Partnership Business Structure
Selection of an appropriate business structure is significant for parties unless they have to face several consequences while operating their business. In case the parties select a wrong business structure, then they can face issues relating to complaining about strict legal regulations, heavy fees, complex operations and others. Thus, it is important that parties evaluate key features of different legal structures in order to select the most suitable one for them. In this report, features of partnership and company will be analysed in order to identify their key characteristics.
The partnership business structure is selected by parties when they wanted to enter into a business with two or more parties. It is a common form of business because the partners have to comply with relatively fewer legal regulations while starting their business. The legal framework regarding operations of the business is simple as well since partners did not have to deal with legal complexities. The Partnership Act 1891 of Queensland provides provisions regarding a partnership; different locations in Australia have different partnership acts which are almost same. Minimum two partners are required to form a partnership, and up to 20 members can join the business. Each partner has unlimited liability in the business, and they can be held personally liable for its operations. The costs of formation are easier as well since partners did not have to pay heavy registration fees. Generally, partners equally divide profits and losses unless provided otherwise.
The elements of partnership are given under section 5 in which the definition of the partnership structure is given. Firstly, it is necessary that the business of partnership is being carried out by partners. The carrying out a business means repetition of the act because a single investment did not form a partnership between parties. In Checker Taxicab v Stone case, the court provided that the business is not carried out together by the parties based on which a partnership has not formed between them. Another element is that the partners must run the operations of the business ‘in common’ with each other. It means that they must perform different roles in the business; however, the involvement of each party in the decision making is not necessary. In Keith Spicer Ltd v Mansell case, the court provided that since all the parties were not involved in the process of running the business, they cannot be considered as partners. Finally, the purpose of the partnership business must be to generate profits for partners, and occurring of loss in the business did not end the partnership relationship.
Elements of Partnership
Incorporation of a company is another common form of business structure which is chosen by parties in Australia. Unlike a partnership, parties face legal complexities while starting their company, and they have to comply with provisions issued by the Corporations Act 2001 (Cth). The act also has issued various guidelines for parties while operating the business as a company. The liability of members is limited in partnership, and they cannot be held liable for its operations. In Salomon v Salomon & Co Ltd case, the court provided that a company has a separate legal personality from its owners. Based on this artificial personality, the corporation can form contract with third parties and enter into legal disputes with them under its own name. Since it is a legal person, its decisions are taken by its board of directors who are responsible for taking business regarding the success of the enterprise. The owners can easily transfer their ownership, and the company is not affected by their death.
Conclusively, there are different features of partnership and company structure which affects the way parties operate their business in either of these structures. By effectively evaluating these factors, the parties can select the suitable business structure for themselves which assist in sustaining their future growth.
Partnership and company have different features which are necessary to be analysed by parties before selecting either one of these structures. Based on these features, parties receive various advantages and disadvantages in their business. In this report, a recommendation will be given to our clients by evaluating pros and cons of partnership and company structure.
The key advantage of selecting a partnership structure is that its formation is relatively simple. While forming the business, parties did not have to comply with rigid or complex legal compliances. The process is inexpensive as well since parties did not have to incur any costs on registration fees. Moreover, operating a partnership is easy as well since partners are solely responsible for its operations, and they take all the decisions in the business based on mutual agreement. The profits and losses in the business are distributed equally between all partners unless otherwise provided in the partnership agreement.
The main issue with the partnership business structure is that it did not have a separate legal personality. Due to lack of legal entity, the business did not have a separate personality of its own due to which partners have unlimited liability in the business. Their personal assets are not secured as they can be used to pay off the debts of the partnership business. Furthermore, dissolution of partnership business is easy. Any disagreement between partners or death can result in dissolving the partnership business. All partners have a fiduciary duty towards each other based on which they act as the agent for one another. It means that all partners can be held liable for the wrong actions of one partner which is taken by him during the ordinary course of business.
Company Business Structure
Unlike partnership, a company has a legally separate entity which differentiates it from its members. Based on this entity, members cannot be held liable for the debts of the business, and they are only liable up to the amount invested by them in the company. Furthermore, decisions of a corporation are taken by its directors who generally have experience and expertise in different fields which result in positively affecting the business of the company. Owners have the ability to easily transfer their ownership to another party without asking for permission from other members. It also creates new sources for raising capital for the enterprise since it can issue its shares in the public to raise capital or borrow money under its own name. Due to the principle of perpetual succession, the corporation is not dissolved in case the ownership is changed or when members die.
Parties have to incur heavy costs on registration of the company and comply with a complex legal framework. Similarly, while managing the business on a regular basis, compliance with strict legal regulations is mandatory for a corporation. Its financial affairs are not private, and anyone can access them. Although the company has a separate personality, its directors can be held liable for its operations if they violate the duties imposed by the Corporations Act.
For our clients, partnership is a suitable business structure rather than a company. They will be able to avoid complex and strict legal regulations by forming a partnership business, and they will have to incur less capital for its registration. They can equally divide profits and losses of the business and manage its operations based on mutual agreement. While managing daily operations of the business, they have to comply with less legal compliance which will make the process simpler. The financial affairs of the business will be private as well. Therefore, selection of the partnership business structure is a suitable option for our clients.
Conclusively, different business structures have different characteristics which provide both advantages and disadvantages to parties. Before selecting a business structure, the parties should evaluate each attribute of the business and compare them with each other in order to find the most suitable business structure for themselves.
The board of directors have immense powers which enable them to take business decisions in the corporation and form its future strategies. They owe a fiduciary duty toward the company based on which they have to ensure that they focus on the interest of the corporation rather than their personal benefit. In this report, the case of ASIC v Adler (2002) 20 ACLC 576; 41 ACSR 72 will be evaluated in order to understand the importance of directors’ duties and how they influence the operations of the company.
Pros and Cons of Partnership and Company Structures
The ASIC v Adler is a relevant case to understand the importance of director duties. In this case, a loan of $10 million was given by HIH Casualty and General Insurance (HIHC) without keeping any security and Adler was involved in this decision. The money was given to Pacific Eagle Equity Pty Ltd (PEE) which used the money to invest in different ventures. Firstly, $4 million was invested by the company in Adler Corporation Limited which was managed by Adler himself. The shares were purchased at a loss by PEE. Secondly, $4 million was invested in HIH in order to support its shareholdings. Later those shares were sold at a loss of $2 million. Lastly, $2 million was given by the corporation as a loan to various parties in which Adler was involved as well. All these transactions were not properly documents to avoid legal consequences. Adler was found guilty of breaching his duties given under section 180,181,182 and 183 of the Corporations Act.
Care and diligence
Section 180 provides that it is the duty of directors that they should maintain a level of care and diligence while managing the operations of the business. While taking business decisions and discharging their duties, directors should ensure that they take reasonable care and diligence which any reasonable person would in such situation. They owe a fiduciary duty towards the company based on which they have to maintain such care and diligence. Adler did not maintain such care and diligence because he gave the company’s money in unsecured loan which no reasonable person would which result in causing harm to the organisation.
Good faith
Directors have to act in good faith of the company as given under section 181 of the Act. While discharging their duties and taking business decisions, directors should ensure that they prioritise the interest of the company above all. They should not focus on personal gain while forming future strategies for the organisation. The actions of Adler were not in good faith since he used the company’s capital to invest in dangerous ventures which result in causing harm to the company. The objective of Adler was to gain personal benefits based on which he breached his duties given under section 181.
Proper use of position
Directors have immense powers since they are responsible for managing all the operations of the corporation. Section 182 provides that they should not misuse their powers for personal gain or cause harm to the company. They should ensure that they are using their position for proper purposes and for the benefit of the company rather than gaining personal benefits by causing harm to the corporation. Adler did the opposite by using the company’s money for personal benefits which result in causing harm to the enterprise based on which he breached section 182.
Directors’ Duties in Companies
Proper use of information
Directors form the future strategies of an enterprise due to which they have access to its crucial and confidential information. Section 183 restricts the directors from misusing the information which they have for personal benefits or causing harm to the company. It is their duty that they should properly use the information rather than misusing its form personal benefits or causing harm to the company. Adler used the information for personal gains rather than benefit of the company. He misused the information which resulted in causing harm to the enterprise, thus, he breached section 183.
Conclusion
Conclusively, complying with duties is important for directors since it enables them to fulfil the objective of the corporation in an effective manner. Directors can also face legal consequences in case they breach these duties based on which they should avoid focusing on personal interest or causing harm to the company
Hello everyone. In this video, I will give legal advice to our clients in order to help them select a suitable business structure between partnership and company. It is important to understand the key features of each of these structures before making any decision. By comparing the advantages and disadvantages of both structures, we can reach a conclusion based on which the recommendation will be made. Firstly, we will discuss partnership structure. People prefer to operate their business in a partnership structure since it enables them to pool their resources together with other parties and join together their expertise. The process of forming the partnership is straightforward as well since parties did not have to comply with strict legal regulations. The cost incurred in the formation is low as well based on which parties can save their capital. Partners have unlimited liability in the business since it did not have a separate legal entity. Their personal assets and savings can be used by the court in case the business is unable to pay off its debts.
Operations of the business are managed by all the partners based on their mutual agreement. In case any conflict or disagreement arises between them, then it can result in dissolving the business. It can also be dissolved if any of the parties die. In case of a company, the members have limited liability, and they are not personally responsible for the operations of the business. The business has a separate legal personality based on which it can form contract with third parties and enter into legal disputes. During the incorporation of a company, the parties have to comply with a strict legal structure and various regulations which increase the complexity of the process. The cost incurred by the parties during the incorporation is high as well because they have to pay registration and other fees. While managing the operations of the business, parties have to comply with strict legal structure which imposed on the company. Breach of any regulations can lead to legal consequences.
All the clients belong to the same family, and they wanted to start a business in the real estate industry. They did not prefer the complex legal structure of trust due to which they wanted to change their business structure. It is my advice that the partnership business structure is more suitable for them than compared to a company structure. They will have to comply with fewer legal regulations while forming a partnership business structure and incurred fewer costs. During the daily operations, the overall legal compliance requirements are less in partnership structure as well which is suitable for the clients. On the other hand, they will have to comply with strict legal regulations while forming a company and managing it. Therefore, the clients should select a partnership business structure which is a suitable option for them and benefit them in the long run.
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
