-tariff arrangement in the future. The members also cooperate in a range of economic issues which are of interest to them. ASEAN has become a distinctive economic force in the Southeast Asian region.
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The European Union (EU) or European Community (EC) The European Union is a customs union and a regional organisation whose members cooperate not only in the field of economic matters, but also in the field of certain social and political matters too. It was formally established as the European Economic Community (EEC) under the so-called Merger Treaty signed by several European countries in 1965 for the purpose of amalgamating the High Authority of the European Coal and Steel Community. The Commission of the European Economic Community (the treaty establishing the EEC was signed in 1957 and came into force in 1958) and the Commission of the European Atomic Energy Community. It was later renamed the European Community (EC) and eventually became the European Union (EU) in 1993. EU is a continuation of the economic cooperation between the European countries under the previous three communities, although the common market policy of the EU has set a new record for international cooperation between countries in the history of international trade and of international commercial law.#p#分頁標題#e#
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The EU, as an international (or supranational) body, has four functional organs. The European Council consists of the head of each member country. It meets three times a year and is the highest decision-making body of the EU. the European Commission consists of individuals appointed by each member country pursuant to the agreed quota. It is the executive organ of the EU. The European Assembly (Parliament) consists of individuals elected directly by people from each member country pursuant to the agreed quota. The first direct election took place in 1979. the EU parliament is a supervisory body. it can discuss the Commission’s reports and proposals. The members of the Commission are to some extent accountable to the parliament. But the parliament has no supervisory power over the European Council. the European Court of Justice (ECJ) was set up in 1958. Its functions are to interpret and implement the treaties on the Union and laws or regulations of the Union. The judges are appointed by the member states. The jurisdiction of the court is defined and limited by the treaties and laws or regulations (or directives) made by the Union. The present EU was established in 1993 under the Treaty of European Union (TEU or Maastricht Treaty) of 1992. The Maastricht Treaty was finally approved by all members of EC in 1993 and the Union came into existence in the same year. The Masstricht Treaty consolidates all the previous treaties and upgrades the cooperation among EU countries to a new level. For example, the power of the EU Parliament to regulate the EU market, education, consumer affairs, etc, is strengthened in the treaty; and the Court of Justice is given wider power to impose fines against a member country which fails to comply with the court’s judgements. Within the Union, a free movement of capital is guaranteed. The members agree to cooperate in a wide range of areas, such as education, culture, consumer protection, tourism and security matters. The EU has developed from a mere customs union a new form of regional cooperation, which can be compared with a loosely connected ‘federation’.
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The Food and Agriculture Organisation (FAO) The FAO was established in 1945 in Quebec as an independent and specialised agency of the UN. It is now situated in Rome. Its main function is to improve the production and distribution of agricultural products and food. As an international organisation, it provides assistance under the World Food Program to countries and regions which suffered from natural disasters.
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General Agreement on Tariffs and Trade (GATT) GATT was an international agreement on tariffs and trade, although it operated as if it were an international organisation on tariffs and trade before 1994. Following the conclusion of the GATT negotiations in the Uruguay Round in 1993, the World Trade Organisation (WTO) came into existence. Now GATT can be identified as GATT 1947 (referring to the original GATT) and GATT 1994 (referring to the GATT documents as amended in the Uruguay Round). But, it must be pointed out that as far as the fundamental principles of GATT are concerned, there is no substantial different between GATT 1947 and GATT 1994.#p#分頁標題#e#
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GATT 1947 was initially negotiated among a number of countries after the Second World War as part of a package for international trade, which also included an agreement on the establishment of an International Trade Organisation (ITO). The agreement on ITO, the Havana Charter, eventually failed. In 1947, a number of countries agreed that GATT should begin to operate provisionally pending the entry into force of ITO, GATT came into effect in 1948. It soon replaced the functions of ITO as a result of ITO’s failure, operating as both an agreement on tariffs and trade and a forum for international trade negotiations.
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The International Maritime Organisation (IMO)
The IMO came into existence in 1958 pursuant to the Convention on the International Maritime Organisation, adopted on 6 March 1948 in Geneva, to establish a specialised agency of the UN for shipping matters. The IMO is also known as the Intergovernmental Maritime Consultative Organisation (IMCO). It is a consultative and advisory forum where the members can discuss various shipping matters of their concern. The IMO has been involved in drafting codified rules for navigation and shipping, such as signals and distress systems, measuring of tonnage of ships, standardisation of containers and environmental protection. It is also involved in the development of new technology to improve navigation systems; for example, satellite systems to aid maritime navigation. Its headquarters are in London.
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The International Air Transport Association (IATA) The IATA was founded in 1945 in Havana under the agreement of the 1944 International Civil Aviation Conference in Chicago. The IATA replaced the International Air Traffic Association set up in 1919 in The Hague. It is a
non-governmental organisation consisting of major international airlines. Its main purpose is to coordinate cooperation between the airlines. It deals with many practical and technical issues, such as air navigation facilities, airport charges, rules of navigation, air fares, and fair competition between the airlines. The IATA recommends uniform fares (minimum rates) to its members. In a sense, the IATA is a self-regulated body in the international civil aviation industry. Its headquarters are in Geneva.
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The International Bank for Reconstruction and Development (IBRD) or World Bank The IBRD was established pursuant to the Bretton Woods Agreement of 1944. Its headquarters are in Washington DC. As its name suggests, it is an intergovernmental (as opposed to a non-governmental or unofficial) financial institution for providing financial assistance for the reconstruction and development of the member countries. Its membership is open to the IMF countries only. The bank has a special interest in the development projects of less-developed countries. It makes loans to these countries and may, if necessary, act as guarantor for private investments in them. The bank also provides technical assistance or advice to less-developed countries in the field of investment projects. As a financial institution, the#p#分頁標題#e#
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bank may with the consent of the country concerned sell or purchase the securities or bonds issues or guaranteed by it. The bank may also invest money in certain investment projects pursuant to its constitution. The IBRD is also known as the World Bank. It has two affiliates: the International Finance Corporation (IFC) and the International Development Association (IDA). The IRBD has a close connection with the International Centre for the Settlement of Investment Disputes (ICSID), which is an important international agency dealing with foreign investment disputes between a government member and a national of another member of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States. The Convention was drafted by the bank and came into force in 1966. The ICSID is an autonomous body, but financed and supported by the bank.
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The International Centre for Settlement of Investment Disputes (ICSID) The ICSID came into existence in 1966 under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States of 1965. It is an independent organisation for dealing with foreign investment disputes, although it is financed by the World Bank (or IBRD). The investment disputes dealt with by the ICSID must be between a national government, which is a contracting party to the Convention, and an individual (either legal or natural person) whose government is a contracting party to the Convention. The centre provides arbitration and conciliation services as the means of dispute settlement.
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The International Chamber of Commerce (ICC) The ICC was established in 1919 as a non-governmental organisation. Its main purposes are to facilitate international trade and commerce, serve the needs of the international business community (for example, in 1989 the ICC recommended the Uniform Rules of Conduct for Interchange of Trade Data by Teletransmission for the purpose of establishing the minimum standard for the use of electronic data interchange, known as EDI, in international commerce and trade), and promote the idea of an open market for goods and services and the free flow of capital.
The ICC is well known for its publications of international commercial and trade customs and usages. For example, Incoterms 2000 are commonly adopted in contracts for international sale of goods, and the UCP 500 is accepted by banks throughout the world. In addition, a great number of other ICC publications, which reflect the common international usages and practices in the areas concerned (such as ICC Uniform Rules for Contract Guarantees, ICC Uniform rules for Contract Bonds, ICC International Code of Sales Promotion, ICC Code on Sponsorship, ICC International Code of Practice on Direct Marketing, and ICC Rules of Conciliation and
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Arbitration), are also frequently used by the international business community. The publications provide a basis or guidance for parties to commercial transactions, as they represent the common commercial practices which the parties are likely to follow.#p#分頁標題#e#
The ICC has a number of sub-organisations, which play an active role in international trade and commerce. The most frequently used service provided by the sub-organisations is the ICC International Court of Arbitration. In addition, the ICC also has the International Bureau of Chamber of Commerce (IBCC), the Institute for International Business Law and Practice, World Industry Council for the Environment (WICE) and ICC Commercial Crime Services (consisting of Commercial Crime Bureau, International Maritime Bureau and Counterfeiting Intelligence Bureau). The ICC has contributed extensively to the development of international commercial law since 1919.
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The International Civil Aviation Organisation (ICAO) The ICAO came into existence in 1947 pursuant to an international agreement signed in 1944 in Chicago. The Chicago Convention sets out international standards and recommended practices for international civil aviation. The ICAO was founded to implement this convention and to coordinate international cooperation in the area of civil aviation. One of its functions is to set out safety standards to ensure the safety and efficiency of international airlines. The member states have an obligation to follow the safety standards set by the organisation. The ICAO has been involved in developing uniform rules for civil aviation. For example, it drafted and revised the Warsaw Convention. The ICAO’s headquarters are in Montreal.
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The International Labour Organisation (ILO) The ILO was established in 1919 in Washington. It became a specialised agency of the UN with independent status after the Second World War. the organisation has representation from both the governments and labour forces to discuss issues that concern them. Its main function is to study world-wide labour-related issues by proposing draft international conventions in this area. A convention recommended or passed by the ILO may bind a state pursuant to the normal treaty process, which means it does not apply to a state unless the state has ratified it. But the conventions passed by the ILO do set out international standards on various labour-related issues and may indirectly affect the domestic law of a country whose government has not ratified the conventions. Its headquarters are in Geneva.
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The International Monetary Fund (IMF)
The UN Monetary and Financial Conference met in Bretton Woods, New Hampshire, United States, from 1 to 20 July 1944. The Bretton Woods Agreement announced the establishment of the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD). The IMF came into existence in 1945 and commenced its financial operation in 1947. The IMF makes temporary funds available to its
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members to enable them to maintain balance of payments and exchange rate stability. The IMF also promotes international cooperation between its members and encourages activities for conserving or increasing the resources of its members.#p#分頁標題#e#
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The International Trade Centre (ITC) The ITC is a governmental body operating under the joint auspices of GATT and UNCTAD. It initially came into existence in 1964 as an organisation supported by GATT and came under the joint auspices of GATT and UNCTAD in 1968. Its main function is to promote trade developments in developing countries. The centre provides advice and training to its members. It also provides necessary assistance to members for the purpose of promoting international trade.
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Organisation of Arab Petroleum Exporting Countries (OAPEC) OAPEC was established in the Second Arab Oil (or petroleum) Congress of 1968 (the first was held in 1959). It consists exclusively of Arab oil-exporting countries. Its founding members are Libya, Kuwait and Saudi Arabia. Its membership was later extended to include Algeria, Qatar, Abu Dhabi, Bahrain, Dubai, the United Arab emirates, Iraq, Egypt and Syria. The members of OAPEC are also members of the Arab League and OPEC. OAPEC is not only a forum in which the members can coordinate their policies, but also an organisation which manages a number of investment projects or companies invested in by its members.
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The Organisation of Petroleum Exporting Countries (OPEC) OPEC was established in 1960 pursuant to an agreement of the Conference of the Representatives of the Government of Iran, Kuwait, Iraq, Saudi Arabia and Venezuela, made in Baghdad in 1959. It presently consists of about thirteen oil exporting countries, including Algeria, Ecuador, Gabon, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela. Its main function is to coordinate the petroleum polices of its members. OPEC regulates quotas for production and coordinates the prices of the oil produced by its members.
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The United Nations (UN) The United Nations was established in 1945 under the Charter of the United Nations. It is the only forum where all the countries of the world can gather together to discuss matters that affect their interests. any independent country can be a member of the UN. But an ‘independent international entity’ can be excluded by the members of the UN for political or other legitimate reasons. For example, Northern Korea and Taiwan are not members of the UN, because it is arguable whether they are ‘independent countries’.
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The UN’s functions are performed through the General Assembly, the Security Council, the Economic and Social Council (ECOSOC) the Trusteeship Council, the International Court of Justice and the Secretariat. ECOSOC and the International Court of Justice have special significance to the development of international commercial law.
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United Nations Commission on International Trade Law (UNCITRAL) The United Nations Commission on International Trade Law was set up in 1966 by the General Assembly of the United Nations to deal with conflicts of national laws governing international trade. It was created as the core legal body within the UN system in the area of international trade law. The members of the commission are elected by the General Assembly periodically as representatives of various geographic regions and countries with the same interest. Much of the commission’s preparatory work is carried out by its Secretariat - the International Trade Law Branch of the United Nations Office of Legal Affairs - which consists of experienced ‘international lawyers’.#p#分頁標題#e#
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The United Nations Conference on Trade and Development (UNCTAD) UNCTAD is an agency of the UN with its Secretariat situated in Geneva, and its members are UN members. UNCTAD has a general conference of the members every three or four years. the Trade and Development Board of UNCTAD, supervises the operation of the organisation. UNCTAD has four major committees carrying out the main functions of the organisation. These are: the Committee on Commodities; the Committee on Manufacturers; the Committee on Invisibles and Trade Financing; and the Committee on Shipping. Since UNCTAD is an organisation of the UN, its contribution to the development of international trade and commerce concentrates on policy matters. The so-called New International Economic Order (NIEO) was initiated by the so-called Group 77 (G77), with similar views on the NIEO, within the forum of UNCTAD. Although it is mainly a forum for political discussions, a number of international agreements initiated by UNCTAD, such as the International Commodity Agreements, are an important part of international commercial law. UNCTAD’s functional committees, for example, the Committee on Shipping, have been active in developing rules affecting international trade and commerce.
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The World Intellectual Property Organisation (WIPO) WIPO was established under a convention signed in Stockholm in 1967, which entered into force in 1970. It became a specialised agency of the UN in 1974. Its main function is to provide effective universal protection to intellectual property. WIPO co-exists with two relevant unions: the Paris Union, which was established under the 1883 Paris Convention for Protection of Industrial Property; and the Berne Union, which was set up under the 1886 Berne Convention for Protection of Literacy and Artistic Works. WIPO is open to all countries, in particular those which are members of the unions.
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The World Trade Organisation (WTO) The WTO was established under the Agreement Establishing the Multilateral Trade Organisation of 1993. It is the most recent development of GATT in the Uruguay Round. A number of documents were passed by the members of GATT in the Uruguay Round to establish a new world trade system based on the WTO. The essential difference between the present WTO system and the old GATT is that the present system is built on the trade organisation WTO, but the old GATT system was based on a framework for negotiation. The WTO consists of the Ministerial Conference, the General Council, the Council for Trade in Goods, the Council for Trade in Services, the Council for Trade-Related Aspects of Intellectual Property Rights, various functional bodies, and the Secretariat. The WTO agreements came into force in January 1995.
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Reading 1: Law for global business
National legal systems and socio-cultural diversity
National legal systems
The regulatory framework for international business, rests on a very wide variety of national legal systems. International managers realise that it is unwise to go it alone on legal matters in unfamiliar systems and will usually call on specialised legal help. However, the international manager needs at least a general understanding of national legal systems.#p#分頁標題#e#
Legal systems throughout the world reflect the values of diverse cultures. Despite the diversity of laws and legal systems it is generally accepted that legal systems are grouped into families or models. There are three major legal systems in the world. They are the common law legal system, the civil law legal system and the theocratic system.
Common law
Based on tradition, precedent, and custom and usage. The courts have an important role in interpreting the law based on these characteristics. Decisions made by the court are based on preceding judgements rendered by earlier courts. Common law is practised in Great Britain and most of her former colonies, including Australia, New Zealand and the United States.
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Civil law
It refers to a system where the body of law, written in the form of statutes, is constructed and administered by judicial experts in government. A career civil servant replaces the role of judge to some extent. Such law is seldom modified or amended. Over 70 countries, including Germany, France and Japan, operate on a civil law basis.
The law in most Latin American counties is very similar due to the fact that those nations were colonised by the Spanish or the Portuguese. The legal systems of the European nations is based on civil law (or continental law), which has its origins in Roman law. The European imperial powers, which also include France, Holland, Germany and Belgium took the civil law system to those countries they colonised.
A basic difference between these two categories is that common law is based on the facts and how they are applied to the law. For example, in contract law a common law country tends to have very detailed contracts, but in a civil law country contracts tend to be shorter and less specific because many of the issues covered in a common law contract are included in the civil code.
Theocratic or religious law
This is based on religious precepts. An example is Muslim law which is followed to some extent in 27 countries. Islamic countries often have legal systems that are a blend of Islamic law or common or civil law systems.
Islamic doctrine holds that the legislator does not have the power to change the rules which form the core of Muslim law. However, in most Muslim countries the legal systems are based on a combination of religious law and civil law.
In many countries of the world it is the case that the legal system is composed of a number of different kinds/systems of laws, for example, in South Africa some areas are influenced by Dutch law, some by English and many by customary laws, for example, Zulu or Swazi. Religious laws may also play a part.
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It is also important to recognise that in some countries law plays a major role in the social fabric of the society and in upholding individual rights. This is the case in the United States where the legal system is referred to as a major provider of dispute resolution of personal, business and political differences. In western political systems in general there is a frequent appeal to the rule of law and rights of the individual. In other legal systems, law may not have such a major role or influence. In fact it may be downgraded and regarded as a last resort; something to be avoided as in China and Japan where good #p#分頁標題#e#留學生法律碩士dissertation定制citizenship dictates that disputes should be settled by compromise and through methods of conciliation and mediation, not by the techniques of fighting through an adversarial system in court. In these countries lawyers and litigation are abhorred and they prefer a conciliatory approach or mediation. It is hardly surprising that the USA has approximately one hundred times more lawyers per head of population than Japan.#p#分頁標題#e#
It is useful when trading internationally to identify the legal system of the person you are contracting with because once it is established that a principle exists, for example in English law, it is fairly safe to assume that it also exists in Australia, New Zealand, Canada, India, Hong Kong, Malaysia, the United States and so on. Case law will often be similar as will commercial legislation, for example, the law of partnership, companies, trusts, bankruptcy, property, bills of exchange and cheques.
Working within the legal system
Differences in the legal processes for solving legal problems are just as important as differences in the structures of legal systems. Sometimes the most advanced laws are inactive because an undeveloped judicial system cannot handle the litigation involved.
Domestic business must adapt to the legal system of the host country when doing business overseas.
Standard documentation used may need amending for use overseas. It is acceptable for the documentation to be in English, both because it is the language of international business and, in many cases, because it is easier to deal with the precise contractual issues in English than in some foreign languages.
It is important to find the middle path between producing a document that is so complex and obtuse that even a fluid English speaker would have difficulty in understanding and, for fear of insulting a potential partner, producing or accepting an extremely brief and imprecise document.
The traditional form of doing business in Asia on the basis of a handshake and oral agreement can be risky for a foreign partner. Lack of clarity in agreement can also produce disastrous results.
Experience shows that very few joint venture disputes end up before the courts or in arbitration. This is often partly an acceptance by the foreign investor that in many cases that the original arrangement was so vague that it is open to argument. There is usually a realisation that to fight a dispute in a foreign court is extremely expensive and uncertain.
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Socio-cultural diversity
Business entities operating in different host countries world-wide have to deal with a variety of political, business and technological situations. In addition they have to be aware of the socio-cultural differences that exist in the different countries in which they operate as each country has its own society and culture. Although society and culture do not appear to be part of a business situation, they are critical elements in influencing business activities, determining how business will be conducted, what goods will be produced and how and where they will be sold. For example, according to Ajami and Khambatta, the international firm selling contraceptives must be aware that it is dealing with family customs, religious beliefs, population policy and sexual restriction of different cultures.#p#分頁標題#e#
Society and cultural diversity influence many aspects of international business. Entities operating in foreign countries have to consider the socio-cultural differences, attitudes, beliefs, customs, feelings and opinions of the people in the local environment. While some cultural differences are pronounced and can be identified, others are relatively subtle, though equally important.#p#分頁標題#e#
Though socio-cultural differences do not form part of a business situations, they nevertheless play an important role in negotiations, and the establishment and operation of international business.
Some socio-cultural elements that influence business and the environment in which it operates are as follows:
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attitudes towards time;
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attitudes towards work and leisure;
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attitudes towards achievement;
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attitudes towards change;
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attitudes towards jobs;
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religion and commerce;
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aesthetics;
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material culture;
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literacy rate;
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education mix;
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groups - families and friends;
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gender;
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gift giving, bribery, and nepotism; and
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communication and language.
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The meaning of numbers, colours and other symbols in different cultures
White
Symbol of mourning or death in the Far East; happiness and purity in Australia, New Zealand and the United States.
Purple
Associated with death in many Latin American countries.
Blue
Connotation of femininity in Holland; masculinity in Sweden, United States.
Red
Unlucky or negative in Chad, Nigeria, Germany; positive in Denmark, Rumania, Argentina.
Yellow Flowers
Sign of death in Mexico, infidelity in France.
White Lillies
Suggestion of death in England.
Number 7
Unlucky in Ghana, Kenya, Singapore; lucky in Morocco, India, Czechoslovakia, Nicaragua, United States.
Triangle
Negative in Hong Kong, Korea, Taiwan; positive in Colombia.
Owl
Wisdom in United States; bad luck in India.
Deer
Speed, grace in United States; homosexuality in Brazil.
Examples of translations:
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Outside a Hong Kong tailor shop: ‘Ladies may have a fit upstairs’.
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In a Thailand dry cleaner’s store: ‘Drop your trousers here for best results’.
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Outside a French dress shop: ‘Dresses for street walking’.
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In a Greek tailor shop: ‘Order your suits here; because of a big rush we will execute customers in a strict rotation’.
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A Hong Kong advertisement: ‘Teeth extracted by the latest Methodists’.
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An Italian laundry: ‘Ladies, leave your clothes here and spend the afternoon having a good time’.#p#分頁標題#e#
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A Czechoslovak tourist agency: ‘Take one of our horse-driven city tours - we guarantee no miscarriages’.
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Advertisement for donkey rides: ‘Would you like to ride on your own ass’.
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In a Romanian hotel lobby: ‘The lift is being fixed for the next day; during this time we regret that you will be unbearable’.#p#分頁標題#e#
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In a French hotel: ‘Please leave your values at the front desk’.
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In a Greek hotel: ‘Visitors are expected to complain at the office between the hours of 9 and 11am daily’.
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In a Yugoslav hotel: ‘The flattening of underwear with pleasure is the job of the chambermaid’.
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In a Japanese hotel: ‘You are invited to take advantage of the chambermaid’.
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On the menu of a Swiss mountain inn restaurant: ‘Our wines leave you nothing to hope for’ and ‘Special today - no ice cream’.
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In the window of a Swedish furrier: ‘Fur coats made for ladies from their own skin’.
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A Danish airline: ‘We take your bags and send them in all directions’.
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A Norwegian cocktail lounge: ‘Ladies are requested not to have children in the bar’.
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At the office of an Italian physician: ‘Specialist in women and other diseases’.
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A Mexican hotel: ‘The manager has personally passed all the water served here’.
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A Japanese hotel air conditioner: ‘Cools and Heats: If you want just condition of warm in your room, please control yourself’.
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Detour sign in Japan: ‘Stop! Drive sideways’.
Source: Lederer, 1987, Miscellaneous newspapers.
Environmental and legal constraints and cooperation
Environmental legal constraints
Foreign trade and investment is more complex than conducting business in a domestic environment. There are many environmental constraints in international business. These will vary according to the laws and legal processes in the country of operation, the type of business activity undertaken, the host country’s political and economic stability and the socio-cultural diversity in business ethics and practices. In addition the business vehicle used for overseas trading, and the nationality of the entity is of importance as on this may depend the entitlement to tax and other benefits and also the limitations and restrictions placed on trading operations.
The environmental legal constraints include the following:
Taxation (both in the host and home countries)
Taxation is always a concern to persons doing business either domestically or internationally. In international trade, knowledge of whether there are double taxation agreements between the two countries is of paramount importance. Moreover there are taxation differences depending on whether the investor is doing business with or in a foreign jurisdiction. The incidence of taxation will also differ depending on the business vehicle used, i.e. company (and this may vary depending on whether the corporation is a branch, part of a company which is incorporated in the home country, or a subsidiary, partnership or otherwise.#p#分頁標題#e#
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Exchange control
Approval will usually be necessary where the foreign investor transfers money out of his/her own country into a recipient country. Where the investor borrows in the recipient country, he/she may also be required to obtain approval in that country. There also may be restrictions on the repatriation of dividends, and capital on a winding up.
Restrictions on participation of foreigners in local enterprises
Is the foreigner precluded from investing in certain areas, is the size or form of investment restricted? There may be a maximum percentage of shares which a foreigner can hold in a company that operates in a strategic industry. Or the foreigner may be granted permission to invest only upon certain conditions being met, as to the nature or duration of the investment. The investor may only be permitted to invest in a venture in cooperation with a local enterprise.
Customs, tariff and anti-dumping regulations
In an international sale, the customs duties payable upon importation and any other tariff and anti-dumping regulations or restrictions are important to consider.
Non-tariff barriers
Non-tariff barriers impede the flow of goods into a country by increasing the administrative difficulties involved in supplying goods to a country. Non tariff barriers include discrimination against foreign suppliers, stipulation that goods are required to contain a certain percentage of domestic content, establishing minimum sale prices for imported goods, rigorous customs entry procedures and excessively severe inspection and quality standards.
Risks
International transactions operate in a relatively uncertain environment and face the risks of fluctuating prices and exchange rates, transport risks, political risks, changes in laws and regulations, and the risk of not being paid. These risks result in a greater possibility of conflict and dispute than trading in a domestic environment.
Protection of intellectual property
Different countries have different requirements and procedures for the proper registration and protection of intellectual property. To protect intellectual property rights, the international firm must register their property in every country in which it is to be used. Apart from the expenditure involved the international firm must take care to comply with the different requirements in each country.
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Local labour laws
Local labour laws stipulate minimum wages, types of fringe benefits, standards for working conditions and the timing and duration of holidays and vacations. In addition, in some countries, management is considered fully liable for worker safety, and criminal prosecution for worker injury or deaths suffered in the course of employment.
Diversity in national legal systems
The difference between the laws applying to international sales in different countries are a barrier to international trade due to the reluctance of traders to deal with a foreign or an unfamiliar legal system. Equally crucial can be national differences in the legal processes for resolving legal problems.#p#分頁標題#e#
Diversity in socio-cultural business ethics and practices
Though society and culture do not form part of business situations, socio-cultural diversity affects many aspects of international business. The international trader must recognise and be conscious of the socio-cultural mores, attitudes, beliefs, religion, customs, feelings and opinions of the people in the foreign environment in which they operate.
Foreign corrupt business practices
Corrupt business practices such as bribes, gifts, payments to foreign officials, political parties or political candidates to facilitate international business are necessary in some foreign countries with different cultural practices and values. In some countries gifts are not expected or encouraged and when given must be appropriate.
Countries such as the UK, France, Germany and Japan consider bribes and gifts as a legitimate cost of doing business. But for instance the Foreign Corrupt Practices Act in the US make such payments illegal. Thus British, German, French and Japanese firms have a competitive advantage over countries where such payments are illegal.
Communication, language and translation problems
A source of legal difficulty in international business is the problem of communication and language translation. The problem arises in the course of business negotiations, drafting contracts, the preparation of corporate documents and the settlement of disputes. The translation of legal language involves a translation of concepts rather than a mere matching of words.
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Nationality of corporation
The nationality of a corporation is important as it has the potential of affecting business operations such as tax liabilities or government sponsored incentives or tax breaks, as well as the degree of liability of its directors and shareholders. It is thus necessary for multi-national companies to consider the form of organisation it wishes to adopt in a foreign country. In international business there is no such entity as an international corporation. The nationality of each corporation does not depend on its own choice or determination but upon the laws of the country of operation.
The business vehicle
If a decision is made to engage in international business, notwithstanding the aforesaid legal environmental constraints, consideration must be given to the form of business organisation the venture will take. There are many vehicles for carrying on trade and business, all of which have different legal ramifications. They include sole trader, partnership, company (either a branch office, a foreign company, or a subsidiary company) agency, distributorship, joint venture, licensing and franchising.
Each has advantages and disadvantages; registration or flotation requirements may differ. There may be no registration requirements for a trader who exports or for a licensee acting under a licence or for a joint venture. Taxation laws may differ depending on the vehicle used. Winding up will differ. For a company there will usually be complicated liquidation proceedings; where there are agency or licensing agreements there may be damages payable for loss of future profits.#p#分頁標題#e#
The type of business structure may also be important depending upon what business activities are to be undertaken in the host country. For example, a wholly owned subsidiary will often be prohibited from extracting or refining raw materials. However a joint venture or partnership with a local business or a government enterprise may be permitted to engage in such activities.
According to O’Keefe & Tedeschi 1980, The law of international business in Australia, a distinction can be drawn between doing business in and with a foreign country. When a trader does business with a foreign country that person has no legal presence in the foreign country. He or she deals from afar with another trader in the country and is not subject to environmental legal constraints operating in a foreign jurisdiction. When a trader does business in a foreign country he or she has a presence in the country, which is recognised by the law of that country. Such a presence gives to the foreign country jurisdiction to attach legal obligations to that trader.
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Environmental legal cooperation
The international legal environment also has many areas of inter-governmental cooperation for promotion and liberalisation of international trade and commerce.
These include the following.
The harmonisation of laws
International conventions such as, the Vienna International Sales Convention relating to the international sale of goods, the Hague-Visby rules relating to bills of lading and the Warsaw Convention relating to air transport are aimed at promoting the development of international trade by contributing to the removal of legal barriers to trade. They provide uniform standards of conduct acceptable to traders with diverse social, economic and legal systems. By providing a uniform set of rules international conventions minimise the differences between the laws in different countries by removing the barriers to trade created by the unfamiliarity of traders with each others laws.
Standardised forms and practices
International trade is based chiefly on standardised forms and practices. Sales memoranda, broker’s notes, bills of lading, charterparties, marine insurance policies, letters of credit and incoterms contain standardised rules governing parties in international trade. For instance Incoterms 2000 published by the International Chamber of Commerce is a collection of a number of commonly used trade terms in international trade. By providing for a uniform interpretation of essential trade terms it removes uncertainties, misunderstanding and potential disputes that can result by different interpretations and meanings given to trade terms such as Free on board (FOB) or cost insurance freight (CIF) in different countries.
Infrastructure agreements and institutions
A number of UN specialised agencies such as the International Civil Aviation Organisation, the International Telecommunications Union, the International Labour Organisation and the World Health Organisation perform important services to facilitate international business transactions. For instance, the World Health Organisation performs various functions relating to the standardisation of drugs, and quarantine measures.#p#分頁標題#e#
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Commercial trade agreements and treaties
Through bilateral and multilateral trade agreements and treaties relating to double taxation, investment guarantee agreements, agreements for the registration and protection of intellectual property and treaties of friendship, navigation and commerce, governments seek to enlarge opportunities for their nationals to trade, invest or establish and operate a business in a foreign country on a non-discriminatory basis.
Trade liberalisation agreements
International and Regional Trade Organisations and forums such as the GATT, WTO, EU, NAFTA, ASEAN and the APEC promote international trade in goods and services through trade liberalisation, and fostering and strengthening economic and commercial relationships among its members.
Judicial dispute resolution
International and regional dispute resolution mechanisms such as the Court of Justice established under the Treaty of Rome and the International Court of Justice in Hague established under the auspices of the UN play an important role in the judicial settlement of disputes among member states.
Conciliation and arbitration
There is a growing trend in international business to resort to arbitration as a means of dispute settlement in preference to judicial dispute settlement procedures. This among other reasons, is due to uncertainty about the applicable law, the country in which the dispute may be heard and the difficulties involved in the enforcement of foreign judgements by domestic courts.
An international institution that offers arbitration and conciliation services where one party is a state is the International Centre for the Settlement of Investment Disputes. Similarly, the dispute settlement body established under the WTO provides the means and procedures for the settlement of certain disputes between member states.
Institutional centres for the settlement of international trade disputes through arbitration are located in Geneva, London, New York and Paris. London for example is the world centre for international arbitration on maritime insurance and commodity matters. The Stockholm Arbitration Institute handles much of the arbitration dealing with east-west trade. In non-specialised cases the International Chamber of Commerce in Paris is one of the main institutions. The enforcement of arbitral awards in national courts is facilitated by the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards.
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Self-assessment activities
1.
Is there a single body of international law that governs international business?
2.
Discuss the sources of international business law.
3.
Evaluate the impact of national legal systems on international business.
4.
a. How do international treaties and international organisations promote the conduct of international business?
b. How effective are international treaties?
5.
Discuss factors that facilitate international business.#p#分頁標題#e#
6.
Discuss the following:
a. the factors that are constraints to international trade and commerce; and
b. the methods government use to protect their domestic business environment.
7.
What is the doctrine of sovereign immunity?
8.
Discuss the part bribery plays in generating international business. Is this practice regulated?
9.
Discuss the importance of recognising socio-cultural factors in conducting international business?
10.
Evaluate the impact of the internet on international business.
References
Ardagh, A & Brien, C 1977, Law of International Business, Study Guide, LAW502, Charles Sturt University, Bathurst.
Griggs, L, Clarke, Streeter, J & Iredale, I 2003, Managers and the law, Law Book Co., Sydney.
Khambata, D & Kajami, R 1992, International business, theory and practice, Mcmillan Publishing Company, New York.
Mo, J 2003, International commercial law, 3rd edn, Butterworth, Sydney.
Robock, S & Simmonds, K 1989, ‘The international legal environment’, in International business and multinational enterprises, Irwin, Homwood.
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Study Guide
Topic 2 Business relationships for entry into foreign markets
Topic structure
The topic Business relationships for entry into foreign markets include the following content:
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sole trader;
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partnership;
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joint venture;
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company;
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agency;
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distributorship;
•
tender; and
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franchising.
Learning outcomes
At the completion of this topic you should be able to:
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analyse the different kinds of business relationships, such as agency, distribution, joint ventures, franchising and licensing, that may be formed for transacting international business;
•
recognise the essential features of a company, which distinguishes it from other forms of business organisations such as sole traders and partnerships;
•
outline the importance of choosing the form of business organisation most appropriate to transacting international business; and
•
compare the contractual provisions in agency, distribution, franchising and licensing agreements.
Required reading
There are no required additional required readings for this topic.
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Business relationships for entry into foreign markets
Introduction
A producer of goods and services wishing to market his or her goods in a foreign market has to choose the most appropriate form of business organisation to be established in his or her home country, and also in the foreign territory.
A trader may choose to export a product directly to customers in a foreign country. This can be done by appointing an agent to sell the product, or alternatively sell the product to a distributor. These methods involve transportation costs. To reduce or eliminate these costs a trader may decide to manufacture the product in a foreign country by setting up a business in a foreign country or by creating a foreign subsidiary or a joint venture. Although production costs may be cheaper in a foreign country there is a high initial cost of setting up a business and the risk of product failure. To avoid these costs and risks a producer may alternatively give permission to a foreign resident to manufacture and sell the product under a licence or franchise agreement.#p#分頁標題#e#
The considerations for the choice of business relationships for entry into foreign markets may include the following:
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a business entity’s underlying strategic business objectives and financial resources;
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taxation laws and incentives in both the host and home country;
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exchange control restrictions for the transfer of money out of home country and the repatriation of dividends and capital from foreign investment;
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customs, tariffs, anti-dumping regulations and quarantine restrictions;
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local labour and industrial laws;
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restrictions on participation of foreigners in local enterprises, but permitted in joint ventures or partnerships with local participation;
•
familiarity with marketing and business networks;
•
availability of local technical support, personnel, raw materials and other resources;
•
volume of anticipated business and competition;
•
potential for the exploitation of licensing of intellectual property, and franchising;
•
the authority of an agent to contract on the principal’s behalf;
•
laws relating to the formation or flotation of a business entity and its dissolution; and
•
the local political, legal, business, fiscal and socio-cultural environment.
The choice of business relationships will ultimately depend on a balancing of ‘costs, control and risk’.
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Forms of business organisation
Thus there are many business structures to choose from. Each of them have different legal ramifications, advantages and disadvantages. The forms of business organisations or relationships include:
•
sole trader;
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partnership;
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company (either a branch office or a foreign company or a subsidiary company);
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agency;
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distributorship;
•
joint venture;
•
tender;
•
franchising; and
•
licensing.
Each has advantages and disadvantages; registration or flotation requirements may differ. There may be no registration requirements for a trader exporting or for a licensee acting under a licence or a joint venture. Taxation laws may differ depending on the vehicle used. Winding up will differ. For a company there will usually be complicated liquidation proceedings; where there are agency or licensing agreements there may be damages payable for loss of future profits.
The type of business structure may also be important depending upon what business activities are to be undertaken in the host country. For example, a wholly owned subsidiary will often be prohibited from extracting or refining raw materials. However a joint venture or partnership with a local business or a government enterprise may be permitted to engage in such activities.#p#分頁標題#e#
Sole trader
Who is a sole trader?
A sole trader or a sole proprietor is an individual who carries on a business in his or her own name. The individual has to provide all capital and has total control of the business. The individual sole trader is entitled to all profits from the business, but must also bear all risks and liabilities arising from conduct of the business. As a sole trader is not a separate legal entity the income of the business and the personal income of the trader are also the same.
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Establishment
The establishment of the business is relatively simple and inexpensive. A sole trader may carry on a business under his or her own name. If a person wishes to carry on a business under a name other than his own, the name must be registered as a business name under the relevant Business Names Act.
Disadvantage
The sole trader is responsible for the provision of all capital and must bear unlimited liability for business losses. This structure is most appropriate for small domestic business operations. Its shortcomings restrict its value as a form of business organisation intending to operate on an international scale.
Partnership
What is a partnership?
If a business is beyond the capacity of a single person, some other form of business organisation must be considered. Partnership is a common form of business association combining the resources and experience of more than one person.
In Australia, partnerships are regulated by case law, and largely uniform, Partnership Acts in the various states and territories. A partnership is defined as an association which subsists between two or more persons carrying on a business in common with a view to profit.
Formation of partnership
There is no formal documentation required for the formation of a partnership, unlike in the case of a limited company. A partnership may be created by agreement which may be either written or verbal or may be inferred by the conduct adopted or agreed upon by all the partners. However, it is the general practice to have some form of written agreement between the parties setting out their rights, duties and responsibilities. The written agreement is referred to as the partnership deed, the partnership agreement or the articles of partnership. Some useful provisions to be covered in a partnership agreement include, the names of the partners and the firm name, the term, if any, of the partnership, the capital to be contributed by each partner, the authority of the partners and provision as to division of profits and losses.
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Maximum number
A shortcoming of partnership as a business vehicle for overseas operations is the limitation as to the maximum number of persons who may constitute a partnership and thus limit its ability to raise capital. 澳洲dissertation網The Australian Corporations Law limits the maximum number of persons allowed to form a partnership for the acquisition of gain to twenty persons, with the exception of partnerships formed to carry on certain professions such as accountants (1000 members) and legal practitioners (400 members) architects, chemists and veterinary surgeons (100 members) and stockbrokers (50 members).#p#分頁標題#e#
Unincorporated association (not a separate legal entity)
Another significant disadvantage is that a partnership, like a sole trader, is not a legal entity separate from its members. The individual partners own the assets and incur personally the obligations and liabilities relating to the partnership business. This means that if, for example, a partner borrows money for the partnership business each partner would be personally liable for the full amount of the debt. The position of a partner may be even worse than a sole proprietor as each partner would be liable for the misconduct and incompetence of the others, as each partner is an agent of each other with respect to the conduct of the partnership business.
Transfer of assets
The absence of a separate legal identity, also complicates property ownership aspects of the enterprise. The individual partners must own the assets and when the identity of a partnership changes by the resignation of a partner and a new