Letter of Advice on Business Structure

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

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BUSINESS LAW
Letter of Advice
To- Mr John Smith
From- Accountant
Date- 28 May 2019
Subject- Letter of Advice regarding best business structure
There are several business structure under which a small business could be registered
for deriving optimum benefit from it, like partnership, trust, sole proprietorship and a
company form of business structure. All of these business structures yields profit and growth
for the business and therefore could prove to be beneficial for the trader. However, they have
different approach and therefore the process to conduct them are different as well. Some of
these are expensive to set up yet they are time effective and serves the purpose of the trader
better.
A Partnership requires the involvement of two or partners to operate where the
partners work as principal as well as agent. It is easier to set up a partnership form of
business, as it is cheap and easy to work with. A partnership form of business makes the
partners liable for all the debts and losses of the firm, thereby making them unlimitedly liable
for the firm’s liabilities (Mersky1962). The partners are the principal as well as the agent who
are responsible for every kind of transactions of the firm. The partners share the profits of the
firm as per their contribution to start the firm. With the death of a partner, the partnership
firm gets dissolved, when there were only two partners running the firm, for it disrupts the
basic necessity of the formation of a partnership firm which requires at least 2 partners to
operate (Mersky1962). As the partners are the owner of the business, therefore it is easier to
operate the firm and the firms becomes secured from any external supervision and control.
However, due to the factor of unlimited liability of the partners, they are being held liable for

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BUSINESS LAW
the debt of the company and their personal assets are often liquidated to incur the dues of the
investors and creditors. In addition, in a partnership form of business, one partner can be held
liable for the actions of another partners, and therefore could be penalized for the same.
Similarly, all the partners shall be made liable to share the burden of debts and the losses of
the firm in accordance to the contribution of the partners. Despite several benefits and
advantages, it becomes difficult to divide the fund and asset of the firm when a partner leaves
the firm or dies (Mersky1962).
On the other hand, a Trust form of business involves a trustee to take the
responsibility of the trust and carry out its operations for the benefit of the beneficiaries. The
trustee is vested with the duty to take care of the trust business as an officer who is in charge
and therefore he has no authority to utilise the benefits incurred out of the trust; he is only
liable to receive are-agreed salary or remuneration on monthly or annual basis, as agreed
before creating the trust property and vesting powers upon the trustee (DeMott 2014). A trust
business is not a separate legal entity unlike a company, yet it does not face difficulty to raise
fund when required. However, alike a company it bears a limited liability and thus the
beneficiaries are not affected due to the debt of the trust. A trust must have a trust deed which
clearly demarcate the shares of the beneficiaries along with mentioning the duties and the
responsibility of the trustee. A trustee must take up the duty of undertaking administrative
task yearly. It is the trustee who is to be held responsible for the all the business operations of
the trust which may even include a company for being the trustee of the trust. A trust business
is required to pay tax on its general income alike a company. However, creation of trust is
complex and involves lot of expenses and even more difficult to divide the trust property to a
beneficiary when demanded for it usually involves an asset which cannot be easily severed
into pieces. A trust business usually suffers due to the restricted powers and authority of the