Business Structures in Australia: Partnership and Company

This paper discusses the two business structures in Australia, partnership and company, their advantages and disadvantages, and recommends the best structure for clients. It also includes a case study on ASIC v Adler, which highlights the importance of fulfilling director's duties under the Corporations Act 2001.

This paper contains the video scripts in context of all three parts of the report, and these scripts
are divided into three parts:
Part 1:
This part defines the two business structures which operate in Australia for carrying on the
business operations, and these two structures are:
Partnership: Partnership is the structure under which two or more persons agree to operate the
business in the form of co-owners and agreed to share their profits and losses. These co-owners
are known as partners of the firm. Partnership is of two types that are general partnership and
limited partnership.
Some important and basic components of partnership are:
 Persons who conduct the firms business are called as partners.
 Partnership structure in Australia is governs under the partnership Act 1958.
 Liability in partnership is unlimited.
 Each partner is considers as the agent of partnership and other partners of the firm.
 Partners can bind the firm or other partners with their acts.
 Partners required registering themselves for GST in case annual turnover of the business
is $75000 or more.
Company: Company is considered as the separate legal entity, not like the sole trader and
partnership business. Company must be register with the Australian Securities and Investments
Commission (ASIC). Management of the company lies in the hands of the directors and officers,
and they are under obligation to comply with the Corporation Act 2001.
Some important and basic components of partnership are:
 Company is the separate legal entity.
 Shareholders of the company enjoy limited liability.
 Structure of company is complex and expensive in nature as compared to other structures.
 The Corporations Act 2001 regulates this structure.

Part 2:
This part of the video defines the advantages and disadvantages of the business structure, and
also recommends which structure suits the client best.
Partnership: advantages and disadvantages of this business structure are defined below:
Advantages Disadvantages
 Easy to set up and less expensive
 Facilitates more number of resources
and experience people.
 This business structure is simple to
administer, as income and losses
between the partners of the firm are
share as per their decided ratio.
 Each partner is liable to take part in the
business.
 Limited liability is the disadvantage of
the partnership business, as partners of
the firm are personally liable for any
debts and losses of the firm.
 Partners are liable to pay the tax at
personal tax rate.
 It is not possible for partners to transfer
their ownership without the consent of
other partners.
Company: advantages and disadvantages of this business structure are defined below:
Advantages Disadvantages
 Liability of the shareholders in context
of the debts and losses incurred by the
company is limited.
 It is very easy to transfer the
ownership.
 This business structure is regulated by
Corporations Act 2001, and more
organized as compared to other
business structures.
 Complex and expensive to set up.
 As figures are disclosed to public.
 If directors fail to fulfil their duties then
they bear personal liability.
Recommendation: It is recommended to the clients to adopt the company as their business
structure because of the reasons stated below:
 The most important reason is the limited liability, as in company liability of the
shareholders in context of the debts and losses incur by the company is limited.
 Taxes in context of company are more favourable as compared to partnership business
structure.
 Capital access in case of company is wide.
 Company holds the separate legal entity.

Part 3:
This case of ASIC v Adler is considered as unique and complicated case, because it involves
number of breach of duties in context of Corporations Act 2001. This case is the relevant
example for understanding the duties of directors.
Collapse of HIH in this case was caused due to bad corporate governance and failure of directors
to understand their duties and fulfill them. As stated above, there were number of duties which
were breach under this case such as duties of directors stated under section 9, duty to act with
due care and diligence under section 180, duty to act in good faith and for a proper purpose
under section 181, duty not to use their position in improper manner and business judgment rule
under section 182, duty not to use the information in improper manner under section 183, and
financial assistance under section 260A.