LAWS20059 - Partnership vs. Company: Selecting a Business Structure

This report analyzes the advantages and disadvantages of forming a partnership versus incorporating a company as business structures, considering factors such as legal identity, liability, taxation, and regulatory compliance. It recommends incorporation due to the limited liability, flexibility for future growth, and perpetual succession it offers. While partnership offers simplicity in formation, the report argues that a company structure better suits the clients' needs, providing better protection of personal assets and facilitating future funding and expansion. The report also acknowledges the increased regulatory burden of a company but concludes that the benefits outweigh the costs in the long run, making incorporation the more appropriate choice for starting the new business.

In the present case, the two options available to the parties for starting the new business include
the formation of a partnership and the incorporation of a company. As a result, the advantages
and disadvantages that are associated with both these business structures need to be evaluated so
that the most appropriate business structure can be recommended to the parties on the basis of
their circumstances. In order to find out the particular circumstances of clients, certain questions
were asked. On the basis of the answers provided by the clients as well as the perusal of the
relevant law related with the business structures of partnership and a company, a report was
made for the supervising partner regarding this research. At the same time, a report was also
made to supervising partner regarding the arguments that can be given in favor of the
recommendations made to the clients.
The present research reveals that there are certain advantages associated with the business
structure of the company. For example, the law considers that after its incorporation, a separate
legal identity is created. In this way a company enjoys own separate identity. As a result of this
legal fiction, a right has been provided to the company to join legal proceedings in its own name.
A comparison of the business structures of a corporation and partnership reveals that there are
certain benefits that are available in case of a company but they are not available to a partner.
One such major advantage is present in the form of the limited liability of the owners of the
business. The reason is that the law treats the company as a separate person. Hence, it is
considered as being separate from the owners or the controllers of the company. Due to this legal
fiction, a company is allowed to enter contracts in its own name. Similarily a company is also
allowed to own property in its own name. The result is that the rights and liabilities of a company
are treated as its own and cannot be attributed to the owners (shareholders) or the directors

controlling the company. Therefore the major advantage is that even if the company is not in a
position to repay its debts but the investors or the shareholders are not personally liable for these
debts.
Hence, a major advantages of available to the parties that even if the business fails, the owners of
the business are not treated by the law as being personally responsible for the debts of the
company. This advantage is available, if the clients decide to register a company for starting their
business. In this case, the personal assets of the clients will not be at risk in the event of a failure
of the business. Certain other benefits like lower rate of tax are also available to the parties. On
the other hand, sole traders and partners have to pay income tax, while a company is required to
pay corporate tax. The rate of corporate tax is lower than the rate of income tax. This research
reveals that there are some disadvantages, applicable in case of a company. For example, the
process of registration of company is costlier as compared to the creation of a partnership. In the
same with this process is more complex.
The corporations' law has also imposed a number of obligations on the companies. The conduct
of the corporations is also regulated by the ASIC and its regulations are also required to be
followed by the companies. For instance, several obligations, related with the maintenance of
records are imposed on the companies. At the same time, certain disclosure obligations have also
been imposed on the companies on various authorities. The duties of the directors are also
prescribed by the law, as well as the Constitution of the company. The reason behind the
introduction of the duties for the directors is to make sure that there is good corporate
governance and the companies and also with a view to ensure the safety of the investors.
Under these circumstances, it can be recommended in the present case that keeping in view the
particular circumstances of the clients, is that the most appropriate business structure for the

clients will be the incorporation of a company for the purpose of starting a new business.
Although the option of forming a partnership with also available, but after considering all the
circumstances, it is clear that the registration of a company will be the most appropriate step. The
business structure of the company will be able to fulfill all the needs of the clients. This business
structure will also provide the advantage of limited liability that is desired by the clients. This
business sector will also provide the flexibility that will be required by the clients later on as they
have indicated that some other persons may also join the business afterwards. The business
structure of a company will also be most suitable to raise funds that may be required for the
expansion of the business. This business structure will also provide the advantage of perpetual
succession. Therefore, while the members of the company may come and go, the existence of the
company will continue. The act of the formation of the company also reveals the seriousness of
the owners of the business while dealing with the affairs of the business.
Therefore, the incorporation of a company is recommended for the clients to start their new
business.
Thank you.