Liabilities and Fiduciary Duties of Partners and Directors in Corporations and Business Structures

Running Head: TERM 2, 2019 0
Corporations and Business Structures
Student’s Name
8/22/2019

Partnership and Business Structures 1
Contents
Part A...............................................................................................................................................2
Part B...............................................................................................................................................4
Part C...............................................................................................................................................6
Bibliography....................................................................................................................................9
Books/Journals 9
Case Laws 9
Other Resources 9
Legislation 10

Partnership and Business Structures 2
Part A
No business acts in isolation and therefore the same has to deal with the outsiders. Under
different business structures, different level of liability arises while dealing with such parties. In
this section, the liability of participants and executives of the company and partnership firm
towards the third party would be discussed. Firstly to discuss the scenario under the partnership
firm, this is to mention that partners of the same are liable to act on behalf of the firm' business.
They do not have a separate identity from their firm and this is the reason that in the eyes of the
third party, partners are equivalent to the firm and vice versa. Partners of the firm may hold
liable for the debts as well as for other liability of the firm in a personal manner. In other words,
this is to state that the personal assets of partners may be sold in order to fulfill the liability of the
firm. In such a manner this is not wrong to state that partners have unlimited accountability in the
scenario of the partnership firm.
In conjunction to the liability of acts of firm, partners are also liable for the actions and dealing
conducted and entered into by another partner. The reasoning behind the same is that each
partner work as an agent for the firm and also for other partners. A partner may have various
kinds of authority under his/her agency relationship namely express authority, implied authority
and ostensible authority. In case of presence of any of such authority, partners have the capacity
to bind the firm and co-partners. When a partner does any act related to the regular business of
the firm and within the given authority, he/she makes other partners bound by such conduct.
Partnership Act1 (PA 1891) and common law provide the liability of partners with respect to the
conducts of the firm as well of other partners. Different types of liabilities arise in such a
situation, for instance, joint liability, contractual liability, liability under tort and so on. While
1 Partnership Act 1891 (Qld.)

Partnership and Business Structures 3
discussing the contractual liability of partners, the decision of the case of Mercantile Credit Co
Ltd v Garrod2 is required to be discussed. In such a situation, the court held firm and other
partners liable for the execution of a contract made by other partners because he did so under the
regular course of business or firm and the third party had no idea about the limited authority of
partner. It means firms and partner are liable for the contract made by one partner when the third
party has reason to believe that the partner is acting with authority.
Section 13 of the PA 1891 defines tort liability of partners and states that a partner is responsible
for the wrongs done by another partner where such wrongs/tort comes is related to a firm's
business3. Section 12 outlines that partners are liable severally and jointly to outsiders in respect
of debts of the firm.
Now, moving the discussion towards liabilities of executives and managers of business under a
company structure, this is to state that directors and officers are there to manage the affairs of
business under this structure. Not similar to partnership firm a company has a different legal
personality and therefore only a company may be held liable for its conducts. A company has all
the contractual capability to do business as a natural person and therefore may build the contracts
in its name. Corporations Act 20014 (CA 2001) is the act which contains corporate law of
Australia. In such a manner, a third party who enters into a contract with the company knows
that they are dealing with the company and not with the directors in their personal capacity. They
are not liable for any act that the company does and their personal assets remain secure in such a
way5. Nevertheless, this is to state that in addition to being a legal personality, a company is also
2 Mercantile Credit Co Ltd v Garrod (1962) 3 ALL ER 1103
3 Classic.austlii.edu.au, Partnership Act 1891 - Sect 13, <
http://classic.austlii.edu.au/au/legis/qld/consol_act/pa1891154/s13.html>
4 Corporations Act 2001 (Cth)
5 Pamela Hanrahan, Ian Ramsay and Geof Stapledon, Commercial Applications of Company Law 20th (Oxford
University Press, 20th ed, 2019).