Choosing the Right Business Structure for a Chess Club

This article discusses the advantages and disadvantages of different business structures for a chess club. It compares the partnership and company structures and recommends the adoption of a company structure for the club. The article also addresses various requirements and considerations such as membership, property ownership, liability, financing, and insurance.

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Title Page
Name of the student
Student ID

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Contents
Scenario 2....................................................................................................................................................3
Reference List.............................................................................................................................................9

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Scenario 2
In the present scenario, few chess enthusiast started a chess club near Melbourne. The place is
now seeking new resident’s especially older people. Many new people are also interested in the
chess club. The club has 20-30 members currently and they are expecting more people to join. At
this point of time, the chess enthusiast is seeking advice on which business structure to be
selected so that they can able to achieve their requirements.
Generally, In Australia, the three prime business structures that prevails are sole ridership,
partnership and the company.
A sole trader ship is a one man business which is owned and controlled by a single person.
(Tomasic, et, al., 2022)
It is advised that since the club already has 20-30 members and are also expecting more, then,
the sole trade ship is not the right choice to operate as a business structure.
Another business structure that is generally attained by the business persons is the formation of a
partnership. A partnership is the business structure wherein two or more than two persons join
together with the aim of carrying on business and to earn profits which are to be shared mutually
(Re Ruddock (1879) and Re Megevand; Ex parte Delhasse (1877-1878). (Latimer, 2012)
When any partnership is formulated then there are several advantages that can be associated with
the same which includes: (Gibson and Fraser, 23)
i. It is not expensive to register a partnership form of business structure.
ii. It is easy to acquire experience, skills and knowledge without making the person’s
the owners of the business;
iii. Several tax advantages are associated with partnership;
iv. Confidentiality can be maintained as the persons who formulate the business
structures are the partners of the structure;
However, there are few disadvantages that can also be analyzed which include:
i. That since all the partners are the decision make in the business thus there are full
chances that the partners might have a conflicting situation and the working of the
business might get hampered;
ii. All the partners are liable for the losses and the liability is unlimited.
iii. The partners has to share the profits and thus conflicts might incur;

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iv. Any incoming or outdoing of partners result in the dissolution of the partnership
business;
Yet another form of business that can be established is in the form of a company. A company is
an entity which acquires the status of a separate legal entity upon registration. Separate legal
entity signifies that the acts of the company are carried out in its own name. The directors and
the officers of the company are carrying on the actions on company behalf and cannot be held
liable for the same (Salomon v A Salomon & Co Ltd [1896]). (Bottomley, et.al, 2017)
When any company is formulated then there are several advantages that can be associated with
the same which includes: (Pollard, 2011)
i. A company can be formed by a single person. A company after registration is in itself
a separate legal entity in law;
ii. The shareholders are the owners of the company, however, the company is generally
run by the directors of the company and thus there are less chances that there is a
conflict amid the owners of the company with respect to the decision making power
of the company;
iii. A company has a separate legal existence in law and thus the acts which are
undertaken by the directors of the company are carried out in the name of the
company and the directors are not held personally liable for the same (Lee v Lee's Air
Farming Ltd [1960]);
iv. A company does not dissolve with the coming and going of the directors as a
company has perpetual succession and thus never dies;
v. The liability of the shareholders is limited in nature;
vi. There are tax gains and the company can raise finance easily;
However, there are few disadvantages that can also be analyzed which include:
i. The cost of formulation of a company is expensive in nature;
ii. It is not easy to raise finance and cost of rising is high;
iii. When the company is wound up then it is an expensive process;
iv. The company is required to keep records and which is expansive in nature.

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Thus, after analyzing the advantages and disadvantages of both the partnership form of business
structure and the company form of business structure, it is now important to understand as to
which business structure will be most suitable for the chess enthusiast people.
The various requirement of the club are analyzed herein under and are compared with the
partnership and company form of business structures.
I. The foremost requirements of the club were that the club already has 20-30 members
currently and they are expecting more people to join.
It is submitted that if partnership form of business structure is considered then it will
not be an appropriate form of business structure and the maximum limit that is
available to form a partnership form of business is from 2-20 persons, unless, there
are exceptions.
Thus, it is advisable that a company form of business structure should be adopted as
there is no bar on the number of person in the company form of business structures. A
company is a separate legal entity in the eyes of law and thus the persons who are part
of the business are not considered to be the company itself.
Considering the number of person that are willing to become the part of the club, it is
advised that a company form of business structure will be most appropriate.
II. Further, as there are more people who are considered to be joining the club, then, it is
advisable that a company business structure must be adopted as there will be no
would up on the company when the company is formulated. In case of partnership,
with each incoming and outgoing of a partner, there will be dissolution of the
partnership and it will be very inconvenient to operate the partnership if the
dissolution takes again and again.
III. When the club was started the people provided with the equipment. The club also
requires equipments such as chairs and tables, chess equipments and facilities for
refreshments.
Now, if a company forms of business structure is formulated then a company is
considered to have a separate legal personality in law. Considering the separate legal

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personality, a company has the capacity to purchase property in its own name and not
in the name of the shareholders.
But, in a partnership, the burden of purchasing the property will be borne by the
partners themselves, that is, the member of the clubs.
Thus, it is advisable that the club members must select the company form of business
structure so that the burden of purchasing the property does not fall the members of
the club.
IV. The club members pay some nominal rent to the church for using the room provided
for the meetings. The club now needs a big venue for the meetings. The big venue for
the meetings will require higher rent to pay.
Now, it is submitted that if a partnership form of business structure is to be followed,
then, the club members have to bear the burden of the high cost on themselves only as
the liability of the partners in the partnership firm is unlimited.
But, if a company is formulated, then, the cost and the financial burden is borne by
the company itself and not to the owners of the club, that is, the club members. The
cost of paying the high rent will not be borne by the chess players directly but will be
borne by the company as the liability of the owners will be limited to the
shareholdings they hold in the company.
Thus, the club members can prevent the burden of the payment of the rent which will
increase with the increase of the structure of the venue.
V. People will also be required for cleaning, storage, first aid provisions, management of
the club and appropriate facilities for the members.
Now, since new people will be needed for several purposes, it is advised that the
company form of business structure will be the moist suitable form of business
structure that must be acquired by the members of the club. It makes no difference as
how many people will be employed by the members of the club as they will not
become the part or the owners of the club. They can be associated with the club as the
employees and thus have no say in the decision making process of the club. Thereby

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there will be no conflicting situations that might arise because of the joining of the
new people.
But, if a partnership form of business is adopted then the incoming people will have a
direct say in the business and thus it might results in conflicting situations which may
result in the disruption of the working of the partnership effectively.
Thus, the members of the club in order for the smooth function of the club must
operate the club in the form of the company.
VI. The club needs to collect contribution from the members.
Thus, if a company forms of business is adopted then it is easy to collect the
contribution from the members as the members will return dividends against those
contributions. Even if the members do not pay then the company can raise the finance
from public or by issuing shares or debentures.
But, in partnership form of business, the only source to acquire funds is the
contribution from the partners, that is, the club members directly.
Thus, the company form of business is much suitable.
VII. The club members have to deal with the issues related to the liabilities with respect to
various provisions.
It is submitted that the liability in the company is limited and is only limited to the
value of the shareholdings of the shareholders. But, the liability of the partners in the
partnership is unlimited in nature (Mann v Hulme (1961).
Thus, the issues related to the liabilities with respect to various provisions will be met
effectively in company as the liability is limited in nature.
VIII. Insurance is required and thus a company is the vest choice as the company takes out
several insurance for its members which is not part of a partnership form of business
structure.
IX. Questions with respect to the elderly people are required to be analyses, that is, if
some elderly people will fall?
In such situation, if there is any incoming or outgoing of the club members then the
partnership will be dissolved. However, if a company is formulated then the company
will remain alive and there will be no dissolution.

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X. Bank account is required to hold money
The club members require a bank account and which is must when a company form
of business is adopted and which is not compulsory in the partnership form of
business.
XI. Creditors will be supplying goods and services to the club which needs to be paid
back.
Now, in the company form of business the burden of paying off the creditors does not
lay on the shoulders of the members of the company as the shareholders liability is
only limited to the extent of their shareholdings. Thus, the club members are only
liable to pay up to the limit of their contribution to the business.
But, if a partnership is formulated, then, the burden of paying of the creditors will lay
upon them unlimited and thus they have to face the financial crunch personally.
Thus, it is submitted that the best form of business structure that must be adopted by the
members of the club is to form a company and thus the various objectives that the members of
the club tries to achieve can be attained.

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Reference List
Books/Articles/Journals
Bottomley, S; Hall, k; Nosworthy, B; Spender, P 2017. Contemporary Australian Corporate
Law. Cambridge University Press.
Gibson, A and Fraser, D 2013. Business Law 2014. Pearson Higher Education AU.
Pollard, J 2011. Smart Trading Plans: A Step-by-step guide to developing a business plan for
trading the markets. John Wiley & Sons.
Tomasic, R, Bottomley, S, McQueen, R 2002. Corporations Law in Australia. Federation Press.
Case laws
Lee v Lee's Air Farming Ltd [1960] UKPC 33;
Mann v Hulme (1961) 106 CLR 136
Re Ruddock (1879) 5 VLR 51;
Re Megevand; Ex parte Delhasse (1877-1878) 7 ChD 511
Salomon v A Salomon & Co Ltd [1896] UKHL 1