Comparing Business Structures: A Comprehensive Analysis of Options

This report provides an in-depth analysis of different business structures, including sole proprietorships, partnerships, and companies. It examines the core characteristics of each structure, outlining their advantages and disadvantages. The report begins by defining a sole proprietorship, highlighting its simplicity and ease of establishment, while also addressing limitations such as unlimited liability and limited access to capital. The report then transitions to partnerships, detailing general and limited partnerships, their benefits like shared knowledge and better tax planning, and the challenges of unlimited liability and potential partner disputes. Finally, the report discusses corporations, emphasizing their separate legal identity, limited liability for members, and perpetual succession, while also acknowledging the high costs and compliance requirements. The conclusion emphasizes the importance of carefully evaluating the pros and cons of each structure before making a decision.

Introduction to
Business Law
Running head: INTRODUCTION TO BUSISNESS LAW 0
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INTRODUCTION TO BUSISNESS LAW 1
Introduction
The moment when a person thinks of to start a business is the one when he/she needs to
determine some factors concerning the business. These factors include the size of the business,
nature of the same, area of business and structure of the same. Each of these factors is important
as these directly influence a business. In the presented report, the discussion will be drawn upon
to one such factor, which is business structure. A business structure can be understood as the
organization of business in the legal context. No universal rule is there to decide a business
structure as these all have certain benefits and losses. Therefore, before selecting a business
structure, people are required to analyze costs and benefits. Nevertheless, for this, they are
required to be aware of offerings and negatives of different structures. In the presented report,
different business structures will be addressed along with their basic nature, advantages, and
disadvantages.
Sole proprietorship
A sole proprietorship is the most basic and simple business form where only one person is
involved who set up the business, operate the same, and earn profits out of the same. No other
person is involved in the affairs of a sole proprietorship business. The person who manages the
business under this structure is known as a sole trader (Smarta.com, 2019). If to discuss the key
aspect of this structure, this is to mention that one may establish his/her business under this form
every easily and by paying very less money. Every nation has a different requirement to establish
a sole proprietorship business. In Australia, registration of business name is a required thing to
do to set a sole proprietorship business (Business.gov.au, 2018a). Here this is to inform that a
person can only get the business name registered when the same has Australian business number

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(hereinafter referred to as ABN) for the business. A sole trader is entitled to get an ABN Size of
the business depends on the discretion of the owner/sole trader. It means he/she can have assets
and capital as per the choice. No minimum requirement concerning capital amount or asset size
is there. A sole trader may employ other people but not to him/herself as the business does not
have a distinct legal status. In other words, this is to state that a sole trader and his/her business
are the same in the opinion of the law. As the meaning and nature of sole proprietorship are
clear, now another thing to know its advantages and disadvantages. Starting from the good points
i.e. advantages of this structure, this is to inform that the owner of the business remains the only
regulator of his/her business. A sole trader does not need to ask anyone before taking any
business decisions. The second and one of the significant advantages is that this business
structure demands very low investment, as few legal requirements have to follow. Everyone
starts a business to earn profits and here a sole trader gets the benefit. Being the only
administrator of the business, a sole trader does not require sharing profits with any other person.
Quick decisions because of single administration are another feature of sole proprietorship
because of that business attains benefits of opportunities on time. A sole trader does not require
to get separate tax file number to lodge the income tax return of business and the same can be
submitted by using individual tax file number of such trader and sole trader do not require to pay
double taxation on a single income (Khera, 2019). Further, a separate bank account is also not
mandatory to be open for business transactions nevertheless it is suggested for keeping the record
of such transactions.
Same as advantages, some disadvantages are also attached to this business structure. The first
disadvantage is the unlimited responsibility of the sole trader. Similar to sole entitlement, a sole
trader also has sole liability that too unlimited. The debtors of business can ask their entitlements

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out of the personal assets of the sole trader if the business fails to repay their loans
(Smallbusiness.wa.gov.au, 2019). Access to capital is another issue for sole traders as most of
the businesses under this structure are small ones. They do not have access to much capital as
banks or other financial institutions do not provide finance to such small business in general.
Further, funds cannot be raised by the public. Another disadvantage is that a sole proprietorship
business is on the risk of wind up in the event of the death of the sole trader.
Partnership
Another structure to discuss here is a partnership. Business under this structure is known as a
partnership firm that consists of two or more people who invest their money in a business and
work together for earning profits out of the same. These people are called partners of the
business. To understand this structure in detail, this is to inform that partner of firm wok on
behalf of the business as well as on behalf of each other. In other words, this is to say that a
partner has an agency relationship with the firm as well with other partners. Further, a
partnership firm works under the purview of applicable legislation, which is known as the
partnership act. Every state of Australia has a partnership act that applies to all the partnership
firms operating in that state. Two types of partnership are there namely general partnership and
limited partnership (Business.gov, 2018b). Firstly, to discuss general partnership this is to state
that the same is also known as a traditional partnership. Many advantages are there to set up a
business under this structure. Firstly, the business gets the benefit of knowledge of different
people, as a very partner is likely to have different knowledge. Secondly, different partners
invest their money to a business and therefore lack of funds does not remain there in general.
Similar to a sole trader, a partnership firm can also be established by following some legal

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compliance as it requires to get ABN for all of its business structure. Apart from this, a
partnership firm is easy to dissolve. One of the most significant benefits that this structure offer
is better tax planning (Ato.gov.au, 2019). Partners can save tax by splitting their income between
family members. This option is not available under sole proprietorship. After advantages,
disadvantages, and issues associated with this business structure are also required to know. The
first disadvantages are unlimited liability of partners. Partners can be held personally liable for
the acts, debts, and losses of their firm (Schneeman, 2009). Secondly, no one has the whole
control on the business affairs as a partnership is about shared entitlements and responsibility.
Partners are liable for all the acts of their co-partners that they do within given authority. Now
the issue comes regarding authorities of partners. Partners of a business often have disputes
regarding their rights and liabilities (Upcounsel.com, 2019). However, to determine these factors,
the concept of a partnership agreement is there. This agreement consists of provisions related to
partnership firm business such as rights of partners, their duties, profit sharing ration, the interest
of capital and others. Nevertheless, the subjective agreement cannot consist of provisions related
to each factor. This agreement is required to be draft properly and to be signed by every director.
It is an additional exercise. Further as mentioned above, legislations are there to regulate the
conduct of partners, and therefore they have to consider provisions of partnership act in their
dealings. Not similar to a sole trader, partnership structure requires a separate tax file number. In
this manner, it is far clear that liabilities are more than a sole proprietorship.
In the case of a limited partnership, one additional benefit is there for partners, that is a limited
liability. Being a limit partner under this kind of partnership, a person may save him/herself from
unlimited liability with respect to business debts.

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Company
Now the other business structure to discuss is Corporation. In Australia, every company is
regulated through the Corporations Act 2001 (Cth). As the name of the legislation implies, the
same consist of Corporations Law of the nation. A corporation can be understood as the most
defined and regulated business structure. Some of the basic key aspects of corporations are
required to understand before understanding the pros and cons of this structure. One of the key
features of a corporation is the separate legal identification of the same (Griggs, Cho, McLaren
and Scheibner, 2018). It means as soon as a company is incorporated the same receive different
identification. This feature of the companies has been decided in the case of Salomon v A
Salomon & Co Ltd [1896] UKHL 1, [1897] AC 22. Mainly two groups of people are there in
case of company namely members and directors. Member invests their money to business and
directors manage the same. In such manner ownership and membership remain in different
hands. Generally, directors are people who incorporate the company i.e. they are promoters of
the company. In the case of limited companies, the liability of member remains limited up to the
money invested by them to business. This is one of the greatest advantages of this structure. It
means in case of winding up of company members are only required to pay the unpaid money of
their shares. Another advantage of this business structure is perpetual succession. It means that
death or retirement of any member or directors does not affect the business of the company. The
business of the company gets professional management. Directors of the company are often
professional people who know business management. In addition to this, the company can also
appoint persons as a director who has specific knowledge of the industry.
In general, no member or director or other officials can be held liable for the conduct of the
company because of its separate legal status and this can be counted as an advantage of this

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structure. However, certain limitations of the company structure are also there. The first
limitation of this structure is the high cost associated with the same. This can be determined by
the fact that even to establish a proprietary company in Australia; a person is required to spend
$495 (Asic.gov.au, 2019). Another challenge to operate a business under this structure is the high
level of compliance. All the Australian company has to follow the rules and provisions of this act
irrespective of size and nature of business. In addition to this, if the company is listed on the
Australian Stock exchange then the same also becomes liable to comply with the ASX listing
rule. Noncompliance of any provisions attracts high penalties. Further, directors, officers, or
members have limited liability but it does not mean that they can misuse the separate legal status
of the company. In cases of misuse of powers, courts have the power to lift the corporate veil and
to held directors personally liable. In other words, this is to state that in some of the conditions,
directors, and members of the company may be held liable and can be subject to heavy penalties.
Reporting requirement under company structure is more in comparison to a sole proprietorship
or partnership firm. Because of reporting of financial statements, all the information of business
goes out that ultimately affect the business of the company due to high competition. An
Australian company has to pay corporate tax on its income by the rate of 30%, which makes a
huge amount every year.
Conclusion
In a conclusive manner, this is to state that every business structure has some benefits as well as
some losses and hence before starting a business, one must evaluate the same because selection
of wrong business structure may lead adverse impact to business.

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References
Asic.gov.au. (2019) 201 Application for registration as an Australian company. [online]
Available from: https://asic.gov.au/regulatory-resources/forms/forms-folder/201-application-for-
registration-as-an-australian-company/ [Accessed on 03/08/2019]
Ato.gov.au. (2019) Partnership. [online] Available from:
https://www.ato.gov.au/Business/Starting-your-own-business/Before-you-get-started/Choosing-
your-business-structure/Partnership/ [Accessed on 03/08/2019]
Business.gov.au. (2018a) Sole trader. [online] Available from:
https://www.business.gov.au/planning/business-structures-and-types/business-structures/sole-
trader [Accessed on 03/08/2019]
Business.gov.au. (2018b) Partnership. [online] Available from:
https://www.business.gov.au/planning/business-structures-and-types/business-structures/
partnership [Accessed on 03/08/2019]
Corporations Act 2001 (Cth)
Griggs, L., Cho, G., McLaren, J., and Scheibner, J. (2018) Commercial and Economic Law in
Australia. Netherlands : Kluwer Law International B.V..
Khera, R. (2019) Advantages of a Sole Proprietorship & Challenges of a Sole Proprietorship.
[online] Available from: https://www.morebusiness.com/sole-proprietorship-advantages/
[Accessed on 03/08/2019]

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Salomon v A Salomon & Co Ltd [1896] UKHL 1, [1897] AC 22
Schneeman, A. (2009) Law of Corporations and Other Business Organization. USA: Cengage
Learning.
Smallbusiness.wa.gov.au. (2019) Sole trader. [online] Available from:
https://www.smallbusiness.wa.gov.au/business-advice/business-structure/sole-trader
Smarta.com. (2019) What is a sole trader? [online] Available from:
http://www.smarta.com/advice/starting-up/starting-your-own-business/what-is-a-sole-trader/
index.html
Taxsummaries.pwc.com. (2019) Australia Corporate - Taxes on corporate income. [online]
Available from: http://taxsummaries.pwc.com/ID/Australia-Corporate-Taxes-on-corporate-
income

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Upcounsel.com. (2019) Disadvantages of Partnership: Everything You Need to Know. [online]
Available from: https://www.upcounsel.com/disadvantages-of-partnership