Business Structure: Partnership vs Company -LAWS20059 Assessment

This report provides an analysis of business structures, comparing partnerships and companies, to advise clients on the optimal structure for their real estate sales business. It discusses the advantages and disadvantages of each structure, including liability considerations, ease of management, and potential for raising capital. Referencing the Corporations Act 2001 and the case of ASIC v Adler, the report emphasizes the duties and responsibilities of directors in a corporation, highlighting the importance of informed decision-making and adherence to legal requirements. The report recommends a corporation structure to limit personal liability and facilitate business growth. Desklib offers similar solved assignments and resources for students.

Running head: BUSINESS STRUCTURE
Business structure
Name of the Student
Name of the University
Author Note

2BUSINESS STRUCTURE
Answer to Part 1
Partnership is a business, which is operated by two or more people, as co-owner and
divide income. They act on behalf of the other in their business. However, partnership is a
structure of business, which is not separated from the operators1. Partnership structure are of
two types, such as, general partnership and limited partnership. In the general partnership,
two or more people enter into a business together and make a profit; all of them has joint
liabilities to it. In the limited partnership, the liabilities of the partners are not several and
joint, rather specified. One person has general liabilities and the other partners enjoys limited
liabilities2. The general partners own the business and the limited partners are not subjected to
have control over the company. It is recommended to write up a plan of the business before
starting a business of real estate sales. To properly structure a partnership business, the
Employer Identification Number (EIN) must be obtained. A proper partnership agreement, in
writing, is recommended to maintain. Depending on the nature of the business, a license
should also be acquired as a permission to operate. The partnership agreement should state in
detail how the income, gains, losses, deduction and credits would be divided between the
partners. The capital contributions as well the Social Security Number of the partners shall be
clearly included in the agreement. As the personal assets of the partners are exposed in the
partnership form, to the creditors, an insurance should be carried for protection3. The
agreement of partnership should determine the rules regarding the admitting or including new
partners in the partnership. Managing of the partnership, authorities to sign a contract should
be decided in the agreement. Partnership agreement requires to include the rules regarding
1 KOH, Pearlie, and Stephen Noel Henry BULL. "Agency and partnership law [2013]." Singapore Academy of
Law Annual Review of Singapore Cases 14 (2014): 62.
2 Jylhä, Tuuli, and Seppo Junnila. "Partnership practices and their impact on value creation–reflections from
lean management." International Journal of Strategic Property Management 18.1 (2014): 56-65.
3 Kumar, Shailendra. "Limited Liability Partnership-A New Gateway To Corporate India." Editor’s Preface: 40.

3BUSINESS STRUCTURE
voting and the exit strategies. The rules and means regarding dispute resolution should also
be included into the agreement of partnership.
On the other hand, in order to structure the real estate sales business as a company, the
structure should be divided in two areas, such as, real estate management and the team. While
the management shall deal with the business administration, the real estate sales team shall
look into the sales. The functional areas, making decision and solving problem, achieved
responsibilities would be matter to look upon by the management. The company must be
registered as a separate legal entity4. The liability of the company can be limited or unlimited.
The company shall hold a title, have the right to sue or to be sued, have a bank account.
Corporations generally consists three groups, a group of directors who direct the business;
officers who run the daily business; and shareholders, who invests in the business. In a small
company, a single person can direct, conduct and invest in the business. The person who
incorporate the company, becomes the owner. By filing a necessary form and paying required
fees to the appropriate office, the corporation can be created. A name should be chosen for
the corporations. Corporations limits the personal liability of the members for any business
debts. The owners and shareholders are not liable to lawsuit and corporate suits5. By
registering a company as an unlimited or limited one, the liabilities of the investors and
directors can be marked beforehand.
Answer to Part 2
To form a real estate sales business, there are several advantages and disadvantages of
choosing partnership form of structure. The advantages of partnership is that it runs with
collaboration. The partners can share the responsibilities. Additionally, partnership is simple
4 Hannigan, Brenda. Company law. Oxford University Press, USA, 2015.
5 Sealy, Len, and Sarah Worthington. Sealy & Worthington's Cases and Materials in Company Law. Oxford
University Press, 2013.

4BUSINESS STRUCTURE
in nature as an operating structure6. It is easily managed and the partners can reach to a
decision quickly, as there are no shareholders, officers and directors. The relevant Partnership
Act and the partnership laws provides a set of laws regarding the formation and running of
the partnership, which makes the partners aware of their duties and responsibilities. On the
other hand, selecting partnership can be disadvantageous in the context that there are
limitations on transferring the ownership, as it cannot be done with the consent of all the
partners. The personal assets of the partners are exposed to risk as there is no separate
identity of the owners and the business. The liabilities of the partners are extremely high in
respect of that. Another issue in partnership is that, it is not perpetual. In case of absence of a
provision in the partnership agreement, general partnership is dissolved if a partner dies, or
withdraws.
Whereas, the biggest advantages of the company structure is that, it holds a legal
entity separated from the owners7. A company gives protection from liability to the owners.
The debts of the corporation is not considered to be that of the owners, the personal assets of
the owners are not at risk. Companies are perpetual, it can be transferred to one owner to
another easily, by following the due procedure of law. The corporation has the right to sell
stocks, to raise funds. The structure of the company can be accepted and understood easily8.
However, the drawbacks of the company structure are that it can be expensive to establish
and maintain. It seem to require the assistance of an attorney to complete the process.
Winding up of a company is also not an easy process as it takes time. If the directors fails to
comply with their obligation, they can be held liable for the debts of the company. It also
requires to keep record of every necessities. The shareholders may also be liable in certain
situation.
6 Seitanidi, M. May, and Andrew Crane, eds. Social partnerships and responsible business: A research
handbook. Routledge, 2013.
7 Talbot, Lorraine. Critical company law. Routledge, 2015.
8 Burns, Paul. Entrepreneurship and small business. Palgrave Macmillan Limited, 2016.

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It is recommended to choose a corporation structure in this situation, to form a real
estate sales business. As a company holds individual legal entity, the personal liabilities of
the owners, directors and shareholders are limited. They will not be amount to liable
personally for the debt or loss of the company9. Companies shall have its own asset, which
will pay off the liabilities for itself. The reason why choosing a company structure will be
wiser in this situation is that, the company can sue or be sued on its own name. No officers,
director or owner shall be held liable for the act of the company10. The clients can include
shareholders for the company which will obviously raise money for the company. In case
they choose partnership, the business will dissolve if one of them dies or withdraws. This can
be severe risk for the business as well as for the partners. Dissolution will cause financial
harm to the partners. Furthermore, if they want to add partners in their business, they cannot
do so without the consent of the others. If they opt for a company structure, the management
can be easier and specialised in this situation.
Answer to Part 3
In order to constitute the reals sales estate business in a corporation structure, the
duties of the directors, business judgement rules should be properly informed to the members
of the company. The landmark case of ASIC v Adler (2002) 20 ACLC 576; 41 ACSR 72, is
a relevant case in this context as it involves four different types of transaction and some
breach of duties according to the Corporations Act 2001. This case deals with the breach of
duties of the member of the company and deals with Section 9, Section 180, Section 181,
Section 182, 182(2), Section183 and Section 260A of the Corporation Act 200111. Section 9
of the Corporation Act 2001 states that the person who is appointed in the position of a
9 Sealy, Len, and Sarah Worthington. Sealy & Worthington's Cases and Materials in Company Law. Oxford
University Press, 2013.
10 French, Derek, et al. Mayson, French & Ryan on company law. Oxford University Press, USA, 2014.
11 Harris, Jason, and Anil Hargovan. "Still a sleepy hollow? Directors’ liability and the business judgment
rule." Australian Journal of Corporate Law (2017).

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director or alternative director, shall deemed to be the Director of the company. In the case it
was held that, a person shall be made responsible for the decision making of the company if
he is appointed as director as well as a subsidiary officer of the company. A director must
keep informed of the all the activities of the company12. Section 180 provides that, directors
and the officers of a company are expected to exercise their power with due care and
diligence. In the case of ASIC v Alder, the executive directors of the company failed to
perform their duty with standard care. In this case, Section 181 and 182 of the Corporations
Act, 2001 was highlighted. It was clearly seen that the directors and the executives should act
in good faith for the best interest of the company. The Court also held that, the employees
should refrain from using their power in an improper way to gain advantages. Section 183,
restricts the officers from using any information for any improper purpose. In addition, the
Section 260A of the Act prohibits a company from financially supporting a person to acquire
shares in that particular company which is its holding company13.
This case study refers to all the necessary requirements that should be informed of
before starting a company14. Before Sam, Stan, Fran and Fergie decides to open the real estate
sales company, they should be well aware of their duties and responsibilities. As they are
from the same family, they should respectively decide their position in the company and
discharge their duties as has been imposed on them in accordance to the Corporation Act. The
case of ASIC v Adler (2002) 20 ACLC 576; 41 ACSR 72 is significant to describe the roles
and duties of the members in order to incorporate and operate the company. This case
illustrates the responsibilities and regulation of the directors of a company, which will help
Sam, Stan, Fran and Fergie in the course of their business.
12 Chen, Zhihong, Oliver Zhen Li, and Hong Zou. "Directors׳ and officers׳ liability insurance and the cost of
equity." Journal of Accounting and Economics 61.1 (2016): 100-120.
13 ANDREW. KEAY, L. L. B. DIRECTORS'DUTIES. JORDAN PUBLISHING Limited, 2016.
14 Gerner-Beuerle, Carsten, Philipp Paech, and Edmund-Philipp Schuster. "Study on directors’ duties and
liability." (2013).

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Reference list
BULL, S. (2013). "Agency and partnership law [2013]." Singapore Academy of Law Annual
Review of Singapore Cases 14 (2014): 62.
Burns, P. (2016). Entrepreneurship and small business. Palgrave Macmillan Limited, 2016.
French, D. (2014). French, Derek, et al. Mayson, French & Ryan on company law. Oxford
University Press, USA, 2014.
Gerner-Beuerle, Carsten, Philipp Paech, and Edmund-Philipp Schuster. "Study on directors’
duties and liability." (2013).
Hannigan, B. (2015). Company law. Oxford University Press, USA, 2015.
Hargovan, A. (2017). "Still a sleepy hollow? Directors’ liability and the business judgment
rule." Australian Journal of Corporate Law (2017).
Junnila, S. (2014). "Partnership practices and their impact on value creation–reflections
from lean management." International Journal of Strategic Property Management 18.1
(2014): 56-65.
Keay, A. (2016). L. L. B. DIRECTORS'DUTIES. JORDAN PUBLISHING Limited.
Kumar, S. (n.d.). "Limited Liability Partnership-A New Gateway To Corporate India."
Editor’s Preface: 40.
Len, S. and Worthington, S. (2013). Sealy & Worthington's Cases and Materials in Company
Law. Oxford University Press, 2013.
Li, O. and Zou, H. (2016). "Directors
׳ and officers
׳ liability insurance and the cost of
equity." Journal of Accounting and Economics 61.1 (2016): 100-120.

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Lorraine, T. (2015). Critical company law. Routledge, 2015.
May, S. and Crane, A. (2013). Social partnerships and responsible business: A research
handbook. Routledge, 2013.