Nature, Characteristics, Rights & Duties Of Partnerships, Trusts, And Companies - Essay.

Task Description: The assignment involves a series of research and thinking exercises aimed at developing and assessing your research, analysis, writing and presentation skills. There will be an emphasis on applying your critical thinking skills to real life situations, even if some of those situations are somewhat fictional.

Assessment Criteria:

1. Research and advise on the principles of partnerships, trusts and company law
2. Advise on the practical and legal features of the various types of corporate and non-corporate business structures, including advice on the risks and problems associated with particular structures porations
3. Logical format, appropriate use of language, correct grammar, and accurate referencing

High distinction standard

- the answer is very well written and clearly expressed

- there is a demonstrated appreciation and understanding of the issues involved

- the answer is well structured and logically organised

- demonstrated mastery of referencing system

- there is evidence of a comprehensive analysis of the issues

- conclusions are backed by well-reasoned arguments demonstrating a detailed insight and analysis of issues

- comprehensive coverage of all relevant issues

- references are made to the appropriate legislation for particular issues

- statutory provisions are analysed and interpreted correctly

- the legislation is applied to the particular fact situation in a competent manner

- consideration is given to the operation of the common law

Learning Outcomes Assessed:

1- Research and advise on the principles of partnerships, trusts and company law

2 - Advise on the practical and legal features of the various types of corporate and non-corporate business structures, including advice on the risks and problems associated with particular structures 

3 - Advise on and resolve problems and disputes arising out of partnerships, trusts and corporations

Oliver and Emma become clients of ‘Beanstalk’, a business consultancy firm, and ask for business advice from the managing partner. You work at Beanstalk and the managing partner requests a written memorandum of advice from you. In preparing the advice, consider the following questions.

1.Explain the nature, characteristics, and advantages and disadvantages of the partnerships, trusts, and companies available to Oliver and Emma.

2.Summarise the rights, duties, and liabilities associated with the various partnerships, trusts, and companies available to Oliver and Emma.

3.Recommend, with reasons, the best business structure for Oliver and Emma.

Partnership

There are number of business structures that the parties can choose in operating the business. There are separate characteristics that are necessary in identifying the parties to ensure that they are selecting the most suitable business for their business. It has been evaluated that legal characteristics that has enabled the parties for ensuring the key factors that assist them in fulfilling the objectives in managing the business. It is the memorandum of advice such as trusts, partnerships and companies that are available for Emma and Oliver. In this various rights, liabilities and duties associated with the business structures will be analysed in this report as well. In the end, the report a recommendation has been provided to Emma and Oliver with various reasons in assisting them to choose the best business structure on the mentioned requirements.

The partnership is among the common business structure that has been selected by the parties for establishing the business in Australia. The partnership business has been created when there two or more than two partners. The business structure of partnership suits to those who do not much complex legal requirements. The legal structure of partnership has been governed by the Partnership Act 1891 (Qld) that provides the key provisions in governing the legal structure. The term has been defined under section 5 of the Partnership Act. It has been stated that the legal relationship has been created between two or more parties that have agreed in various terms in order to carry out business in common with the objective of earning profit. There are minimum number of partners required to form a partnership is two and maximum can be 20. The liability of partners is unlimited and they acts as agents for each other. Some key elements of partnership that is required to comply by the partners as in the case Polkinghorne v Holland that each partner have the liabilities and will be responsible for the acts of the other partner. In an another case of United Dominions Corp Ltd v Brian Pty Ltd in this case the fiduciary duties of partners has been defined in the partnership.

The partnership has various advantages as it is easy to establish and the cost of establishing is less than the other business structures. The partnership has less legal complexities. The partnership is more strengthen if there are two partners. However the partnership has disadvantage that the act of other partners will have the liability on all the partners. The raising of fund is not easier in partnership as compared to other business structures.

It has been defined under the nature of trust that has been formed between the parties involving the trust property. It has been recognised by the law that also includes the contractual rights. A relation of trust of benefits that has been benefitted that it results in the separating the burden of ownership that includes paying taxes, insurance, managing property and other from the benefits of the property that proceeds sale, rent, profits or others. The trustee has been considered as the legal owner of the property and it is responsible for giving back to the beneficiaries. The provision of the trust has been provided under Trusts Act 1973 (Qld). The relationship of trust shall be express or implied in which the parties are required to create a trust relationship. The trust structure has some advantages than other business structure that the income has been distributed will on of trustee’s discretion to the beneficiaries from the third party creditors. The trust has a disadvantage that it is a complex and expensive process of establishment and there are problems that arise in dissolution. It is also been difficulty while borrowing the loans and there is a limit of powers in trust deed, a set period of trust has been given in the trust deed and they will be personally liable for the debts of the assets.

Trust

Around the world, it is the most common type of business that has been selected by the number of people in establishing their operations. The companies in Australia have been governed by the Corporations Act 2001(Cth). Corporation has separate legal identity that is the key characteristic by which the parties are preferred to manage their operations. The separate legal identity has been established in the case Solomon v Solomon that the company is a separate legal identity and have separate legal rights and the directors will not been held personally liable for the debts of the company. The rule of separate legal identity and the owner has ben considered as the agent of company that means he is the employee of the company in the case Lee v Lee’s Air Farming Ltd.

Company has various advantages that it is the limited liability and the owner personal assets will not been used for paying off the company’s debts. The shares of the company are easy to transfer. The share capital can easily been raised by the companies. There are various mediums for raising the capital for the company. The death of the owner will not effect on the dissolution of the company.

However, the corporation has some disadvantages as well. It is very expensive to incorporate a corporation through the different medium. A heavy registration fees have to be paid by the members on the registration of the company. There is a heavy registration fees in the company that has been paid by the members of the company. The financial statements of the company are public. The liability of the directors will be unlimited on violation of their director duties that is given under the Corporation Act 2001 (CTH).

The structure of partnership gives various rights that are available to the partners that to manage the operation of the business. There is the right to take part in the day-to-day activities of the partnership firm. In taking the decision, they have the right to take the decision of the business. The right has been given to the partners in contributing in the capital of firm and the interest has been availed in advance that has been paid by the partners for the purpose of business.

The main duties of partners are to carry out the operations of the business that have a common advantage. The duty has been ensured that the use of knowledge and skills in conducting the decisions for the maximum benefits. The true accounts shall be rendered in the business and has been provided with full and accurate information to others partners. It has been attended diligently has rendered the duties while the operation of business has been conducted. The loss that has been happened in the operation of the business will be shared by each partner.

The liability of all the partners has been jointly and severally liable for the acts of the partners that are conducted during its operations. The creditors in this have the right to sue the all partner or any partner individually. The directors have been held liable for the wrong actions of the partner. Any wrongful act of nay of the partners can imposed penalties on all partners. The receiving of the money by any of the partners have the liability of mutualisation of that money.

Company

The trustee rights have been set out in the trust deed that has been executed between the parties. The deed has been provided the right of the trustee in ensuring the property to the third parties without the permission of the beneficiaries. The funds that have been allocated by the beneficiaries will have the liability of the trustees to discharge debts and liabilities of the business. The remuneration has been seek by the trustee for the services that has been provided to him/her and the expenses that has been incurred for managing the trust property.

There are some key duties of the trustee that he has to maintain is duty of care and will exercise with all legal formalities with duty of diligence while discharging his/her duties. The trustee can take decision regarding the investment in the trust fund.  It is also the duty of the trustee that it protects the trust property and avoids conflicts regarding the interest in the property.  

The liability of the trustee that he must not do any illegal activities that is misuse of funds and frauds towards the beneficiaries. It is required for the trustee to maintain the trust among the beneficiaries and proper actions has been taken to protect their interest. The trust has the responsibility to avoid any type of sham against the trust property and the funding shall not been used improperly.

Rights

In the company there are some rights of the shareholders that they will get dividends for the capital they have invested in the company. The shareholders meeting took place in which every shareholder can take part and can vote regarding the key issues that has been faced by him.  The annual reports and announcements by the company have the right of the shareholders to know to receive these announcements and reports that states the action that has taken by the company. The rights of the director are to ensure that the operation of the company has been managed in effective manner. The directors have also the right of remuneration for their role in the company. The shares can easily be transferred from one shareholder to another and therefore it is the right of the shareholder that they can transfer their shares to anyone.

Duties

The duties of directors are to establish a registered office and provide information regarding the offer of the company to their members. They have the duties that no conflict shall arise due to their personal interest and therefore they must provide their details to avoid these types of conflicts. There are certain duties that have to be obliged by the directors as given under the Corporations Act. Section 180 of the Corporation Act, 2001 provides that the director must do their duty with care and diligence. Section 181 states that the directors must act in good faith towards the company and stakeholders of the company. Section 182 states that the director has the duty to use his position in a proper manner and shall not use his position that can affect the company. Section 183 states that the information they get due to their position shall not been misused by them. 

Liabilities

Shareholders have various liabilities that they have to comply that is timely payment of non payment of amounts for the shares they are holding. The obligations and liabilities provided in the Memorandum of Association and Article of Association. It is the constitution of the company and the shareholders has to obey these regulations and obligations. The directors and the shareholders acting as directors have to comply with the duties of directors that have been given under the Corporations Act.

It has been recommended to Emma and Oliver that they should incorporate a company for managing their business operations.  The incorporation of the company will be more beneficial for Oliver and Emma in comparison with other business structures. In order to manage the facilities they wanted to start the cloud based solution. According to the business mnodel they have the plan to provide the services to the management business like the owners, tenants, contractors and the facilities has been provided of repairing of buildings, audit of building, invoicing, reporting, management of assets and tendering.  Oliver did not want to active participation in the business but he wants to finance that business. Whereas Emma does not have funds to invest in the business but she wants to manage the operations of the business. The requirements of both Oliver and Emma that suits them business structure like company rather than the other business structures.  The majority of the shareholding can be hold by Oliver and Emma can be the director of the company. They can fulfill their requirements by incorporating the company and they can achieve their objectives.

The partnership will not suit the Oliver and Emma because in the partnership Oliver will have to engage in the operations of the business and it will also require for Emma to invest in the business for becoming a partner.  The profits have been distributed among them as per the investment of the capital in the business. Emma can hold the shares in the business structure like companies as in the position of director. She can also get shares as remuneration for acting as the director in the company. The other business structure like Trust will not suit Oliver and Emma because they do not want to invest in the property to manage the operations of business.  In the trust the liability will goes on the third party and not the beneficiaries and the liability has been based on Emma rather than the beneficiaries. The liability in this case will be on Emma if she acts as the trustee for the Oliver. There is another issue that Olive had been imprisoned in the year 2005 for the misappropriation of funds for the failure of multiple companies.  Whereas Emma is hiding that two of the creditors have demanded the money that has been lent to her by sending the letters.  

If this happens than trust will not been an option because Emma is acting as a trustee than she can been held liable for the third parties for the property and also been held liable for her creditors.  Whereas in Partnership they will both have unlimited liability that means they can be held liable for the debts of the company.  So if Oliver will do any misappropriation of funds as he has done in past can be held liable. Emma will also been held liable for her creditors of the business as well as her personal creditors. Therefore the company will be a better option because the owners and company has been considered different and the owners have limited liability in the company.  The companies have different liability and the owners of the business have different liability.  It is therefore Oliver can hold the shares of the company and Emma can act as the director of the company.  The company will not been affected by the imprisonment of Oliver.  

However Oliver and Emma have to some challenges while incorporating the company as they have to pay the initial cost that is high and they have to comply with the complex legal requirements.  The estimated cost that has been made Oliver and Emma for the business was to make proliferate in few years that have result that it will increase the revenue of the company.  The business structure of the company is easy to expand than the other business structures. The raising of capital will be easy in the company rather than the other business structure by various sources such as they can issue shares and they can take loan from the company name and can issue debentures. These sources can help the companies in achieving the objectives that will,. Be beneficial for the Oliver and Emma. Therefore it has been advised to Oliver and Emma to incorporate a company because these options are not available in the Trust and Partnership types of business structure.

It can be said that every business structure is different from the other business structures. Each business structure has some advantages and disadvantages to parties selected by them. Thus every business has some rights, duties and liabilities that the owners of the business have to comply with these. However according to the requirements of the Oliver and Emma it has been recommended to them the business structure such as company where they can invest capital and manage the operation properly as per their needs. It has been analysed from teh advantages and disadvantages of the three structures of the business that the business structure will be more beneficial for Oliver and Emma.

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Corporations Act, 2001 (CTH)

Partnership Act 1891 (Qld)

Trusts Act 1973 (Qld)

Lee v Lee’s Air Farming Ltd [1960] UKPC 33

Polkinghorne v Holland (1934) 40 ALR 353

Salomon v Salomon & Co Ltd (1897) AC 22

United Dominions Corp Ltd v Brian Pty Ltd (1985) 157 CLR 1