Powers, Duties and Liabilities of Directors

The provided document is a list of references related to the powers, duties, and liabilities of directors in business organizations. The references include articles, books, and online resources that discuss different aspects of director responsibilities and obligations. The assignment appears to be from a course or program focused on corporate law and governance, requiring students to understand and analyze the roles and responsibilities of directors in various business contexts.

CORPORATION AND
BUSINESS STRUCTURES

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
1. Explanation on the nature, characteristics, advantages and disadvantages of partnership,
trusts and companies available to Oliver and Emma..............................................................1
2. Summary of rights, duties and liabilities which are associated with partnership, trust and
companies available to Oliver and Emma..............................................................................5
3. Recommendations for selecting the best business structure.............................................10
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
Structure of corporation is more complex than the business structure. Corporation is
known for an independent legal entity which is separate from its owners and which is complied
with more regulations and tax requirements. Business structure is known for the category of
organisation. It is the type of framework which is recognised in jurisdiction for conducting
business activities. This project involves a research using a case study of Oliver and Emma. In
this report, explanation is provided on nature, characteristics, advantages and disadvantages of
partnership, trust and companies. Further, rights, duties and liabilities which associated with
partnership, trust and companies are to be discussed. Lastly, recommendation is to be provided
on selection of best business structure.
MAIN BODY
1. Explanation on the nature, characteristics, advantages and disadvantages of partnership, trusts
and companies available to Oliver and Emma
According to the case study related of Oliver and Emma, both wants to start a business.
To start a business and to select appropriate business structure, explanation of nature,
characteristics, and advantages and disadvantages of trust, partnership and companies are as
follows-
Nature and characteristics of partnership:
Partnership is the type of business structure, where two or more individuals come
together in dealing with business which is lawful and have agreed share of profit and loss.
Business operations and management performed either by all partner or by anyone which act for
all partner1. Partnership is the type of relation between individuals who come together and have
decided to invest their money, skill and resources with the motive of generating profit.
Agreement of partnership may be oral or written but to avoid any misunderstanding and
conflicts it must be a written agreement. Partnership has limited life which is established for
limited number of years. However, its characteristics are as follows-
1 Fernández-Monroy M, Martín-Santana JD, Galván-Sánchez I. Building successful
franchise partnerships: the importance of communication and trust. Management Decision. 2018
May 14;56(5):1051-64.
1

Membership: To begin the partnership firm, at least two persons are required and
maximum numbers would be 100. Members who are entering in this agreement must have legal
competency in operating business operations.
Unlimited liability: Partners of the partnership have unlimited liability. But they are
individually and collectively liable for debt and obligation of firm.
Sharing of profit and loss: When entering under partnership firm, members are liable
for sharing profits and loss in agreed ratio 2. If there is no agreement between partners, then
profit and loss of business will share equally among them.
Mutual agency: There is a mutual agency between the partners by which all of them or
anyone can act on behalf of others for developing effective business operations.
Voluntary Registration: There is no mandatory rule for registration of partnership but
its registration provides much more benefit in conducting effective business operation.
2 Choi Y, Chang S, Choi J, Seong Y. THE PARTNERSHIP NETWORK SCOPES OF
SOCIAL ENTERPRISES AND THEIR SOCIAL VALUE CREATION. International Journal of
Entrepreneurship. 2018 Jan 1;22(1).
2
Illustration 1: Characteristics of partnership
(Source: Partnership, 2018)

Continuity: When any partner lead to death, accident, bankruptcy or retirement then
partnership agreement will get diminished.
Contractual relationship: It may be oral, written or implied because relation between
partners is because of contract.
Transfer of interest: For transferring interest of the firm, there must be a mutual consent
of all partners. Interest of company will not get transferred if there is not mutual consent of any
one director of company.
Advantages and disadvantages of partnership:
Advantages Disadvantages
To start business in partnership, it is easy for
individuals to establish with less start-up cost.
Disadvantage of partnership is regarding the
danger of disagreement between partners
because of different ideas and views.
Partnership is generally less regulated in
comparison to company’s laws and
regulations.
Another risk with partnership is that it has
unlimited liability which means financial risk
is to be bear by partners sometimes.
Responsibility of running business is shared by
all the partners by which effective decision will
be developed in regulating business operations.
Another disadvantage of partnership is
regarding taxation policy. It means that
partners have to pay tax and must have to
submit their self- assessment.
Nature and characteristics of trust:
Trust is considered as equitable obligation which binds person (known as trustee) in
dealing with business properties on which they have full control in providing benefit to persons
which enforcing the obligation. Main motive to associate this types of business is to provide
benefits to societies and individuals who are in need.
Characteristics of trust includes that assets of trust are considered as separate fund which
means that it is not considered as part of trustee's own estate 3. Legal title of trust was given to
3 Corwin LD, Ciampi AJ. Law Firm Partnership Agreements. Law Journal Press; 2018
Jun 28.
3

trustee and to person which act on behalf of trustee. Trustee is in power in which they are
accountable to manage, employ or to dispose assets for the benefit of trust.
Advantages and disadvantages of trust:
Advantages Disadvantages
Trust is the most effective business regarding
protection of assets. When there are financial
difficulties in trust, properties will not get
seized 4.
Trustee is bound to record minutes of various
decisions because it will access by the
beneficiaries.
Tax will be charged in according to legal rules
which governing legal owners. Therefore, its
benefit is considered as effective tax planning.
One of the major drawback of trust is regarding
excess expenses. In providing benefits to
society, trust needs huge cost involvement.
Trust also provide benefits to employee which
are not in position in managing business
operations. Such as vehicles are provided to
employee which are aged, disabled etc.
Assets of the trust must be legally titled by the
trustee which required huge time and cost.
Nature and characteristics of company:
Company is known for the association of persons which grouped together for working in
a common object. Therefore, it is considered as the voluntary associations of persons which are
recognised by law. For carrying business operations and for generating effective profit, company
must have distinct name with its common seal.
Characteristics of company includes that it considered as an artificial person which
created by law. It is considered as artificial person because it comes with existence of law.
Company have its separate legal entity which means that its entity is distinct from its members.
Life of company is not related with the life of member, therefore, it is considered as
perpetual succession. Death, accident and insolvency among members does not affect business
4 Bernstein A. Company directors have legal obligations to their company and creditors.
Journal of Aesthetic Nursing. 2018 May 2;7(4):228-9.
4

operations of company. It also has common seal with limited liability. Shares of companies are
freely transferable.
Advantages and disadvantages of company:
Advantages Disadvantages
It has limited liability which means that it has
financial security in developing business
operations. Only shareholders of company are
liable to pay debt.
Major disadvantage is that it takes huge cost
involvement in maintaining and for developing
effective business operations of company 5.
It has separate legal entity from its owners
which means that its business operations will
not affect the life of members and will exist
beyond life of members.
Another disadvantage is that if directors of
company fail in meeting obligations, then they
are personally liable for debt of company.
Tax on company will only be charged when
there is a profit in company.
Another disadvantage is that profit which
distributed to shareholders are always taxable.
2. Summary of rights, duties and liabilities which are associated with partnership, trust and
companies available to Oliver and Emma
Rights, duties and liabilities which associate with partnership
Partnership is considered as the relation between persons which carry business with view
to generate profit. In developing effective business operations, there are various rights and duties
of partners. Right of partners are as follows-
Right to manage business: In partnership firm, all the partners are equally liable for
developing effective management and operations of business 6. Partners of the firm have right to
5 Corwin LD, Ciampi AJ. Law Firm Partnership Agreements. Law Journal Press; 2018
Jun 28.
6 Fernández-Monroy M, Martín-Santana JD, Galván-Sánchez I. Building successful
franchise partnerships: the importance of communication and trust. Management Decision. 2018
May 14;56(5):1051-64.
5

involve in planning, decision making, organizing and in controlling activities of business
operations.
Right to express views and ideas: In the process of decision-making, all the partners of
firm have right to express their ideas, knowledge and experience in developing smooth business
operations. Decisions are developed with mutual consent of all partners 7.
Right to inspect accounts: Every partners of firm have right to inspect accounts of
company. They make take copies of accounts and financial statements for analysing overall
business performance in business market.
Right to share profit: Each partner of firm is authorized and have right to claim profit of
the business. Profit will be distributed on basis of their agreed ratio.
Right to use property: Partners of firm are in right to use property of business for
achieving growth of business. Partners are not liable to use property for their personal purpose.
Right to indemnify: Partners of firm are authorized in getting compensation for loss and
expenses which is made by partners personally but for the use of business.
Right to join ownership: Partners are in right to claim joint ownership of property which
associated with business firm. They are liable to sell any property of business without consent of
other partners 8.
Right to get retirement: partners also have right to get retirement from the business
which is by the consent of existing partners.
Duties and responsibility of partners are as follows:
Mutual confidence and understanding- partnership is the type of business which came
in force with the consent of all the partners. Therefore, it is the duty of partners to not break
partnership agreement.
To share losses- all the partners of the firm are equally liable to bear loss of business in
their agreed ratio. Therefore, it is the duty of partners to bear loss of the business.
7 Zhang C. The Limits of Fiduciary Duties in Business Organizations: The Evidence from
Limited Partnerships in the US and UK. European Company Law. 2018 May 1;15(3):83-9.
8 Han H, Koo C, Chung N. Implication of the fit between Airbnb and host characteristics:
a trust-transfer perspective. In Proceedings of the 18th Annual International Conference on
Electronic Commerce: e-Commerce in Smart connected World 2016 Aug 17 (p. 10). ACM.
6

Not to transfer interest- another duty of partners is not to break ownership of business
without the consent of other partners.
To act within rule of authority- it is also duty of partners to work within scope of
authority.
Not to demand remuneration- if remuneration is not mentioned in the partnership deed
then, active partners are not allowed to demand.
Liabilities of partners are as follows:
Joint and several: partners are jointly and individually liable for all the business
operations of the firm. Therefore, partners have unlimited liabilities.
Liability in causing loss: no partner is liable to exempt loss which is caused in firm by
doing fraud activities and by negligence in business operation.
Liable for secret profits: if partners has earned any private profits then they will be
liable to pay that profit to firm in developing effective business operations.
Rights, duties and liabilities which associate with trust:
It is the responsibility of trustee in managing all the assets which associated with trust. It
is the duty of trustee to distribute property which is in accordance with instruction of settler.
Therefore, it is the duty of trustee in performing three jobs which include investment,
administration and distribution. Trustee is also liable for breaching own fiduciary duties. Duties
of loyalty, duty of prudence and subsidiary duties are the main fiduciary duties of trustee.
It is the duty of trustee to perform duties in the interest of beneficiaries. In managing
properties of trust, it is duty of trustee to held particular standards of care 9. There are no biases
in their working with beneficiaries of the trust. Trustee has responsibility to inform the account
of beneficiaries and not to use property of trust for their personal use. It is also the duty of trustee
in exercising reasonable skill and care in dealing with investment.
A trustee will always liable for beneficiaries of trust. If they breach agreement to then
they will be personally liable for their negligence. It is also the liability of trustee to pay for loss
or depreciation regarding property of trust because of breach of certain duties. If there is any
violation in firm, then trustee will personally liable for such circumstances of the trust.
9 Omar PJ, editor. Directors' duties and liabilities. Routledge; 2018 Oct 31.
7

Rights, duties and liabilities associated with company:
These are various duties which associate with company for their directors to perform 10.
Certain duties are as follows-
Act within powers: - Each member and directors of the company must have to work in
accordance with constitution of company and they only have to perform and exercise powers
which assigned to them in company. Constitution will include article of association, regulation
and agreements of company.
To promote success of company:- Directors of company must have to work in way
which is in good faith and will likely to promote the success of company in business market. To
promote success, directors have to develop promotion for long term success, which also in
interest of employee's and which build effective relationship with its suppliers and customers11.
Exercise independent judgement: - It is the duty of directors to exercise independent
judgement and to develop decision which is in accordance to achieve profitability of company.
Exercise reasonable care, skill and diligence: - It is also responsibility of directors in
appointing effective skilled employee which has the capability of in carrying business operations
12.
Duty to avoid conflicts of interest: - It is also the responsibility of directors in avoiding
conflicts of interest by providing effective solutions and by developing effective strategies which
overall cannot create mismanagement.
Duty to not accept benefit from third party: - It is also a duty of directors to not accept
any benefit from third party and to not break any agreement for their own sake.
Liabilities of directors of companies are as follows:
10 McLaughlin S. Unlocking company law. Routledge; 2018 Jul 11.
11 Power, duties and liabilities of directors- overview. 2018. [Online]. Available through
<https://www.lexisnexis.com/ap/pg/hkcorporate/document/410885/59HP-Y9R1-DYTB-M02B-
00000-00/Powers__duties_and_liabilities_of_directors___overview>0
12 Hannigan B. Company law. Oxford University Press, USA; 2018 Aug 13.
8

Directors of the company have to work very careful in developing effective business
operations 13. A director of company is always liable for the operations of business. They have
their personal liability under the legislation which is related to company's overall business affairs
of company.
Directors of the company are also personally liable for the overall debt of company. They
are personally liable for breaching fiduciary duties of company. Directors must have to pay for
damages if they have exceeded breach of performing their duties. Directors have the liability in
disclosing secret profit which they have generated from business.
It is also the duty of directors to not to develop any negligence in performing their duties
in organisation. Their performance must be honest and careful which provides effective benefits
to operations of business by which effective profitability will get generated. Directors are liable
for not acting any dishonesty activities which makes personal profit for them 14.
Being an owner, director also have responsibilities towards third parties. Directors are
liable to pay compensation if they find any fraudulent activity was conducted with them in
allocating share of company. Therefore, it is the responsibility of directors in developing
effective business strategies which overall develops smooth functioning of operations. In
achieving success of company directors must also have to play effective liabilities in company 15.
3. Recommendations for selecting the best business structure
From the case study of Oliver and Emma, it is recommended to Oliver and Emma to
follow business structure of sole proprietorship. This recommendation is provided to them
because, as per the case study both Oliver and Emma hiding useful information with each other.
Therefore, they will not be able to follow partnership, trust and company business structure. A
sole proprietorship is a type of business which is owned and run by individuals. Therefore, both
13 Millstein IM, Odoner EJ, Sharma A. Fiduciary Duties of Corporate Directors in
Uncertain Times. Journal of Applied Corporate Finance. 2018 Mar;30(1):17-22.
14 Zhang C. The Limits of Fiduciary Duties in Business Organizations: The Evidence from
Limited Partnerships in the US and UK. European Company Law. 2018 May 1;15(3):83-9.
15 Bernstein A. Company directors have legal obligations to their company and creditors.
Journal of Aesthetic Nursing. 2018 May 2;7(4):228-9.
9

Emma and Oliver have to follow business structure of sole proprietorship where they will able to
perform effectively.
Partnership business structure will not prove useful to them because it needs transparency
in conducting effective business operations. Partnership business structure will not work
efficiently if there is no proper communication of truth between the partners. If partnership
business structure will get developed in operating their business then, it will create
mismanagement of work which overall affect business operations of organisation. In partnership
firm, partners are equally liable for loss of business and regarding debt of business firms and
Emma is not in position in handling financial problems of firm.
To do business in trust is also not recommend to Oliver and Emma, because it is the type
of business which required huge responsibilities to perform and according to case study, Oliver
was imprisoned for six years for doing misappropriation of funds in multiple companies. There
must be an effective transparency of work in this type of business which would not be possible in
case study of Oliver and Emma. Therefore, sole proprietorship business structured has been
recommended to them.
To do business by opening Company, is also not recommended to Oliver and Emma,
because it is the type of business which required huge cost involvement in performing business
operations and both of them are not in the position to handle financial capabilities of business. In
business structure of company, if directors fails in meeting obligations then they are liable to pay
for obligation. Oliver and Emma both have financial problem therefore, it will create
mismanagement and conflict of work between them if business has been set up in accordance
with company business structure.
In the type of sole proprietorship business, individuals has benefit regarding tax and
income earned by company. Tax returns are filled separately by owner of business which saves
their overall time and money. This will prove as the most benefited business structure to Emma
and Oliver because both of them will not have to face major financial problem of company.
CONCLUSION
From the above report, it can be concluded that to start any type of business, it is
necessary to develop effective research on structure which provides guide to start business in
marketplace. This report is based on the business structure of partnership, trust and company. In
this report, an explanation is provided on the nature, characteristics, advantages and disadvantage
10

of given business structure by which effective study will get developed in starting any type of
business. It can be summarised from this report that explanation of rights, duties and liabilities of
appropriate business structure is needs to identify. This explanation is developed to provide
effective learning of responsibilities which has to be played by owners of the company.
Therefore, on the basis of report it is summarised that, both Oliver and Emma has follow sole
proprietorship business structure in developing business activities.
11

REFERENCES
Books and Journals
Bernstein A. Company directors have legal obligations to their company and creditors. Journal
of Aesthetic Nursing. 2018 May 2;7(4):228-9.
Choi Y, Chang S, Choi J, Seong Y. THE PARTNERSHIP NETWORK SCOPES OF SOCIAL
ENTERPRISES AND THEIR SOCIAL VALUE CREATION. International Journal of
Entrepreneurship. 2018 Jan 1;22(1).
Corwin LD, Ciampi AJ. Law Firm Partnership Agreements. Law Journal Press; 2018 Jun 28.
Fernández-Monroy M, Martín-Santana JD, Galván-Sánchez I. Building successful franchise
partnerships: the importance of communication and trust. Management Decision. 2018 May
14;56(5):1051-64.
Han H, Koo C, Chung N. Implication of the fit between Airbnb and host characteristics: a trust-
transfer perspective. In Proceedings of the 18th Annual International Conference on
Electronic Commerce: e-Commerce in Smart connected World 2016 Aug 17 (p. 10). ACM.
Hannigan B. Company law. Oxford University Press, USA; 2018 Aug 13.
Leahy M. Justice, Globalisation and Diverse Conceptual Worlds. In The Politics and Culture of
Globalisation 2017 Aug 18 (pp. 27-45). Routledge.
McLaughlin S. Unlocking company law. Routledge; 2018 Jul 11.
Millstein IM, Odoner EJ, Sharma A. Fiduciary Duties of Corporate Directors in Uncertain
Times. Journal of Applied Corporate Finance. 2018 Mar;30(1):17-22.
Omar PJ, editor. Directors' duties and liabilities. Routledge; 2018 Oct 31.
Zhang C. The Limits of Fiduciary Duties in Business Organizations: The Evidence from Limited
Partnerships in the US and UK. European Company Law. 2018 May 1;15(3):83-9.
Online
Partnership. (2018). [Online]. Available through:
<https://businessjargons.com/partnership.html>.
Power, duties and liabilities of directors- overview. (2018). [Online]. Available through:
<https://www.lexisnexis.com/ap/pg/hkcorporate/document/410885/59HP-Y9R1-DYTB-
M02B-00000-00/Powers__duties_and_liabilities_of_directors___overview>.
12