Choosing the Best Business Structure for Desklib: Sole Trading, Partnership or Company

This article discusses the nature, advantages and disadvantages of the three business structures - sole trading, partnership and company - and recommends the best structure for Desklib. It also covers the legal rights and obligations of the parties involved in each structure.

Running head: BUSINESS LAW
Business law
Name of the Student
Name of the University
Author Note

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Answer 1
An appropriate business structure is the fundamental step of setting up a business activity.
In Australia business activities can be conducted by using business structures of sole trading,
partnership and company. There various form of business structures have different features and
characteristics associated with them. These features may be beneficial or detrimental to people
planning to start business operations based on their needs and preference. The distinct feature of
every business structure allows them to have their own general advantages and disadvantages
(Kubasek et al. 2015). The purpose of this section is the paper discusses the nature, advantages
and disadvantages of the three business structures indentified above.
The sole trading business is also called sole proprietorship. This form of business is done
by only one person who is regarded as the sole owner of the business. When a person wishes to
chose a sole trading business they do not need to get the business registered. According to the
provisions of common law this business would be considered as having no distinct identity in
itself. The owner and the business would be treated as the same entity before law. The business
does need to have any form of registration to be operative. This saves time and cost on the part of
the business owners. As the business is only run by a single person, the owner is supreme
command over the functioning of the business. In the same way, the liability of the person who is
carrying out the business includes all liabilities which have been incurred in the course of
business. There is no limitation of liability or any form of distinction between the liabilities of
the owner and the liabilities of the business (Beatty, Samuelson and Abril 2018). The advantages
and disadvantages of the sole trading business have been outlined below

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Advantages- The business does need to have any form of registration to be operative.
This saves time and cost on the part of the business owners. As the business is only run by a
single person, the owner is supreme command over the functioning of the business. The business
is easy to form and operate.
Disadvantages - There is no limitation of liability or any form of distinction between the
liabilities of the owner and the liabilities of the business. This means that the owner is personally
liable. It is difficult to expand this form of business due to limited financial resources. The Tax
paid by this business may be the highest as the liability of the owner and the business is same
and they may be charged under the highest rate of tax slab (Davidson, Forsythe and Knowles
2015).
Partnership have a few similar features like a sole trading but is distinct than such
business in various ways. A partnership is can only be started if the numbers of business owners
are two or more and limited to 20. The Maximum number is subjected to few exceptions. It is
initiated when the required numbers of people carry out business in common for earning profit.
The feature of unlimited liability and no registration is same for a partnership and sole trading. It
also does not require registration and its owners can be personally liable for business debts. In
addition to such features the partners are liable “jointly and severally”. This means they are
bound by the actions of the other partners. They act as the agent and the principal of the business
at the same time. It has no separate legal entity (Clarkson, Miller and Cross 2014).
Advantages- The business does need to have any form of registration to be operative.
This saves time and cost on the part of the business owners. The partners are aided financially as

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well as through skills provided by other partners. Level of compliance with law is less as
compared to business.
Disadvantages- The tax liability of the partnership business is also maximum in the same
way as sole trading. The partners are liable jointly and severally which signifies that they may
be subjected to losses and be liable for the deeds which have done by the other partners in the
course of business. They are also likely to be liable on a personal level as they are not protected
from limited liability provisions. It ends with the death of a partner or when a partner leaves.
Company is vastly different as compared to the other two business structures. One of its
most defining features is that it is a separate legal entity. The law sees the company as a different
person than its owners. It is an artificial legal person on its own and has the capacity of owning
assets and having its own liabilities. This form of business structure provides protection of
limited liability to owners. The feature limits the liability of the owners to the investment made
by them. The owners are not mandatorily required to manage the affairs. The company requires
registration and enjoy perpetual existence (Glover and Doss 2017).
Advantages-
 Limited liability protects personal assets
 Separate management allows for more efficient managers
 Perpetual existence does not make it come to an end with the death of a owner
 Owners are not liable jointly and severally
 Tax is fixed at 30% for large corporations and 27.5% for smaller businesses
 Easy share transferability
Disadvantages-

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 High legal compliance required by law
 Owners have less control over its affairs
 Complex to operate and high cost of operation
Answer 2
The features, advantages and disadvantages of the business structures have been
discussed already. Thus section discussed the legal provides with respect to the business
structures identified above for Collis, Cyan and June. The section also discusses the rights and
liabilities of the parties involved in the business.
The sole trading business is imposed with a minimum level of legal compliance. This is
because the business is same as the owner. The owner of the business does not have any spate
legal obligations to follow with respect to the business. There are subjected to the provisions of
general business laws such as complying with the rule of the Fair Work Act 2009 (Cth) or the
provisions of contract law and tort law. They have total rights in relation to the business profits
and are also liable to business losses. They can totally manage the affairs of the business on their
own and are liable to the business stakeholders if they act in violation of general law imposed on
them (Roach 2016).
The partnership business in Australia is subjected to the provisions of the Partnership
legislations. In Australia every state has developed a partnership legislation to govern the affairs
of the partnership. The federal legislation governing the business is the Partnership Act 1963
(Cth). Under the Legislation the partners have been described as liable “jointly and severally” as
per s 16. This means they are bound by the actions of the other partners. They act as the agent
and the principal of the business at the same time. Under the operation of the legislation the a

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person can bind the business structure to any contract which have been entered upon into by
them as they are the agents of the business as provided by section 9 and 10 of the Act. A partner
can also be liable for the negligence which has been committed by the other partner in line of
business operations. Partners also have the right to use firm credit for private purpose. However
in case a notice is issued under s 13 the firm would not be bound by the actions of the partners.
Provisions relating to the liabilities of the partner are provided in s 13 of the Act. The
introduction of a new partner can be done to a business by the consent of the existing partners.
The partners share profit and loss of the business through the terms of the partnership agreement
and if such terms are not present then in an equal ratio. It is the duty of a partner under s 33 of
the Act to give accounts. A partner is also forbidden by the operation of s 34 of the Act to make
any private profits. In case it is found that the partner has used the resources of the partnership
business to make a private profit then the partner would be holding such profit on constructive
trust for the partnership business. The application of s 35 of the legislation imposes an obligation
on the partner through which they are not allowed to carry out any business which may have the
effect of competing with the partnership firm. They may be liable to account for profit in case
they have violated s 35 of the ACT. The partners have the right to take part in the management of
the business and inspect the books of the business whenever they want. In case a partner has
committed a breach of the partnership agreement the other partners have the right to make a
claim for the breach. The partners have fiduciary obligations towards the business and other
partners at common law (Cheeseman 2016).
The main law which governs a corporation in Australia is the Corporation Act 2001
(Cth). It has been identified above that the management and ownership of the corporation can be
different. A corporation is managed by its directors and other officers within the meaning

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provided under s 9 of the Act. In order to ensure that the directors and other officers of the
organization function efficiently they are imposed with certain duties under the legislation
(Stoica and Ene 2016). The directors have the ultimate power of managing the corporation and
they are paid remuneration for providing management services. As they have the obligation of
managing the corporation on behalf of the corporation they are in a fiduciary relationship with
the shareholders and owners. The fiduciary duties have been replaced by statutory duties of
directors under the CA (Stasi 2016). The legislation sets out these duties through s180-184. The
first duty of a director or officers of an organization is the duty of diligence and care. Under the
duty of care and diligence they are required to perform their function in a way which a
reasonable per would do in appointed in the same position and provided with same
circumstances. The duty is provided in s 180(1) of the Act. It has been discussed in the case of
ASIC v Cassimatis (no 8) [2016] FCA 1023 in which it was stated that if an action results in loss
of reputation of the company it would be a breach of this duty. under the duty provided in s181
the officers and directors have been asked to work in the best interest of the company. They must
do their actions in good faith and such actions have to be directed towards a proper purpose.
This simply signifies that they have to give importance to the interest of the company over any
other interest. However, if the company is insolvent they have to consider the interest of the
creditors as per Australian Securities and Investments Commission v Australian Property
Custodian Holdings Limited [2013] FCA 1342. They may also not indulge on an action which
has been carried out for an improper purpose as per Whitehouse v Carlton Hotel Pty Ltd (1987)
11 ACLR 715. Further the application of section 182 and 183 prohibits utilizing company
position and information in a way which may be detrimental to the company. Any kind of
personal involvement in a transaction has to be informed to the board under s 191. The directors

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are further restricted to carry out insolvent trading under s 588G. They have the power of
carrying out the functions of an organization as per s 198 of the CA (Allen, Kraakman and
Subramanian 2016).
Answer 3
The advantages, disadvantages, features and legal right and obligations arising out of the
three forms of business structures have already been discussed. The purpose of this section of the
paper is to identify the business structure which would be best for Collis, Cyan and Jun. In
relation to the first structure of sole trading it can be evidently stated that this structure would not
be suited as it is not applicable on more than one person. The choice now lies between a
partnership and a corporation. I would recommend then a corporation as business structure
rather than a partnership and the reasons for the recommendation are as follows.
The first reason for selecting a company over a partnership is that of separate
management and ownership. It has been provided through the facts that Collis wants time to look
after her children. She also wants a prominent role in the business. This can be done if she is
made a director of the corporation which they can call as “Eden Pty Ltd” after registration.
Proprietary company is selected over a public compliance taking into consideration the level of
legal compliance, the size of business and future chances to convert. Cyan has a heavy loan on
him and if he is made the director, then because of the principles of separate legal entity the loan
would be different from the company. Jun is a privet person and even if she does not want to
carry out the business as a director she can still earn being the shareholder of the company.
The three parties have suggested three different ways to raise funds for the business and
by selecting a proprietary company they can rely on all three form of funding. It is also believed

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by Collin that the business is going to earn millions in the future and as it has been discussed
earlier, one of the best ways in which tax can be reduced in a business is by carrying out the
business in from of a company. In case of a partnership the tax would be the highest as the
liability of the owner and the business is same and they may be charged under the highest rate of
tax slab which is 45%. However in case of a company in Australia taxation is done at a fixed rate
of 30% for large corporations and 27.5% for smaller businesses.
The law sees the company as a different person than its owners. It is an artificial legal
person on its own and has the capacity of owning assets and having its own liabilities. This form
of business structure provides protection of limited liability to owners. The feature limits the
liability of the owners to the investment made by them. This means that the liability of all three
parties would be limited to the investment made by them. This would be a significant protection
to all the parties who want to be a part of the business. In the present situation Cyan can also
fulfil his whish of appointing a business and technical advisor as n offer of the corporation. Jun
can also transfer her shares easily when she wishes and realise short term investment which she
wants.
In addition, in case of a partnership the three parties may be liable jointly and severally to
the actions of each other which would not feasible, given the circumstances of Jun and Cyan as
one has a loan and other has a criminal history. Thus the best business structure available is a
proprietary corporation.

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References
Allen, W.T., Kraakman, R. and Subramanian, G., 2016. Commentaries and Cases on the Law of
Business Organizations: 2016-2017 Statutory Supplement. Wolters Kluwer Law & Business.
ASIC v Cassimatis (no 8) [2016] FCA 1023
Australian Securities and Investments Commission v Australian Property Custodian Holdings
Limited [2013] FCA 1342
Beatty, J.F., Samuelson, S.S. and Abril, P.S., 2018. Business law and the legal environment.
Cengage Learning.
Cheeseman, H., 2016. Business Law . Boston, Massachusetts: Pearson Education.
Clarkson, K., Miller, R. and Cross, F., 2014. Business Law: Texts and Cases. Nelson Education.
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Davidson, D.V., Forsythe, L.M. and Knowles, B.E., 2015. Business law: Principles and cases in
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Fair Work Act 2009 (Cth)
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Kubasek, N., Browne, M.N., Dhooge, L.J., Herron, D.J., Williamson, C. and Barkacs, L.L.,
2015. Dynamic business law. McGraw-Hill Education.
Partnership Act 1963 (Cth)

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Roach, L., 2016. Card and James' Business Law. Oxford University Press.
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Whitehouse v Carlton Hotel Pty Ltd (1987) 11 ACLR 715