BUSL 301 – Corporations Law

Lecture Area 1:
COMPARISON OF BUSINESS ORGANISATIONS
 Dr. Zaman Khorsed
Department of Accounting and Corporate Governance

Room No: 316 , E4A Building

Email: [email protected]
Assessment Procedures
BUSL 301 – Corporations Law
• Lecture: Each week 2 hour lecture and 1 hour
tutorial (lecture slides and tute questions)

Multiple Choice Questions (MCQ)

• Type of Questions:
and/or Problem Style Questions

• Totally Close Book Exam: No books, notes…only pen and

pencils
Distribution of Marks

• Class Participation (not only attendance): 20%

• Attendance, well‐preparation, responding in classes,
asking and answering questions, accuracy of answers
and overall engagement in class.
• Online Quiz: 20%
• Week 7: Wednesday12 April 2018
• No class/tute in this week.
• 35 Minutes
• This exam will cover Lecture area 1‐ 5 inclusive
• Disruption to studies policy
• Final Exam: 60%
• Lecture area 5 – 11
• MCQ and Problem Style questions
• Date : University Formal Exam period
• You must pass final exam to get a pass grade
Lecture Area 1
Comparison of Business Organizations

• Agency
• Sole Trade;
• Associations;
• Partnership;
• Joint Venture;
• Trading Trust;
• Company (elementary idea)
Agency

• General Concept: A relationship in which someone is authorised to act

on behalf of another person with third parties
• Legal basis: Law of contract
• Agency is an exception to the doctrine of privity of contract (Only
immediate parties in a contract can have the authority)
• Examples of principal and agent: Bankers, brokers, auctioneers, commission
agents, managers, partners, company secretaries, solicitors….
• Relevance in Partnership : Firm/partner = Principal; Partners = Agent
• Relevance in Company Law: Company = Principal; Administration = Agent
• Legal Authority of Agency:
• Actual/express authority: Written or oral
• Ostensible/apparent authority: informal representation
• Ratification: Approval after acting without/exceeding authority(retrospective
action)
Sole Trade

• One person business: owner operating business (simplest, cheapest, easier

form of business)
• Set-up process:
• Get an ABN from ATO: consequence of 46.5% tax withheld
• Get the business name registered under the Business Name Registration Act
2011(Cth.): Exception applies.
• Annual or quarterly payments to the government on the basis of Business
Activity Statement (BAS)
• Main Legal points:
• Business control:
• Funds, profits and losses:
• Liability : Unlimited. Law does not distinguish between the trade and trader ;
• Tax liability: Marginal tax rate based on the income
• Law governing sole trade: No specific legislation. General business law applies.
• Legal restrictions on some professions: Certain legislative and professional
requirements apply.
• Life of business: depends on trader/trader’s life.
Pros and Cons of Sole Trade

Criterion Advantage Disadvantage

Formality Minimum formalities and  That has to be weighed up 
against the lack of…
regulations, easy to set up.
Management  Lot of flexibility, easy to control  Lack of skills and 
and privacy expertise
Capital Lack of capital for 
expansion, difficult to 
raise capital
Sharing Profits Takes all the profits
Liability Unlimited personal 
liability
Life of the  Limited
Business
Associations

• Concept: Associations are non-profit organisations. Their main business is

social-welfare.
• Examples: social and recreational clubs; educational, religious and charitable
organisations, trade, sporting or professional associations (e.g., cycling club,
swimming club, farming club),
• Categories: unincorporated and incorporated
• Common characteristics: not-for-profit(NFP), not-for-trade
• Relevant laws: (Incorporated asso.) Each state has its Associations
Incorporation Act (NSW 2009).
• Relevant laws : (Unincorporated asso.) No specific legislation for
unincorporated associations. General law applies to them.
• Legal Status:
• Liability: Uncertain in unincorporated associations because no agency
relationship exists.
• Tax liability: NFP tax advantage
• Things to remember? i) not to profit; ii) not a separate entity; iii) no
donations/gifts iv) responsibility issues
Partnership: Basic Legal Issues

• General definition: More than 1 person do a common business for profit. Partners can
be individuals, companies or other body corporate.
• Creation of partnership: Partnership contract/agreement/ deed (written or oral)
• Legal personality and liability: Not a separate entity with unlimited liability
• Specific Law (NSW): The Partnership Act 1892 [with Partnership (Limited Partnership)
Amendment Act 1991)]
• Specific Law (other states): 1891(Qld); 1891(SA); 1891(Tas); 1895(WA); 1958(Vic);
1963(ACT); 1997(NT).
• These Acts are more or less same and have not changed much in the last 100
years.
• They are based on UK Partnership Act of 1890
• Maximum number: 20 (Article 115 of the Corporations Act)
• Exceptions: Professional practices (e.g. law firms may have up to 400 partners,
accountants – 1000, doctors upto 50)
• Relevant laws: Corporations law, law of contract, trust, agency and the tax law
Partnership: Definition and Elements
• ‘Partnership is the relation which subsists between persons
with (NSW s.1)
• 3 Elements:
• Carrying on a business
• In common
• View of profit
Partnership: Element 1

• Carrying on business: i) ‘Carry on’; ii) ‘business’

• NSW PA S.1B(1) defines ‘business’: ‘every trade,
occupation or profession’ (excludes domestic transactions and
hobbies).
• None of the PAs specify the meaning of ‘carry on’
• Smith v Anderson (1880) 15 Ch D 247: ‘implies a
repetition of acts and excludes the case of an association
formed for doing one particular act which is never to be
repeated.’
• ‘Intention to repeat’: Re Griffin Ex Parte Board of Trade (1860)
60 LJQB 235.
Partnership: Element 2 & 3

‘In Common’: Does not mean that all partners must take an active
role in the business, but it must be carried on by or on behalf of the
partner.
‘View of Profit’: Acquisition of financial gain. Intention is important.
No matter whether the business is successful or not.
Important Note: Because of this third element, the following two
relationships are not generally partnerships (NSW S.2 PA):
Co-ownership:
Sharing gross return of a business (sharing profit creates a strong
presumption but it is not a conclusive evidence)
Partners’ Liability to Outsiders

• Every partner is an agent of the firm and of the other partners.

(NSW s 5)
• Fiduciary relationship: (partners must act with honesty, loyalty and
always put partnership ahead of personal interests)

• Partnership has unlimited personal liability

• If a transaction arises in the normal course of business and

outsiders dealing with the partner are unaware of any lack of
authority, the firm is still liable as the principal of the transaction.
(NSW ss 10 -13); Polkinghorne v Holland & Whitington (1934) 51
CLR 143

• Liability can be imposed by Contract or Tort

Partners’ Liability in Contracts and Torts

• In Contracts: Joint liability (NSW S 9)

• Joint liability: outsiders can initiate only one legal
action (either against the firm or partner)
• In Tort Law: Joint and several liability
• Joint and several liability: Multiple legal actions
• Outsiders can sue any or all the partners, and if the first action
do not recover the amount, they can initiate second action
against remaining partners
• Things to remember: i) in course of business and ii) with
appropriate authority (Polkinghorne v Holland)
Pros and Cons of Partnership Business

Criterion Advantage Disadvantage

Formality Minimum formalities and regulations, 
inexpensive and easy to set up.
Management Lot of flexibility, easy to control  Lack of skills and expertise

Capital Lack of capital for expansion, 

difficult to raise capital
Sharing Profits Takes all the profits
Tax Benefit Individual tax, business does not have to pay 
(but it has to submit the tax return)
Liability No separate entity
Unlimited personal liability
Life of the Business Limited (changes in the business
terminates partnership)
Number  of partners Maximum 20
Termination and  Death, retirement or bankruptcy
Dissolution
 Joint Venture

• Concept: Association of persons or different business structures

enter into a one-off business agreement. (generally it involves high risk
capital or high risk capital enterprise).
• Typical examples: Exploration of minerals, establishment of a lab, technical
facilities property development, construction, manufacturing, publishing, entertaining,
hospitality management, share farming ventures
• Main reason: Avoid the liabilities of partnership business
• Basis of joint ventures: Specific ad hoc contracts
• United Dominos Corporations Ltd. (UDC) v Brian Pty Ltd. (1985) 157
CLR 1. HCA said, ‘…an association of persons, natural or corporate, who agree
by contract to engage in some common, usually an ad hoc undertaking for common
joint profit…’

• Difference between joint venture and partnership: often overlap and blurring (no
formal registration requirement, no specific legislation)
Trading Trust

• An equitable obligation

• Four elements of trust

• Settlor
• Trustee
• Trust property
• Beneficiary

• Where the trustee is a company, it is known as trading trust

• Trust itself is not a separate legal entity and trustee is personally

liable.
Criteria for Comparing Business
Organisations

• How easy is it to establish the business?

• What is the cost of setting up the
• Ease of establishment
business? • Management and
• Are there any minimum or maximum
capital requirements? control
• What are the applicable laws, and who will
control the management of the business?
• Liability
• What is the degree of business flexibility? • Fundraising
• What taxation rate applies: personal (top
rate 47%) or company (30%) • Continuity
• What is the expected size of the business
enterprise? • Privacy
• The process involved in any later sale of
the business entity or part.
• Tax benefits
• The process of termination of business