Corporate Law: Comparison of Partnership and Incorporation

Running head: CORPORATE LAW
Corporate Law
Name of the Student
Name of the University
Author Note

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CORPORATE LAW
Part 1
Business structures
Partnership
Partnership is one of the most used business structures which is entered into between the
parties for the purpose of making profits. The goals and objectives of this business structure is to
maximize profit1. The partners enter into a written contract to be bound by the terms of the
agreement. There are various ways to enter into business and it can be done with the help of the
coming together of the partners. When the partners decide that they do not want to take the
burden of the business solely and they want to share the profits and the losses, in that case, they
can go for partnership. In partnership, the members share the liabilities, the losses as well as the
profits. Partnership is based on trust and good faith and the partners are bound by a fiduciary
relationship. Partners are indecently responsible for entering into the contract and they do so in
their individual capacity. The firm does not enter into the contract and the firm is not considered
a legal entity. The Partnership Act, 1891 governs the law of partnership in Australia. The liability
of the partners under the partnership legislation in Australia is unlimited. The agreement
governing the rights and duties of the parties are written and in formal manner and it is called the
partnership deed. The partnership deed governs the rights and in cases when there is no formal
written agreement between the parties, the same can be inferred from the conduct. If the parties
give out the impression by their behavior that they are in a partnership agreement, then it cannot
be denied and the behavior shall be indicative of an agreement2. The behavior could be in the
manner of mutual sharing of profits and losses or being responsible for the conduct of the
1 Bottomley, Stephen. The constitutional corporation: Rethinking corporate governance. Routledge, 2016.
2 Issacharoff, Samuel, and Thad Eagles. "Australian alternative: A view from abroad of recent developments in
securities class actions." UNSWLJ 38 (2015): 179.

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partners in the firm. There is an element of good faith and trust and since the partners are sharing
the profits and the losses, it can be said that there are risks of bearing the losses which might
pose to be a disadvantage for the partners. The partners shall have unlimited liability for the
dents that are incurred by the firm and the partners in the firm can be sued separately. Partnership
can be dissolved and also co-ownership is not a proof of partnership. The partners have to
maintain harmony and they cannot be held to be acting in conflict with the interest of the
partners or the firm.
Company
The law treats companies as legal entities and they also have a fictional character and
they are considered to be judicial where the company can sue and also be sued in its name. The
company can therefore be incorporated as well as unincorporated. There are many advantages of
a company as they have a legal entity and also can enter into contracts and have the power of
owning properties. These are all attributes of being recognized as a judicial body. The common
law does not have a bearing in the initiation of a company and it can be formed by statutes. The
shareholders in the terms of the company parlance are the owners of the rights of the company
and they are held to be liable only for the shares or the issue prices they have invested. The issue
prices are determined by the company and are also issued by the company. The members of the
company are held to be liable for the debts that are incurred by the company and they can also be
sued for fraud. The company in Australia is incorporated as per the statutes and therefore the
principle governing3 the statute is that the shareholders and the members shall be held liable for
the debts that the company incurs4. The benefit of this system is that the company shall sue and
3 Roness, Paul G. "Types of state organizations: Arguments, doctrines and changes beyond new public
management." Transcending new public management. Routledge, 2017. 77-100.
4 Veldman, Jeroen. "The Separate Legal Entity and the Architecture of the Modern Corporation." (2018).

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in cases when the company is sued, the members shall not be personally held liable and they will
not have to bear the responsibility individually. The Corporations Act is the legislative authority
that deals with the rights of the shareholders and the directors of the company and lays down the
guiding principles for the conduction and incorporation of the company.
Part 2
Comparison of Partnership and Incorporation
Partnership is based on the element of trust and food faith and the partners are in a
fiduciary relationship. The intention of the partnership firm is to make profits and share the
profits equally between the partners. In the present given situation, it can be said that family
members have a bearing of trust and they are assumed to be acting in good faith and therefore the
business structure suited for them is partnership. The family members can enter into a profit to
share them equally and also benefit from it. In cases when the contract which is entered into
between the parties is authorize, the partners can be bound by the terms of the contract.
Partnership is a very simple business structure and the formalities to enter into an agreement is
not as complex as a company. In cases of written partnership deeds, the statute mandates that the
regulations are upheld and it is not a mandate as partners can also enter into verbal agreements
where the intention as well as the rights of the parties can be inferred from their conduct. The
partners mutually agree on a change or alteration and they also denote among themselves how
they want to be governed by the agreement. The method for the distribution of profits is very
simple as the partners share the profits among themselves. The ultimate goal of a partnership
firm is to make profits. The partners have their specified and denoted interest in the business and
their liabilities are individual where each partner shall be individually liable.5 The interest of the
5 Macey, Jonathan, and Joshua Mitts. "Finding order in the morass: The three real justifications for piercing the
corporate veil." Cornell L. Rev. 100 (2014): 99.