Best Business Structure for a Small Business in Australia

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Contents
PART A.......................................................................................................................................................2
PART B.......................................................................................................................................................4
Outline the various directors’ duties that exist and discuss their importance in relation to the governance
of companies...............................................................................................................................................4
Reference List.............................................................................................................................................7

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PART A
To John Smith
XXXX
Subject: Advice on the best business structure
Sir,
In Australia, there is no single form of business structure that is prevalent. The kinds of
structures that prevail are sole trader ship, partnership and company. (Australia 1993)
Now, as per the requirements made by you, you need to establish a small business in the fashion
industry. To be more specific you like to initiate business in men’s clothing. Now, as already
submitted that there is no one forms of business that is operative in Australia, thus, before
recommending you the best business structure as per your requirements, it is advice that a brief
introduction must be provided relating to all the business scenarios.
When any single or individual person wants to establish a business then the best form of business
structure is sole trader ship. It is a structure wherein the owner of the business is the exclusive
controller of the business. He is the person who is accountable for all the incomes of the business
and does not require much of the paper work in the business. (Needle 2004)
But, it is advised that you must not indulge in a sole trader ship mainly because you will also be
liable for all the liabilities of the business. If any finance is needed then the only way is to seek
loan or to bringing in self capital. Also, the business will be wound up as soon as the owner
ceases to exist. Since you want to initiate business in men’s clothing which require range of
people and capital it is advisable not to indulge in sole trader ship.
The next option that is available is partnership. A partnership is based on the law of agency
wherein the partners are the agents of each other and that of the partnership firm. In order to
form a partnership, it is necessary that two or more person must join together with common
intention to carry a business with the main aim to share profits and losses and is rightly analyzed
in United Tankers Pty Ltd v Moray PreCast Pty Ltd (1992). It is very easy to formulate a
partnership and does not require much of the capital. (Morse 2010)
However, before advising you that you must trade your business in the form of partnership, it is
advisable to compare the same with the company.
A company is a form of business organization which is only formulated after incorporating or
registering the same as per the norms of the company law. When any company is formed then it
has a separate legal personality which implies that company officers are separate from the
company and is rightly analyzed in Salomon v A Salomon and Co Ltd [1897]. A company has its
own existence and has the capacity to make contracts on its own behalf, purchase property, sue
or be sued etc. (Bottomley et al. 2017)
It is submitted that when any company comes into existence than it is a person in the eyes of law
but its existence is artificial in law. In requires officers to carry out its activities in the name of

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the company. But, the acts that are carried on will be binding on the company alone and not on
the officers who are taking the acts on behalf of the company. Thus, a company has a separate
legal personality in law and has the capacity of being sued and be sued alone and is rightly
analyzed in Foss v Harbottle (1843). (Puig 2000)
Now, when the same is compared with that of a partnership, a partnership does not have any
separate legal personality in law. Thus, any acts that are carried on by the partners of the firm
will be binding not only on the partnership firm but also on all the other partners.
It is thus advice that if you will operate as a partnership then firstly you cannot initiate the
business alone; rather, you need one more person for the initiation of the partnership. Also, the
acts of such other person will result in making you bound regardless of the fact you want to
bound by the same or not.
Another feature that is associated when any company is formed is that it has limited liability. The
liability of the company is limited to the extent that the shareholders are only answered to the
liability which is equal to the value of their shares and is rightly analyzed in Winthrop
Investments Ltd v Winns Ltd [1975]. (Puig 2000)
In partnership there is no limited liability and the debts that are incurred in any partnership will
make all the partners liable and the liability is not limited and can also make the partners
personal liable for the same. Thus, if you operate the business by way of partnership, then, if any
liability ill be raised and if the firm is not able to pay the same from its assets, then, you will be
held person liable for such liability along with the other partners.
Further, if a company is formed then it has perpetual succession. Perpetual succession implies
that the life of the company is not limited but the life is unlimited and the company never ceases
to exist unless a proper procedure for its winding up is followed. (Puig 2000)
But, in partnership, the partnership is dissolve automatically if any partner dies, enters in the
partnership, leaves the partners, becomes unsound, bankrupt etc,
Thus, if you chooses to form the business by way of partnership then it is not advisable because
then you can never be able to leave the business because of you intend then the partnership will
be dissolved. However, if a company is selected then you can take benefits of the perpetual
succession of the company;
Also, when a company is formed then it can easily raise finance by selling shares. But, the same
is not possible in the partnership form of structure.
After comparing the business structure of a partnership, company and sole trader ship, it is
advisable that the best business structure for you is to operate by way of a company.
If you operate your business by way of a company and as intended by you, you need to start with
a small business; thus, you can easily raise finance and carry on the acts in the name of the
company. Since you will be the shareholder of the company thus the liability will be limited. The
business is means clothing requires diversified professionals which can be made part of the
company by employing them.