Comparison of Liabilities in Partnership and Company Structures

COMMERCIAL AND CORPORATION LAW
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PART A
The set up costs in each of the different legal structures is dependent on the underlying
formalities involved with regards to set up. These set up related formalities tend to minimal for a
sole proprietorship where typically a business name is registered. Besides, an ABN and GST
number would be required. There is choice with regards to the registration period available in
sole proprietorship with $36 being the fee for one year and $ 84 for three years1. With regards to
setting up of a partnership, only a partnership agreement is required which may or may not be
registered. As a result, the only set up costs with regards to partnership relates to the enactment
of the partnership agreement which often may not require the services of a lawyer. However,
with regards to setting up of a proprietary company, significant amount of legal formalities are
involved which consume time and cost. The documents required include MOA/AOA, copy of
company constitution, details about directors and company secretary, place of incorporation,
written undertaking from directors, shareholders details and ownership structure. Additionally,
the fee for registering a proprietary company (assuming no broker services) is $488 which is
quite high2.
The administration and other ongoing costs are also significant different across business
structures. For a sole proprietary, renewal of registration needs to be carried out before expiry
with $ 36 being the renewal fee for one year and $ 84 for three years renewal. Besides, there is
no ongoing compliance or administration cost associated with this business structure. With
regards to the partnership structure, the ongoing administration, operating and compliance
charges are practically nil with minimal regulatory burden3. However, a significant amount of
administration and ongoing costs would be incurred by the proprietary company. This is because
there is a requirement of audited annual financial statements being presented to the ASIC.
Besides, there are other provisions applicable such as the presence of company secretary which
1 Clive Turner & John Trone,
Australian Commercial Law, (Thomas Reuters, 32nd ed., 2019) 131
2 Julie, Cassidy,
Corporations Law Text and Essential Cases, (Federation Press, 4th ed., 2015) 148
3 Jason, Harris,
Corporations Law, (LexisNexis Study Guide, 2nd ed., 2014)101

are highlighted in Corporations Act 2001 that are applicable. Additionally, an annual review fee
of $263 would need to be paid to ASIC4.
PART B
The objective is to draw a comparison between the potential liabilities that would arise for the
partners in comparison to that liability which would arise for the owners of the company when
contracts are enacted with outside parties. A pivotal factor which has significance in regards to
determining the liability on account of contracts enacted with outside parties is the legal status of
the underlying business structure. In the context of partnership, it is noteworthy that partnership
is not a separate legal structure from the partners5. This implies that the partnership firm is
known by the partners only. As a result, any contractual agreement that the partnership firm
enters into is essentially enacted on the behalf of the partners. If there is any change in the
ownership of the partnership, then the underlying firm would have to be dissolved. The above
features clearly highlight that the existence and legal identity of partnership is dependent on the
partners6.
The above description is sharply in contrast with the company structure. As per s. 124-1 of
Corporations Act 2001, company has a separate legal entity. This implies that the existence of
the company is not dependent on that of the shareholders. As a result, the shareholding pattern
for the company may alter without impacting the company structure. Also, the fact that the
company is a separate legal entity implies that the company can execute various contractual
agreements that are required to conduct business7. Thereby the business agreements are enacted
on behalf of the company and any contractual benefit or obligations would be applicable for the
company directly and not for the shareholders. Also, since company is a separate legal person,
hence the assets and liabilities of the company are not to be treated as personal assets or
liabilities of the owners8.
4 Athule Pathinayake ,
Commercial and Corporations Law, (Thomson-Reuters, 2nd ed., 2014) 141
5 Andy Gibson & Douglas Fraser,
Business Law (Pearson Publications., 8th ed, 2014) 190
6 Shayne Davenport,
Business and Law in Australia (Thomson Reuters, 4th ed, 2014) 213
7 Robert Bryan Vermeesch and Kevin Edmund Lindgren,
Business Law of Australia (Butterworths, 12th ed. 2014)181
8 Wayne Pendleton & Roger Vickery, ,
Australian business law: principles and applications, (Pearson Publications,
5th ed., 2015) 187