Corporation and Business Structure: Nature, Characteristics, Advantages and Disadvantages of Partnerships, Trusts, and Companies

This article discusses the nature, characteristics, advantages and disadvantages of partnerships, trusts, and companies available to Oliver and Emma. It also explains the rights, duties, and liabilities associated with each business structure.

Running head: CORPORATION AND BUSINESS STRUCTURE
Corporation and Business Structure
Name of the Student
Name of the University
Author Note

1CORPORATION AND BUSINESS STRUCTURE
Question 1
Explain the nature, characteristics, and advantages and disadvantages of the partnerships,
trusts, and companies available to Oliver and Emma.
PARTNERSHIP
Partnership is a business structure that involves at least two parties, who invests equally
or otherwise with the common goal of profit making in mind. General and limited are the two
forms of partnership business. They share the rights and he liabilities of the partnership firm
jointly1. They bears the burden of an unlimited liability. In the UK, the Partnership Act 1890
governs Partnership firms.
Characteristics and Nature
Partnership is a simple and inexpensive form of business, which is easy to set up and
similarly easy to wind up as well. It takes two person at least to start a partnership firm, which
can go up to 100. In a partnership firm, the partners have an unlimited liability2. The partners are
to be held individually as well as collectively liable for the firm’s debts and liabilities. They are
liable to share the profits and losses that are incurred from the business, as per the contribution of
the partners. The partners are the principal as well as the agent in a partnership firm. They are
bound with each other, as long as they are partners running the firm3. The partnership relation is
established on a contract, either oral, implied or written. A partnership firm would come to an
end in case the partners die, loses their sanity or becomes bankrupt. Registration is not
mandatory for a partnership firm. However, the firm must register itself for filing GST for an
annual turnover above $750004.
Advantages
Partnership firms are easy to establish and therefore it is easy to change its structure as
well. It is easier to wind up and distribute the assets among the partners in a partnership set up. It
bears better opportunity to borrow funds as the financers lend on the face value and financial
condition of the partners, and generally not based on the condition of the firm. Often the highly
productive and performing employees are added to the board of partners for their intense
1 Cohen, Elaine. CSR for HR: A necessary partnership for advancing responsible business practices. (Routledge,
2017)
2 Burns, Paul. Entrepreneurship and small business. (Palgrave Macmillan Limited, 2016)
3 Todeva, Emanuela. Business networks: strategy and structure. (Routledge, 2006)
4 Partnership (2018) Business.gov.au <https://www.business.gov.au/Planning/Business-structures-and-types/
Business-structures/Partnership>

2CORPORATION AND BUSINESS STRUCTURE
contribution to the firm. The affairs of the firm is easily kept secret for the number of deciding
members are less, and therefore it involves lesser external control over the firm. Lesser owner
involves less complexity to divide the profits and dividends5.
Disadvantages
One of the biggest drawback of partnership firm is that the partner share unlimited
liability of all the debts and other obligations of the firm. The firm’s debt may affect the personal
properties and assets of the partners. The partners are held responsible for the wrongful activities
of one another. Additionally, it is mandatory to divide the assets and fund of the firm every time
a partner joins or leaves the firm, which becomes a problem.
TRUST
A trust is a type of business structure that involves a person or a company (trustee) who
looks after and takes good care of the trust property for the benefit of another (beneficiary). The
trustee is under the obligation to give the benefits or income earned from the trust property to the
beneficiary, for whom the trust was formed on the first place, as per the trust deed6. Usually, a
trust is created to support people of a large family who are incapable of maintain themselves of
the time being.
Characteristics and Nature
A trust involves a handsome amount of money to set up. It is created by way of a trust
deed that gives the overview of the objective and purpose of the trust. A trustee is appointed to
look after the trust property for the benefit of the beneficiary or beneficiaries. He is officially to
be held responsible for the working of the trust. The trustee cannot use the trust property or the
income of the trust for his personal objective. A person or a company can be a trustee7.
Advantages
A corporate trust bears limited liability and it is easier maintain privacy in a trust in
comparison to company. The beneficiaries receives same or different share of returns from the
5 Partnership – Advantages And Disadvantages - Business Tasmania (2018) Business.tas.gov.au
https://www.business.tas.gov.au/starting-a-business/choosing-a-business-structure-intro/partnership-advantages-and-
disadvantages
6 Pozen, Robert C., et al. "trusts&trustees." (2012) Trusts & Trustees 18.3.
7 Ibid.

3CORPORATION AND BUSINESS STRUCTURE
trust property as per the trust deed8. The beneficiaries are not required to pay a separate tax for
the income from the trust property; it is included along with the usual income tax9.
Disadvantages
Setting up a trust involves several complexities and consumes a huge amount of time a
well. It is involves steep cost for establishing and maintaining a trust. It is even more difficult to
borrow or to take a loan to make a trust. Additionally, the trust deed may impose restrictions on
the trustees and the beneficiaries10.
COMPANY
A company is another type of business set up which bears a separate legal entity, just like
a person. It can sue and can be sued in its own name. A company can be private or public, as per
the necessity of the parties forming it11. Private companies are called ‘proprietary limited’
companies which are restricted from raising fund by issuing shares to the general public, while
the ‘public’ companies can issue share to the public for raising capital and other funds if they
need so. The Corporations Act 2001 regulates the various types of companies in Australia12.
Characteristics and Nature
A company has its own legal identity, like a person. It has a common seal and has a
perpetual existence. It can sue and can be sued in its own name. It has its own properties and
assets, movable or immovable. A company has a limited liability, unlike partnership. The
shareholders are not liable to pay the debt of the company from their personal earnings. It
involves a heft cost to establish a company, for it is a complex business structure. The income of
company stays with the company and does not belong to the directors or owners13. In Australia, a
company is registered under the Australian Securities and Investments Commission (ASIC) and
it is follows the Corporations Act 2001 for all its regulations. The company requires mandatory
registration for GST if the turnover exceeds $7500014.
8 Trust – Advantages And Disadvantages - Business Tasmania (2018) Business.tas.gov.au
<https://www.business.tas.gov.au/starting-a-business/choosing-a-business-structure-intro/trust-advantages-and-
disadvantages>
9 Ytterberg, Alan V., and James P. Weller. "Managing Family Wealth Through a Private Trust Company."
(2010) ACTEC LJ 36: 623
10 Trust – Advantages And Disadvantages - Business Tasmania (2018) Business.tas.gov.au
<https://www.business.tas.gov.au/starting-a-business/choosing-a-business-structure-intro/trust-advantages-and-
disadvantages>
11 Tomasic, Roman, Stephen Bottomley, and Rob McQueen. Corporations law in Australia. (Federation Press, 2002)
12 Corporations Act 2001
13 Hanrahan, Pamela F., Ian Ramsay, and Geofrey P. Stapledon. "Commercial applications of company law." (2013)
14 Company (2018) Business.gov.au <https://www.business.gov.au/Planning/Business-structures-and-types/
Business-structures/Company>

4CORPORATION AND BUSINESS STRUCTURE
Advantages
Shareholders have a limited liability, which makes them free from taking the
responsibility of the debts of the company. For a public company, it is easy to change ownership
by way of transferring or selling the shares to another. Shareholders are appointed by the
company for taking the responsibility of different important positions of the company, required
for good governance. In Australia, a company that is registered under the ASIC can carry out its
business anywhere within the country. A company has the opportunity to generate huge amount
of funds, as it is open to collect money by offering its shares to the public. It has the scope to
engage greater number of human resource for its bigger magnitude. Taxation system is easier for
a company as it is responsible for paying its own taxes out of its own earnings; it does not
involve the owners or the shareholders to pay for it15.
Disadvantages
Establishing a company involves a good amount of monetary investment and therefore
involves heavy costs to wind up its business as well. both establishment and winding up involves
complexities. A public company’s financial affairs are open to public for they are to be registered
with a stock exchange for regular buying and selling of its shares. This defeats the privacy factor
of a public company, unlike a proprietary company. The directors and the shareholders are liable
for the company affairs. The court may pierce the ‘corporate veil’ when necessary. Additionally,
the profits earned by the shareholders are taxable separately16.
15 Company - Advantages And Disadvantages - Business Tasmania (2018) Business.tas.gov.au
<https://www.business.tas.gov.au/starting-a-business/choosing-a-business-structure-intro/proprietary-company-
advantages-and-disadvantages>
16 Nyombi, Chrispas. "Lifting the veil of incorporation under common law and statute." (2014) International Journal
of Law and Management56.1: 66-81.

5CORPORATION AND BUSINESS STRUCTURE
Question 2:
Summarise the rights, duties, and liabilities associated with the various partnerships,
trusts, and companies available to Oliver and Emma.
PARTNERSHIP
Rights
In a partnership firm, the partners bears the right to be involved in the business affairs.
They have the right to take every kind of decisions for the benefit of the firm. They can assess
the books of account to keep a check on the income and expense of the firm. They have the right
to derive the profits earned by the firm, as per their contribution for establishing the firm or as
agreed in the partnership agreement. A partner has the right to reimburse the expenses that he has
made for any purpose of the firm, whether in general or in emergency. A partner may make use
of the partnership property or asset for business purpose. A partner may take emergency business
decision alone, in the absence of other partners. A partner may choose to retire any time he
wants, with prior notice. A partner who has joined the firm recently would not be held
responsible for any obligation of liability that had arose before his joining. A partner may invest
or participate in a similar or competitive business upon resignation, unless there are restrictions
on his agreement with the firm17.
Duties and Liability
One of the biggest liability of partnership firm is that the partner share unlimited liability
of all the debts and other obligations of the firm. The firm’s debt may affect the personal
properties and assets of the partners. The partners are held responsible for the wrongful activities
of one another. It is mandatory to divide the assets and fund of the firm every time a partner joins
or leaves the firm. A firm is required to file a TFN or Tax File Number and it requires an
Australian Business Number (ABN) to operate as a business house18. The partners are supposed
to pay income tax on their own earnings as well. The partners needs to set up their own
retirement fund for they are not the employees of the firm.
TRUST
Rights of the Trustees and the Beneficiaries
17 Partnership (2018) Business.vic.gov.au <http://www.business.vic.gov.au/setting-up-a-business/business-
structure/partnership>
18 Partnership (2018) Business.gov.au <https://www.business.gov.au/Planning/Business-structures-and-types/
Business-structures/Partnership>

6CORPORATION AND BUSINESS STRUCTURE
The trustee must be compensated for the costs and expenses they make for the trust
property and for the welfare of the beneficiary. A trust has the right to personally approach the
beneficiary to reimburse his expenses made for the trust property and assets. A trust may seek
the legal help and may move the court in case any dispute arises between him and the
beneficiaries pertaining to the trust property or otherwise. In case of breach of trust, a trustee
may seek for legal relief or may opt for alternative dispute resolution, as included in the trust
agreement. Breach of trust involves loss of either party and therefore a trustee may claim
compensation if the trust is breached by the beneficiary19.
On the other hand, the beneficiary bears the right to receive the incomes and the benefits
coming from the trust property. He has the right to information regarding any changes to the trust
property, be it any addition, alteration, upgradation or modification. He has the right to ask for a
report pertaining to the income and expenditure of the trust, including any distribution of the
fund of the trust. The beneficiaries have the right to appeal to the court for the removal or change
of the trustees or one of them. They might also file a petition to the court for dismissing trustee.
Duties and Liabilities of the Trustees and the Beneficiaries
A trustee shall not jumble up the trust property with his own. He is liable to maintain
proper books of account that has all the details of the income and expenditure incurred for the
firm. He must not use the trust property for his personal purpose. A trustee is under the
obligation to treat the beneficiaries equally, unless the trust deed specifies otherwise. The trustee
must take utmost care of the trust property and make investments to make the property grow and
flourish. He must maintain details of the expenditure, tax returns and other documents pertaining
to the trust. Overall, he is in charge for taking good care of the trust and give the beneficiary his
share of the benefits incurred from the trust from time to time20.
The beneficiaries would be held liable for reimbursing the trustee for the expenses they
make for the trust property. Beneficiaries must have the knowledge about the trust and the way
things work pertaining to the trust property. They must keep a tab on the trustee and make note
of the functioning of the trust so that they can review the activities of the trust when necessary.
They are under the obligation to restrict the trustee whenever any disputes or malpractices are
detected. Beneficiaries must understand the management system of the trust and therefore must
have the knowledge about the accounts of the trust property. They must be aware of the
administrative system of the trust as well21.
19 Trust (2018) Business.gov.au <https://www.business.gov.au/Planning/Business-structures-and-types/Business-
structures/Trust>
20 Ibid.
21 Trust (2018) Business.gov.au <https://www.business.gov.au/Planning/Business-structures-and-types/Business-
structures/Trust>

7CORPORATION AND BUSINESS STRUCTURE
COMPANY
Rights of the shareholders and the directors
A director bears the right to enforce statutory regulations for carrying out the course of
business as per the requirement. They have the right to enforce the company constitution for non-
compliance. He has the right to lay down his opinion of the benefit of the company in the board
meetings. He has the right to retire, with prior notice. He has the right to be in this position and
carry out his duties laid down under the Corporations Act until removed or until his term as a
director exhaust. The director has the right to draw remuneration from the company as per the
agreed terms of the contract22.
A shareholder bears the right to be a part of the company meetings. He should receive the
annual report of the company, which would provide him the overview of the condition of the
company, including its turnover, expenditure and debts. He has the right to receive dividends. He
can go through the company’s books of account. He has the right to sue the company in case a
dispute arises that requires legal intervention23.
Duties and Liabilities of the shareholders and the directors
Directors can be held liable for the debts of the company when the ‘corporate veil’ is pierced by
the court in case of disputes. The liability of the directors continue even after the company has
wound up its business or has deregistered. They can be made liable to pay for the debts for
reasons like, loss incurred due to breach of director’s duty, insolvency, debts incurred by the
company in the capacity of a trustee to a trust property of a beneficiary, illegal activities, or by
way of other actions effected by the director or directors24.
Whereas, the shareholders are not liable to pay the debts of the company even where the
corporate veil is pierced by the court however they are obliged to pay the price of the unpaid
shares.
22 Tomasic, Roman, Stephen Bottomley, and Rob McQueen. Corporations law in Australia. (Federation Press, 2002)
23 Ibid.
24 Hanrahan, Pamela F., Ian Ramsay, and Geofrey P. Stapledon. "Commercial applications of company law." (2013)

8CORPORATION AND BUSINESS STRUCTURE
MEMORANDUM OF ADVICE
TO: Oliver and Emma
FROM: Beanstalk business consultancy firm
SUBJECT: Legal Advice
DATE: 15 December 2018
Issue
To advice Oliver and Emma regarding the best available business structure for their
purpose, along with reasons.
Application
By analysing the nature, characteristics, advantages, disadvantages, rights and liabilities
of partnership, trust and company, it can be deduced that the business structure of a company
would suit Oliver and Emma the best. A company being a separate legal entity is just like a
person. It can sue and can be sued in its own name. A company can be private or public, as per
the necessity of the parties forming it. Private companies are called ‘proprietary limited’
companies which are restricted from raising fund by issuing shares to the general public, while
the ‘public’ companies can issue share to the public for raising capital and other funds if they
need so. The Corporations Act 2001 regulates the various types of companies in Australia.
Oliver and Emma can take up the role and responsibility of director who would be solely
responsible for running the business, taking all the major decisions for the benefit of the
company.
Additionally, Oliver and Emma should make the company a trustee for their
dependants to be the beneficiaries of the trust. The trust company would be like a successor
trustee for the dependants of Oliver and Emma who would be the beneficiaries of the trust. The
trust company would act as a financial assurance to Oliver’s old mother and disabled child, and
Emma’s adult son who needs financial support. A trust involves a person or a company (trustee)
to look after and take good care of the trust property for the benefit of another (beneficiary). The
trustee is under the obligation to give the benefits or income earned from the trust property to the
beneficiary, for whom the trust was formed on the first place, as per the trust deed.
Oliver and Emma could invest in a proprietary company which would bear the
properties and merits of a private company as stated under the Corporations Act 2001. Emma
could be the Director for she plans to devote her majority time in the business while Oliver being

9CORPORATION AND BUSINESS STRUCTURE
the passive investor for he plans to invest only. Oliver’s disabled child and aged mother, and
Emma’s son who requires financial assistance for higher studies would be held as the
beneficiaries of the trust company who would be able to reap the benefits of the company even
in the absence of Oliver and Emma. They would be eligible to carry out the rights and liabilities
of beneficiaries as discussed above.
Conclusion
Therefore, to deduce the conclusion, it would be best to say that the set up of a company
would be the best business structure for Oliver and Emma where the former could be an investor
while the latter can be a director of the company, who would be actually running it. In addition,
Oliver and Emma could assign the company to be a trustee of their dependants who would be
able to enjoy the revenue generated from the company being the beneficiaries.

10CORPORATION AND BUSINESS STRUCTURE
Bibliography
Books/ Journals
Burns, Paul. Entrepreneurship and small business. (Palgrave Macmillan Limited, 2016)
Cohen, Elaine. CSR for HR: A necessary partnership for advancing responsible business
practices. (Routledge, 2017)
Hanrahan, Pamela F., Ian Ramsay, and Geofrey P. Stapledon. "Commercial applications of
company law." (2013)
Nyombi, Chrispas. "Lifting the veil of incorporation under common law and statute."
(2014) International Journal of Law and Management56.1: 66-81.
Pozen, Robert C., et al. "trusts&trustees." (2012) Trusts & Trustees 18.3
Todeva, Emanuela. Business networks: strategy and structure. (Routledge, 2006)
Tomasic, Roman, Stephen Bottomley, and Rob McQueen. Corporations law in Australia.
(Federation Press, 2002)
Ytterberg, Alan V., and James P. Weller. "Managing Family Wealth Through a Private Trust
Company." (2010) ACTEC LJ 36: 623.
Legislations
Corporations Act 2001
Partnership Act 1890
Websites
Company - Advantages And Disadvantages - Business Tasmania (2018) Business.tas.gov.au
<https://www.business.tas.gov.au/starting-a-business/choosing-a-business-structure-intro/
proprietary-company-advantages-and-disadvantages>
Company (2018) Business.gov.au <https://www.business.gov.au/Planning/Business-structures-
and-types/Business-structures/Company>

11CORPORATION AND BUSINESS STRUCTURE
Partnership – Advantages And Disadvantages - Business Tasmania (2018) Business.tas.gov.au
https://www.business.tas.gov.au/starting-a-business/choosing-a-business-structure-intro/
partnership-advantages-and-disadvantages
Partnership (2018) Business.gov.au <https://www.business.gov.au/Planning/Business-
structures-and-types/Business-structures/Partnership>
Partnership (2018) Business.vic.gov.au
<http://www.business.vic.gov.au/setting-up-a-business/business-structure/partnership>
Trust – Advantages And Disadvantages - Business Tasmania (2018) Business.tas.gov.au
<https://www.business.tas.gov.au/starting-a-business/choosing-a-business-structure-intro/trust-
advantages-and-disadvantages>
Trust (2018) Business.gov.au <https://www.business.gov.au/Planning/Business-structures-and-
types/Business-structures/Trust>