Comparison of Business Structures: Partnership and Company (LAWS20059)

This report analyzes two primary business structures, partnership and company, focusing on their suitability for the food supply chain in Australia. Part A examines the potential third-party liabilities of partners and directors, referencing the Partnership Act and the Corporations Act, and highlighting cases such as Solomon v A Solomon and Co Ltd and Standard Chartered Bank of Australia Ltd v Antico. Part B explores fiduciary duties within each structure, detailing the responsibilities of directors and partners, and referencing cases such as Australian Securities Commission v AS Nominees Ltd and Hospital Product Ltd v United States Surgical Corporation Ltd. Part C then examines the ASIC v Vizard case, illustrating the responsibilities and regulations of company directors. Part D provides a comparative analysis, explaining why a partnership might be favored over a company in certain situations. The report concludes by summarizing the key differences and implications of each business structure.

RUNNING HEAD: CORPORATION AND BUSINESS STRUCTURE
Corporation and Business Structure

1
CORPORATION AND BUSINESS STRUCTURE
Contents
Introduction......................................................................................................................................4
Part A...............................................................................................................................................4
Issue.............................................................................................................................................4
Rule..............................................................................................................................................4
Application..................................................................................................................................6
Conclusion...................................................................................................................................7
Part B...............................................................................................................................................8
Issue.............................................................................................................................................8
Rule..............................................................................................................................................8
Application................................................................................................................................10
Conclusion.................................................................................................................................10
Part C.............................................................................................................................................12
Issue...........................................................................................................................................12
Rule............................................................................................................................................12
Application................................................................................................................................13

2
CORPORATION AND BUSINESS STRUCTURE
Conclusion.................................................................................................................................14
Part D.............................................................................................................................................15
Why one should choose partnership over company..................................................................16
Conclusion.....................................................................................................................................17

3
CORPORATION AND BUSINESS STRUCTURE
Introduction
The two most suitable business structures for Food supply chain in Australia is partnership and
company. This report will deal with the third party liabilities, fiduciary duties of director,
analysis of case of ASIC V Vizard and importance of partnership and why it is appropriate
business structure for food supply chain.
Part A
Issue
The main issue in the present situation is what are potential liabilities of Jekyll, Hyde and Pat to
third parties if they choose either of the two business structures i.e. Partnership or Company and
their participants.
Rule
Many Australian business organizations are partnership and in the course of business often have
to cope with third parties and external agencies. Because of the nature of the partnership
relationship, when a liability issue occurs, one partner’s activities may influence the other, and it
is essential to bear in mind some of the liabilities that may arise with regard to outside sides that
could possibly influence all individuals engaged in a partnership. According to s. 5 of
Partnership Act (PA), A partnership is a profit oriented connection or relationship between two
or more individuals.1 The partnership is not incorporated as opposed to a company. The
partnership’s rights and responsibilities are regulated by a partnership agreement that can be
1 Partnership Act 1891 (s.5)

4
CORPORATION AND BUSINESS STRUCTURE
concluded in writing, verbally or impliedly. The PA places combined obligations on all partners
relating to commercial debts and duties incurred by them in course of their involvement in the
firm.2 It means that every partner is collectively responsible for the all-commercial debts. For
instance if a debt is incurred then all partners have joint liability and the creditor can bring single
action against firm. In case of death of deceased partner, the property of the deceased partner is
individually liable for the debts of firm incurred before his death.
Liability of directors against third party:
In Australia, a director may be held personally responsible under a broad spectrum of state and
federal laws for the company’s deeds and commitments. This liability can be endless in many
instances. Directors are anticipated to take standard of care while dealing with business
transactions. A company is considered as distinct legal entity distinct from its members.
However, in the case of Solomon v A Solomon and Co Ltd, the main issue was whether, in spite
of the company’s distinct legal identity, the shareholder or the directors could be held
responsible for his obligation, in addition to the principal contribution, in order to uncover that
member to limitless personal accountability. 3In this case, the court held that although the
company is distinct from its member but the corporate veil may be lifted where statute itself
enables lifting of veil in case of fraud or improper conduct on the part of members of company.
In case of limited liability company the creditors have chance to access the risk of doing business
with the company.
There is a legislation under which a director will most ‘at risk’ i.e.: The Corporation Act (Cth),
this act carries out the most basic responsibilities of a director, including acting with the same
2 Stephen Graw, An Outline of the Law of Partnership (Thomson Reuters, 2011) pp 332
3 (1897) AC 22

5
CORPORATION AND BUSINESS STRUCTURE
care and diligence as a prudent person, is anticipated to act bona-fide in the company’s best
interests. 4 It also defines that a director should not leak the information they obtain to gain a
benefit in the course of their director responsibilities.5 In the case of Standard Charted Bank of
Australia Ltd v Antico, Pioneer International Ltd (Pioneer) was a holding company of Giant
resources Ltd (Giant) and Pioneer appointed three nominee directors to Giant.6 Giant had several
economic contracts with the Standard bank. The bank initiated proceedings against Giant when
Giant went into liquidation and was wound up, alleging under s 588 G of the Corporation Act
2001 (Cth) for insider trading.7 The bank alleged that Pioneer was a director of Giant therefore; it
is responsible for insolvent trading. Pioneer was held liable for insolvent trading and stated that
Pioneer was indeed a shadow director of Giant. Pioneer exercised specific willingness and ability
to control Giant.
Application
In a partnership, all partners are liable equally against third party. As per s5 of the act, this
section maintains that every behavior conducted by a partner for the benefit of the business
partnership connects the other, except if the outside group understands that the partner lacks the
power to behave in the specific issue for the company, or is unaware that the individual is a
partner. While as in a company, it is considered as separate legal entity separate from its
members but in case of Solomon V Solomon, if the directors commit fraud then the corporate veil
may be lifted. So one must operate the business of company with due diligence. Cth imposes
various duties on director and it is expected from them that they adhere with the provisions of the
act. As in the case of Standard Charted Bank of Australia Ltd v Antico, director was held liable
4 The Corporation Act, 2001
5 Paul Latimer, Australian Business Law (CCH Australia limited, 2011) pp 1239
6 (1995) 131 ALR 1
7 The Corporation Act 2001 (s 588G)

6
CORPORATION AND BUSINESS STRUCTURE
for insider trading. Similarly, it is expected from the directors that they do not disclose any
confidential information with the outsider or family members for either their own benefit or
others.
Conclusion
From the above it can be concluded that in partnership all partners are equally liable against third
party. Whereas, in a company, a company is although distinct from its members but in certain
cases it was held that company being an artificial person cannot operate its business on its own
therefore directors are the person who run the business of company. They are held liable for all
mala fide acts done by them in the course of business.

7
CORPORATION AND BUSINESS STRUCTURE
Part B
Issue
The main issue in this scenario is what are fiduciary duties in two business structure i.e.
partnership and company.
Rule
The fiduciary duties are trust and support commitments entrusted to another individual owned by
fiduciary.8 Usually the law recognizes certain relationship as fiduciary relationships, including
those of director and company and employer and worker.9 A relationship may be termed as
fiduciary in nature, especially if one party is in position of trust and confidence in the other and
places the interests of the other before his own personal interests.10 Directors of company acting
in fiduciary capacity have a duty to:
 Behave honestly
 Practice authority for their appropriate reasons to prevent disputes of interest operating in
good faith
 Act with diligence, care, and competence.11
Individuals designated as company directors must fulfill their responsibilities in accordance with
the Corporations Act. Directors are under an obligation not to reveal secret information or abuse
8 Rob McQueen, A Social History of Company Law: Great Britain and the Australian Colonies (Routledge, 2016)
pp 374
9 Charles Sampford, Ken Coghill and Tim Smith, Fiduciary Duty and Atmospheric Trust (Routledge, 2016) pp 312
10 Paul D. Finn, Fiduciary Obligations (Federation Press, 2016) pp 397
11 Corporation Act 2001 (CTH) s 182,183

8
CORPORATION AND BUSINESS STRUCTURE
corporate opportunities because of their fiduciary relationship.12 They should not reveal data that
may be harmful to the interests of the company or likely to be. In case of breach of fiduciary
duty, directors are held responsible and can be sued.13 A director is said to breach his fiduciary
obligation when he fails to make a business judgment for a proper purpose in good faith or have
put a substantial private stake in the topic of the business judgment before the benefit of the
company.14 In the case of Australian Securities Commission v AS Nominees Ltd, the main issue
was whether the directors breached their duties and abused the corporate form or not.15 It was
held by the court that the potential information obtained as director of one company to be
ascribed to an individual as director of another company makes liability a true option for
directors as an accessory to a violation of fiduciary duty. The separate legal entity principle
cannot be presumed to limit the accountability of a director to the trustee company only.
In a partnership the term, fiduciary relationship means where one individual undertakes to act for
another and thereby places the interests of the principles interests before its own interests.16 In a
partnership, partners owe fiduciary duties to each other. The scope of the responsibilities is
determined by the nature of the project for which the partnership stands; which can be
determined by any specific contract or course of dealing. The fiduciary relationship begins
before a formal contract i.e. potential partners requesting a partnership and proceeds until all
issues are settled after the official termination of the partnership. In the case of Hospital Product
Ltd v United States Surgical Corporation Ltd, the main issue was that whether a fiduciary exists
between the parties or the relationship between them was purely a contractual one.17 In the
12 Vicky Comino, Australia Company Law Watchdog ( Thomson Reuters, 2015) pp 394
13 Roman Tomasic, Routledge Handbook Of Corporate Law (Taylor & Francis, 2016) pp 285
14 Rosemary Teele Langford, Directors Duties Principles and Application (Federation Press, 2014) pp 240
15 (1995) FCA 812; 13 ACLC 1596
16 Emily M. Weitzenboeck, A Legal Framework from Emerging Business Models: Dynamic networks as
Collaborative Contracts (Edward Elgar Publishing, 2012) pp 363
17 (1984) 156 CLR 42

9
CORPORATION AND BUSINESS STRUCTURE
instant case the court held that parties did not owe fiduciary duties towards each other. Although
one the judges held that parties were under a limited fiduciary duty to safeguard the goodwill of
United States Surgical Corporation of Australia.
Application
In a company, fiduciary duties exist between directors and company. A relationship can be
described as fiduciary in nature, particularly if one party is in situation of trust and confidence in
the other and puts the needs of the other before its own interests. Directors of company are
expected not to breach their duties. As applying the case of Australia Securities Commission v
AS Nominees Ltd, if the director has obtained the potential information of one company to be
ascribed to an individual as director of another company then it his duty to not to reveal such
information. If it is found that any information obtained by the director of company and he has
disclosed such information with other person then it will be considered as breach of fiduciary
duty and he shall be held liable. While in a partnership, all partners owe fiduciary duties towards
each other. As applying the case of Hospital Product Lt v United States Surgical Corporation
Ltd, partners in a firm are bind by the acts of all other partners. Therefore, they owe duties
towards each other and should not breach their duties.
Conclusion
Concisely it can be said that Fiduciary duty of directors represents relationship of trust and
allegiance between directors, company, its stakeholders, and the members. This guarantee that
consideration is given to employees and other stakeholders during the decision-making method
of a director, as well as to the company and its members. Whereas in partnership it is anticipated
that all partners will avoid any disputes of interest between the firm and other activities. Partners

10
CORPORATION AND BUSINESS STRUCTURE
shall retain partnership assets in confidence for the benefit of the business and not for private
gain.

11
CORPORATION AND BUSINESS STRUCTURE
Part C
Issue
The main issue in the situation is how the case of Australian Securities and Investment
Commission (ASIC) v Vizard is related to the responsibility and regulation of directors of
company.18
Rule
Company’s directors are liable for the general leadership of the company, subject to its
constitution.19 In carrying out their responsibilities, directors are exposed to a variety of duties
and responsibilities under the Corporation Act, common law and the constitution of the company
(if any). 20In the case of ASIC v Vizard, the defendant was a non- executive director of Telstra.
Vizard had access to data from board conferences and inner briefing documents as a director.
These documents described a strategy to acquire certain IT companies. The defendant developed
a family trust that his accountant operated. He then bought stocks in companies that Telstra
would purchase. Many of these transactions were losses and Vizard did not use any of the money
from Telstra.
Plaintiff on 4th July 2005, declared civil penalty proceedings for breach of section 183 of The
Corporations Act 2001 before the court against Steve Vizard. ASIC claimed that Vizard was
responsible to violate as he communicated significant financial information as the company’s
18 (2005) 145 FCR 57
19 Robert Baxt, Duties and Responsibility of Directors and the Officers (Australian Institute of Company Directors,
2015)
20 Corporation Act 2001 (CTH) s 182,183