LAWS20059: Report on Corporations, Partnerships, and Duties

This report provides a comprehensive analysis of business structures, focusing on corporations and partnerships. It delves into the liabilities associated with each structure, examining the legal obligations and financial responsibilities of companies and partnerships. The report also explores the fiduci...Read More

Running head: CORPORATIONS AND BUSINESS STRUCTURE
CORPORATIONS AND BUSINESS STRUCTURE
Name of Student
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1CORPORATIONS AND BUSINESS STRUCTURE
Author Note

2CORPORATIONS AND BUSINESS STRUCTURE
Introduction
The report discusses the business structures of company and partnership with relation to the
liabilities and the fiduciary duties that are found in both the structures. Company business
structure can be defined as a legal entity separate from its owners, carrying on industrial or
commercial enterprise, whereas partnership business is started by two or more people who have
the common goal of earning profit and for sharing the responsibility and ownership of the
business management. The current report is seen to be divided into three parts. The first part
describes the liabilities of both the business structures are discussed. The second part describes
the fiduciary duties present in both the business structures. In the third past a case has been
illustrated for advising the client for the director’s duties in a company.
Part A
The term ‘liability’ can be described under the business law as the debts and obligations
of a business that are financial in nature and arises in the course of the business operations. The
liabilities of both the business structures towards the third parties have been discussed as
following:
Company

3CORPORATIONS AND BUSINESS STRUCTURE
In the Corporations Act, section 91 a company is defined as formed and registered under
this act. Unlike the business structures of partnership and sole-trading a company has a legal
entity that is separate from the owners. A company can be seen as having the similar rights as a
normal individual. The directors of a company do not have any personal liabilities on the behalf
of the company as the company has a legal entity separate from its owners, directors or
shareholders. The company, nonetheless, can be seen to be holding any director responsible for
any act or omission thereafter that would be seen as prejudicial to the company’s interest and
violates the duties discharged by a director in a joint and collective way. The fiduciary duties of
a director can be seen as mentioned in the sections 180-183 Corporations Act2.
A director’s duties are typically be acting in such a way that is beneficial for the
company. The director has the liability for acting in the collective interest of all the members
present. However, a director requires for considering the other interests as well under certain
situations. As per the Australian Securities and Investment Commission (ASIC)3 a director would
be seen as liable for the breach of any obligation even when the company has long been ceased
in existence. According to section 588G4 it has been stated that the directors could be seen as
responsible for any debts that had been incurred by company under some particular
circumstances if the company can be seen as unable for paying off the debts. The duty of a
director under this section’s provision is seen as to be preventing the company from conducting
insolvent trading if the directors can prove that they have reasons for believing that the company
either has already been insolvent or can be suspected to be insolvent in the future. ‘Lifting the
Veil’ are the situations where the shareholders could be held responsible towards the debts that
1 Corporations Act 2001, s.9
2 Ibid, s.180-183
3 Australian Securities and Investment Commission
4 Corporations Act 2001, s.588G

4CORPORATIONS AND BUSINESS STRUCTURE
the company can be seen to have incurred even in spite of the rules for the separate legal
liabilities of the company being available. The company’s directors can be seen as held
responsible for the liabilities present for the third parties by the company. The exception of these
liabilities can be seen as present only in any pecuniary penalty order or any order of
compensation or if the liability is not seen to be arising of the acts that have been conducted in
the good faith.
Partnership
Under section 6 of Partnership Act5, the relationship that is present between two or more
parties for starting any business with a common goal for earning profit and to share all the
responsibilities and the liabilities can be defined as ‘Partnership’. Partnership also includes
‘incorporated limited partnerships’. All partners would be seen as being affected in similar ways
if any liability could be seen as arising from the acts conducted by any single partner. As per the
provisions of section 5 of the Partnership Act6 all partners are obliged to be acting as an agent of
the business and the other partners for purpose of the business and the conducts of the partners
for carrying out usual businesses. The provisions of this section, however, would not be seen as
applicable if there is no authority present for the partner to be acting in any specific matter in
partnership business or if the person with whom the partner has been dealing knows that the
partner is not having authority for acting in such situation or has no knowledge of him to be a
partner of the partnership business.
5 Partnership Act 1963, s.6
6 Partnership Act 1958, s.5

5CORPORATIONS AND BUSINESS STRUCTURE
A third-party or a creditor could be seen to bring only one action against every partner as
the partners in the partnership business are seen as jointly and severally responsible for incurring
any debts. In section 53 of Partnership Act7 the ‘limited liabilities’ of a limited partner can be
defined in the following way- “A limited partner in a limited partnership is liable to contribute
towards the liabilities of the firm but so as not to exceed the amount shown in relation to that
limited partner in the register as the extent to which that limited partner is liable to contribute or
the part of that amount that remains unpaid.” Section 53 had been seen as to be discussed in the
case Wang v Rong [2015]8. The fraudulent act of one of the partners would be giving rise
towards liabilities of all partners who are present in the business. This provision had also been
discussed by the judges in the case Walker v European Electronics Pty Ltd (in liq) (1990)9.
Part B
Fiduciary Duties
Fiduciary duty is the legal term describing the relation among two or more parties where
they could be seen as obligated for acting in best interests for others. Fiduciary duties are seen as
relationship between two individuals for mutual trust and mutual confidence. This report
analyzes in brief the various fiduciary duties of the partnership and the company business
structures.
Company
7 Partnership Act 1981, s.53
8 Wang v Rong [2015]NSWSC 1419
9 Walker v European Electronics PtyLtd (in liq) (1990) 23 NSWLR 1

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Given under the sections 180-183 of the Corporations Act 2001 fiduciary duties of the
directors of a company are. Section 180 of the Act10 provides that a director needs to be acting
with diligence and care to a certain degree which would be expected from any reasonable person.
In common law similar duty can also be found. The breach of duty for acting in due care and
diligence was seen to be discussed in the judgment of ASIC v Flugge (No2) [2017]11. A similar
judgment was also found in the case Australian Securities and Investment Commission (ASIC) v
Cassimatis (No. 8) [2016]12. For any breach of duty that has been mentioned under section 180, a
‘safe harbor’ for the protection of the directors has been provided by way of the ‘business
judgment rule’ to the directors. Section 181 of the Act13 mentions the duty of director for acting
in good faith and for best interest of company and to avoid any conflict arising in interest. The
provision of this section has been discussed in the case of RBC Investor Services Australia
Nominees Pty Limited v Brickworks Limited [2017]14. The case Forty Two International Pty
Limited v Barnes [2014]15 discussed the duties mentioned under section 182 of the Act16, which
can be seen as prohibiting a director from improperly using his position for any personal
advantage or gain. . As per section 183 of the Corporations Act17 a director is also seen as being
refrained from any kind of misuse of any information that has been received from the company,
which can be deemed confidential, for any kind of personal gain or advantage as held by the
judgment of the case in SAI Global Property Division Pty Limited v Johnstone [2016]18. In
section 588G19 it has been mentioned that a director will be responsible for the debts which are
10 Corporations Act 2001, s. 180
11 ASIC v Flugge (No2) [2017] VSC 117
12 Australian Securities and Investment Commission (ASIC) v Cassimatis (No. 8) [2016] FCA 1023
13 Corporations Act 2001, s. 181
14 RBC Investor Services Australia Nominees Pty Limited v Brickworks Limited [2017] FCA 756
15 Forty Two International Pty Limited v Barnes [2014] FCA 85
16 Corporations Act 2001, s. 182
17 Ibid, s.183
18 SAI Global Property Division Pty Limited v Johnstone [2016] FCA 1333
19 Corporations Act 2001, s.588G

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incurred by the company under some particular situations if the company can be seen as unable
for paying off the debts. The duty of a director under the section 588G can be seen as preventing
the company to perform trading in insolvency if the directors can be seen having reasons for
believing that a company is either already insolvent or is suspected to become insolvent in the
future. This was discussed in the judgment of the case Inner West Demolition (NSW) Pty Ltd v
Silk [2018]20. A ‘defense of safe harbor’ has been provided to directors for their protection under
the provisions of section 588GA21.
Partnership
Under section 6 of Partnership Act22, the relationship that is present between two or more
parties for starting any business with a common goal for earning profit and to share all the
responsibilities and the liabilities can be defined as ‘Partnership’. The business partners are
always seen as being fiduciary to each other. All partners owe certain duties towards each other
and towards the business as well. A fiduciary duty can be seen as present in each matter of the
business in partnership. In any partnership business honesty, loyalty, fairness, and good faith is a
requirement from the partners. In partnership business, fiduciary duties of partners are seen to
include the duty for being loyal, duty for full disclosure, duty of care, duty of good faith,
presumption of fraud and undue influence, and fair dealings. The breach of a partner’s duties was
seen as being discussed in the case Wright Prospecting Pty Ltd v Hancock Prospecting Pty Ltd
(No 9) [2012]23.
20 Inner West Demolition (NSW) Pty Ltd v Silk [2018] NSWDC 136
21 Ibid, s. 588GA
22 Partnership Act 1963, s.6
23 Wright Prospecting Pty Ltd v Hancock Prospecting Pty Ltd (No 9) [2012] QSC 182

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Part C
Client Advice
To advise the clients for the duties of directors of a company one case has been illustrated
in the current report. The case that has been illustrated is ASIC v Vizard [2005]24. In the case the
duties of the directors were seen to be highlighted significantly.
ASIC v Vizard
The liabilities of a director had been the main focus in the case of ASIC v Vizard [2005]25.
Stephen William Vizard, who was seen as the defendant in the particular case, was seen as
acting as non-executive director of the company Telstra, which was incorporated under
Corporations Law of Australia. A large sum of investment of money was being planned to be
conducted by the company. The purchase and sale decisions regarding the investment was
required as considered by board of directors and for that some information that can be considered
as highly confidential was given to them for understanding the nature of the transaction. Vizard
was seen to be using that information to purchase shares in three separate companies. The
Corporations Act 1958 Section 10726 is seen as stating that a director needs to be acting in a
honest way and should not be using any of the information acquired by him, from his position,
for gaining any undue advantage for himself. As seen in the case Angas Law Services Pty Ltd (in
liq) v Carabelas (2005)27 the main aim of section 107 and its successors are seen to be
24 ASIC v Vizard [2005] 145 FCR 57
25 Ibid
26 Corporations Act 1958, s.107
27 Angas Law Services Pty Ltd (in liq) v Carabelas (2005) 226 CLR 507

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encouraging the good corporate governance by deterrence. By observing the facts mentioned in
the current case the judges were of the opinion to be holding the defendant liable for the breach
of section 183 of the Corporations Act 200128 and 232 of the Corporations Act 199429. Vizard
had to admit the breach and was ordered penalty of a sum of $390000 as civil penalty and was
disqualified for being a director of any company for the next 10 years.
Conclusion
Therefore by arriving to the conclusion from the above facts it can be said that both
business structures have certain advantages and disadvantages. Further, observing the ASIC v
Vizard case the client can be advied that each duty of a director in the company is seen as very
crucial and if breached would be leading towards serious complications and legal troubles for
them.
28 Corporations Act 2001,s.183
29 Corporations Act, 1994, s.232

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Reference
Angas Law Services Pty Ltd (in liq) v Carabelas (2005) 226 CLR 50
ASIC v Flugge (No2) [2017] VSC 117
ASIC v Vizard [2005] 145 FCR 57
Australian Securities and Investment Commission
Australian Securities and Investment Commission (ASIC) v Cassimatis (No. 8) [2016] FCA
1023
Corporations Act 1958
Corporations Act 2001
Corporations Act, 1994
Forty Two International Pty Limited v Barnes [2014] FCA 85
Inner West Demolition (NSW) Pty Ltd v Silk [2018] NSWDC 136

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Partnership Act 1958
Partnership Act 1963
Partnership Act 1981
RBC Investor Services Australia Nominees Pty Limited v Brickworks Limited [2017] FCA 756
SAI Global Property Division Pty Limited v Johnstone [2016] FCA 1333
Walker v European Electronics PtyLtd (in liq) (1990) 23 NSWLR 1
Wang v Rong [2015]NSWSC 1419
Wright Prospecting Pty Ltd v Hancock Prospecting Pty Ltd (No 9) [2012] QSC 182

12CORPORATIONS AND BUSINESS STRUCTURE