Report on Business Structures in Australia: Comparing and Contrasting

This report provides an in-depth analysis of various business structures prevalent in Australia, including sole traders, partnerships, and companies. It delves into the legal frameworks, advantages, and disadvantages associated with each structure. The report highlights the distinct characteristics of each business type, such as the sole trader's simplicity and full control versus the company's limited liability and complex setup. It also examines the partnership structure, differentiating between general and limited partnerships. Furthermore, the report discusses relevant case law, such as Salomon v Salomon & Co Ltd (1897) and Campbell v Campbell (2017), to illustrate key legal principles and their implications for business operations. The conclusion emphasizes the importance of selecting the appropriate business structure to mitigate liability exposure, summarizing the core benefits and drawbacks of each type. This report offers a comprehensive understanding of business structures in Australia, aiding business owners in making informed decisions.

Running Head: BUSINESS LAWS 0
INTRODUCTION TO BUSINESS LAW

BUSINESS LAWS 1
Table of Contents
Introduction................................................................................................................................2
Company....................................................................................................................................2
Advantages of a Company.....................................................................................................3
Disadvantages of a Company.................................................................................................3
Partnership..................................................................................................................................4
Advantages of Partnership.....................................................................................................5
Disadvantages of Partnership.................................................................................................5
Sole Trader.................................................................................................................................6
Advantages of a Sole trader...................................................................................................6
Disadvantages of a Sole trader...............................................................................................7
Conclusion..................................................................................................................................8
References..................................................................................................................................9

BUSINESS LAWS 2
Introduction
In this report, the discussion will be based on the various business structures based in
Australia. It will also emphasize its advantages and disadvantages while comparing the same
amongst all of its kinds. In accordance with the legal research, the most commonly practiced
business structures are including the sole trader, the partnership and the company. Although,
the term trust is too considered as a business structure it is not included in this report as it is
basically used for commercial purpose.
Company
A company is that particular sort of business structure which has a distinct lawful
organization which is unlike from that of a sole trader and a partnership structure. This states
that the company has identical authority as that of a natural person that can execute
obligation, which can sue and can be sued. It is considered as a very complicated business
structure because of its costly set-up and reporting costs. The formation of a company can be
either classified into a private one or a public body (Australia, 1950).
The holders of the company can limit their personal liability and are normally not liable for
any sort of company’s obligation. It is mandatory to register a company with including at
least one director who manages all the activities of the company with having all the key
factors in mind. A Company must be duly registered to come into existence under the
Australian Securities and Investments Commission (ASIC). However, the officers and the
directors must follow the lawful obligations under the Corporations Act 2001 (Latimer,
2011). The Company officers and the directors have legal obligation that describes how well
they execute their obligations and control the affairs of the company.

BUSINESS LAWS 3
Advantages of a Company
 The shareholders will have limited liabilities towards the setup.
 It has a well understood and accepted structure.
 The significant capital of the company can be increased easily.
 The losses related to the company can be carry forwarded to an unlimited extent
ceasing the probability of future profits.
 The ownership of the company can be sold and delegated easily.
 A company can reuse its profits or can be distributed amongst the shareholders in the
form of dividends (Wilkinson, 1848).
Disadvantages of a Company
 The first disadvantage of a company is that it incurs high cost while establishing and
maintaining it.
 When it comes to an aspect of a company it does not have complete control over it.
 The reporting requirements of a company are very complex due to its additional
requirements.
 The losses experienced by the company cannot be further distributed amongst its
shareholders (McLachlan, et al., 2013).
In the case of Salomon v Salomon & Co Ltd (1897) UKHL 1 AC 22, the enterprise is
considered as a separate legal entity from its owners in accordance with the aspects of a
Company. It further means that the business operations are safeguarded from all such
liabilities created or obtained by the companies (Cassidy, 2006). In this case, it was
determined that Salomon has incorporated a company and then he himself became the
conducted the business as an agent of Salomon who was actually responsible for the debts
and had breached that part so was held responsible for all the debts incurred in that agency.

BUSINESS LAWS 4
Partnership
A partnership is a term which involves two or many individuals setting up a business together
in order to share the benefits along with the losses. In accordance with Western Australia, the
perspectives of the partnerships are controlled by the Partnership Act 1895. When dealing
with the aspects of this business structure each person contributes something beneficial for
the business like the suggestions, monetary fund, property or belongings. The Partnership can
be categorized into two parts i.e. into general and limited. It is very essential to have a formal
agreement or a contract because personal liability is unlimited for each and every partner
(Mills, 2017).
Firstly, when we discuss the general type of partnership it states that all the partners engage
jointly each day for planning and controlling of the business. The partners involved share
equivalent rights and responsibilities with respect to the functioning of the business. It is also
the power given to any independent partner to bind the entire group towards a lawful
commitment. The complete authority relating to the business debts and the obligations is
upon every individual partner. Secondly, the limited partner is one comprised of up to 20
people. This type of partnership contains at least one general partner who is controlling and
managing the company’s day to day operations (Vermeesch & Lindgren, 2001). It is also
simultaneously responsible for the liability of the business, and the passive partners are
known as limited partners. A limited partner gives a specified amount of capital to the
business but on the other hand, it is not liable for any sort of debts or obligations. While
considering both the general and the limited partners the basic difference arises is that the
common partner has the power to hold the business, while the limited partners do not
participate in the decision taken by the management.

BUSINESS LAWS 5
Advantages of Partnership
 The partnership kind of business is very simple and manageable to establish along
with the economic start-up costs are very low comparatively.
 The reporting requirements of the business are very minimal.
 It has much of available capital which can be invested for the business.
 The partnership involves shared control and management amongst all the other
partners.
 In this, it creates more opportunities for tax planning than compared with the sole
trader.
 When at any time the partnership needs to be dissolved then the partners can easily
recover their share and resign (Wise, 1990).
Disadvantages of Partnership
 The responsibility of each partner involved in the obligation of the business is of
never-ending nature.
 It is not considered as a separate legal entity so their liabilities increase more towards
the business with or without the knowledge.
 There is a threat towards the lack of agreement and opposition among all its partners
and the management system.
 Each and every partner is a representative of the partnership type of business and is
fully responsible for all related activity done by the other partners.
 The changes while dealing with the owner ship can be difficult and result in
establishing a new partnership (Johansen & Ronn, 2014).
In the case of Campbell v Campbell (2017), where the court of law stated the various issues
such as the powers to be distributed the assets between the partners of the business rather than

BUSINESS LAWS 6
selling them off without anybody’s consent. The partner who has invested some kind of
monetary fund must be paid back owned by him. The breach of duty arises if the claims for
the damages, losses or the profits are not distributed amongst all the partners. So, there must
be a proper agreement made prior to the establishment of a business and must include each
and every partner with fulfilling all the liabilities on them.
Sole Trader
A sole trader is considered as that particular simplest form of business structure which is
relatively very manageable and has low-cost in establishing and setting up. It is stated that the
owner here has all the liabilities and the decision making power so further will be held legally
answerable for all the aspects of the business including the debts. The basic motive here is to
make all the relevant decisions regarding initiating and functioning of the entire business by
your own perspective also must have knowledge in employing people in the business for the
help and assistance (Staff, 2012)
The only negative aspect of this business structure is that all the concern regarding the debts
and losses cannot be shared with others. It has an unlimited liability where all the private
assets are under threat if anything results in the negative direction. If any sort of loss incurred
by this business structure then the counterbalance against the income is received from the
investment or the remuneration (Christensen & Duncan, 2009). However, this business
structure is inexpensive to establish, simple to organize and becomes simple to wind up.
Advantages of a Sole trader
 This kind of business structure is where all the profits are kept under one authority.
 The starting up costs and the expenses are very nominal and low.
 There is complete control over the assets and related to the business decisions.

BUSINESS LAWS 7
 But if any loss experienced through this business activity will be compensated or
redeemed from the other availed salary, such as from the investment income or from
the remuneration.
 The owner is the only worker of the business and therefore does not suffer any taxes,
workers compensation to be drawn from the business.
 This particular form of business is easier to modify in terms of the business structure
as if the business grows or need to wind up it due to any circumstances (Meredith,
1988).
Disadvantages of a Sole trader
 It has no limited liabilities for the debts which states that there is no lawful distinction
between private and the business assets.
 The capacity to increase money is very restricted.
 All the authority and the management of the business of each day are dependent on
one person.
 The holding of high-potential employees can be difficult at times.
 All the form of taxes is imposed on a single person.
 The splitting of the business profits and the losses between the family members can be
done and all the income-related liability falls on the person itself from the business.
In the case of Stein v Blake (1995) UKHL 11, where the decision given by the House of
Lords regarding the set-off in bankruptcy and the rights assigned relating to the bankruptcy
trustee. It was stated that if the set-off claims were of not of liquidated nature then it is dealt
under the rules of insolvency. This also led to the unfair terms on behalf of the defendant by
the other who was given support and legal aid. It was explained further with emphasizing on

BUSINESS LAWS 8
the debt of the bankrupt which is considered as a contingent debt and must be valued at that
particular time or date when the set-off is been in effect.
Conclusion
While further concluding the above topic and examining the different business structures of
Australia, it has been viewed that there are various aspects and options in consideration of the
business structures for starting a business. For each and every particular business owner, the
rightful decision in choosing the right structure is the major step in shielding them from
liability exposure. So, in accordance with this report, three common business structures were
identified in relation to the liability, debts, and consequences that a business owner involving
one or many can experience. Also, it was shown relating to the steps that business owners can
take to limit the liability exposure for each kind of business structure explained through its
advantages and disadvantages. In the end, the information provided in this project report
examines the elementary understanding of how business structures can affect liability
exposure.
Therefore, the drawbacks of this structure are that the holder is personally responsible for the
entire obligation and the liabilities of the business. This business structure does not provide
any personal asset protection. In relevance to the partnership business, the partners are
responsible for all the obligations and liabilities of the business. But a company has the
advantage of limited liability means that the debts are not relied on its directors or the
shareholders.

BUSINESS LAWS 9
References
Australia, U. B. o., 1950. Company formation in Australia: with notes on other matters
affecting the establishment of a business in the Commonwealt. California: Union Bank of
Australia.
Cassidy, J., 2006. Concise Corporations Law. Revised ed. s.l.:Federation Press.
Christensen, S. & Duncan, W. D., 2009. Sale of Businesses in Australia. revised ed.
s.l.:Federation Press.
Johansen, B. & Ronn, K., 2014. The Reciprocity Advantage: A New Way to Partner for
Innovation and Growth. s.l.:Berrett-Koehler Publishers.
Latimer, P., 2011. Australian Business Law 2012. s.l.:CCH Australia Limited.
McLachlan, R., Gilfillan, G. & Gordon, J., 2013. Deep and Persistent Disadvantage in
Australia. s.l.:Productivity Commission.
Meredith, G. G., 1988. Small Business Management in Australia. 3 ed. s.l.:McGraw-Hill.
Mills, A. D., 2017. Company Accounting - Prepare Financial Reports for Corporate Entities.
revised ed. s.l.:Cengage AU.
Staff, C. A., 2012. Australian Master Tax Guide 2012. s.l.:CCH Australia Limited.
Vermeesch, R. & Lindgren, K. E., 2001. Business Law of Australia. 10 ed. s.l.:Butterworths
Australia,.
Wilkinson, G. B., 1848. South Australia; Its Advantages and Its Resources. s.l.:J. Murray.
Wise, T. D., 1990. Accounting in Australia. reprint ed. California: Houghton Mifflin.

BUSINESS LAWS 10