Setting up and Administrative Costs of Different Business Structures

Part A. Business structures need to be set up and administered through the life of the
business.
In part A of the present assignment, there is a need to discuss the setting up and administrative
costs related with different business structures like sole traders, companies and partnerships need
to be explored. In this context, it is worth mentioning that the business structure of sole trader is
the easiest to establish. As a result, it can be stated that running the business through the business
structure of sole trader is easiest and also most inexpensive. Probably, due to this reason, the
business structure of sole trader has proved to be the most popular. When the business is being
run in the form of sole trader, the owner of the business enjoys more control and flexibility in
terms of managing the business. Similarly there are less taxes and legal issues present in case of
sole trader business. But it is also worth mentioning that what the business is being run as a sole
trader, the owner of the business has complete liability for the responsibilities of the business.
These include the debts and other obligations incurred by the business. Consequently, the owner
is going to be completely responsible for these obligations and the personal assets of the owner
may also be at risk. However in this case, it is possible to trade under the name of the owner. The
other option is to register the name of the business with the ASIC.
The next business structure is that of a partnership. In this case, generally two or more parties run
the business jointly, for the purpose of making profit. In this case, it has been agreed between the

partners that they will contribute investment, skills and labor.1 Similarly, the profit or loss made
by's is also going to be shared by the partners and they will also share the responsibility of
managing the business. However, a major difference that exists between the partnership and the
corporation is that under the law, a partnership is not treated as a separate entity, distinct from its
owners. The result is that all the partners share the responsibility for different aspects related
with the management of the partnership business. In this regard, it is also significant that a
written agreement should be present between the parties, even if it is not compulsory under the
law.2
On the other hand, a corporation is treated by the law as a legal entity separate from its owners.
Due to this reason, a corporation is permitted by the law to own assets in its own name. The
owners of the company can be described as the shareholders and the directors have the
responsibility to manage the affairs of the company. A company can also initiate legal
proceedings in its own name. But there are certain circumstances when the directors of the
company can be held personally liable. In order to create a corporation, the law requires that an
entity should be incorporated in accordance with the provisions of Corporations Act, and it needs
to be registered with the ASIC. It is possible to register a company in the form of a proprietary
company or as a public company.
Part B. Compare the liability of partners to the liability of individuals involved in a
proprietary company when contracts are entered into with outside parties
1 Baxt, Robert, L Bialkower and R. J Morgan, Guidebook To Partnership Law (CCH Australia Ltd., 1984)
2 Fletcher, K. L and K. L Fletcher, The Law Of Partnership In Australia (Lawbook Co, 2007)

The relationship of partnership is a relationship or Association present between two or more
parties. That has been created for making profit. Such persons can be individuals or other
entities. Therefore as against a company, the partnership is not incorporated under the law. The
result is that the rights and obligations that have been imposed on the partners are mentioned in
the partnership agreement. The law provides that the partnership agreement can be created in
writing or it it can be present orally also.
In case of the contracts that have been created with outside parties, the law provides that all the
partners are to be treated as having unlimited responsibility towards the outside parties. As a
result of this position, all the partners of the firm can be held jointly liable for the debts of the
firm. Therefore it can be stated that the business structure of partnership has much more liability
towards the outsiders as against a corporation. The reason behind this position is that a partner is
not only held liable for the contracts that have been created by him, but all the partners are held
liable for the acts of the other partners even if they did not have any control on them.3
In order to deal with this situation, it has been provided by the Partnership Act that each and
every partner is allowed by the law to enter a contract or to create liability that will be binding
for each and every partner of the firm as if the search partner has created the contract himself.
The law provides that any outsider, while dealing with a partner of the firm may presume that all
the other partners are going to be completely and equally responsible for the promise made to the
outsider.4
There are a lot of commercial entities operating as partnerships. Generally these entities are
required to deal with outsiders and third parties in the course of the business. In view of the
nature of the relationship that is created under the partnership, when the issue arises regarding
3 Higgins, Patrick F. P and Keith Lloyd Fletcher, The Law Of Partnership In Australia And New Zealand (LBC
Information Services, 2001)
4 Prine, T and Scanlan, G, The Law of Partnership, 1995, London: Butterworths