Corporations and Business Structure PDF

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Corporations and
Business Structure

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Answer 1
Selection of the right business structure is important for parties when they decide to
start a business. Various factors are necessary to be evaluated by the parties since
different characteristics which are necessary to identify by the parties to ensure that
they select the most suitable business structure for their business. Evaluation of
these legal characteristics enables the parties to ensure that they are able to find key
factors which assist them in fulfilling their objective while managing a business. This
memorandum of advice will focus on evaluating the key legal characteristics to
different business structures such as partnerships, trusts, and companies which are
available for Oliver and Emma. Various rights and liabilities and duties which are
associated with these business structures will be analysed in this report as well.
Lastly, a recommendation will be given for Oliver and Emma, with reasons, to assist
them in choosing the best business structure as per their requirements.
Partnership
In case the parties did not want to comply with complex legal regulations, then they
can select partnership business structure. This is a suitable structure for two or more
parties who wanted to join together in order to start a new business. The Partnership
Act 1891 (Qld) provides key provisions which govern this legal structure. Section 5 of
the act provides the definition of a partnership.1 It is described as a legal relationship
which is formed between two or more parties who have agreed to certain terms in
order to carry out business in common with an objective to generate profit.2 In order
to form a partnership business, minimum two partners are required, whereas, the
maximum number of partners in a partnership can be 20. All partners have unlimited
liability, and they act as agents for each other. There are certain elements of
partnership which must be fulfilled by parties.
For example, in Checker Taxicab v Stone3 case, it was held that a partnership
business must be carried out by parties which mean there must be repetition of the
business acts and a single investment did not form a valid partnership. The business
must be operated ‘in common’ by partners which is another key element. In Keith
Spicer Ltd v Mansell4 case it was held by the court that non-involvement of partners
in decision making is considered as non-involvement in the process of running the
business together which cannot form a valid partnership.5 Lastly, the objective of the
business must be to generate profits for partners. The advantages of partnership
include easy formation process, less legal compliances, less expensive to form,
equal division of profits and loss, and controlling of business through mutual
cooperation. The disadvantages include unlimited liability of partners, dissolution of
business due to a conflict or disagreement and ability of one partner to act as an
agent for others.
1 Partnership Act 1891 (Qld)2 Stephen Graw et al., Understanding business law (LexisNexis, 2015).3 (1930) NZLR 1694 (1970) 1 All ER 4625 Emily Weitzenboeck, A Legal Framework from Emerging Business Models: Dynamic Networks as Collaborative
Contracts (Edward Elgar Publishing, 2012).

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Trust
The nature of a trust can be defined as a relationship which is formed between
parties involving trust property. This property is recognised by the law which also
includes contractual rights. A trust relationship between parties resulted in separating
the burden of ownership which includes paying taxes, managing property, insurance,
and others from the benefits of the property such as proceeds of sale, rent, profits or
others.6 The trustee is considered as the legal owner of the property who is
responsible for giving back the benefits to the beneficiaries. The key provisions
which govern trust structure are given under the Trusts Act 1973 (Qld).7 Trust can be
created through express or implied conduct in which the parties have to show an
intention to create a trust relationship. The key advantages of trust structure include
distribution of income on trustee’s discretion to beneficiaries, privacy in the
operations than compared to a company and protection of beneficiaries from third
party creditors. Disadvantages of a trust structure include expensive and complex
process of establishment, problems arise in dissolution, difficulty while borrowing
loans, trust deed limits a trustee’s powers, set period of trust mentioned in the deed,
and personal liability of trustee towards the debts of the asset.
Company
One of the most common types of business structures across the globe is
corporation structure which is selected by a large number of people while
establishing their operations. In the case of Australia, the companies are governed
under the provisions of the Corporations Act 2001 (Cth).8 There are more legal
complexities while forming and running a company structure. The corporation has a
separate entity which is a key characteristic due to which parties prefer to
incorporate a company structure while managing their operations. Salomon v
Salomon & Co Ltd9 case is a leading judgement which provided key characteristics
of a corporate structure. In this case, the House of Lords provided that a corporation
is separate from its owners even if it is owned by a majority shareholder.10 It is a
legal person that has rights and liabilities based on which it can form contractual
relationships and get sued or sue other parties. The decisions of a company are
taken by its directors who cannot be held personally liable for its actions.
The main advantage of a company structure is that parties have limited liability in the
business and their personal assets cannot be used by the court to pay off the debts
of the company. The shares of the company are easily transferable based on which
members can transfer their ownership. It is easier for a company to raise capital for
its operations through different mediums. A corporation cannot be dissolved on the
death of its members.11 There are various disadvantages of a company structure as
well such as it is expensive to incorporate a corporation and the legal compliances
are complex. Members have to pay heavy registration and other fees during the
process. The financial records of an enterprise are public which are accessible by
everyone. The directors can be held personally liable if they violate their duties while
taking business decisions in the company.
6 Samantha Hepburn, Principles of Equity & Trusts (Aus) 2/e (Routledge, 2013).7 Trusts Act 1973 (Qld)8 Corporations Act 2001 (Cth)9 (1897) AC 2210 Susan McLaughlin, Unlocking company law (Routledge, 2018).11 Elspeth Deards, Practice Notes on Partnership Law (Routledge, 2013).