COMMERCIAL AND CORPORATIONS LAW.

Running head: COMMERCIAL AND CORPORATIONS LAW
Commercial and Corporations Law
Name of the Student
Name of the University
Author Note

1COMMERCIAL AND CORPORATIONS LAW
Part A
Sole trader depicts a structure of business where the person owning the business and the
business are categorised to be the same person. There is not separation of personality between
the two of them. Being the same person, the liabilities and the rights that the business incurs
will be treated as the personal liability of the trader. The detailed regulations and the rules
relating to this form of business structure is provided in the Fair work Act, 20091. The cost of
setting up and the cost of operations and administration of this form of business structure is
the minimum and is less burdensome in contrast to the other forms of businesses. The legal
compliances and the requirements with respect to the other forms of businesses are less and
simple in this kind of business structure. Although there are permits and licenses that are
required to be availed for the purpose of creating and running this form of business but it
requires less compliance with respect to the others. Moreover, the working capital required is
also low in this form of business structure.
Partnership on the other hand is to be construed as a business structure that needs to be
created and established by two or more people with a view to operate the business jointly.
This from of business structure requires the joint operating of the business and the profits of
the same to be distributed among the partners. The compliances are to some extent simple in
this kind of business structure. The working capital is also affordable as the same is to be
contributed by two or more people.
Another form of business structure that requires mention in this context is the proprietary
company. It is treated as separate a separate entity in the eyes of law from its managers and
owners. The working capital of this kind of structure is huge, but the same can be raised by
1 The Fair work Act, 2009

2COMMERCIAL AND CORPORATIONS LAW
the issuing of shares. Moreover, the compliances and the regulations are more in this form of
business and the profits are required to be given away to the members by way of dividends.
Part B
Partnerships direct towards a business structure, which needs to be created by two or
exceeding two people in a joint manner. The main motive of this form of business is to incur
profit and this profit is required to be distributed among the partners complying with the
agreement that has been agreed upon between the partners regarding the distribution of the
profits. In this form of business the partners and the firm are treated to be a joint entity and
the acts of any one of the partners will treated to be enforceable upon the firm as well as other
partners. The ownership of the business as well as the liabilities of the business are required
to be borne by all the partners as well as by the firm. The resources of the businesses are also
to be derived from the joint contribution of all the members. The activities of this form of
business structure is required to be in compliant with the Partnership Act 19612. All the acts
or transactions that has been incurred or effected using the name of the firm will be required
to be treated as the joint liability of the firm as well as all the partners. This sharing of
liability of all the partners with the firm is owing to the treatment of their united identity. The
third party who has been faced with any dispute with respect to any transaction that has been
effected by any of the partners under the firm name, will be conferred with a right to enforce
the same upon the firm as a whole. This form of business confers the liability upon all the
partners both in a personal as well as joint capacity and the firm as a whole. This can be
explained with the case of Wang v Rong [2015] NSWSC 14193. The chief requisite of this
form of business is the earning of profit and the distribution of the same among the partners.
Likewise, the losses are also to be dispersed among the partners in order to mitigate the
liability. The liability of the partners are joint and the each of the partners are required to be
2 The Partnership Act 1961
3 Wang v Rong [2015] NSWSC 1419

3COMMERCIAL AND CORPORATIONS LAW
treated as the agents of the partners. The partners owe a fiduciary relationship towards the
firm. This can be illustrated with the case of Smith v Anderson (1880) 15 Ch D 2474.
However, in case the firm has underwent insolvency, the partners incur unlimited liability.
A company is to be construed as a separate entity for legal purposes and the shareholders
and the directors are not to be treated as the same entity as that of the company. The liabilities
that has been incurred by the company will not be treated to be the liability of the shareholder
or the directors in their personal capacity. The liability of the shareholders is required to be
analysed in proportion to its contribution towards the share capital. A huge bulk of capital is
needed to set up this kind of business but at the same time this capital can be raised via
issuance of shares. This will lift the burden of the promoters of the company in setting it up.
The company is treated to be an entity that is separate and distinguished and the liabilities of
the company is not to be treated as the personal liability of its mangers. A company is
managed by its directors and any liability that the company has incurred in that furtherance
will not be treated to be the personal liability of the directors. This doctrine of corporate veil
will render this separate entity of the company. This concept has evolved from the case of
Salomon v A Salomon and Co Ltd [1897] AC 225. But there are certain cases where the
directors can also be held liable for the liabilities of the company. This kind of liability is
incurred by a director when the director acts in a manner which is in excess of its duties and
scope of authority. The courts can also travel beyond the corporate veil to hold the directors
liable, when the company has been created as is put to operation to assist a sham or fraud.
This can be supported with the case of Gilford Motor Co Ltd v Horne [1933] Ch 9356. This
liability of the directors has been provided under the provisions of the Corporations Act 2001
4 Smith v Anderson (1880) 15 Ch D 247
5 Salomon and Co Ltd [1897] AC 22
6 Gilford Motor Co Ltd v Horne [1933] Ch 935

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(Cth)7. The management of the company is entrusted to the directors and they are required to
carry out the same under the guidance of the regulations provided under this Act.
Part C
Partnership is to be construed as a business structure that needs to be created and
established by two or more people with a view to operate the business jointly. This from of
business structure requires the joint operating of the business and the profits of the same to be
distributed among the partners. The compliances are to some extent simple in this kind of
business structure. The working capital is also affordable as the same is to be contributed by
two or more people. The main motive of this form of business is to incur profit and this profit
is required to be distributed among the partners complying with the agreement that has been
agreed upon between the partners regarding the distribution of the profits. In this form of
business the partners and the firm are treated to be a joint entity and the acts of any one of the
partners will treated to be enforceable upon the firm as well as other partners. This can be
explained with the case of Lang v James Morrison & Co Ltd (1911) 13 CLR 18. The
ownership of the business as well as the liabilities of the business are required to be borne by
all the partners as well as by the firm. The resources of the businesses are also to be derived
from the joint contribution of all the members. All the acts or transactions that has been
incurred or effected using the name of the firm will be required to be treated as the joint
liability of the firm as well as all the partners. This sharing of liability of all the partners with
the firm is owing to the treatment of their united identity. The third party who has been faced
with any dispute with respect to any transaction that has been effected by any of the partners
under the firm name, will be conferred with a right to enforce the same upon the firm as a
whole.
7 The Corporations Act 2001 (Cth)
8 Lang v James Morrison & Co Ltd (1911) 13 CLR 1

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A company is treated as separate a separate entity in the eyes of law from its managers and
owners. The working capital of this kind of structure is huge, but the same can be raised by
the issuing of shares. Moreover, the compliances and the regulations are more in this form of
business and the profits are required to be given away to the members by way of dividends.
The liabilities that has been incurred by the company will not be treated to be the liability of
the shareholder or the directors in their personal capacity. The liability of the shareholders is
required to be analysed in proportion to its contribution towards the share capital. This form
of business structure provides an immunity to the directors under the corporate veil. There are
certain cases where the directors can also be held liable for the liabilities of the company.
This kind of liability is incurred by a director when the director acts in a manner which is in
excess of its duties and scope of authority. The courts can also travel beyond the corporate
veil to hold the directors liable, when the company has been created as is put to operation to
assist a sham or fraud. This liability of the directors has been provided under the provisions
of the Corporations Act 2001 (Cth). The management of the company is entrusted to the
directors and they are required to carry out the same under the guidance of the regulations
provided under this Act. The Act provides for certain duties that the directors are required to
comply with in order to escape liability. The directors are required to be skilled, competent
and reasonable. The directors of a company are required to carry out their functions as a
director in good faith and in doing the same they needs to guarantee the benefit of the
company. The same can be supported with the case of ASIC v Hellicar [2012] HCA 179. The
directors are under an obligation to refrain from using any information that has been available
to them by virftue of their designation as a director to make any personal benefit. Any
personal benefit that a director might have accrued from their position as a director would
9 ASIC v Hellicar [2012] HCA 17

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accrue both a personal liability and a penalty under this Act. This can be ASIC v Flugge
[2016] VSC 77910.
10 ASIC v Flugge [2016] VSC 779

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Transcript
 I have met a client for the purpose of interviewing who has been considering to
establish a business.
 He asked me regarding the different business structure that are available and has been
looking for a suggestion.
 He was quite confused regarding the different business structures that prevails and
was not sure the exact implications and structure of the same.
 I started with the sole trader and explained him the sole trader depicts a structure of
business where the person owning the business and the business are categorised to be
the same person.There is not separation of personality between the two of them.
 Being the same person, the liabilities and the rights that the business incurs will be
treated as the personal liability of the trader.
 The cost of setting up and the cost of operations and administration of this form of
business structure is the minimum and is less burdensome in contrast to the other
forms of businesses.
 The legal compliances and the requirements with respect to the other forms of
businesses are less and simple in this kind of business structure.
 Although there are permits and licenses that are required to be availed for the purpose
of creating and running this form of business but it requires less compliance with
respect to the others.
 Moreover, the working capital required is also low in this form of business structure.
 However, it needs to be borne in mind that in case of sole trader, although the cost of
the operations and establishment is low but the same needs to be borne by a single
person, which is likely to be burdensome.

8COMMERCIAL AND CORPORATIONS LAW
 Moreover, liability of the of a sole trading business will be imposed upon the owner
of the business and the owner will not be extended with any immunity.
 Therefore, this business will not be recommended for the client.
 Another business structure that can be mentioned in that context is the partnership
business.
 Partnerships direct towards a business structure, which needs to be created by two or
exceeding two people in a joint manner.
 This form of business will not be recommendable in this case as it will require at least
two people to start this business form.
 Moreover, this form of business will incur personal liability for the owners in case a
liability has been incurred by the firm.
 The next form of business structure that needs special mention is the proprietary
company.
 It is treated as separate a separate entity in the eyes of law from its managers and
owners.
 The working capital of this kind of structure is huge, but the same can be raised by the
issuing of shares.
 Moreover, the compliances and the regulations are more in this form of business and
the profits are required to be given away to the members by way of dividends.
 The liabilities that has been incurred by the company will not be treated to be the
liability of the shareholder or the directors in their personal capacity.
 The liability of the shareholders is required to be analysed in proportion to its
contribution towards the share capital.
 This form of business structure provides an immunity to the directors under the
corporate veil.

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 This form of business is more recommendable in this case.
 This is because the owner of the company will receive an immunity from liabilities of
the company.
 The capital of the business will be raised by issuing shares that will reduce the burden
from the owners.
 The client has been relieved being acquainted by the different forms of business
structure that can be considered.
 He resolved to form a company by issuing a share.