Comparison among trust, company and partnership business structure

This memorandum makes a comparison among various business structures in order to advise for the best suitable one. It mentions the rights, duties and liabilities of three different kinds of business structures and makes a recommendation at the end.

Running Head: Corporation and Business Structure
0
2018
Corporation and Business Structure
Student’s Name

Corporation and Business Structure 1
Memorandum of Advice
To: Mr. John Watson, Managing Partner, ‘Beanstalk’
From:- Robert Andre, Employee, ‘‘Beanstalk’
Date:- 20 December 2018
Sub:- Comparison among trust, company and partnership business structure
Ref:- Client Oliver and Emma
The memorandum is intended to make a comparison among various business structures in order
to advise for the best suitable one for them. In the presented Memorandum, right, duties and
liabilities of three different kind of business structure are mentioned and at the last
recommendation will be made.
Relevant Provisions: Right, Duties and Liabilities under Various Business Structure
Rights
Partnership
To the partners of the firm, many of the rights are granted. Firstly, according to section 8 of
Partnership Act 1891 (Qld.)1 states that every partner of the firm has the right to bind the firm
and other partners by their acts. Further, they have the right to take the part in the day-to-day
managerial activities and have full control over the affairs of the firm. Partners have the right to
share the profit of the business with their other partners. In addition to these rights, a partner of a
firm has the right to access the financial accounts of the firm. Partners also have the right to take
interest on the capital that they give to the firm in the form of an advance.
Company
If to talk about the rights of directors and members of a company, this is to mention that directors
can use all those powers that are mentioned in the articles of the company and for which
approval of shareholders is not necessary. Further, they have the right to receive the
remuneration for the services that they render to the company in the capacity of director. On the
other side, members have the right to receive a dividend for their investment in the company.
They can attend the general meeting and can vote on the agendas. In conjunction to this,
shareholders have right to receive the copy of the annual report and they have right to use all the
1 Partnership Act 1891 (Qld.).

Corporation and Business Structure 2
powers mention under various section of Corporations Act 2001 (Cth)2 such as 136, 157, 162,
208 and so on.
Trust
The rights of parties in this business structure are defined under Trust Deed. When it is
mentioned under the trust deed, a trustee has an entitlement (right) to receive remuneration for
the services provided to trust. A trustee has a right to use the trust find and trust property in order
to perform his/her other duties under the trust and to discharges his/her liabilities. According to
section 72 of Trusts Act, 1973 (Qld.)3 trustee has a right to indemnify himself/herself out of trust
assets. Apart from the trustee, beneficiaries under a trust also have certain rights as they may
appoint or remove a trustee. Further, beneficiaries also have a right to terminate a trust.
Duties
Partnership
As per section 31 of Partnership Act 1891, it is the duty of a partner to provide true accounts and
all the necessary information related to financial status of the firm to other partner or his/her
representative4. Further, according to the provisions of section 33 of the act, it is the duty of
partners of a firm to not to make any competition with the business of the firm. However, the
lead duties of the partners of a firm are to act in a fair and reasonable manner with the objective
to achieve common goals.
Company
Directors of the company owe their duties to the company and not to members. To talk about the
general duties of the directors, this is to be stated that according to the same, a director is
required to perform their duty with care. Further, the director being an important part of the
management owes a fiduciary duty. Moving towards the statutory duties, section 180 to 183 of
Corporations Act 2001 states the duties of directors5. According to these sections, a director and
officer of the company is expected to act for a proper purpose and in the best interest of the
company. In addition to directors, members of a company also owe some duties. Further, under
Section 191 to 195 of the act, the duties related to disclosure of various documents are also
mentioned6. For instance, it is the duty of members to not to use their significant position for an
unethical or personal purpose.
Trust
2 Corporations Act 2001 (Cth).
3 Trusts Act 1973 (Qld.).
4 WD Duncan, Joint Ventures Law in Australia: 3rd Edition (Federation Press 2012).
5 Sarah Segalla, Checklist for director’s duties (2018) < http://www.findlaw.com.au/articles/1303/checklist-for-
directors-duties.aspx>.
6 Legislation.gov.au, Corporations Act 2001, < https://www.legislation.gov.au/Details/C2017C00328>.

Corporation and Business Structure 3
In order to mention the duties of the trustees, this is to be stated that a trustee owes a fiduciary
duty to work for the best interest of the beneficiaries. Further, it is the duty of the trustee to
maintain the accounts of the trust and to provide the same to beneficiary whenever asked by
them. To avoid the conflict of interest is also a duty of trustee. In addition to this, it is the duty of
a trustee to administer the trust personally and to make an investment of the trust fund. Here it is
necessary to state that it becomes the duty of a trustee to treat all the beneficiaries in an equal
manner.
Liability
Partnership
Section 12 of Partnership Act 1891 states the liabilities of the partners. According to the
provisions of this section, a partner is liable severally and jointly with other partners for the debts
of the partnership business7. According to section 15 of the act every partner becomes liable
jointly and severally in the events when a firm becomes liable under section 13 and 14 of the act.
Section 17 says that a person, who by the actions or dealings shows presents him/herself as a
partner of a firm, becomes liable as a partner8. Section 20 of the act provides liability of
incoming and outgoing partners.
Company
In this business structure, the liability of directors and members are limited usually. However, in
many of the cases the directors of the company held personally liable when they have not
considered the interest of other stakeholders. Further, for directors of the company becomes
liable for breach of any duty mentioned under common law as well as the statue. Many of the
situations are there when directors of the company become personally liable. A director can be
held liable and responsible under section 588G of the Corporations Act 2001 for the insolvent
trading9. Further, according to the decision given in the case ASIC V Adler10, a director and
member of a company can be held personally liable when the same uses his/her position for the
personal benefit.
Trust
A trustee is liable to perform all the acts as required by the trust documents. Further, for the
incidents of breach of duty, a trustee is personally liable. However, the same cannot be held
liable for any breach of duty at the end of a co-trustee. Further, to discuss the personal liability of
trustee this is to mention that a trustee is liable towards the third party in an unlimited manner for
7 Classic.austlii.edu.au, Partnership Act 1891 - Sect 12, <
http://classic.austlii.edu.au/au/legis/sa/consol_act/pa1891154/s12.html>.
8 Legislation.qld.gov.au, Partnership Act 1891, <https://www.legislation.qld.gov.au/view/pdf/2012-05-28/act-1891-
007>.
9 Australia, Australian Corporations & Securities Legislation 2011: Corporations Act 2001, ASIC Act 2001, related
regulations (CCH Australia Limited, 2011).
10 ASIC v Adler [2002] NSWSC 171.

Corporation and Business Structure 4
all the contacts developed by him/her. At last, it is the liability of trustee to avoid the dealing of
sham against the funding and property of the trust.
Recommendation for client
As mentioned above, every business structure has different duties, rights, and liabilities. In order
to advise Oliver and Emma, this is to mention that two best suitable business forms are company
and partnership. Trust cannot be held a suitable business structure as the same has certain
limitations. Emma and Oliver will be held personally liable towards the third parties while
dealing on behalf of the trust. Further, there is no benefit to developing trust, as they do not want
to invest in property for the business. In such a situation, management of the business can face a
danger.
Moving towards the rest of the two business structures, firstly to discuss the pros and cons of
partnership for Oliver and Emma. In the case of a partnership, Oliver and Emma both can take
their divisions according to the availability of resources. It means Emma will invest capital and
Oliver will manage the affairs of the firm. In such a manner, they can manage their affairs easily.
Further, the lead motive of them is to run a business of cloud servicing, that they can manage
their works easily. They can create partnership easily with a very low cost in comparison to the
company. Further, another issue is past noncompliance on the part of Oliver that can create an
issue for business if they would go for the company structure of the business. In addition to this,
they both are friends and therefore they already have a fiduciary relationship with each other so
can fulfill the requirements of a partnership business easily and can share the profile in a
mutually decide ratio. However, the other side of the coin is also necessary to review. Oliver will
not be able to take part in the day-to-day affairs of the firm and therefore there can be an issue of
conflict of interest. Further, as Oliver and Emma are expecting that business would be a great
success in the future, then there can be an issue on the topic of the division of interest. In
addition to this, Emma already has certain personal liability hence starting a business in
partnership form will increase her personal liability. Further, it was held in the case of Lloyd v
Grace, Smith & Co11 that a partner is liable for the torts committed by other partners.
On the different side, if to talk about company mode for their business then the lead benefit will
be the separate legal entity as held in the case of Salomon v A Salomon and Co Ltd12 . Further,
Emma can choose to be a director and Oliver can invest the money as a member of the company
and in such a mode they can use their resources and their interest would not get conflict. Their
liabilities will be well defined and separate from one another. Although the business is supposed
to do good in the future, yet if there would be a loss then Emma will not get personally liable in
the capacity of director. Further, in the case of company foundation, another available benefit is
11 Lloyd v Grace, Smith & Co [1912] AC 716.
12 Salomon v A Salomon and Co Ltd [1897] AC 22.

Corporation and Business Structure 5
funding. In case of need of funds, the company would be able to raise money by issuing the
debentures, shares or taking a loan from the third party. Similar to a partnership, company
structure also have some negatives for Oliver and Emma. In the incorporation of a company,
they would have to spend more money than to partnership. Further, the liabilities of members
and directors are not limited always. There is a concept called piercing of corporate veil that
gives power to courts to held the directors as well members of the company personally liable in
cases of unfair transactions. For instance, in the case of ASIC v Rich13, a director held liable for
breach of section 180 of the Corporations Act 2001 where he failed to present the true financial
condition of the company14. Another important case to study is Forty-two International Pty
Limited v Barnes15, where again the directors held liable as they have not disclosed personal
interest according to the requirements of section 182 and 191 of the company. Here to
understand that in the case of company structure, Oliver and Emma would have a great liability.
ASIC is a body that governs the behavior of directors of companies and can initiate an action
against them.
To recommend a suitable business form to Oliver and Emma, this is to recommend that they
should go ahead with the partnership. As they are friends, they have a trustworthy relationship.
In addition to this, they can make a written partnership agreement also in order to avoid all the
potential disputes. This business form is easy to establish and the same can be dissolved easily,
however, the ultimate decision will be of the client only. This memorandum is just an advised
paper.
13 ASIC v Rich [2009] NSWSC 1229.
14 Adolfo Paolini, Research Handbook on Directors Duties, (Edward Elgar Publishing, 2014).
15 Forty Two International Pty Limited v Barnes [2014] FCA 85.

Corporation and Business Structure 6
Bibliography
Legislation
Corporations Act 2001 (Cth).
Partnership Act 1891 (Qld.).
Trusts Act 1973 (Qld.).
Cases
ASIC v Adler [2002] NSWSC 171.
ASIC v Cassimatis (No 8) [2016] FCA 1023.
ASIC v Rich [2009] NSWSC 1229.
Forty Two International Pty Limited v Barnes [2014] FCA 85.
Lloyd v Grace, Smith & Co [1912] AC 716.
Salomon v A Salomon and Co Ltd [1897] AC 22.
Books and Journals
Australia, Australian Corporations & Securities Legislation 2011: Corporations Act 2001, ASIC
Act 2001, related regulations (CCH Australia Limited, 2011).
Duncan, WD, Joint Ventures Law in Australia: 3rd Edition (Federation Press 2012).
Paolini, A, Research Handbook on Directors Duties, (Edward Elgar Publishing, 2014).
Other Sources
Classic.austlii.edu.au, Partnership Act 1891 - Sect 12, <
http://classic.austlii.edu.au/au/legis/sa/consol_act/pa1891154/s12.html>.
Legislation.gov.au, Corporations Act 2001, <
https://www.legislation.gov.au/Details/C2017C00328>.
Legislation.qld.gov.au, Partnership Act 1891,
<https://www.legislation.qld.gov.au/view/pdf/2012-05-28/act-1891-007>.

Corporation and Business Structure 7
Segalla, S, Checklist for director’s duties (2018) <
http://www.findlaw.com.au/articles/1303/checklist-for-directors-duties.aspx>.