Comparison of Partnership and Company Business Structures and Directors' Duties under the Corporations Act 2001

Corporation Law 1
Corporation Law

Corporation Law 2
Part 1:
This report reflects the knowledge related to the two business structures that are operated in
Australia in terms of conducting the business operations, and these two structures are company
and partnership. These two structures are recognized by the law and regulated by two different
Acts that are Corporations Act 2001 and Partnership Act 1891 respectively.
This report is prepared to guide the supervisor about the two business structures (company and
partnership), and also about the factors components which affect these business structures.
Following are the two business structures:
Partnership: partnership is considered as the structure which operated by two or more number of
people. 1Section 5 of the Partnership Act 1891 states that partnership is the relation that exists
between the people for conducting the operations of the business with the common view of earns
profit.
These people decide to conduct the operation of the business as the co-owners and they also give
their consent to share the profits and losses of the business. It must be noted that, these co-
owners are known as partners of the firm. Some essential components related to the partnership
firm are stated below:
 Partnership structure is governed by the Partnership Act 1891.
 Partnership is not the separate entity from its partners.
 Partnership firm needs tax file number.
 Partnership firm is not liable to pay any tax2.
Section3 6 defines the elements which determine the existence of the partnership:
 Whether partners made any profit from the joint tenancy, common property, etc.
 Whether partners share the profits have common interest in the property.
As stated partners are responsible to conduct the business of the firm, and following are the
important aspects define by the Act in context of partners:
 Liabilities of the partners in the firm are not limited.
 Partners share fiduciary relation with each other.
 Partners share the relation of agent and principle with the firm.
 Partners hold the power to bind firm from their acts (Section 8)4.
 Partners also hold the power to bind the other partners also from their actions (Section
95).
 Partners are liable to pay tax on their individual income earned.
 Partners are liable to register themselves for GST if annual turnover of the firm is $75000
or more than that.
1 Partnership Act 1891- Section 5.
2 ATO, Partnership, < https://www.ato.gov.au/Business/Starting-your-own-business/Before-you-get-started/
Choosing-your-business-structure/partnership/>.
3 Partnership Act 1891- Section 6.
4 Partnership Act 1891- Section 8.
5 Partnership Act 1891- Section 9.

Corporation Law 3
Partnership structure consist two forms that are general partnership and limited partnership. In
general partnership, liability of the partners is not limited but in limited partnership liability of
partners is limited.
Generally, joint venture is considered as partnership but in some particular situation only, and
that situation is defined by Court in case Canny Gabriel Castle Advertising Pty Ltd & Anor v
Volume Sales (Finance) Pty Ltd [1974] HCA 22; (1974) 131 CLR 3216. As per this case, if
partners share profits with each other and these profits were earned from the joint tenancy from
any property or thing then such venture can be considered as partnership.
Company:
On the other hand, company is the business structure which can be adopted by the person at the
initial stage or at the growing stage of the business. Companies do not exist under the common
law, but these entities are created by the law. Section 9 of the Corporations Act 20017 defines the
meaning of the company and as per this section any company which registered under this Act.
This section also states the different types of companies that are company limited by shares,
company limited by guarantee, unlimited liability company, and no liability company8.
Following are the essential elements of the company:
 Company is the entity which is separate from its owners, and this means that company is
the legal person which holds the rights to sue and be sued, enter into contracts, own
property, etc. This can be understood through case law Salomon v A Salomon & Co Ltd
[1896] UKHL 1, [1897] AC 229.
 Section 124 states that company holds all the rights as the legal person and also includes
the right to issue shares and debentures, and also the perpetual succession.
 Owners of the company have benefit of limited liability, which means, shareholders are
not personally liable for debts and losses of the company (Macaura v Northern
Assurance Co Ltd, [1925] AC 61910).
 Directors of the company are responsible to manage the operations of the business.
6 Canny Gabriel Castle Advertising Pty Ltd & Anor v Volume Sales (Finance) Pty Ltd [1974] HCA 22; (1974) 131 CLR
321.
7 Corporation Act 2001- section 9.
8 DIIS, Company, (2017), < https://www.business.gov.au/Info/Plan-and-Start/Start-your-business/Business-
structure/Business-structures-and-types/Company>.
9 Salomon v A Salomon & Co Ltd [1896] UKHL 1, [1897] AC 22.
10 Macaura v Northern Assurance Co Ltd, [1925] AC 619