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

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>