Business Law: Exploring Business Structures and Relevant Legislations

This case study provides a comprehensive analysis of various business structures in Australia, including companies (corporations), sole proprietorships, and partnerships. It details the advantages and disadvantages of each structure, referencing the landmark case of Salomon v Salomon Co. Ltd. to illustrate the separate legal entity principle for companies. The analysis covers the different types of companies (public and private), their regulatory requirements, and the legal implications for directors and shareholders under the Corporations Act 2001. Furthermore, the study examines the legal frameworks governing sole proprietorships and partnerships, including relevant legislation like the Goods and Services Tax and the Partnership Act. The case study concludes with an application to a hypothetical scenario involving Harry, Meghan, William, and Kate, recommending a private limited company structure to facilitate their business venture and charitable contributions. Desklib provides access to this and other solved assignments for students.

Running head: BUSINESS LAW
Question and Answer
Name of the Student
Name of the University
Author Note

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Table of Contents
Answer to question 1.......................................................................................................................3
Company or corporation:.............................................................................................................3
Kinds of the company:.............................................................................................................3
Advantages:.............................................................................................................................4
Disadvantages:.........................................................................................................................5
Sole proprietorship:.....................................................................................................................6
Advantages:.............................................................................................................................6
Disadvantage:..........................................................................................................................6
Partnership:..................................................................................................................................7
Advantage:...............................................................................................................................7
Disadvantage:..........................................................................................................................7
Answer to question 2.......................................................................................................................8
Relevant legislations:...................................................................................................................8
Company:.................................................................................................................................8
Sole proprietor:........................................................................................................................9
Partnership:..............................................................................................................................9
Application in the case:.........................................................................................................10
Answer to question 3.....................................................................................................................10
Reference:......................................................................................................................................14

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Answer to question 1
Australia is a business country and in this country, various business structures can be
found. Considering the brief of the case study, it can be stated that the main purpose of the case
is to recommend perfect business structure for the mentioning parties of the case. In this report,
not only the structure of various business models bit the benefit and shortcoming of the models
have been discussed. Considering the business mentality of the country, there are certain kinds of
structures are present. However, the structure can be divided into following parts:
 Company or corporation;
 Sole proprietorship;
 Partnership
A brief description of all the structures has been made underneath:
Company or corporation:
It is a general verse that a company is a separate legal entity and it will not held
responsible for the acts of the directors or any of the shareholders. This principle has been
established in the famous case of Salomon v Salomon Co. Ltd.1 However, its director regulates a
company. The directors are considered as the minds of the company.
Kinds of the company:
A company can be of two types such as public company and private company. There are
certain differences in between the private company and public company. The maximum
members of a private company is fifty where there is no ultimate limit regarding the membership
of a public company. Further, in case of private company, the directors are enjoying more power
1 [1896] UKHL 1

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compare to the public company. A private company could not issue the shares but a public
company can do it2. Therefore, it can be stated that the scope and powers of the public companies
are more valuable compare to the private companies. The regulatory requirement of the company
is higher to the private company and all these essentials are decided the veracity of both of the
companies.
Therefore, it has been observed that there are certain differences in between both the
companies. Now, the advantage and disadvantages of both the companies are required to be
discussed.
Advantages:
The advantages of the company can be categorized as follows:
 In the continents of Australia, companies are the most common structure of business. it
is quite recognized in the society and there are several Acts that regulate the activities
of the company;
 The members of the company are known as stakeholders. The word stakeholders
include directors and shareholders. Directors are the minds of the company and
companies are one of the most trusted institutions for the investors who are engaging
their capital in the companies for making future profits;
 Due to the separate nature of the company, no members of the company are held liable
for the debts of the company. However, there are certain exceptions to this rule;
2 Sippel, Sarah Ruth, Geoffrey Lawrence, and David Burch. "The Financialization of Farming: The Hancock Company of
Canada and its Embedding in Rural Australia." Transforming the Rural: Global Processes and Local Futures. Emerald Publishing
Limited, 2017. 3-23.

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 A company can use its name in case of business contract and can take active
participation in case of any deal3.
Disadvantages:
Therefore, it has been understood that a company enjoys certain advantages. However,
there are certain disadvantages too. The disadvantages or the loopholes can be stated as follows:
 In Australia, there are certain legislations that are regulating the acts and conduct of the
directors and the shareholders and therefore, the directors are obliged to perform their
duties according to the provision of the law. According to the Corporation Act 2001, all
the directors of the company are required to do their business in good faith. There are
certain provisions that state the director of a company has to face civil and criminal
liabilities in case of non-performance of their duties. Therefore, it can be stated that the
rules of the company legislations are strict and this is great disadvantage of a company in
respect of the directors.
 The onerous nature of the company has become one of the disadvantages regarding the
operation of the company. In Australia, it can be observed that the owner of the company
has less power compare to the director of the company and all the vital decision of the
company are taken by the directors.
 The maintenance charge of a company is quite exclusive.
 The posh regulatory compliments of a company are another disadvantage4.
3 Coffee Jr, John C., Hillary Sale, and M. Todd Henderson. "Securities regulation: Cases and materials." (2015).
4 Du Plessis, Jean Jacques, and Jeanne Nel de Koker, eds. Disqualification of Company Directors: A Comparative Analysis of
the Law in the UK, Australia, South Africa, the US and Germany. Taylor & Francis, 2017.

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Sole proprietorship:
In case of a company, there can be more than one manager and the profit of the company
has been distributed in between the directors and the shareholders. However, in case of sole
proprietorship, the sole proprietors enjoy all the profits of the business. the proprietor has not to
share his profit with anyone5.
There are certain advantage and disadvantages in this case too that are discussed as
under:
Advantages:
 All the operation of the trade is regulating by the sole trader and therefore, the sole
proprietor is the manager and shareholder of the trading. If any profit has been gained, he
is enjoying all the profits and he does not have to share the profit with anyone.
 The framework of this type of business is very simple and not complex like the company.
The administrative cost is very low in this case.
Disadvantage:
 The sole proprietor has to bear all the losses sustained from the business and he could not
take the plea of separate entity like the company;
 The capitalistic scope of the sole trading is quite limited in nature and therefore, the
growth of the trade is average in nature;
5 Barraket, Jo, et al. "Classifying social enterprise models in Australia." Social Enterprise Journal 13.4 (2017): 345-361.

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Partnership:
In case of partnership, two or more partners operate a business. In this case, the rights and
liabilities of the partners are divided among them6. However, in this case, the rights and
obligations of the partners are regulated by the agreement signed in between them.
Advantage:
 The process of partnership is quite sufficient and less expensive in nature;
 All the partners can take important decision for the betterment of the business;
 The capitals necessary for the partners and therefore, the burden or additional pressure of
the investors invests the business are not present in this case.
Disadvantage:
 All the partners are liable for any mishap;
 All the partners are jointly liable for the wrongful act of any one of the partners;
 The partnership agreement can be amended at any time and this creates
complexities for the partners and for their interest;
 The principle of separate entity is not applicable in this case.
6 O’Flaherty, Martin, et al. "The family life course and health: Partnership, fertility histories, and later-life physical health
trajectories in Australia." Demography 53.3 (2016): 777-804.

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Answer to question 2
Relevant legislations:
It has been mentioned earlier that there are certain legislations in Australia that regulate
the activities of the business structures. As Australia is a federal state, the rules regarding the
businesses are different in different states7. However, there are certain provisions that have been
implemented on national basis.
Company:
Companies are the most common version of the business structure in Australia and
therefore, the rules regarding companies are quite strict in this country. The most effective
provision in this case is Corporation Act 2001. The rights and duties of the members of the
company and the process of incorporation have been detailed in this Act. The provisions of this
Act are mandatory in nature and it has been observed that there is a regulatory body that
supervises the applicability of this Act. The body is known as Australian Securities and
Investment Commission or ASIC. It investigates the duties and responsibilities of the director
and in case of any adverse situation; the body has all the powers to file case against the alleged
director. There are number of cases pending before the court where the directors have failed to
maintain the rules of the Act and held liable for the same. It has further been observed that this
Act deals with the managing structure of the business. the appointment and termination of the
directors, managers and shareholders have been mentioned in this Act. Further, the
responsibilities of the Australian Securities Exchange have also been mentioned and it has been
demanded by the Act that the corporate governance of Australia should inform the ASX about
7 Bottomley, Stephen. The constitutional corporation: Rethinking corporate governance. Routledge, 2016.

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their activities. The Corporation Act deals with the implementation provision of the constitution
of the company.
Sole proprietor:
Unlike the company, the sole trader is responsible for all the acts and responsibilities of
the business. However, in Australia, there is no specified Act for the sole proprietorship. The
registration process of the proprietorship has been mentioned in the Goods and Services Tax.
Further, after the registration process, the trader is required to obtain the number and certain
provisions of the Fair Work Act have been applied in this case.
Partnership:
In Australia, the Partnership Act governs the provision of the Partnership firms.
However, in case of partnership, the partners are liable by the terms and conditions of the
agreement. The law relating to the partnership is based on the provision of the federal structures
and the main purpose of the partnership that is to carry on business with the common intention of
making profit. The Partnership Act discusses about the definition of the terms of partner and all
the other relevant terms. The rights and liabilities of the partners are mentioned under the Act.
Further, the process of agent and principle drives the base of the partnership. It has been
observed by the Federal government that the partners are liable for the acts of any of the partners
and the rules of “all for one and one for all” is applicable in case of partnership8. The liabilities
of the partners are made on the legal terms and no partners are allowed to be acted beyond their
course and authorities.
8 O’Flaherty, Martin, et al. "The family life course and health: Partnership, fertility histories, and later-life physical health
trajectories in Australia." Demography 53.3 (2016): 777-804.

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Application in the case:
In the given case, it has been observed that Harry and Meghan chalk out a plan to start up
a business. in any business, capital is an important thing and in this case too, they want to raise
their capital by joining William and Kate in their business. The liabilities in this case are limited
by nature. however, it can be recommended that the parties to the case can be go for the private
limited company and their share should be limited in nature. it has been prescribed by them that
they will transfer half of their share to the refugees and they will take active part in the charitable
case. it is not necessary that all the investors should be a part of the management and Kate and
William can hold the position of the shareholders. The profit earned from the business will be
divided in between the two on the basis of their investment criteria. In case of Meghan and
Harry, they will take active part in case of management and they will share their profit as decided
by them. in case of charitable purpose, they will make an agreement regarding the same to avoid
any kind of intervention.
Answer to question 3
In the above noted paragraph, it has been observed that the parties are recommended to
open private limited companies and therefore, it is necessary to talk about the rights, duties and
obligation of the parties. This will help to understand the scope and limitation of the members in
the company in a better way. The duties and rights of the directors, managers and shareholders of
a company have been discussed in the Corporation Act 20019. Provisions mentioned under
section 180 to section 184 of the Act discuss about the duties of the directors. Under the Act, it
has been mentioned that every director of the company is required to act in good faith and their
9 Watts, Peter George. Directors' powers and duties. LexisNexis NZ Limited, 2015.

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intention should act on behalf of the best interest of company and for the shareholders10. Further,
it has been mentioned under the Act that in case of any failure, the directors should have to face
the civil as well as criminal trials. Civil penalties are mentioned under section 1317E of the Act
and criminal penalties have been discussed under the section 184 of the Act11.
The directors are the minds of the company and they take all the important decisions.
Therefore, it is required that the directors will perform their acts with due care and diligence.
Duties relating to this provision have been discussed under section 180 of the Act. In Australia,
there are many cases where the Federal Court was pleased to pass an order that the directors who
are not acting in good faith and do not represent them diligently, should be tried in the court.
This particularity is mandatory in nature and the Australian Securities and Investment
Commission are the main regulatory authority in this case.
It is obvious to state that the directors are holding an important position and therefore,
they do not required to misuse their position. The provision of section 182 and section 183 are
discussing about the same. According to both of these sections, the directors are restrained to
misuse their position and they should not hand over any confidential information or share it with
any other person. Confidential information includes financial information and all the other
information that can be proved as harmful for the interest of the company12. It is the primary duty
of the directors to act on behalf of the company and he should have to engage him in such a way
10 Huggins, Anna, Roger Simnett, and Anil Hargovan. "Integrated reporting and directors’ concerns about personal liability
exposure: Law reform options." Company and Securities Law Journal 33 (2015): 176-195.
11 Keay, A. R. "Directors' duties and creditors' interests." The Law Quarterly Review 130.Jul (2014): 443-472
12 Keay, Andrew. "The shifting of directors' duties in the vicinity of insolvency." International Insolvency Review 24.2 (2015):
140-164.