Partnership Business | Corporations and Business Structure

Running head: CORPORATIONS AND BUSINESS STRUCTURE
CORPORATIONS AND BUSINESS STRUCTURE
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1CORPORATIONS AND BUSINESS STRUCTURE
Introduction
A partnership business can be described as the type of business where two or more
people could be seen to share the ownership, the responsibility for managing the business as well
as the profits or losses that are generated. On the other hand, a company is a legal entity made up
of an association of natural or legal people to carry on any industrial or commercial enterprise.
This report analyzes briefly about the business structures of a company and a partnership in
relation to the liabilities and the fiduciary duties present in both the structures. A further analysis
has been done in the report for advising the client about the directors’ duties in a company in
relation to a case.
Part A
Potential Liabilities to Third Parties
In a business the term liabilities can be described as the financial debts or obligations of
any business arising during the course of business operations. In both the company business
structure and the partnership business structure, liabilities towards third parties are present. The
liabilities of both the business structures are discussed below.
Company
According to the provision of section 9 of the Corporations Act 20011 a company has
been defined as a company formed and registered under this Act’s provision. The directors in a
company have no personal liability on the company’s behalf, since it is seen as a separate legal
1 Corporations Act 2001, s.9

2CORPORATIONS AND BUSINESS STRUCTURE
entity. However any director would be seen as collectively and jointly held for any act or
omission of any act which is found as prejudicial towards the company’s interests and further is
in violation of the duties that are discharged by the directors. The directors’ fiduciary duties are
mentioned in the sections 180-183 of the Corporations Act2.
The directors are seen as owing a liability of acting for the collective interest of all the
members. In certain circumstances, however, the directors can be needing to take into
consideration other interests as well. A director of any company, as per the Australian Securities
and Investment Commission3, would be held liable for any breach of their duties or obligations
long after the existence of the company ceases. According to section 588G of the Act4, under
certain circumstances a director might be held responsible towards the debts that have been
incurred by the company and the company is seen as unable of paying the debts. The term
‘Lifting the Veil’ is often used for referring any situation in which a shareholder is held
responsible for the debts incurred by the company despite of the rules being present of separate
personality or legal liability of the company. In furtherance a company can make the directors
liable for any third party liabilities.
Partnership
Partnership has been defined in the section 6 of the Partnership Act 19635 as relationship
between two or more individuals starting a business together with the common interest to earn
profit and also includes incorporated limited partnership. When a liability can be seen as arising
2 Ibid, ss.180-183
3 Australian Securities and Investment Commission
4 Corporations Act 2001, s.588G
5 Partnership Act 1963, s.6

3CORPORATIONS AND BUSINESS STRUCTURE
because of the action of a single partner, it would affect all the partners similarly. Every partner
can be seen as acting as an agent towards the business as well as the other partners for the
purpose of the business and for the conducts of the other partners for carrying on the usual
business as per section 5 of the Partnership Act 19586. The provisions of this section is not
applicable if the partner does not have any authority for acting any particular matter of the
business or if the person dealing with the partner either is aware that the partner does not have
any authority to be acting for the business or is unaware that he is a partner in the firm. The
partners are seen as jointly liable for incurring any debt and only one single action can be
brought against the partners by the creditors. The liabilities of the limited partners are mentioned
in the section 53 of the Partnership Act 19817 as “A limited partner in a limited partnership is
liable to contribute towards the liabilities of the firm but so as not to exceed the amount shown in
relation to that limited partner in the register as the extent to which that limited partner is liable
to contribute or the part of that amount that remains unpaid.” This was mentioned in the case
Wang v Rong [2015]8. Further it could be seen in the judgment of the case Walker v European
Electronics Pty Ltd (in liq) (1990)9 that for the fraudulent conduct of one partner all other
partners would be held liable.
Part B
Fiduciary Duties
The legal obligations of any individual to act in the best interest of another party can be
described as fiduciary duties. When any individual or any company is required to put the
6 Partnership Act 1958, s.5
7 Partnership Act 1981, s. 53
8 Wang v Rong [2015]NSWSC 1419
9 Walker v European Electronics PtyLtd (in liq) (1990) 23 NSWLR 1