Formation of Business Structure and Directors' Duties

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Contents
PART A.......................................................................................................................................................2
PART B.......................................................................................................................................................5
Outline the various directors’ duties that exist and discuss their importance in relation to the governance
of companies...............................................................................................................................................5
Bibliography................................................................................................................................................8

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PART A
To John
Subject: Advice on the key issues that is relevant in relation to the formation of the most
appropriate business structure to operate his new venture
Respected Sir,
As per the requirements specified by your good self, that is, your good self is considering the
establishment of a small business in the fashion industry, particularly in men’s clothing
and thus desires an advice in relation to the formation of the most appropriate business
structure to operate his new venture, it is humbly stated that there is no single business
structure that can be established by your good self in Australia.
In Australia, there are several kinds of business opportunities that can be availed and thus prior
giving you a sound advice it is suggested that a brief understating must be made on the
kinds of the businesses that are prevalent in Australia.
The foremost business structure that is normally considered by an individual is sole trader ship.
In a sole tranship, an individual person has the capacity to conduct business activities and
he is the sole owner and the controller of his business. (Gibson & Fraser, 2014)
Thus, if your good self is intending to incorporate the business by way of sole trader ship, then,
your good self will be the complete authoritative person of the business and has the
ability to take the decision on behalf of the company without the interference by any
other person.
If sole trader sip is carried then there are serious of advantages that can be attained which
includes that: (Gibson & Fraser, 2014)
i. There is no person who will be interfering in the process of decision making and you will
be the sole authoritative power of the business;
ii. Further, the profits that will be earned by you will be kept by you totally and there is no
other person with whom you have to share the same;
iii. It is also suggested that since you are planning to initiate a small business in the fashion
industry, particularly in men’s clothing, thus, the start up cost of establishing sole trader
ship is also very low thus, it is very economical to initiate this kind of business;
iv. Also, if at the later stage you do not want to continue the business, then, it is very easy to
wind up.
Now, before recommending you that the business must be carried out as a sole trader sip, it is
necessary that the same must be compared with other forms of business, that is,
partnership and company.
A partnership is another form of business organization wherein two or more person join together
to carry on the business and with the common intention so as to earn profits and share the
same amid themselves. Thus, a partnership is the business structure that cannot be carried
out by a single person but requires an association of two or more person. (Gillies, 2004)

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Now, there are also various advantages that can also be associated with a partnership. The same
includes that: (Gillies, 2004)
i. That if you initiate the business by way of partnership then you are not the only person
who will be taking all the pain in running of the business, rather, another person (partner)
who is associated with you will also be taking the decisions relating to the problem;
ii. There are no requirements of registration and thus it is very easy to form a partnership
firm. Your good self can establish a partnership agreement and can abide by them and the
associates with the terms of the partnership agreement;
iii. If capital is required then the partners are free to bring the same in the business;
iv. It is also very beneficial that expert employees can be employed in the partnership and
the proficiency of the business can be increased;
v. The best part of a partnership firm is that there is confidentiality that is maintained and
thus the secret information of the partnership is not disclosed outside.
Now, considering the advantages of the partnership, this form of business is also finds to be
suitable. But, it is very important to compare the sole trader ship form of business and the
partnership form of business with the company and then it is advisable that the correct
business structure for your good self must be advised.
A company is an artificial person in the eyes of law. When any person wish to carry the business
in the form of a company then it is very necessary that the same must be registered as per
the provisions of the Corporation act 2001 and the guidelines of the ASIC. When any
company is formulated then there are various features that are attributed to the company
and which are found to be much beneficial when compared with a sole trader ship and a
partnership. The same is analyzed herein under: (Tomasic, Bottomley, & McQueen,
2002)
i. When any company is formulated then the foremost feature that is attained by a
registered company is that it has its own separate personality in law. The feature of
separate legal personality signifies that the officers, shareholders and employees of the
company are distinct from the company and the acts that are carried on are in the name of
the company alone and is rightly analyzed in (Salomon v A Salomon and Co Ltd , 1897)
and (Lee v Lee's Air Farming Ltd, 1951).
Now, when compared with a sole trader ship or partnership, there is no concept of separate legal
personality and the acts that are taken by the person in the name of the sole trader sip or
the partnership are the their personal acts and will make them liable personally;
ii. Further whenever a company is formed then the liability of the company is limited in
nature, that is, the directors are not liable for the debts of the company personally., rather,
the shareholders are liable but only to the extent of their shareholding in the company and
is rightly analyzed in (Dennis Willcox Pty Ltd v Federal Commissioner of Taxation ,
1988) ;