Nature, Characteristics, Advantages and Disadvantages of Partnerships, Trusts, and Companies

Corporations Law

To: Oliver and Emma
From: Beanstalk
Date: 20/12/2018
Subject: Advising on which business structure would be best for staring the organization
Emma and Oliver have to understand the nature, features, advantages and disadvantages,
rights, duties and liabilities of different business structures. It will help them to determine and
evaluate which business structure would be most suitable.
Nature, characteristics, and advantages and disadvantages of the partnerships
When two or more than two persons are getting involved in any kind of business and sharing
their profit and losses is called partnership. There should be an agreement between the
partners in order to establish a legal relationship. It could be either written or oral form. Both
agreements are equally valid but it is suggested that the partners should go for written
agreement as it helps in avoiding disputes in future. The main objective of the partnership
business is to earn a profit and the profit must be shared between the partners in pre-decided
ratio1. Each partner has equal right to get involved in proceedings of the business. The
business can be maintained by either any one partner or more or by all of them. All partners
are agent and principle as well. As an agent, he/she has the right to bind all other partners and
as a principle, he/she tied by the acts of the other.
There must be a mutual contribution in partnership as a partnership cannot be considered
without the equal investment of money, industrial property or to a common fund. Sharing
profits and losses are the soul of a partnership. Profits are must be shared between the
partners in pre-decided ratio. All assets which have been contributed into the partnership are
being owned by the partnership by the righteousness of its different and clear juridical
personality2. If any one partner is contributing an asset to the business, it will be owned
equally by all the partners in a special sense. Each partner has a right to bind other partners
with a legal contract. There is a limited life in partnership. Death of the partner,
1 Business Victoria, Partnership (2018) Business.vic.gov.au <http://www.business.vic.gov.au/setting-up-a-
business/business-structure/partnership>.
2 Business Guide, Partnership Advantages And Disadvantages - How To Start A Business Guide (2018) How To
Start a Business Guide <http://how-to-start-a-business-guide.com/partnership-advantages.html>.
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bankruptcy, inability and withdrawal partner or expiration of the agreement may dissolve the
partnership.
The partnership is advantageous in terms of funds as it allows involvement of multiple
owners which helps in raising funds for the business. Two or more partners can be able to
contribute more funds. It also helps in improving efficiency as all the partners can maintain
the goal of the business. The partnership provides a combination of skills of two or more
partners3. It can be considered a wider pool of skills and knowledge. It is also cost- effective
as all partners may be specialized in different aspects of the business. It makes the business
structure flexible and it can be changed at any point in time.
As decisions are being shared there is a high probability of disagreement which may affect
the business. It is for long-term, situations and expectation may change at any point in time
and can take to substantial and disturbing split-ups4. It also has a limited life and it may end
up with the death of the partner or withdrawal of the agreement. It is found that the
partnership can prevent from becoming a large business as it has limitations. It requires more
flexibility, partners need to consult and negotiate before making any decision. The
partnership is also less effective in raising the large amount to capital.
Nature, characteristics, and advantages and disadvantages of the trusts
Trust is a legal relationship where the property is being held by one entity on behalf of the
other. The entity that carries the property known as a trustee and it has some specific duties
according to that role. The entity that's property is being held by the trustee is known as the
beneficiary5. The entity which allows the trustee to hold the property on trust for the
beneficiary is known as settlor. The trustee might have the legal ownership of the property
which is being held by them but he/she is not allowed to apply the property for his/her own
interest. The trustee is responsible to use that property for the interest of the beneficiary.
Trust can be two different types one is express trust and the other one is trust implied by law.
The trust assets are not part of the trustee's own estate as it constitutes a separate fund. The
legal assets of the trust held by the trustee, other people are also allowed hold the assets on
behalf of the trustee. Trustees have been provided with the duty and power, according to that
3 B. R Ananthan, H. R Appannaiah and P. N Reddy, Business Management (Himalaya Pub. House, 9th ed, 2010).
4 Toughnickel, Characteristics Of A Business Partnership (2018) ToughNickel
<https://toughnickel.com/business/CHARACTERISTICS-OF-PARTNERSHIPS-BUSINESS>.
5 Stone Group, What Is A Trust? Different Types Of Trusts | Stone Group Lawyers (2017) Stone Group Lawyers
<https://www.stonegroup.com.au/what_is_a_trust/>.
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it is responsible for managing employees and disposing of the assets as per the terms and
conditions of the trust and also some special duties have been imposed to him by law6. The
settlor reserves some rights and powers and it allows the trustee to become a beneficiary. It is
compulsorily consistent with the existent of a trust. The most important characteristic of trust
is that it allows making separate legal ownership and beneficial interest.
The growth that takes place in the assets of the trust is fixed in the Trust itself, not in the
personal statement. All the assets of the trust are generally distributed as per the terms and
conditions of the trust. A revocable trust provides an assurance that the property will continue
to be available for the use owners' benefit7. It also provides protection in terms of problems
like mentally or physically not capable of maintaining own affairs. The owner of a revocable
trust can use all the assets while he/she alive and after his/her death it allows the successor
trustee to distribute the assets into the valid beneficiaries. Disabled dependents and children
can be provided with the financial protection with the special needs by a Trust.
The property needs to be registered under the name of trust in order to include the property in
a revocable trust. It might become troublesome as it might cost extra like filing fees. It allows
forcing any beneficiary who is over 18 to leave their credited shares of income in the
business8. It cannot grant the owner with the full control on the assets as other trustees are
also involved in the matter. Trust needs to be registered and it allows its authorities to have
access to it. There is a probability of involving wrong trustees and it may create problems if
the trustees are vying heir. Death of trustee may bring catastrophic outcomes as there is no
one who can take responsibility on behalf of the trust.
Nature, characteristics, and advantages and disadvantages of the companies
A company can be considered as a group of people with the purpose of running a business to
earn a profit. It has two different natures, as a corporation of its members and at the same
time separate from its members as a person. Once the mandatory formalities of incorporation
are completed, a completely new body comes into a role which is different and well defined
6 Donald A Ball, International Business (McGraw-Hill/Irwin, 8th ed, 2013).
7 Frank Mokosak, Advantages And Disadvantages Of Trusts (2014) Desmoinesregister.com
<https://www.desmoinesregister.com/story/money/2014/03/31/advantages-disadvantages-trusts/7141729/
>.
8 Practical Law, Trust (2018) Uk.practicallaw.thomsonreuters.com
<https://uk.practicallaw.thomsonreuters.com/4-107-7416?
transitionType=Default&contextData=(sc.Default)&firstPage=true&comp=pluk&bhcp=1>.
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