Choosing the Correct Business Structure: Partnership vs Corporation

This video discusses the characteristics, advantages, and disadvantages of partnership and corporation business structures. It explains the laws applicable to each structure and how to choose the correct structure for your business. The client, who is a group of brother and sisters, is advised to go ahead with a partnership form of business after reviewing the provisions, advantages, and disadvantages of both structures and their circumstances.

Part 4:- Video Transcript
Hello, Good Morning! This presentation is aimed towards giving advice to the client about
the correct business structure. In the economic scenario, some business structures are there
such as Sole proprietorship, Partnership firms, and Corporations. On every kind of business
structure, some laws are applicable according to the type thereof. For instance, on a
Partnership Firm, Partnership law of the related state will be applicable and in the case of a
corporation, Corporations act, 2001 will be applicable. Laws are necessary to understand
before deciding on the type of business structure. One should have knowledge of laws that
are applicable to a certain kind of business. Partnership and corporations are the two most
common business forms that people generally use for their business. This is necessary to
mention that both these type of business forms have their different characteristics,
advantages, and disadvantages that are also included in this video and well described in the
upcoming section.
Starting with the partnership, this is to inform that a partnership is a group of two or more
than two people who come in a well-defined structure to earn their bread and butter. The sole
purpose of a partnership is to earn profit but this not means that there cannot be a loss.
Similar to profit, partners are also liable to share loss also. However, the purpose must be a
commercial one. If two or more people come across to perform a transaction that has made
out of love and affection, then such a transaction or association will not be called partnership.
Partnerships have many characteristics. A partnership will have a partnership agreement. A
partnership agreement is a document that defines the mutual relationship between partners.
What will be the profit sharing ratio, what will be the liabilities of the partner? Which partner
will responsible for which act? These all factors are decided by the partnership agreement.
The existence of a business is also a basic element of every partnership firm. A partner of a

partnership firm is an agency with his/her firm. Partners act on behalf of the firm and this is
the reason that they are personally responsible for every task they do on behalf of the firm.
Partners own fiduciary duties towards the firm and other partners as well. In a Partnership
structure, management and owners of the business are usually the same people and an
outsider can sue the partners of the firm. Further, registration of a partnership firm is not
mandatory but in order to ignore any future disputes, this is advisable to get the same register
under applicable law1.
Corporations are an alternative business form that has it is own pros and cons. First, this is to
understand that what is a corporation in actual? A corporation is the most organized business
form in the present scenario. The reason is that this business structure is well regulated via
the Corporations Act 2001. Every company in Australia must adhere to follow the provisions
mentioned under this act. Similar to the partnership, a corporation is also having some basic
characteristics. Unlike the partnership, in a company management and ownership does not lie
with the same person. Shareholders are the owners and directors and officers of the company
are part of the management. Charter of the company defines the powers of a company and no
company can do any act outside of the powers prescribed under the charter of the company.
Partnership and Corporations, both these business form have their advantages and
disadvantages. Which form is better? There is no universal of this query. It all depends on the
circumstances of the client and the same can differ from case to case. A partnership can
establish a low cost, the corporation demands a high value of time, money, and efforts. On
the other side, there are more chances of disputes among partners in a partnership but this
situation is reversed in the case of a company. A company is a more regulated form of
1 Sindhuja S, Registration of Partnership Firm and Effects of Its Non-Registration (2018) <
http://www.businessmanagementideas.com/organisation/types/partnership/registration-of-partnership-firm-and-
effects-of-its-non-registration/8920>.

business and Corporations Act, 2001 defines the provisions related to every aspect of a
corporation.
The success of every business also depends on the fact that whether the client has chosen the
correct business structure for his/her business or not. The form of business is a very
significant aspect to review, discuss, and decide in order to make any business successful.
How to choose a correct business structure is a crucial question in itself. However, one may
choose the correct structure by looking at his/her expectations and situation.
In this case, clients are brother and sisters and therefore are connected with a trustworthy
bond. As discussed earlier that corporation is an expensive way to start a business and prove
well in those circumstances where chances of disputes are there. Being a corporation, the
client will have to follow all the provisions of the Corporations Act, 2001. This act also has
provisions related to the penalty in case of non-compliance of the provision and requirements
mentioned under various sections of this act. Further, the client will have to perform the
director duties mentioned under section 180 to 184 of the act. No such compliances are there
in the partnership; this is the reason that the client is advised to go ahead with a partnership
form of business. In addition to this, as per the decision was given in the case of Diakyne Pty
Ltd v Ralph2 that if directors act in a genuine manner but their acts brings an adverse impact
on the business then they can be questioned. After review of provisions, advantages, and
disadvantages of both of the business structures and circumstances of the client, this is to
state that partnership firm will prove a good option for the client. In the end, would like to
mention Thank you! Thank you for watching this Video till the end.
2 [2009] FCA 721