LAW200 Commercial Law: Business Structures and Recommendations Report

This report analyzes various business structures, including sole trader, partnership, company, and trust, providing a comprehensive overview of their characteristics, advantages, and disadvantages. It addresses a case scenario where Sunny and Michael are planning to purchase a multi-million dollar college, offering tailored advice on the most suitable business structure for their venture. The report details the legal and operational aspects of each structure, emphasizing factors like liability, taxation, ease of setup, and management control. The author, assuming the role of an accountant, presents the analysis in the format of a professional letter, offering a clear recommendation based on the specific needs and objectives of Sunny and Michael. The conclusion summarizes the key points and reinforces the recommended business structure, supporting the decision with rationales based on the specific circumstances of the case study, and the overall goal is to provide a clear and concise analysis of the most appropriate structure for Sunny and Michael to buy the business.

Running head: COMMERCIAL LAW
COMMERCIAL LAW
Name of the Student
Name of the University
Author Note

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Introduction
Organizational structure is considered to provide direction and guidance to several
employees by providing a layout which would assist in governing or regulating the relationships
and the workflow in a corporation or a company. The outline of the structure in a corporation
would help in the growth and flexibility of the business. There are numerous factors that
differentiate the operations of the small businesses from the large ones and these are considered
to help in the implementation of the formal organizational structure. The structure is considered
to be important or significant as it helps in providing guidance as well as clarity on particular
resources and increases the managerial authority. A business structure is considered to be a
category of an organization which would help in giving legal recognition in a given jurisdiction
and such is considered to be characterized through a legal definition of a specific category (Boer,
et al. 2017).
This particular paper would discuss the various forms of business structure and along
with such provide the advantages and disadvantages of the business structures. In addition to
such it would also discuss the best structure, which would be suitable for the individuals,
mentioned in the case scenario. In conclusion, it would summarize the points that have been
discussed in the paper.
Discussion
From
(NAME)
To

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(ADDRESS)
Dear Mr. Sunny and Mr. Michael,
I am writing to you to let you know the different forms of business structures and its advantages
along with the disadvantages. There are four main business structures, which prevail in
Australia, which comprises of Sole Trader, Partnership, Company and Trust.
The Sole Trader is considered to be the simplest form of business structure which provides with
full control. An individual having this kind of business structure is considered to be the sole
proprietor of the business. In this business structure, the business entity is similar to the sole
proprietor of the business and does not enjoy a distinct legal entity (Mules 2015). The business
assets along with the liabilities are not separate from the personal assets or the liabilities. The
sole proprietorships are for low-risk businesses and the owners who want to try and test their
idea for businesses before forming a business which would be more formal. The proprietorship
would be advantageous while starting out with a business structure as there would be low costs
involved for start-ups and the privacy would also be maintained. The profits would not be shared
and this form of business structure is considered to be simple. However, there would be
unlimited liability of debts and there would be no separate distinction between the private assets
and the business assets. The life of the business is also considered to be limited and the business
capital would be difficult to raise (Boccabella and Freudenberg 2017).
The Partnership form of business structure is considered to be for two or more people who would
want to start a business together. There are two kinds of partners, which are widely popular in a
partnership form of business structure. First would be the general partners who are liable to get
profits as well as suffer losses and the second would be the limited partners where the partners

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would only be gaining profits and the loss would be suffered by the general partners of the
partnership firm. The limited partnerships are considered to have one general partner who would
be having unlimited liability and all the other partners would be having limited liability. The
partners who are considered to have limited liability would also have limited control over the
partnership firm or the company and such would be documented in the partnership agreement.
The profits in this form of business structure are passed through personal tax returns and also
through the general partners and they also pay self-employment taxes. The partnership form of
business structure would be suitable as they have multiple owners who test their idea before
establishing and creating a more formal business (Hogan 2016). There are a few advantages
relating to a partnership form of business structure as they have two or more partners and
therefore, it is easier to establish and formulate a start-up as the costs of such are considered to
be low. The availability of capital is much more and the partners would be able to have a greater
borrowing capacity. In this form of business structure, there is a scope for splitting the income,
which would act as an advantage as it would help in saving the taxes, and the business affairs of
the partners are considered to be private. There would be limited external regulation in this form
of business structure and the legal structure would be easy to modify and change if such a
situation or a circumstance arises (Erdiaw-Kwasie and Alam 2016). However, in spite of having
certain benefits, the liabilities for the partners in this form of business structure would be
unlimited and each of the partners would be considered to be liable either jointly or severally for
the debts. The partners are also considered to be agents and therefore, they are liable for the
actions caused by other partners. Lastly, if one of the partners leave the other would probably
have to value all the partnership assets and such can be considered to be costly. Therefore, a
partnership form of business structure is considered to be suitable as it helps in raising capitals

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and therefore, such is cost effective as there would be two or more heads and the whole
management of the company would not be dependent on one individual (Daroń 2017).
A company is considered to enjoy a separate legal entity, which would be different from the
shareholders. The company has the same rights as that of a natural person and such implies that a
company can incur debt or take legal action against other individuals or other corporations. In
addition to such the company can also face a legal action form any other individuals as well as
other entities. The directors who have been assigned the regulation of the company is considered
to carry out the business activities and control the several business operations, which take place
in a company. The owners of the company along with the shareholders are considered to have
limited liability, which entails that the shareholders or the owners cannot lose their personal
assets in the company in case it falls into any debt or bankruptcy. However, there are certain
exceptions to this, which involves that if there has been any kind of breach of duty on the part of
the directors or their legal obligations then the directors would be liable for their actions. Either
the corporations can be public or it can be proprietary. There are certain advantages relating to
this particular form of business structure where the responsibilities or the liabilities of the
shareholders are considered to be limited and the death or insanity of the shareholders are not
considered to effect the existence of the company as it has perpetual existence. The management
of the company are in the hands of the directors who have been appointed by the shareholders.
Thus, it can be understood that the business operations in the company are considered to be
handled by professional management. In this form of business structure, the company has the
potential to be expanded through the issuance of new shares and their debentures. Therefore,
such is considered to be advantageous as it would help the company grow. However, there is a
lack of secrecy as there are various statements made available to the Registrar of the companies

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and other Financial Institutions. The secrets are further reduced and decreased once the annual
reports are disclosed to the shareholders which increases the risks as the competitors might find
out the details relating to the financial data. Unlike the other forms of business structure the
company has to comply with all the legal requirements which take up considerable amount of
time and effort. Unlike the proprietorship or the partnership form of business structure the
activities of the company are taken care of by salaried managers therefore, the company lacks a
personal interest. Apart from such the managers or the directors have the ability to misuse the
resources of the company, which would bring loss to the company. Therefore, this form of
business structure is considered to enjoy certain benefits as compared to the other forms of
business structures (Gindis 2016).
The Trust is not considered to be a separate legal entity but a business structure. The trustee is
considered to operate a business, which would be for the benefit of the beneficiaries. Even
though the trust is considered to be a great way for splitting the income the leverage would be on
the marginal tax rate of the beneficiaries. With this, the initial administration costs would be
considered to be high. An individual who settles the money on trust sets up the trust and they are
known as the settlor. The trustee is considered to be the legal owner of the property or the asset
or the money and they carry out the transactions in the name of the trust. The trustee must adhere
to the trust deed and act in accordance with the best interests of the beneficiaries. The Appointer
would have the authority and the power to remove a trustee and appoint some other individual on
the death of the former trustee or bankruptcy or incapacitation. If the trustee is considered to be a
company then some new trustee is considered to be appointed in case of a company getting
wound up. Lastly, the beneficiaries are considered to be the individuals who are named in the
trust deed and who are entitled to receive some kind of distributed capital or income. Either these

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would occur at the discretion of the trustee or a predetermined amount would be provided in the
unit trust structure. A business, which is considered to run through a trust, would be owing as
well as operating through the business assets of the trust. The income would be distributed
income and the obligations of the trust deed would be complied with. The income in a trust can
be distributed at the discretion of the trustee. The trust model also provides more privacy than
any company and the beneficiaries are not considered to own any trust assets therefore, there is
no scope for any kind of protection from the third party creditors of a beneficiary. However, a
trust structure is considered to be more expensive as well as difficult to establish and maintain
than any company. There might be various challenges which could be faced by the trust while
dissolving it or altering it. The funds would be difficult to borrow due to the intricacies of the
loan structures. The trust deed also restricts and limits the powers of the trustee. Therefore, the
trust has certain difficulties in distributing the profit or the income to the beneficiaries but the
business can be operated through unit trust or the discretionary trust as it helps in the operations
of the business assets (Burns 2015).
Therefore, it would be advisable that the best structure would be the partnership form of business
structure. In the partnership form of business structure, the partners would be liable for the
actions of each other and everything would be equal between the partners. The profits would be
equally distributed between the partners and they would be liable to pay in case of loss suffered
by the institution or the firm. The partners can either be general or limited. In case of general
partners, they would be liable for profits as well as loss but the limited partners would only be
liable to get profits from the firm. Therefore, in case of the partnership form of business structure
the partners would be able to raise capital and still maintain a formal business structure, which

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would be easier than maintaining a company. Therefore, such kind of business structure would
be more suitable.
Thank you for your valuable time and consideration.
(NAME)
Conclusion
Therefore, from the above discussion, it can be understood that the partnership form of
business structure would be more suitable for Michael and Sunny as they would be able to carry
out the business operations in a smooth way, the management of the company would be more
private unlike the corporations, and the information would not be public. The partners would be
liable for their actions to each other and the profits and the losses would be distributed equally.

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References
Boccabella, D. and Freudenberg, B., 2017. Who Bears the Burden for Business Losses: To What
Extent Are Liability Issues of Business Structures Taught in Australian Accounting
Degrees?. Company and Securities Law Journal, 35(4), pp.235-260.
Boer, H., Berger, A., Chapman, R. and Gertsen, F., 2017. CI Changes from Suggestion Box to
Organisational Learning: Continuous Improvement in Europe and Australia: Continuous
Improvement in Europe and Australia. Routledge.
Burns, J.S., 2015. The Crown Lands Trust: Who Were, Who Are, the Beneficiaries. U. Haw. L.
Rev., 38, p.213.
Daroń, M., 2017. A Verification of Advantages and Disadvantages in Partnership
Relations,". Zeszyty Naukowe Politechniki Częstochowskiej. Zarządzanie, (27), pp.96-105.
Erdiaw-Kwasie, M.O. and Alam, K., 2016. Towards understanding digital divide in rural
partnerships and development: A framework and evidence from rural Australia. Journal of Rural
Studies, 43, pp.214-224.
Gindis, D., 2016. Legal personhood and the firm: avoiding anthropomorphism and
equivocation. Journal of Institutional Economics, 12(3), pp.499-513.
Hogan, A., 2016. NAPLAN and the role of edu-business: New governance, new privatisations
and new partnerships in Australian education policy. The Australian Educational
Researcher, 43(1), pp.93-110.
Mules, R., 2015. Small business: The engine of the economy. Busidate, 23(1), p.4.