Startup Costs and Administration Costs in Different Business Structures

COMMERCIAL AND
CORPORATION LAW
STUDENT ID:
[Pick the date]

PART A
The startup costs associated with different business structure tend to vary with the prime reason
being the different extent of legal formalities involved in the incorporation. Perhaps the most
simplest of all business structures is the sole trader which has minimal legal formalities
associated with starting the business. The business name ought to be registered which involves a
nominal fee of only $ 361. In the context of partnership business also, the start up costs are quite
less. This is especially the case in general partnership where there is no need to get the
partnership agreement registered even. However, registration is mandatory in case of limited
partnerships and LLP that involves minimal charges2. For the incorporation of a proprietary
company, the legal formalities required are quite cumbersome. This is apparent because there are
a host of documents required such as article of association, consent from directors, company
constitution (if available), company directors and shareholders details along with appointment of
company secretary. The implementation ot these documents takes time and also legal fees.
Besides, the host of documents required, registration is mandatory with a fee paid to ASIC to the
tune of $ 5003.
After the business structure is set, regular costs related to administration may be incurred which
are also linked to the underlying structure in place. In case of sole trader, the costs of
administration on an ongoing basis are practically zero besides the annual registration fee of $ 36
which is required as there is no compliance or reporting burden on this structure. A similar
situation is witnessed for the partnership structure since overhead regulation is minimal and if the
agreement is unregistered, then no registration fee is required periodically. However, in case of
proprietary company, there is a need to comply with the provisions of Corporations Act4 besides
annual submission of accounts. Also, the annual review fee paid to ASIC for renewal of
registration is in excess of $2505.
1 Robert Bryan Vermeesch and Kevin Edmund Lindgren,
Business Law of
Australia (Butterworths, 12th ed. 2014) 190
2 Andy Gibson & Douglas Fraser,
Business Law (Pearson Publications., 8th ed, 2014) 143
3 Julie, Cassidy,
Corporations Law Text and Essential Cases, (Federation Press, 4th ed., 2015)
112
4 Corporations Act 2001 (Cth)
5 Shayne Davenport,
Business and Law in Australia (Thomson Reuters, 4th ed, 2014) 165

PART B
The personal liability that arises for owners from unsettled business liabilities would essentially
be driven by the legal status of the structure in question. This is pivotal because if the business
structure possesses a legal entity that is independent from the underlying owners, then it would
imply a separation between the business structure and the owners. This separation would prevent
the claims on the business structure to automatically pass on to the owners for settlement6.
Consider the case of partnership firm which does not have an independent legal status. As a
result, it cannot be defined without the underlying partners. This makes the partners vital to the
existence of the partnership firm. As a result, if any of the partner decides to retire or sell the
stake, the existing partnership needs to be dissolved so that a new partnership can be formed7.
Also, any business related contracts that are enacted by the partnership firm are executed in the
partners’ name only as the partnership firm is not a legal entity and thus not capable to executing
contracts. This practically would imply that all contracts entered for the partnership business are
not applicable on the firm but the partners jointly in accordance with their shares in the profit 8.
This essentially places unlimited personal liability on the partners with regards to any business
liability that is not discharged by the firm as the partners and the firm are used interchangeably.
The assets and liabilities of the partnership firm belong directly to the partners and are not
separate assets since there is only one legal entity which corresponds to the partners.
Considering that there are different forms of partnership that are possible, hence personal
liability of partners can be lessened through usage of limited partnership and LLP (Limited
Liable Partnership) instead of a general partnership9.
The company structure is quite different from partnership owing to the fact that is has a corporate
personality and thereby is considered a separate entity legally from the shareholders. Evidence in
this regards can be provided by referring to relevant statutory provisions. The key meaning of
this legal status is that the various contracts that are required for conducting business can be
entered by the company in its name and does not require any mention of the underlying
6 Ibid 1, 178
7 Clive Turner & John Trone,
Australian Commercial Law, (Thomas Reuters, 32nd ed., 2019) 171
8 Athule Pathinayake ,
Commercial and Corporations Law, (Thomson-Reuters, 2nd ed., 2014)
189
9 Wayne Pendleton & Roger Vickery, ,
Australian business law: principles and applications,
(Pearson Publications, 5th ed., 2015) 219