LAWS20059 Term 1, 2019 Assignment: Business Structure Recommendations

This assignment analyzes the optimal business structure for a new online dating app developed by the student's cousin and his friend. The analysis begins with an interview that highlights the app's need for substantial capital, potential for nationwide expansion, and the likelihood of facing IP-related lawsuits. The assignment then explores two primary business structure options: partnership and proprietary company. It provides a detailed comparison of the key features, pros, and cons of each structure, specifically in the context of the dating app business. The analysis concludes that a proprietary company structure is the most suitable option due to its ability to facilitate equity dilution for raising capital, limited liability in case of lawsuits, and potential tax advantages. The assignment acknowledges the higher setup costs and regulatory burdens associated with a company structure but emphasizes that the ability to raise financing through equity dilution is the most critical factor.

PART D
An interview was conducted with my younger cousin who wants to open a business regarding
online dating app. It came to light during the interview that he along with his friend has
developed a new dating app and intend to build a business around the same. In order to
understand the various aspects of the business, relevant questions were asked such as
requirement of capital, expansion potential and also possibility of lawsuits along with business
liabilities. I came to realise that the business requires a high amount of capital owing to high
customer acquisition cost so as to build a subscriber base which is pivotal for a dating app. Going
forward, there is immense scope of expansion as currently, the app is limited to a particular
suburb of Sydney. Eventually my cousin intends to take this nationwide. With regards to
liabilities, I was informed that considering a host of online dating app, IP related claims are quite
common which need to be dealt with. When I made enquiries about business structure
information, I realised that he did not have much information on the subject and did not consider
it an important choice. He was focused on the technical and business potential of the app.
Considering his situation, I decided to educate him about the possible options with regards to
business structures possible for his business. Considering more than one owners, there were only
two possible options i.e. partnership and proprietary company. In order to enable a better
understanding of these two business structures, I highlighted the various key features of both
partnership and company business structure. Further, I proceeded to highlight the various pros
and cons of partnership structure in the context of my cousin’s proposed business. A partnership
structure is preferred when the business does not have high capital requirements, business
liabilities are not high , share transfer is unlikely to happen coupled with less time to start the
business. However, this did not seem a suitable structure for my cousin’s online dating app as he
clearly highlighted that they would be raising money through equity dilution periodically. This is
not possible in case of a partnership firm as it does not have a separate legal entity. As a result,
every time the partners intend to include a new partner, the existing partnership firm would need
to be dissolved. Also, in case of partnership business structure, the potential personal liability of
partners is unlimited owing to which partnership structure does not seem to be the right option.
Further, the company structure offers a significant number of benefits which were highlighted to
my cousin. Owing to a separate legal status, it allows ease of share transfer which would allow

the dilution of equity to raise financing for increasing the subscriber base. Additionally, if there
is a legal lawsuit regarding IP infringement, then in such cases also, personal liability of my
cousin and his friend would be limited to investments made in the company. Besides, going
forward, the company structure would also offer the advantage of lower tax rate. However, the
high set up costs and regulatory burden associated with the company structure were also
indicated. But my cousin seemed fine with it as the key priority was raising financing through
equity dilution which was only possible through the company structure.a