Research and advise on the principles of partnerships, trusts and company law
To: Oliver and Emma
From: Beanstalk business consultancy firm
Subject: Legal advice
The issue is to determine the nature and characteristics, and advantages and disadvantages of partnership, trust and company available to Oliver and Emma.
Partnership is a form of business where at least two people comes together to carry out the same business together. There are two types of partnership – general and limited.
Partnership is simple and not very costly to set up. It involves at least two person to carry a partnership while the limit is up to 100. The partners in a partnership have an unlimited liability. The partners are collectively as well as individually liable for the firm’s obligation and debt. The partners would be liable to share the profit and the loss derived from the partnership firm, as per the agreed ratio. In a partnership firm, every partner is a principal and an agent as well. The partners are bound with each other as well as with the firm. A partnership is based on a contractual relation, oral, written or may be implied. A partnership would end in case of bankruptcy, insanity or death of the partners. Registering the partnership firm is not mandatory. However, it must be registered for GST if its annual turnover is $75,000 or above.
It is easy to establish a partnership firm and easy to change the business structure if necessary. It has a greater capacity to borrow. High-calibre employees are often given the opportunity to become partners. The business affairs of the partners can be kept private. It involves very limited external regulation. Partnership firms have a better opportunity to split the profit as per individual contribution.
The partners’ liability to debt is unlimited. The personal properties of the partners get affected when the firm fails to pay its own debt. The principle of joint liability makes a partner liable for the act or omission of other partner as well. A partner would be liable for the debt incurred by another partner. It becomes a costly to determine and divide assets of the firm whenever a partner joins or leaves the firm.
A trust imposes an obligation on a person to hold an asset or a property for the benefit of another. The person holding the property is called the trustee and for whom the property is held is called the beneficiary. A trustee is the one who runs the business of the trust and gives the income to the beneficiary by following the provisions laid down in the trust deed. A trust is usually considered when more than one family is involved to run the business.
It is expensive to set up a trust. A formal trust deed is required that gives the idea about the operation of the trust. The trustee is required to undertake administrative tasks yearly. A trustee is held to be legally responsible for the operations of the trust.
For a corporate trustee, the liability is limited. It is easier to maintain better privacy in trusts than in company. The distribution of the benefits or income to the beneficiaries differs as per the instruction of the trust deed. Trust income is taxed as the general income of an individual.
The structure of trust is complex and time-consuming to set up. It is expensive to establish and maintain a trust. Trusts often face complexities when it borrows due to the complex structure and formalities of loans. The trust deed restricts the power of the trustees.
Advise on the practical and legal features of the various types of corporate and non-corporate business structures, including advice on the risks and problems associated with particular structures
A company is that type of business structure, which has a separate legal entity unlike a partnership. In Australia, a company can be of two types: ‘proprietary limited’ companies, which cannot raise money from the public by issuing shares, and ‘public’ companies, which raises money by offering its shares for sell to the public. In Australia, the Corporations Act 2001 governs all types of company.
As per the Act, a company has a separate entity. It has a limited liability. It has a complex business structure. It involves higher cost to set up and run the company. The turnover of the company belongs to the company and not to its members or directors. A company needs to be registered with the Australian Securities and Investments Commission (ASIC). The Corporations Act 2001 governs it. A company must be registered for GST if the annual turnover is $75,000 or above.
The liability of the shareholders of the company is limited in nature. Transferring ownership is easy by way of selling of shares. Shareholders are often appointed by the company for serving various purposes of the company A company registered in Australia can carry out business anywhere within the boundaries of the country. Company is open to wider capital and human resource. Taxation is more favourable as company shall be liable to pay its own tax.
It is expensive to establish and maintain a company, and similarly it is involves various complexities to wind up a company. The financial affairs of a company is public. Therefore, there is no privacy in its affairs. It has a complex reporting system. Directors can be held personally liable for the debts of the company. The shareholders’ profit is taxable.
For the purpose of the given case, if Oliver and Emma opts for a partnership firm, then they would be collectively and individually liable for each other’s action. On the other hand, if they choose trust, then one of them have to carry out the role of trustee and the other would be a beneficiary. The trustee would have to pass the entire profit incurred from the business to the beneficiary, which is not suitable in this case, as both the parties have their own involvement in the business. Oliver plans to invest financially in the business, while Emma plans to contribute by investing her time fully. Therefore, there are equal contribution of the parties, which is not feasible in this case. While, a company structure would suit the case as the owners would have a limited liability towards it. Oliver, who has a history of 6 years of imprisonment for misappropriation of funds, may have an adverse effect on Emma who has a hefty personal debt. Even if the business fails to work out, the owners/director would not be held liable personally, and their personal property would not be affected. The characteristics, advantages and the disadvantages of partnership, trust and company is essential to be determined to choose a suitable business structure as per Oliver and Emma’s need.
Conclusion
Therefore, these are the nature and characteristics, and advantages and disadvantages of partnership, trust and company, which would be available to Oliver and Emma
Advise on and resolve problems and disputes arising out of partnerships, trusts, and corporations
To: Oliver and Emma
From: Beanstalk business consultancy firm
Subject: Legal advice
The issue is to determine the rights, duties, and liabilities associated with the various partnerships, trusts, and companies that are available to Oliver and Emma.
In a partnership, the partners have the following rights, duties and liabilities:
The partners have right to participate in the conduct of the business. The partners have a right to be consulted for taking a decision related to the partnership firm. They have a right to access the books of accounts for checking the income and expenditure of the firm. Right to enjoy the share of profit as per contribution to the capital or as agreed in the partnership contract. A Partner has the right to be indemnified for the expenses that are incurred in the ordinary course and in emergency of the business. He has the right to use the partnership property for the purpose of the business. A partner bears the power to take certain decisions alone in times of emergency when other partners are unavailable. A person would not be held liable for any actions of the partnership firm before joining it. A partner of the firm has the right to retire. He has the right not to be thrown out unreasonably. Unless there is a restrictive agreement, a partner who has left the firm cannot be restricted from investing and participating on a similar and competing business.
The partners in a partnership have an unlimited liability. The partners are collectively as well as individually liable for the firm’s obligation and debt. The principle of joint liability makes a partner liable for the act or omission of other partner as well. A partner would be liable for the debt incurred by another partner. The partners’ liability to debt is unlimited. The personal properties of the partners get affected when the firm fails to pay its debt. It requires separate Tax File Number (TFN). The partnership requires an Australian Business Number (ABN) which needs to be used for all business purposes. The partners are liable to pay personal income tax as the partnership firm is not required to pay an income tax on its name. The partners are supposed to arrange for their own superannuation fund, as they are not an employee of the partnership business.
In a trust, the trustees and the beneficiaries have the following rights, duties and liabilities:
The trustee has the right to reimburse for every cost and expenses that he makes for the trust property and the beneficiary. The beneficiaries would be equally or as agreed, liable to reimburse the trustee. A trustee can approach the beneficiaries personally for reimbursing the cost and the expenses. The trustee has the right to seek the help of a legal adviser and eventually a court for any dispute that might occur between him and the beneficiaries involving the trust property. A trustee has the right to seek relief in case of breach of trust agreement. The trustee has the right to claim compensation for the losses, which he might have incurred due to the breach of trust resulting from the beneficiary’s end.
Partnership
The beneficiary has the right to receive the benefits and the income incurred from the trust property. Beneficiary has the right to receive information as to the updates, progress, development, alteration and modification of the trust property. The beneficiary bears the right to have a detailed report of the income, expenditure and distribution of finances of the trust property. The beneficiary has the power and right to remove the trustee by filing a petition to the court. The beneficiary shall have the right and authority to dismiss the trust by filing a petition at the court, provided that all the other beneficiaries, if any agreed to it.
A trustee is supposed to not mix his personal property with the asset of the trust. He must maintain separate accounts and investment details. A trustee is not supposed to make use of the trust property for personal benefits. A trustee should not treat beneficiaries differently, unless expressly mentioned in the trust agreement. The trust asset must be invested in a wise manner, which would result in its growth without involving much risk. The trustee is under the obligation to maintain an accurate book of account, expenditure reports, tax return receipts, and other important documents significant for the trust.
The beneficiary must have the understanding of the trust and the trust property. The beneficiary is under an obligation to carry out his duties as per the instruction of the trust deed. The beneficiary has the liability to keep the trustee under check by reviewing his activities from time to time. The beneficiary may put limitation and restrictions upon the trustee when necessary. He must have the understanding about the management of the trust assets. He must have the basic knowledge about the accounting of the trust. The beneficiary must know about the principles on which the trustee administration works.
In a company, the shareholders have the following rights, duties and liabilities:
A shareholder has the right to attend the meetings of the company. He has the right to receive the annual report of the company, which would give an overview of the performance of the company in a given year. A shareholder is eligible to receive the dividends. He has the right to inspect the company’s minute books and register for securities. He has the right to bring charges against the company, which may include the directors as well.
While, the directors have the following rights:
- To enforce statutory laws and their provisions for carrying out the regular course of business
- To enforce the constitution of the company in case he sees a non-compliance
- To participate and give input in the decision of the board
- To hold his position until he retires or reasonably removed
- To receive remuneration, as agreed before joining the position.
Directors can be held personally liable for the debts and other losses of the company. A director’s obligation may continue even after the company has stopped trading or has wound up or has been deregistered. However, the members of a limited company, as shareholders, are not held liable for the debt of the company. The shareholders are only liable to pay the unpaid amount of the shares, if necessary and are called upon to do so. Nevertheless, members who are also directors have the obligations and liability under certain circumstances.
A director can be held personally liable for the debts incurred on insolvency, company’s loss due to the breach of director’s duties, debts incurred by acting as a trustee, by way of illegal activities, and other actions that might be taken as a director.
Trust
In the given case, if Oliver and Emma choose a partnership firm, then they should be ready to be held collectively and individually liable for each other’s activities. On the other hand, if they choose trust, then one of them have to carry out the role of trustee and the other would be a beneficiary. The trustee would have to pass the entire profit incurred from the business to the beneficiary, which is not suitable in this case, as both the parties have their own type of involvement in the business. Oliver plans to invest financially in the business, while Emma plans to contribute by investing her time fully. Therefore, there are equal contributions of the parties, which make a venture of trust not at all feasible in this case. While, a company structure would suit the case as the owners would have a limited liability towards it. Oliver, who has a history of 6 years of imprisonment for misappropriation of funds, may have an adverse effect on Emma who has a hefty personal debt, and vice versa. Even if the business fails to work out, the owners/director would not be held liable personally, and their personal property would not be affected. The rights, duties and liabilities of partnership, trust and company are hence essential and are required to be thoroughly examined to determine a suitable business structure as per Oliver and Emma’s requirement.
Conclusion
Therefore, these are the rights, duties, and liabilities associated with the various partnerships, trusts, and companies that are available to Oliver and Emma.
To: Oliver and Emma
From: Beanstalk business consultancy firm
Subject: Legal advice
The issue is to recommend, with reasons, the best business structure for Oliver and Emma.
A trust imposes an obligation on a person to hold an asset or a property for the benefit of another. The person holding the property is called the trustee and for whom the property is held is called the beneficiary. A trustee is the one who runs the business of the trust and gives the income to the beneficiary by following the provisions laid down in the trust deed. A trust is usually considered when more than one family is involved to run the business.
On the other hand, a company is that type of business structure, which has a separate legal entity unlike a partnership. In Australia, a company can be of two types: ‘proprietary limited’ companies, which cannot raise money from the public by issuing shares, and ‘public’ companies, which raises money by offering its shares for sell to the public. A company can be a trust which helps regarding estate-planning. The Corporations Act 2001 governs both proprietary and private companies in Australia.
A trust company acts as a successor trustee for the beneficiaries, in case there are no family members who could take financial responsibility of the beneficiaries. As per the directions of the grantor, on his death, the company would continue to act as the new trustee who would manage the assets and liabilities of the beneficiaries, as per the trust deed.
Oliver and Emma could form a proprietary company which would have all the characteristics and advantages of a private company, as laid down in the Corporations Act. The directors and the shareholders would bear the same rights and duties as discussed above. However, Oliver and Emma could assign the company as a trustee to look after their dependents on their behalf, in their absence.
For the given case, the best business structure would be forming a company where Emma would be assigned as the Director and Oliver would be a passive investor. And as for Oliver’s elderly mother and disabled child and Emma’s adult son, they would only be the beneficiaries of the trust company, who would only be liable to derive the benefits from the company and carry out their rights and duties of beneficiaries from time to time.
Conclusion
Therefore, to conclude, the best business structure would be forming a company where Emma would be assigned as the Director and Oliver would be a passive investor. While, the same company would set up as the trustee of Oliver and Emma’s dependant who would be able to reap the benefits of the trust (the company) as beneficiaries.
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Corporations Act 2001
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