LAW200 Commercial Law: Business Structure Advice for College Purchase

This assignment is a commercial law report written in the format of a professional letter from an accountant, addressing a query from clients Michael and Sunny who are seeking advice on the most suitable business structure for purchasing a multi-million dollar college. The report explores different business structures, including partnerships, trusts, and companies, detailing their key features, advantages, and disadvantages. It provides a comprehensive analysis of each structure, considering aspects such as liability, regulations, ease of establishment, and tax implications. The report also includes an annotated bibliography of a relevant legal article discussing the Corporations Act 2001 and director's duties, and concludes with a recommendation for the clients based on their specific needs and the nature of the proposed college purchase. The advice aims to assist the clients in making an informed decision that aligns with their financial goals and risk tolerance.

Running Head: BUSINESS AND CORPORATION LAW 0
Commercial Law
Business and Corporation Law
7/27/2018
Business and Corporate Law
Student’s Name

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Contents
Question 1........................................................................................................................................2
Annotated Bibliography 2
Question 2........................................................................................................................................5
Covering Letter................................................................................................................................5
Annexure 1 6
Partnership 6
Trust 9
Companies 10
References......................................................................................................................................14

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Question 1
Annotated Bibliography
The article selected hereby is titled as "Legal action against Murray Goulburn executives to
continue, despite bid to have it thrown out of court" and the same can be access through the
following link:-
https://www.abc.net.au/news/2019-10-04/federal-court-action-against-murray-goulburn-bosses-
to-continue/11574846
Clint Jasper, an agriculture reporter associated with Australian Broadcasting Corporation, written
the selected article. The article contains news related to one of the cases under the Corporations
Act 2001 (Cth) where the acts of Murray Goulban executives have been discussed.
In the selected article author has informed about the latest status of the case of Murray Goulban.
If to discuss the summary of this report, this is to state that the author has provided the
background of the case. He presented the background of the company and stated that the same
was the largest dairy producer in Australia, which used to supply the large quantity of dairy
products in domestic as well as international markets. The issue in the case started when in 2016
the company suddenly slashed the milk price and also declared that the farmers were liable to
pay back the money to processors. The author also provided the earlier decision given in the case
and informed that in 2017, the Federal court ordered the company to pay $650000 as fine as the
same failed to make continuous disclosure of information to the market (Jasper, 2019).

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He informed the audience that The Australian Securities, Investment Commission (AISC) has
alleged Bradley Hingle, the former chief financial operator, and Gary Helou, former managing
director of Murray Goulburn as they have failed to provide the information related to changes in
milk price to Australian Stock Exchange. Further, at present, ASIC is seeking both of the alleged
people to provide a declaration accepting that they have breached the provisions of Corporations
Act by not disclosing any sensitive information to the stock exchange before cutting the milk
prices which trigged substantial crises in the dairy industry of Australia. In addition to this, the
author has provided that ASIC also seeking the Federal court to issues a disqualification order
for both of the liable persons for the period as long as the court finds suitable. Justice beach has
presented his willingness to conduct a joint trial in the month of February next year i.e. 2020.
The author has highlighted the key points of this ongoing case and informed his audience that the
class action of the case has been initiated by John Webster Cruise on behalf of all other investors.
One more class action of the case has been wrapped up in June 2019.
The above mentioned is a summary of the chosen article where the text of the author is addressed
to the public and no specific audience was intended there. If to discuss the reliability of the text
this is to mention that the same is published by ABC news which is one of the trusted news sites
of Australia. The author has not used any chart or table yet the text is easy to understand due to
the language used by the author. The text is relevant as it discussed one of the latest cases of
breach of duties under the Corporations Act 2001. On the one side where act provides the
provisions, case laws present their applicability. The significance of this article under corporate
law will further be discussed ahead. While making the annotated bibliography of the selected
text, strength and limitations of the same also seem important to discuss here. The only limitation
of this text is that it does not contain the provisions of the Corporations Act that has been

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breached by the alleged parties and fails to inform the audience about the specific breaches.
Further, the strength of the selected text is that the same provides a brief picture of the actions
taken by ASIC and the expected happening of the case in further as it mentioned that all the
parties of the case are expected to go to court in November 2019 in order to finalize the date of
hearing in 2020.
The article is useful for the analysis of directors' and officers' duties mentioned under
corporations' acts and breaches of the same. The article is related to the breach of director duty
by the executives of Murray Goulburn executives that is an important topic under corporate law.
The article is significant as it shows the consequences which the executives of a company may
face. ASIC took significant steps in this case and is seeking a declaration from the directors. It
clearly shows that the managers of the company can be held liable in a personal manner where
the same breaches their duty or do not work in the standard manner. The article is also relevant
as the same provides a lesson for the managers of the other companies. As mentioned above it
states the penalties that the company had to pay due to the conduct of its executives where they
failed to disclose the related matter to the stock exchange on a timely basis. In this manner, the
text relates to the concepts and themes of the course.
As the summary, reliability, strengths, and limitation of the article have been discussed, in order
to conclude the annotated bibliography this is to state that the article is very recent and useful to
study to understand the consequences of a breach of duties given in Corporations Act.

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Question 2
Covering Letter
To, Date 19 January 2020
Mr. Michael and Sunny
Sub:- Advise on the business structure
Ref:- Query made under the e-mail dated 15 January 2020
Dear Sirs,
As you have asked for the best suitable business structure for the purchase of multi-million dollar
college, a report containing features, advantages, and disadvantages of all the available structures
has been developed and attached herewith for the consideration. In addition to this, advice
regarding the best structure to buy the business has also been given under the subjective report.
Kindly find the same in order.
Thanks and Regards
Accountant, Legal Service LLP

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Annexure 1
Different business structures are there that one can select for the proposed business. These
structures have different characteristics, pros, and cons and while selecting a business structure,
it is advisable for individuals to choose these structures wisely as it affects the working as well as
profits of the business up to a significant level. The most basic business structure that a person
can adopt is the sole trader structure but the same can only be adopted where there is only one
owner of a business who is likely to be a manager as well. Therefore n those cases where more
than one person is involved a business cannot be established under the structure of sole traders.
Other structures are also there such as partnership firm, companies, and trust that are further
discussed in this report as hereunder:-
Partnership
Under this business structure, at least two persons are required to be there. These persons are
known as the partner of the business and manage the working of the business (known as a
partnership firm). One or more partners can run the business on behalf of others or they can
divide their working in mutual. All the profits or losses generated out of the business are likely to
be distributed among all the partners unless anything otherwise is decided by the partners. These
partners invest their money into the business of the firm and operate the same to earn profits in
return. If to look after this structure in detail, some basic features of the same can be checked.
One of the lead features of this legal structure is the existence of two or more persons
(Accountlearning.com, 2019). The second feature is that partners carry mutual trust and belief
with each other. This is the reason that this structure mostly exists in those cases in which
partners have a social relationship with each other. The third feature of a general partnership

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structure is the presence of principal-agent relationships. Every partner of the firm works as an
agent where he/she does conduct the activities on behalf of firms and other partners. Another
exclusive feature of a partnership firm that does not exist in other business structures is a
partnership agreement. This agreement contains the rights and duties of the partners along with
their profit-sharing ration and other provisions. Such an agreement may be developed in oral as
well as in a written manner. The main objective of such an agreement is to remove the confusion
among partners and to reduce the chances of disputes. Since the partnership business is based on
mutual trust, a partner cannot transfer his/her share without the approval and consent of other
partners (efinancemanagement.com, 2020). This can be treated as another feature of this
structure. Lastly, a partnership firm is not a separate legal entity from its partners.
The above-mentioned are some of the key features of the partnership business structure. Now
moving the discussion towards the advantage and disadvantage of this structure is to state that
the same present the reason why to and why not to start the business under this structure. The
advantages of a partnership firm are mentioned as below:-
 One of the basic and significant benefits of partnership structure is that a business is easy
to establish under the same and minimal cost is required (Legalvision.com.au, 2019).
Partners are required to develop a partnership agreement and register their business under
the partnership legislation of the related state that does not consume much time and
effort.
 Another benefit is low regulations. The legal formalities are very few under this structure
in comparison to others. A firm is not required to submit any regular return to the
regulators.

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 The affairs of business remain private. As partners are not required to share their profit
and other information of the business with anyone, therefore, the working of the business
remains confidential which also provides competitive advancements.
 This structure also proves beneficial from the viewpoint of income splitting. The firm is
not required to pay a business tax on its income but partners are liable to pay the income
tax on the share of profit received.
 In case of expansion of business, partners have the option to change the business
structure and to convert the existing business of partnership into any other appropriate
legal structure.
 Capital can be arranged from the personal funds of partners as well as by taking a loan
from the financial institution and banks.
 Similar to the establishment, dissolution of the business is also easy and attracts a very
low cost (Smallbusiness.wa.gov.au, 2019).
Disadvantages: - The following are some of the limitations of a partnership firm that should be
kept into consideration while selecting and finalizing business structure.
 The most important disadvantage of a partnership business structure is unlimited liability.
Every partner of the firm remains responsible in a personal manner towards the liability
of the firm where the firm itself fails to fulfill the same. The personal property of partners
can be used in the settlement of the firm's debt.
 As mentioned above, a partner is also an agent of another partner hence can be held liable
for the wrongs of them in a personal manner.

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 The chances of disputes remain high in the case of partnership structure as there is no
format of resolution and each partner wants to take decisions accordingly
(business.tas.gov.au, 2019).
When a partner leaves a firm, it affects the value of all the partnership assets as well as the
working of the same.
The above-mentioned pros and cons are important to consider before going ahead of the adoption
of this structure.
Trust
Another structure available for the client is trust. It is a business structure where the managers of
the business are called as trustee and they carries out the business activities on behalf of the
members of the trust. Similar to the partnership firm, trust is also not a separate legal entity.
There may be more than one trustee under a trust structure. To discuss the features of this
structure this is to state that the trustee is responsible for the debts of the trust and can use the
trust assets to meet with them. Nevertheless, in case of any shortfall, the trustee may be held
liable in a personal manner. Another feature of this structure is that the same is based on a trust
deed, which outlines the provisions related to the management of trust and rights and duties of
parties. The trust is not as popular structure as the others are due to the less suitability for
commercial businesses. In most of the cases, people choose this structure for their nonprofit
businesses. Since this is one of the structures available to the client, some advantage and
disadvantages of the same have identified and mentioned below:-
Advantages

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 The most significant benefit of this structure is that the same has a perpetual existence. It
means the death of any parties does not affect the trust business.
 This structure provides increased asset protection.
 The net income of the business can be distributed for the welfare of the beneficiaries and
the business can save tax on such distributed income.
Disadvantages
 One of the lead disadvantages of the trust structure is that the same is difficult and
expensive to establish in comparison to the partnership business. Trustees and
beneficiaries are required to be identified in addition to the creation of a trust deed
(Ato.gov.au, 2020).
 The compliance cost, as well as the regulatory cost of trust structure, is quite high due to
the inclusion of legal and accounting expenses (taxsuperandyou.gov.au, 2020).
 Only profits can be distributed among beneficiaries and not the losses
(smallbusiness.wa.gov.au, 2020)
 Winding up a business carried on under trust structure creates hurdle and take much time.
Companies
Similar to partnership and trust structure, the company structure also remains available to adopt
when there is more than one owner of the business. Since Mr. Michael and Sunny asked about
the best business, structure available to them hence providing knowledge of all the available
options seems necessary here. A company is the most legal structure to start a business
(Manresa, 2010). The lead feature of this structure is that the same is a separate legal identity. It
means the same is considered as an artificial statutory person that has its own liability and

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entitlements. Under a company structure, two groups of people are there namely members and
directors. Members represent the ownership of the business whereas directors represent the
management. Members invest their money into the business of the company and directors
manage the business affairs on behalf of them. In return for their investment, members receive
money in the form of dividend and directors receive a fee for their services. Another feature of a
company is the existence of its constitution. As a partnership firm has partnership deed,
similarly, companies have a constitution in general; nevertheless, they can also adopt the
replaceable rules mentioned under Corporations Act 2001 (Cth). After understanding the basic
features of companies, now to discuss the pros and cons of the same, this is to s state that the
same are mentioned below:-
Advantage
 The company has a perpetual succession similar to trust. Death or resign of any member
or director does not affect the business of the company or the existence of the same.
 A company has wider access to funds as it has many options such as the issuance of share
capital, a loan from banks and financial institutions.
 Due to the separate legal status of a company, liability of members and directors remain
very limited and in any case, personal assets of these groups remain safe (Burnett and
Bath, 2009).
On one side where company structure provides the exclusive benefit of limited liability the other
side of the coin is also required to be checked where the same has many disadvantages due to
which the same does not remain the best suitable structure for many of the businesses. Some of
these disadvantages are mentioned as below:-