University of Melbourne: LAWS20059 Business Structures Report, Term 1

This report provides an overview of business structures, focusing specifically on partnerships within the Australian legal framework. It explores the formation of partnerships, differentiating between general and limited partnerships, and highlights the importance of selecting the appropriate structure to limit personal liability. The report details the essential steps for setting up a partnership, including business name selection, obtaining a Tax File Number, and creating a comprehensive partnership agreement. It emphasizes the advantages of written agreements in clarifying roles, responsibilities, and profit-sharing arrangements, as well as in preventing disputes. The report further examines the sharing of profits and losses, the circumstances under which a partnership may be dissolved, and the legal implications of dissolution. References to relevant Australian legal and business resources are included.

Corporations
and Business
Structure

Introduction
 Understanding of formation and legal
requirements of a business structure is
significant.
 It can enable parties to ensure that they select
the most suitable structure for themselves.
 Partnership is a common structure selected by
parties due to its advantages.
 It is relatively easy to set up and it allows two or
more individuals to start a business.

Overview of business
structure
 In Australia, partnerships are divided into two
parts: general and limited.
 In general partnerships, partners share equal
profits and losses.
 In limited partnerships, partners are able to
limit their liability to an extent (Business, 2020).
 In this case, selection of a limited liability is
suitable for you want to limit your personal
liability in the business.

Setting up the business
 Parties must select the business name and
registration of the name is not mandatory but it is
recommended.
 They should get their own ‘Tax File Number’ in order
to lodge separate tax return of the business
(Business, 2020).
 Registration of a partnership requires identification of
the number of partners and agreement between them
relating to capital investment and level of authority.
 They must create a partnership agreement to identify
roles, responsibilities, authority, liabilities and ratio of
profit sharing .
 Applying for relevant licences and registration.

Partnership agreements
 Partnership agreements can be in written or oral
form.
 Written agreements are recommended because
they clearly highlights terms and conditions of the
partnership.
 It avoids conflicts between partners and easy
resolution of disputes.
 It identify responsibility of control and ensures
agreement on important issues (Lexology, 2016).
 It sets ways of removing a partner and protects the
partners as well as the business.
 It protects interest of minority and majority owners.

Sharing of profits and
losses
 Generally, profits are equally distributed
between partners.
 Losses in the business also follow the same
division of profits.
 However, partners can include provisions in the
partnership agreement to determine a ratio for
sharing of profit and loss.
 They can distribute based on capital
contribution or any other ratio which they find
suitable.

Dissolution of
partnership
 Partnership can be dissolve in following scenarios:
 Expiry of partnership agreement
 Written notice given by a partner to exit
 One or more partners no longer own the business
 Court order
 Bankruptcy of a partner
 Death of a partner
 Insolvency of the business (Business, 2019)
 If partners do not have an agreement, then first income of
the business is used to settle debts after which capital of
partners and lastly they held liable in their profit sharing
ratio.
 Profits will be shared equally by the partners or in their profit
sharing ratio.

References
 Business. (2019). Dissolve your business
partnerships. Retrieved from
https://www.business.gov.au/Change-and-
growth/Restructuring/Dissolve-your-business-
partnerships
 Business. (2020). Partnership. Retrieved from
https://www.business.vic.gov.au/setting-up-a-
business/business-structure/partnership
 Lexology. (2016). 7 Reasons Your Business Should
Have a Written Partnership Agreement. Retrieved
from
https://www.lexology.com/library/detail.aspx?
g=a5055dd7-3814-4e7b-a53b-c63beeaafeb2