Business Structures: Partnership vs Proprietary Company

PART D
I conducted an interview with one of my distant cousins who is currently studying in Australia.
He senses a business opportunity as the quality of food available at his university campus is not
quite good but the prices are very high. As a result, he wants to open a fast food joint along with
his friends. However, during the interview, he conveyed that one of the key concerns that there
may be others at the campus who may be planning a similar venture owing to the extent of the
problem. As a result, he is of the opinion that the business needs to be started at the earliest. He
along with his other friends have already arranged the requisite funds and are currently planning
on obtaining the requisite approvals from the university.
When I enquired about the possible business structures that they were considering, I learnt that
they have not really thought about the same as they doubt whether it would make any difference.
As a student of the current subject this was quite surprising to me considering the pivotal
difference in rights and obligations across the possible business structures. Considering that
there are multiple owners, one business structure which was not possible here was sole trader.
Hence, there were only two remaining choices in the form of partnership and proprietary
company.
I informed by cousin in relation to the key features of the partnership in simplified language so
that he can understand and take an informed decision. I highlighted the critical duties of partner
and the nature of the agency relationship between the partners especially how the contract
enactment by one partner is binding on all the other partners. Further, I indicated the various
advantages and disadvantages associated with the partnership structure. One of the key
advantages which I highlighted was the minimum time required to start the same as only a
partnership agreement is required. Also, it was also indicated how partnership structure does not
have regulatory and compliance burden thereby leading to low overhead costs in this regards.
However, the various issues regarding the partnership firm were also outlined. In this discussion,
the prime was the issue of unlimited personal liability for the business. I also suggested ways
such as limited partnership which may be used to limit the liability of atleast some partners.
Besides, the issue of partnership not being a legal entity was also explained and thereby the
suitable tax treatment was highlighted . However, after mutual discussion, we decided that