Coporation and Busines Structure

Coporation and Busines structure
Student’s Name
4/13/2020

Masters of Law 1
Contents
Part A.................................................................................................................................2
Background........................................................................................................................2
“The costs, administrative and regulatory burdens”..........................................................2
“Potential liability to third parties”.......................................................................................4
“Fiduciary duties owed by business owners”.....................................................................5
“Recommendation”............................................................................................................7
Part B.................................................................................................................................8
Bibliography.......................................................................................................................9
Legislation......................................................................................................................9
Case laws.......................................................................................................................9
Books/Journals...............................................................................................................9
Other Resources............................................................................................................9

Masters of Law 2
Part A
Background
The report is prepared for Mariana, Ted and Greta., who are potential clients of the
firms. They have concern related to the business structure and suitability where cost,
administrative burden, liabilities of partners will discussed. The report presented hereby
is address to senior executive and is not address to clients.
“The costs, administrative and regulatory burdens”
Whenever a business starts, it attracts some cost and administrative burden to the
owners. This cost and regulatory burden vary as per the structure of the business. This
part of the report is focused on such cost and administrative burden of partnership and
corporation structure. Firstly, to discuss the case of partnership this is to state that the
cost, as well as a legal requirement, is less than the corporate structure. Australian
business number is a primary requirement to form a partnership business1. It is a unique
number for firms that need to mention in every business transaction of the firm. Another
requirement, which needs to fulfill while the formation of partnership is the execution of
the partnership agreement. This agreement can be executed orally too. However, to
give a legal and more valid touch, parties should develop an agreement in the written
mode. A partnership agreement is a legal document that determines mutual terms and
conditions of the firm's owners i.e. partners, such as their profit sharing ratio, capital
contribution, rights and liabilities of partners2. Sometimes, firms want to register their
business name for the security of the firm's interest and identification. In such a case,
there is an additional requirement of business name registration, which is not a very
complicated process. Australian Government provides electronic business registration
services. Authority does not register a business name permanently but partnership firms
may do so for either one year or three years. Businesses have to pay $34 for one-year
1 ato.gov.au, Partnership (Australian Government) <https://www.ato.gov.au/business/starting-your-own-
business/before-you-get-started/choosing-your-business-structure/partnership/>.
2 Jean Murray Why Your Business Partnership Needs a Written Agreement, (Small Business) <
https://www.thebalancesmb.com/why-your-partnership-needs-a-written-agreement-398401>.

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registration and $80 for three years3. It is advisable to get a registration of three years
as is comparatively cost less to firms.
At the time of the expiry of this registration, the same may be renewed by paying the fee
as similar to a new registration. Apart from the setup cost and formalities, firms do not
have any other regulatory burdens. As it is a close business structure, firms are not
liable to submit details related to financial statements or details related to business
activities to any authority. However, tax-related details need to be submitted to the
relevant authority.
On the different side, corporation business structure demands a higher cost and
regulatory burden. Registration of a company in Australia is a lengthy process where
seven steps are involved4. The registration of an Australian company can be pursued
through the online structure offered by ASIC. Firstly the company name is required to be
registered with ASIC that costs $50. If the promoters do not have a name for their
company then the Australian company number can be used as a company name. Once
the name is registered, promoters of the company need to decide the manner of
working in the potential company as well as some other matters such as prospective
directors and members of the company, address of the registered office and principal
place of business. After doing this, the registration form needs to be submitted with
ASIC in addition to the applicable fee. This application fee depends on the nature of the
company. A proprietary limited company can be formed by paying $4955. A company
can conduct business via business name. Charges for business name registration are
$36 for one year and $85 for three years. Renewal of business name registration is a
regulatory requirement for corporations.
There is some regular compliance in the case of a corporation. Firstly, changes in
directors/officers, registered office address and principal place of business are need to
informed to ASIC in a time-bound manner that is 28 days. Proprietary limited company
3 legalite.com.au, Business Name (legalite) <https://legalite.com.au/whats-in-a-name/>.
4 asic.gov.au, Steps to register a company (ASIC) <https://asic.gov.au/for-business/registering-a-
company/steps-to-register-a-company/#registering-company>.
5 ecompanies.com.au, What is a PTY LTD Company (ecompanies)
<shttps://www.ecompanies.com.au/company-registration/pty-ltd-registration/>.

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does not have to lodge financial statements to the authority. In addition to this, every
company has to confirm the basic details of ASIC every year.
“Potential liability to third parties”
A third party who deals with the business has rights against the business assets and
can demand the payment of debts out of that. Under the different business structure,
third parties have different entitlements. Firstly, to discuss liabilities of business owners
under a partnership business structure, this is to state that the same is unlimited. A
partnership firm is not an incorporated structure and therefore has no separate legal
status. Law treats partners of business as their business and therefore the debts of the
business can be understood as debts of the partners. In other words, this can be stated
that partners under partnership firms have unlimited liability and their assets can be held
liable for payment of business debts. This is a general situation regarding payment of
business debts. In addition to this also, there are many ways in which liabilities of firm
and partners towards the third party can be determined.
The partnership firm is not a natural person and any third party that deals with it through
partners. The business of the firm may operate by all the partners or one or more
partners on behalf of everyone. A partner transacting on behalf of the firm has the
authority to do so. Such authority may either expressly provide to him/her or can be
implied due to his/her position. Implied authority is the one that is expected to be there
due to the holding of a particular situation. In the case of Freeman & Lockyer v
Buckhurst Park Properties6, a person assumed to have an implied authority to do all the
conduct that a pub manager can do in normal circumstances. The same goes for
partners of partnership firms where a third party can assume that a person who is
appointed at the position of the partner has all the authority that a normal partner
possesses. The right of the third party is confirmed under section 9 of the Partnership
Act 19587. Every state of Australia carries almost the same provisions regarding
operation and regulation of partnership firms, however, sections are different. In
Victoria, the legislation is named as Partnership Act 1958. Section 9 of the act
6 Freeman & Lockyer v Buckhurst Park Properties [1964] 1 All ER 630
7 Partnership Act 1958 (vic)

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establishes that the firm and other partners are liable in an unlimited manner for the
debts and transactions that a person does in the regular course of business8. This
section protects the right of third parties by allowing them to assume that a partner who
is doing regular dealing has enough authority to do so. However, if the third party can
know that that partner dealing with them has no authority to do and still pursue a
transaction then neither firm nor other partners may be held liable.
To discuss the liability of business owners under corporate structure this is to mention
that such businesses have a separate legal entity. In the decision of the case titled
Salomon v A Salomon & Co Ltd9, it was given that a corporation needs to be treated as
a completely different entity than its members and directors. Due to the separate legal
entity principle, another rule also exists there, which is known as the principle of limited
liability. Cause of applicability of this principle, the liability of members, officers, and
director or anyone else who work on behalf of the company remain limited. Only the
corporation itself may hold accountable to make payments of its business debts. Not in
any situation, the personal assets of these associated people can be used for the
repayment of company debts. Even in the case of failure of the corporation or at the
time of insolvency, only business funds and assets may be utilized.
In general business owners owes no personal liability to the third party. Nevertheless, in
some exceptional cases where directors or officers misuse the artificial veil existed
between them and the company, they may be held liable personally by the courts. To
skip such personal liability it is in the best interest of the managers of the business to
act as per provided authority.
“Fiduciary duties owed by business owners”
Apart from the sole trader, each business structure has two or more people. These
people may be partners of the firm or directors of the company. These owners or
managers of the business have some duties to each other and the business as they
affect the liability of the same. Firstly, the duties owed by partners of partnership firms
8 classic.austlii.edu.au, PARTNERSHIP ACT 1958 - SECT 9 (austlii) <
http://classic.austlii.edu.au/au/legis/vic/consol_act/p84a1958135/s9.html>
9 Salomon v A Salomon & Co Ltd [1896] UKHL 1, [1897] AC 22

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have their identification from common law and legislation as well. These duties are
known as fiduciary duties, which refer to the duty to act in the best interest. Division 3 of
the act governs the mutual relation of partners. The statutory fiduciary duties of partners
may be found under section 32 to 34. Section 32 of the act states that each partner has
a fiduciary duty to render accounts and other related information to the firm and other
partners10. Not every partner takes part in each transaction and therefore there is a duty
to inform other partners and firms, they are not aware of. Section 33 puts the obligation
of partners not to earn private profits. Again, this is a fiduciary duty that demands to act
in the best interest of the firm. The third fiduciary duty is mentioned under section 34
and says that no partner of a partnership firm must carry any other competitive business
to the firm. Three major fiduciary duties of partners are mentioned in the common law.
These duties are mentioned as follow:-
 Duty to avoid conflict of interest
 Duty to not to make secret profits at the expenditure of the firm
 Duty not to share confidential information of a firm's business with any third party
or outsider.
Similar to partners of the firm, fiduciary duties of directors are also given in legislation
and common law. For this discussion, legislation refers to the Corporations Act 200111
that contains the corporate law of Australia. For the corporation, fiduciary duty refers to
those duties which directors owe to the corporation, its shareholders, and other
directors. The statutory fiduciary duties are given in section 180 to 183. Section 180
says that every director, officer, and the employee has to perform their functions with
care and diligence. Section 181 on the different side, makes focuses on good faith and
demands discharge or powers and functions by these directors and officers in the good
faith of the corporation12. It is possible that being a part of the management directors will
misuse their position or the business information that they own due to being in such a
10 classic.austlii.edu.au, Partnership Act 1958 - SECT 32 (austlii) <
http://classic.austlii.edu.au/au/legis/vic/consol_act/p84a1958135/s32.html>.
11 Corporations Act 2001 (Cth)
12 legislation.gov.au, Corporations Act 2001 (Australian Government) <
https://www.legislation.gov.au/Details/C2017C00328>.

Masters of Law 7
higher position for their advantage13. To prevent situations like this, CA 2001 puts a
fiduciary obligation not to misuse position or business information in a manner that may
detriment to the company.
All the fiduciary duties of directors mentioned in common law are already covered under
section 180 to 183 and in this way, compliance with these sections, also confirms
compliance fiduciary duty of common law.
“Recommendation”
The most suitable structure to suggest is Corporation. As discussed liability of all three
members will be limited. The further proprietary company seems like the best option as
it consumes fewer expenses than other companies. There will be no requirement to
lodge financial statements to the authority. As the client is a member of the same family,
hence it becomes more important to provide safeguards to their asset, which is possible
under company structure only.
As clients have a specific concern about third party actions, hence again considering
this issue, the corporation seems to be a less risky and suitable business structure. As
the client would deal in the export business, it is to hope and assume that the cost of
running a proprietary company will be meet out easily. Another reason for that a
company business structure is better is related to capital access and formalization of
business.
13 Australia, Australian Corporations & Securities Legislation 2011: Corporations Act 2001, ASIC Act 2001, related
regulations (Australia: CCH Australia Limited), 222.

Masters of Law 8
Part B
Kindly insert link of video here

Masters of Law 9
Bibliography
Legislation
Corporations Act 2001 (Cth)
Partnership Act 1958 (vic)
Case laws
Freeman & Lockyer v Buckhurst Park Properties [1964] 1 All ER 630
Salomon v A Salomon & Co Ltd [1896] UKHL 1, [1897] AC 22
Books/Journals
Australia, Australian Corporations & Securities Legislation 2011: Corporations Act 2001,
ASIC Act 2001, related regulations (Australia: CCH Australia Limited), 222.
Other Resources
asic.gov.au, Steps to register a company (ASIC)
<https://asic.gov.au/for-business/registering-a-company/steps-to-register-a-company/
#registering-company>.
ato.gov.au, Partnership (Australian Government)
<https://www.ato.gov.au/business/starting-your-own-business/before-you-get-started/
choosing-your-business-structure/partnership/>
classic.austlii.edu.au, Partnership Act 1958 - SECT 32 (austlii) <
http://classic.austlii.edu.au/au/legis/vic/consol_act/p84a1958135/s32.html>.
classic.austlii.edu.au, PARTNERSHIP ACT 1958 - SECT 9 (austlii) <
http://classic.austlii.edu.au/au/legis/vic/consol_act/p84a1958135/s9.html>
ecompanies.com.au, What is a PTY LTD Company (ecompanies)
<shttps://www.ecompanies.com.au/company-registration/pty-ltd-registration/>.
Jean Murray Why Your Business Partnership Needs a Written Agreement, (Small
Business) < https://www.thebalancesmb.com/why-your-partnership-needs-a-written-
agreement-398401>.
legalite.com.au, Business Name (legalite) https://legalite.com.au/whats-in-a-name/>

Masters of Law 10
legislation.gov.au, Corporations Act 2001 (Australian Government) <
https://www.legislation.gov.au/Details/C2017C00328>.