Different Business Structures in Australia and Directors' Duties

Commercial and Corporations Law

TABLE OF CONTENTS
Part-A....................................................................................................................................................................... 2
Legal Letter to John Smith..........................................................................................................................2
Part-B....................................................................................................................................................................... 6
Directors’ Duties............................................................................................................................................. 6
Importance of Directors’ Duties.............................................................................................................. 9
References........................................................................................................................................................... 10

PART-A
LEGAL LETTER TO JOHN SMITH
Sam White
28, Xyz Street
Sydney, Australia
John Smith
12-A, George Street
Sydney, Australia
27 May 2018
Dear John,
Before establishing your business in the fashion industry, it is important that you
learn about different business structures which are available in Australia. You can
choose between these structures to select the most appropriate structure for your
business. In this letter, different features of each structure are given in order to assist
you in differentiating between each structure. For small businesses, one of the most
common business structures is a sole trader. In this structure, the entire business is
owned and operated by a single person. The owner itself takes the decision regarding
the business and its operations and he/she can seek expert advice (ATO, 2018). The
owner can also hire employees, however, the decision making power remains in his/her
hands. The main advantage of this structure is lack of legal formalities than compared to
other structures. There are substantially less legal requirements which you need to
comply with a sole trading structure. Additionally, the setup of this structure is

relatively simple as well. However, the main disadvantage of this structure is lack of
separate personality of the business. The owner of a sole trading business is fully
responsible for its operations and a suit for repayment of the debts can be filed against
him by the creditors in case the business become insolvent (Legal123, 2016).
The partnership is another form of business structure which is relatively popular
in Australia. In this structure, two or more parties join together for operating a business
in common and their objective is to generate profits. The provisions regarding this
structure are given under the Partnership Act 1891 (SA), and its definition is given
under section 1. Its definition provides four key elements which are necessary to form a
partnership. The first element is a relationship between the partners. In the case of
Tiffin v Lester Aldridge LLP [2012] EWCA Civ 35, it was held by the court that a partner
receiving a share in profits and a salary has a relationship with other partners (Berry,
2017). Secondly, the partners must enter into a relationship in order to carry out or
operate a business. In the case of Khan v Miah [2000] 1 WLR 2123, the court provided
that an agreement which is constructed between parties for carrying out a business in
the future is not a valid agreement of partnership (Cheung, Chang & Kajewski, 2012).
Another element is that the partners must run the business “in common”. The
importance of this element was given in George Hall & Son v Platt [1954] TR 331 case in
which the court held that a contract for growing and selling of carrots between a farmer
and an agriculture merchant is considered as a partnership because the divided its risks
and profits equally (Roach, 2014). Furthermore, the objective of the partnership is to
generate profit for the parties. In the case of Cox v Hickman [1860] 11 ER 431, the court
provided that although the partners must have an objective to generate a profit
however only a right in the profits of a business is not enough to construct a partnership
(Henning, 2017). A partnership is divided into two types which include a limited and
unlimited partnership. Generally, the liability of partners is unlimited, and the debts of
the business bind them, however, in limited liability, the partners’ liability is limited
based on the amount of capital provided by them (section 48).
Another popular business structure is Australia is a company. The Corporations
Act 2001 (Cth) provides provisions regarding incorporation of a company and its rights.
A corporation has the ability to issue shares and raise capital and the people holding the
shares of a company are called shareholders. Although shareholders are considered as