Advantages and Disadvantages of Corporation Business Structure

This article discusses the advantages and disadvantages of the corporation business structure, including limited liability and easy fund raising. It also explains the 7-step process of incorporating an Australian company and addresses the issue of name availability. Additionally, it examines the rights of a company in relation to another company and the assumptions that can be made in the normal course of business.

Corporations Law
Student’s Name
5/29/2019

LAW202 1
Question 1
One may choose the corporation business structure for his/her business as the same provides
many advantages over other business structures. Nevertheless, the same has certain limitations
also. One is advised to select the business structure considering some factors such as the size of
the business, future development, and capital availability at present and capital requirements in
the future and so on. A company works through its directors, officers, and employees who are
not personally liable for their conducts as a company is a legal person in the opinion of the law
and only a company can be held liable for any conduct that has done in the name of the
company. In order to discuss the advantages of this business structure, this is to state that one of
the leading benefits is already been mentioned above that is a separate legal entity. As a
company has a distinct status, the same is responsible for all its conduct. Another benefit is the
limited liability of members. In the case of a company, members are the people who invest their
money to a business and therefore they are the true business owners. Members are liable for the
unpaid amount of their shares in general. Further fund raising is also easy in case of this business
structure. Funds can be arranged form shareholders in the form of capital. Bank and financial
institution are also remain ready to provide finance to a company as this business structure
provides more security to their debt in comparison to other business structure. If to discuss the
disadvantages of the company structure, the very first one is high cost. Company establishment is
a long process in compare to other business structures that consist of relevantly high cost, which
is discussed further below. Further Corporations Act 2001(Cth) is the corporation law of
Australia and the same is applicable to all the companies incorporated in this nation. The act
provides some responsibilities and duties for directors and other officers of the company and

LAW202 2
failures to follow them attract heavy penalties. This is one of the major disadvantages of
company structure.
Here in the given case, Michael is worried about the control over the business as he thinks that
he would not be able to control the affairs of the business as he is at present. In order to address
his issue, this is to inform that two bodies of individuals are there in a company that decides
mater related to business. These bodies are the board of directors and members.
Shareholders/members take all the major decisions of a company. Michael can have majority
decision-making powers in the company by holding the majority volume of shares and hence this
would not be an issue anymore. Another kind of business structure is also available for Michael’s
business that is a partnership firm, which has its own benefits and negatives. Moving the focus
towards company structure again, this is necessary to state that different types of companies are
mentioned under CA 2001. These companies are divided under different categories depending on
the basis of differentiation. For instance, based on the liability of member, limited and unlimited
company type is there. Further based on ownership, companies can be divided into two broad
categories that is proprietary and public companies. A proprietary company is the one, which has
no involvement of the public. Maximum limit of the member is fifty for such companies. As the
company has no involvement of the public, the same cannot issue shares to the public and cannot
raise fund in this way. On the other side, a public company is the one, which is not a proprietary
company, and therefore the same can issue shares to the public and no higher number of
members is prescribed in case of such companies. Further, a minimum number of directors is
also different in case of proprietary and public company. The proprietary company can be
established and operate with the help of one director, which is a resident of Australia. In the case
of public companies, three directors are required to exist, whereas at least two must be resident in

LAW202 3
Australia. In addition to this, a public company also demands to have a company secretary,
which must be a resident of Australia.
CA 2001, further divides Proprietary company into two types, considering various factors.
Section 45A of the Act provides that a Proprietary company consider small when it satisfies two
of the following requirements:-
At the end of the financial year,
a) the gross operating revenue of the company and its subsidiaries is less than $25 million,
b) assets size of the company and its subsidiaries is than $12.5 million,
c) A number of employees of the company and its subsidiaries are less than 50 (Mills, 2017)
Further, if the company fails to fulfill two or more of the above requirements then the same falls
under the category of large Proprietary Company.
In the presented case study, the question related to the incorporation process of the company in
Australia has been asked. To answer this question, this is to state that the 7-step process is
involved in the formation of an Australian company. Before starting the discussion on these
steps, this is to inform that an Australian company is required to be incorporated with Australian
securities and investment commission. This authority regulates the affairs of the companies in
Australia including controlling of director’s conduct. To form a company, the very first step is
evaluation, where the promoters of the company need to think that whether a company is a
correct business structure for business or not. Once when they get ensure about this business
structure they may proceed with the second step involved in the formation process of the
company, which is selecting the name of the company. ASIC portal provides the facility of
checking the name using which a person can get to know whether a name is available for the

LAW202 4
business or not. If a name is available for the company, then promoters need to decide the
manner in which prospective company would be deal. Here they have to decide that whether the
company will adopt readily available replaceable rules or the same will develop its own
constitution. In the next step, the promoters and other associated people are required to
understand their obligation in the capacity of office holders. Step 5 is one of the important steps
where promoters of the company get written consent of members, directors, and secretary of the
company that they are ready to hold their respective position in the company going to be
incorporated. Step 6 is the lead step where a company actually gets incorporated. Here promoter
needs to apply to ASIC for the incorporation of the company. They are required to select the type
of company. For incorporation of different kind of companies, different amount of fee is
applicable. For instance, in the case of a proprietary company, $488 is the fee. After the
formation of the company, the role of directors and officers come into the light. Under step 7,
these officers are required to ensure that company’s name is displayed on the board and other
relevant documents along with its Australian business number and Australian Company number
and other details of the company are maintained up to date. This is the whole 7 step procedure
involved in the formation of an Australian company.
In the given case study, another concern is the availability of name. Adam and John, sons of
Michael want to open a company with the name Sicilian Treats. This name will not be available
as three businesses are already registered with similar names. Hence, they have to think of
another name

LAW202 5
Question 2
Issue
What rights Poolworths Ltd has in respect to Golden Gate Technologies (GGT) Ltd.
Rules
A company has all the working powers as a natural person. The same can develop the legally
valid contracts with third parties. However As a company is an artificial person; therefore, it
needs directors and members to perform and to take decisions on its behalf. In addition to these
people, one working group is there that is of employees. Employees of the company act for an
don behalf of company therefore they play role of agent. In this manner, company remains
accountable and answerable for the conduct of employees(Lipton and Herzberg, 2007). This is
necessary to state that similar to principal under agency law, a company also can be held liable
for only authorized conduct of employees and officeholders. These people can have power to
conduct an activity under different kind of authorities. The very first authority is actual authority.
In case of such authority, company gives an express authority to do something to their office
holder and employees. On different side, ostensible authority is also a valid authority where
principal by his/her act shows that a particular person has authority to do an act on his/her behalf
and therefore the same is an agent of first person. Now in both situations, third party has reason
to belief that the person they are dealing with on behalf of the company has required authority to
deal that transaction. Third parties are outsider for the business and they have no access to check
the actual authority level of different people in the company. The situation is known as indoor
management. CA 2001 outlines the provisions regarding these situations in section 128. The

LAW202 6
section says that a person who deals with the company in the normal course of its business can
take the assumptions mentioned U/s 129. As per subsection 3 of section 128, the assumption
mentioned under section, 129 would also be available for the third parties where an officer or
agent acts in a fraudulent manner. Different kinds of assumptions are mentioned under section
129. As per sub section 3 of section 129, a third party may assume that a person who held out an
officer or an agent by company is duly appointed and has powers to do all the acts that similar
kind of officers or agent do in other companies (Australia, 2011). However, section 128(4)
provides safeguard to company in against of the fraudulent or non-authorized conduct of its
agents and officer and says that assumption under section 129 are not available in those cases
where third party was aware or suspected that the assumption they are making are not correct. In
the decision of the case Northside Developments Pty Ltd v Registrar-General (1990) 93 ALR
385, court provided that whenever a third party feel some suspect about authority of agents
performing on behalf of the company, it becomes their responsibility to check that whether they
are dealing with the authorized person or not (Lawcasesummaries.com, 2019).
Application
Here, in the given scenario, Golden Gate Technologies (GGT) appointed a person named George
on the position of salesperson to sell the software developed by the company. GGT developed
the contract with George and made him entitled to provide discount upto 10%. The issue of the
case started when George offered 15% discount to Brendan, one of the customer who was
dealing in behalf of his company, Poolworths Ltd. It means Poolworths Ltd was the actual
customer. Here Brendan was able to take the assumption of section 129 (3) and therefore he had
reason to believe that George was duly appointed by GGT and was entitled to give 15%
discount. Nevertheless, this discount was quite unusual as per the nature of transaction and

LAW202 7
industry. Here Brendan had reason of suspect as one of his colleague asked him to be ensure
about the authority of Brendan.
Applying the provisions of Northside Developments Pty Ltd v Registrar-General, it was liability
of Brendan to check the truth that was suspected but he did not do so hence he can bot take the
assumption of section 129 of CA 2001.
Conclusion
This is to conclude that being a third party, Poolworths Ltd has no right to sue GGT as the
assumption of section 129 will not be available.

LAW202 8
References
Asic.gov.au. (2019) Steps to register a company. [online] Available from: https://asic.gov.au/for-
business/registering-a-company/steps-to-register-a-company/#understand-obligations [Accessed
on 29/05/2019]
Australia. (2011) Australian Corporations & Securities Legislation 2011: Corporations Act
2001, ASIC Act 2001, related regulations. Australia: CCH Australia Limited.
Corporations Act 2001 (Cth)
Lawcasesummaries.com. (2019) Northside Developments Pty Ltd v Registrar-General (1990) 93
ALR 385. [online] Available from: https://lawcasesummaries.com/knowledge-base/northside-
developments-pty-ltd-v-registrar-general-1990-93-alr-385/ [Accessed on 29/05/2019]
Lipton, P., and Herzberg, A. (2007) Understanding Company Law. Australia: Thomson Legal &
Regulatory Limited.
Mills, A., D. (2017) Company Accounting - Prepare Financial Reports for Corporate Entities.
Australia: Cengage AU.
Northside Developments Pty Ltd v Registrar-General (1990) 93 ALR 385