Commercial and Corporation Law: Business Structure Comparison Report

This assignment, prepared for an accounting firm, provides an analysis of suitable business structures—specifically partnerships and companies—for clients in the food supply business. It compares the advantages and disadvantages of each structure, including liability, management, and legal requirements. The report defines companies and partnerships, discusses fiduciary duties within partnerships and companies, and examines the case of *ASIC v Vizard* to illustrate director responsibilities. The assignment aims to guide clients in making informed decisions about business structures, considering legal and practical implications, while excluding advice on trusts and tax matters as per client instructions.

RUNNING HEAD: COMMERCIAL AND CORPORATION LAW
Commercial and Corporation Law

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COMMERCIAL AND CORPORATION LAW
Part A
This is preferable recommended with regard to possible business structures that could be
suitable for establishing the food supply business in restaurants. While considering the point
of view of all those parties seeking appropriate advice in favour of their company concern
problem. Two of the sides named Jekyll and Hyde therefore support the structure of
partnership and the third i.e. Pat is more suitable in favour of business structure type. This
assignment will define about the company and partnership, its meaning and advantages and
disadvantages of both the business structure. The company would be the first entity to be
discussed in support of the aforementioned recommendation.
A company is a voluntary association of people created for profits or non-profits purposes to
carry on business. These individuals contribute to the wealth by purchasing their stocks in
which they are split.1 It is an association of people incorporated as a company with a common
equity i.e. share capital contributed by its members for the purpose of employing it to gain
profit in some business. A company is a distinct lawful entity that may be liable for debt, can
take legal action and be sued. The company’s shareholder may restrict their private
responsibility and are not usually liable for business arrears. Company is a complicated
corporate structure with high cost of set-up and reposting. One can set up a business as a
private or public company.
As per the Corporations Act 2001, a company is a distinct lawful entity which; can acquire
property or can sold it, can conduct all the body corporate functions and has a perpetual
succession.2 To establish a company, it must be incorporated under the Corporation Act 2001
as well as be listed under the Australian Securities and Investment Commission (ASIC).3
Like UK law, Australian legislation recognizes a type of company called the corporation sole.
There are some instances of such companies; however, the company alone is excluded from
Australian corporate legal definition4. A request for listing would describe whether the
1 Stephen Bottomley and Kath Hall, Contemporary Australian Corporate Law (Cambridge University Press,
2017) 652.
2 Vicky Comino, Australia's "company Law Watchdog": ASIC and Corporate Regulation (Thompson Reuters,
2015)
3 Australian Securities Commission Act 1989 (Cth) s5
4 Corporations Act 2001 (CTH) s57A

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corporation is a proprietary corporation or a public corporation and the sort of responsibility
of the company’s stockholders, as one of:
 Unlimited with share investment
 Limited by shares
 Limited by guarantee
 No obligation
Advantages of company
Followings are some of the advantages of company:5
 Shareholders liability, unless indicated otherwise, is restricted to the face value of
their shares or their assurance.
 Death, insanity, shareholder or directors insolvency do not affect the existence of the
corporation. A corporation has a distinct lawful entity with continuous succession.
 In the trade of the corporation, the administration is in the hands of the directors
nominated by the stockholders and well-experienced individuals. Salaried
professional directors are assigned to handle the day-to-day operations. The enterprise
therefore provides professional management.
 As the membership is very big, the entire business risk is split among the company’s
various members. This is a benefit for small investors in particular.
Disadvantages of Company
Some of the disadvantages of company are6:
 A company shall make multiple statements accessible to the Registrar of the
Corporations, Financial associations, in accordance with the legal regulations; the
confidentiality of the business shall be reduced.
 A business must comply with more legal demands compared to ownership and
partnership. It takes a lot of time and effort.
 Directors and managers sometimes misuse the resources of the company for their
personal interest. This gives the business loses and the business is hut.
5 George Blakinston Wilkinson, South Australia: Its Advantages and its resources (J. Murray, 1848) 390
6 Paul Latimer, Australian Business Law (CCH Australia, 2011) 1239

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 The another disadvantage of company is that the shareholders are not in reality
owners, given that they are not the decision-makers, but that the management is the
one who owns the company because they have all the authority to make decisions.
Thus, the abovementioned were the some of the disadvantages and advantages of company.
Partnership
Many Australian business organisations are partnership and often deal with third party and
external agencies in the course of business.7 The nature of the partnerships is as such that
when a liability problem rises, the activities of one partner may affect the another, and it is
vital to take into account some of the obligations that may arise with respect to external
parties that could possibly affect all individuals engaged in a partnership. Sec 5 of the
Partnership Act (PA) defines about the partnership8. It is profit based connection or
relationship between two or more persons. In the course of participation in the company, the
PA places joint commitments on all partners pertaining to business debts and duties incurred
by them.9 In the case of Hamlyn v Houston & Co10 , the partners of business enticed a clerk of
rival firm for procurement private and confidential info. Due to which rival company suffered
loss and prosecuted the defendant. The firm was held liable although the partner did the act.
Similarly, when the partner does an act then the firm is also held liable.
7 Veechi Curtis, Small Business for Dummies (John Wiley & Sons, 2012) 416
8 Partnership Act 1891 (s.5)
9 Stephen Graw, An Outline of the Law of Partnership (Thompson Reuters, 2011) 332
10 (1903) 1 KB 81

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COMMERCIAL AND CORPORATION LAW
Part-B
Partnership
The word fiduciary relationship in a partnership implies that one person undertakes to act for
another and thus places the interests of the values before its own interest. Partners in a
partnership owe each other fiduciary duties.11 The scope of the duties is determined by the
nature of the project that the partnership stands for; which can be determined by any
particular agreement or dealing process.12 The fiduciary relationship starts before a formal
agreement, i.e. prospective partners applying for a partnership, and continues until all
problems are resolved after the partnership is officially terminated. In the case of News Ltd v
Australian Rugby Football League13, it was determined whether the fiduciary duty exists
between the partners.
The responsibility of good faith and legitimate dealings becomes the major concern of
fiduciary duty while forming any partnership. If there is any stress between the parties, they
still have to maintain the fiduciary duty between them and all the business transactions must
be carried forward in a faithful manner. In essence, a duty of care requires that each partner
act in an advisable manner by assessing all its responsibilities towards each business and
activity of the partnership. All such necessary business information shall be disclosed to all
other partners. It is compulsory for complete and adequate disclosure of data to be a vital part
of forming a partnership.14 It is anticipated that all partners prevent any disputes of concern
among the business and other operations. Partners shall hold partnership assets in trust or
benefit of the enterprise and not for personal benefit.
Each partner’s duty relies on whether the partner is a common partner or a partial partner.
Usually, only those with administration authority are responsible or fiduciary duties. The
fiduciary and other obligations of each partner must be specified in the operating papers or
partnership arrangement that were established at the time the trade came in force. It is
expected from all partners not to breach this duty.
11 Emily M. Weitzenboeck, A Legal Framework from Emerging Business Models: Dynamic Networks As
Collaborative Contracts (Edward Elgar Publishing, 2012) 363
12 Peter Krebs and Stefanie Jung, Business Networks Reloaded (Routledge, 2017) 424
13 (1996) 64 FCR 410
14 WD Duncan, Joint Ventures Law In Australia (Federation Press, 2012) 606

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Infringement of fiduciary obligation is, at heart, a breach in trust with partners owing such
obligation. It happens when one partner fails to meet the partnership’s financial obligation. A
obligation is an responsibility. Duties infer a level of confidence. When belief is infringed,
duty is infringed that ultimately result in financial loss.15 A breach of duty means for example
when one of the partners is involves in insider trading or partner maintains a percentage of
the profits not entitled to.16
Thus in partnership, all partners are anticipated to avoid any disputes of interest among the
firm and other actions. Partners shall maintain the assets of the partnership in trust for the
advantage of the company rather than for personal profit.
Company
The fiduciary duties are commitments of trust and support given to another fiduciary-owned
individual.17 Usually, the law recognises certain relationships as fiduciary relationships,
including those of directors and employers and employees. A relationship can be described as
fiduciary in nature, particularly if one party is in position to dominate the will of another and
puts the interests of the other before its own interests.18 To avoid any kind of imbalance in the
establishment or functioning of a company this concept must be followed. These are created
in such a positive way and are imposed on the members and the organization that create
relationship and bonds of mutual trust and respect. It is expected from the directors of the
company that they behave honestly and act with due care, diligence and competence.19
As per the Cth 2001, all employees or directors are required to fulfil and meet all their
responsibilities. It refers to all the requirements to be met by the entity’s director and is
applicable in each of the corporation’s functioning departments. The directors, secretaries and
its officers and members must carry out their duties and functions in good faith.20It states that
all interest is not in their own interest and in the interest of third party, but should be in the
interest of the company otherwise it will be considered as a breach of the fiduciary duty.
Section 191 of the act requires a company director having a material personal interest in a
15 Katy Barnett, Accounting for Profit for Breach of Contract: Theory and Practice (Bloomsbury Publishing,
2012) 256
16 Michael Andrew Adams and Marina Nehme, Business Organisations Law Guidebook (Oxford University
Press, 2015) 188
17 Scott Atkins, Equity and Trusts (Routledge, 2015) 656
18 Paul D. Finn, Fiduciary Obligations (Federation Press, 2016) 397
19 Corporation Act 2001 (Cth) s 182,183
20 Corporation Act, 2001 s 181

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matter relating to the company’s affair to give notice of the interest to the other directors,
unless one of the specified exceptions applies.21
Thus it can be said that director’s fiduciary duty represents a connection of trust and loyalty
between directors, company, its stakeholders and members. This ensures that staff and other
stakeholders are taken into account during a director’s decision-making process, as well as
the business and its members.
21 Corporation Act 2001 s 191

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COMMERCIAL AND CORPORATION LAW
Part C
In the case of Australian Securities and Investment Commission (ASIC) v Vizard22, the main
issue before the court was what are the roles and responsibility of the directors.
Facts
This particular case was highlighted in 2005 because of the different influential duties and
responsibilities of a company director. In this case, the defendant was Telstra’s non-executive
director. Being a director, Vizard had access to information from board meetings and internal
briefing papers. These documents outlined a strategy for acquiring certain IT firms. The
defendant created a family confidence operated by his accountant. He then bought stocks
from companies that would be purchased by Telstra. Most of these transactions have been
losses, and Vizard has not used Telstra’s cash. Plaintiff proclaimed civil penalty proceedings
before the tribunal against Vizard on 4 July 2005 for infringement of section 183 of The
Corporation Act 2001(Cth). It was claimed by the ASIC that Vizard was liable for violating
the fact that he communicated important financial information as the director of the company,
resulting in profit for anyone, i.e. for himself or other persons. The complainant also revealed
that the defendant used Telstra’s concealed information during the span from March to July
2000 while trading the stocks of three main listed corporations, namely Sausage, Computer
Share and Keycorp.
Held
As applying the section 183 (1) of the Cth, which states that a person who, because of his
official capacity as a director or agent, has the legal capacity to obtain all such needed data is
under an obligation to ensure his precious data related to the organisation. Using any
information for the personal benefit and interest is strictly prohibited by this section that will
ultimately result in violation of the company’s essential terms. Bringing any damage to the
company will be an infringement on the part of the duties of the director. This deceitful use of
the data gave CTI benefit and through the company. The other factor court concluded that
common discouragement of behaviour must be measured in awarding penalties.
Vizard pleaded guilty for breaches of Sec 183(1) of the Cth, which offers that an individual
who acquires information due to they hold such position as director or other employee of the
22 (2005) 145 FCR 57

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company, should not misuse the information to gain benefit for him or her or someone else;
or cause harm to the company.23 Further, he accepted to conducting share transactions to his
advantage using information obtained as Telstra director. It was held by the court that Vizard
used evidence and information, which he gathered to purchase shares in three IT corporations
that Telstra had also expressed interest in through his position as Telstra’s director. He self-
proclaimed the fissure and was called a $ 390000 ($130000 per infringement) civil
punishment, sec 283 and 183 are said to prohibit behaviour that was not so challenging and
serious. He was held liable and was disqualified for being a director on any corporations for
10 years. Compensation would also have been given for any loss that would have been
agonized; there would be criminal charge if any dishonestly had occurred.
Ultimately, it can be seen that the reputation of ASIC has agonised damage due to the
rampant fluctuation and rejection of its operations. ASIC has more lessons than the lessons
we can understand from the Vizard case. The case of Vizard was widely considered to be an
insider trading case and he was liable for action. Thus, it can be said that any director who
breaches his duties, has to face legal implications.
23 Sec 183(1) of Cth and its predecessor s 232(5)