LAW205: Advice on Bill's Property Management Business Structure

This report analyzes various business structures, focusing on partnership and company structures, for a property management business. It addresses the client's concerns, including asset protection and the inclusion of partners. The report details the advantages and disadvantages of each structure, covering aspects like liability, ease of setup, reporting requirements, and capital raising. It provides guidance on registering a business, including the steps to register a company and the role of directors and shareholders. The report also discusses the concept of limited liability partnerships and concludes with advice on protecting the personal assets of the business owners. The report references relevant legislation, including the Corporations Act 2001, and provides a comprehensive overview of business structure options for the client's specific needs.

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Contents
Overview.....................................................................................................................................................1
Partnership...................................................................................................................................................1
Company structure......................................................................................................................................3
Additional details........................................................................................................................................6
Reporting requirements...............................................................................................................................6
Bibliography................................................................................................................................................8
Legislation...............................................................................................................................................8
Books/Journals........................................................................................................................................8
Other Resources......................................................................................................................................8

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Overview
A business can be set up under a variety of business structures based on the nature and size of the
business as well as the requirements of the business owners. In the given situation, the client
wants to set up a property management business with the name Bill’s property management
service. At the initial level, he seems to have a three-business structure namely sole trader,
partnership firm, and corporation. Nevertheless, the client wants other people to join the business
later and therefore he cannot adopt the sole trader structure as under this structure only one
person has all the control on the business matters. Now the advice is to be given on partnership
and company structure considering the specific concern raised by the client.
Partnership
Firstly, to discuss partnership structure this is to state that under this scenario person join hands
to do business together and divide profit and loss among them. Any person can join the business
with the approval of present partners and the business does not have a separate identity than the
partners of the business. Since the partners are joint owners of the business of the firm hence the
business cannot be set up with the individual name in general. Further, if the client wants to
register the business with a specific business name the same would require to register the same
with ASIC. The important thing to mention here is that if the client would get its business
register on an individual's name, later on, he would not be able to add any partner without
transferring the business name to the new entity. Partnership firm structure has many advantages
as well as disadvantages that also reflect its features. These are mentioned as below:-

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Advantages:-
 It is an easy and inexpensive structure to set whereby the owner gets their business name
registered with ASIC. Further, state partnership laws regulate the working and
compliance of partnership firms.
 A business remains easy to operate under this structure, as the same has to fulfill very
minimum reporting requirements1.
 The structure of business liberal and new people can join the business without being
involved in strict procedures.
 Another advantage of this structure is that a business can get the benefit of a range of
skills that each partner brings with him/her.
 Partners do not have to pay double taxes. The profits of the firm are divide among
partners and then after partners have to pay income tax on their income that they receive
a share of profits.
 Capital can be arranged easily by introducing a new partner to the business.
 Similar to the formation closure of the business is also easy under this structure.
Disadvantages
 The primary disadvantage of this business structure is the unlimited liability of partners2.
It means in case of failure to pay business debts out of business funds, the personal estate
of partners can be used for such payments.
1 distinctbusinesssolutions.com.au, Pros and Cons of Different Business Structures in Australia (distinct business
solution) (http://www.distinctbusinesssolutions.com.au/business-plan/pros-cons-different-business-structures-
australia/>.
2 Kym Anderson, Australia's Economy in Its International Context: Volume 1: 1904-1954 (University of Adelaide
Press, 2009)

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 Due to the involvement of people, there are chances of conflicts or disputes that can
further affect the working of the business.
 Whenever a partner comes or leaves, the current partnership needs to be dissolved and a
new partnership agreement needs to be executed3.
Company structure
This structure is more formal than other business structures where the business is a separate legal
identity to its owners and management. It means business owners and their businesses cannot be
treated as the same unit. The main feature of the company is being an artificial entity it has some
people to manage the affairs, which are directors of the company. The business owners who form
and set a company business are known as promoters and they may or may not act as a director.
Every company in Australia needs to get registered with ASIC by following the process that is
advised further in this report. As clients have raised some specific concerned here which are
mostly related to the company structure they are addressed as below.
Firstly, the client i.e. Mr. Bill can undertake business in his name and for the same, he would
have to register the business under a company structure. However, for the same, he needs to be
appointed as director of the company. Further, Mrs. Mary will be able to join the business as co-
owner by being a promoter of the company along with her husband. In Australia, a minimum of
two directors is required to be there in the proprietary company and in the way Mr. Bill and his
wife can set a company by playing this role.
There are many features of a company structure, mentioned below:-
3 Legalvision.com.au, Operating Under A Partnership Business Structure (Legalvision)
<https://legalvision.com.au/business-structures-the-advantages-disadvantages-of-operating-under-a-partnership-
model/>.

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 Firstly is a legal person where the same can-do commercial transactions in its name such
as sale and buy of properties or entering into a contract.
 Capitals of the company remain divided into small pieces known as a share. A person
can become a member of the company by purchasing these shares. However, a
proprietary company, a person from the public cannot be a member.
 The second feature of this structure is perpetual succession4. It means a company goes on
forever regardless of the retirement or death of any director or member.
 Separate management:- Ownership and management of the company remain in separate
hands where owners are the promoter of the company and in management, the director
plays their role.
In Australia, Corporations Act 20015 is the main legislation that provides rules and regulations
for the operations of the company. A company can be set in Australia by following 7 steps.
Firstly, business owners are required to be sure whether the company structure is correct for
them or not and when they become sure about it, they may proceed with the rest of the steps.
After this, a business name is required to be select as per the naming guidelines provided by
ASIC and thereafter the manner in which the company would operate i.e. management and
directorship of the company needs to be decided. Further promoters also need to decide whether
to develop a constitution or to adopt replaceable rules given in corporations act or a combination
of both for deciding the manner of management6. After taking the consent from members,
occupiers, and officeholders, the next step is to make an application for registration of business.
4 Stephen Bottomley, Kath Hall, Peta Spender and Beth Nosworthy, Contemporary Australian Corporate Law
(Cambridge University Press, 2017).
5 Corporations Act 2001 (Cth)
6 Asic.gov.au, Steps to register a company (ASIC) < https://asic.gov.au/for-business/registering-a-company/steps-to-
register-a-company/#registering-company>.

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For doing so a form with required fee need to be submitted to ASIC which further approves
registration after reviewing all the documents and being satisfied with the same.
Here to inform that Bill and other associates can join the company later on by being the director
of the company or by investing the capital shareholders.
Similar to the partnership firm, the company structure also does have pros and cons that one
should be looked after before setting the business under this structure. These details are
mentioned separately as below:-
Advantage
 The first and most attractive benefit of the company is the limited liability of directors
and shareholders due to the separate legal status of the company7.
 Capital can easily be raised under this structure by issuing shares. Further banks and
other financial institutions feel more secured in granting a loan to businesses that operate
under a company structure.
 Tax rate is less than what is applicable to individuals8
 The business remains easy to a sale where ownership can be pass to other people by
following some legal requirements and procedures.
 Losses can be forward to next year to offset from future benefits.
Disadvantage:-
 The major con of this business structure is that it has a high set up and maintenance cost.
7 James Featherby, Global Business and Human Rights: Jurisdictional Comparisons (Sweet & Maxwell, 2011)
8 Business.qld.gov.au, Company business structure (Queensland Government)
<https://www.business.qld.gov.au/starting-business/types-legal-structures/business-structures/company>.

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 The company itself has to bear all the losses itself as the same cannot be divided among
shareholders9.
 Company has many reporting requirements and therefore secrecy of the business
information cannot be maintained
 Director cannot decide all the matters and for taking many of the decisions, they have to
take permission from shareholders.
Additional details
Mr. Bill and his wife can protect their assets by adopting this business structure. In case the
business would fail, their assets will remain secure if the same will have their business set under
a company structure. In addition to the company, one another business structure is there that can
provide better protection to the personal assets of Mr. Bill and his wife such as to their family
house. This structure is a limited liability partnership, which seems a combination of partnership
and company structure. In general, it is a kind of partnership only but the same provide limited
liability feature to the partners. It is a legal structure than the traditional partnership but less
formal and legal than the company is. In addition to this, partners distribute their profits as per
the decided ratio and the firm cannot reserve them for future as per proprietary company10.
Reporting requirements
Different business structures have different reporting requirements. Partnership businesses only
have a single requirement where the firm needs to submit an annual tax return to the Australian
9 smallbusiness.wa.gov.au, Company (Government of Western Australia) <
https://www.smallbusiness.wa.gov.au/business-advice/business-structure/company>.
10 Aaronhall.com, Advantages, and Disadvantages of Different Business Entities (Aaron Hall Attorney, 09th June
2012) < https://aaronhall.com/advantages-and-disadvantages-of-business-entities-mn-business-lawyer/>.

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Taxation Office each year. In the case of companies, the same need to lodge this tax return to
ATO as well as annual return to ASIC. However normal small companies are not required to
lodge the financial reports and as per types of companies, different reporting requirements are
there.

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Bibliography
Legislation
Corporations Act 2001 (Cth)
Books/Journals
Anderson Kym, Australia's Economy in Its International Context: Volume 1: 1904-1954
(University of Adelaide Press, 2009)
Featherby, James Global Business and Human Rights: Jurisdictional Comparisons (Sweet &
Maxwell, 2011)
Stephen Bottomley, Kath Hall, Peta Spender and Beth Nosworthy, Contemporary Australian
Corporate Law (Cambridge University Press, 2017).
Other Resources
Aaronhall.com, Advantages, and Disadvantages of Different Business Entities (Aaron Hall
Attorney, 09th June 2012) < https://aaronhall.com/advantages-and-disadvantages-of-business-
entities-mn-business-lawyer/>
Asic.gov.au, Steps to register a company (ASIC) < https://asic.gov.au/for-business/registering-a-
company/steps-to-register-a-company/#registering-company>.
Business.qld.gov.au, Company business structure (Queensland Government)
<https://www.business.qld.gov.au/starting-business/types-legal-structures/business-structures/
company

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distinctbusinesssolutions.com.au, Pros and Cons of Different Business Structures in Australia
(distinct business solution) (http://www.distinctbusinesssolutions.com.au/business-plan/pros-
cons-different-business-structures-australia/>
Legalvision.com.au, Operating Under A Partnership Business Structure (Legalvision)
<https://legalvision.com.au/business-structures-the-advantages-disadvantages-of-operating-
under-a-partnership-model/>
smallbusiness.wa.gov.au, Company (Government of Western Australia) <
https://www.smallbusiness.wa.gov.au/business-advice/business-structure/company>.