Partnership is one of the most used business structures which is entered into between the parties for the purpose of making profits. The goals and objectives of this business structure is to maximize profit. The partners enter into a written contract to be bound by the terms of the agreement. There are various ways to enter into business and it can be done with the help of the coming together of the partners. When the partners decide that they do not want to take the burden of the business solely and they want to share the profits and the losses, in that case, they can go for partnership. In partnership, the members share the liabilities, the losses as well as the profits. Partnership is based on trust and good faith and the partners are bound by a fiduciary relationship. Partners are indecently responsible for entering into the contract and they do so in their individual capacity. The firm does not enter into the contract and the firm is not considered a legal entity. The Partnership Act, 1891 governs the law of partnership in Australia. The liability of the partners under the partnership legislation in Australia is unlimited. The agreement governing the rights and duties of the parties are written and in formal manner and it is called the partnership deed. The partnership deed governs the rights and in cases when there is no formal written agreement between the parties, the same can be inferred from the conduct. If the parties give out the impression by their behavior that they are in a partnership agreement, then it cannot be denied and the behavior shall be indicative of an agreement. The behavior could be in the manner of mutual sharing of profits and losses or being responsible for the conduct of the partners in the firm. There is an element of good faith and trust and since the partners are sharing the profits and the losses, it can be said that there are risks of bearing the losses which might pose to be a disadvantage for the partners. The partners shall have unlimited liability for the dents that are incurred by the firm and the partners in the firm can be sued separately. Partnership can be dissolved and also co-ownership is not a proof of partnership. The partners have to maintain harmony and they cannot be held to be acting in conflict with the interest of the partners or the firm.
The law treats companies as legal entities and they also have a fictional character and they are considered to be judicial where the company can sue and also be sued in its name. The company can therefore be incorporated as well as unincorporated. There are many advantages of a company as they have a legal entity and also can enter into contracts and have the power of owning properties. These are all attributes of being recognized as a judicial body. The common law does not have a bearing in the initiation of a company and it can be formed by statutes. The shareholders in the terms of the company parlance are the owners of the rights of the company and they are held to be liable only for the shares or the issue prices they have invested. The issue prices are determined by the company and are also issued by the company. The members of the company are held to be liable for the debts that are incurred by the company and they can also be sued for fraud. The company in Australia is incorporated as per the statutes and therefore the principle governing the statute is that the shareholders and the members shall be held liable for the debts that the company incurs. The benefit of this system is that the company shall sue and in cases when the company is sued, the members shall not be personally held liable and they will not have to bear the responsibility individually. The Corporations Act is the legislative authority that deals with the rights of the shareholders and the directors of the company and lays down the guiding principles for the conduction and incorporation of the company.
Partnership is based on the element of trust and food faith and the partners are in a fiduciary relationship. The intention of the partnership firm is to make profits and share the profits equally between the partners. In the present given situation, it can be said that family members have a bearing of trust and they are assumed to be acting in good faith and therefore the business structure suited for them is partnership. The family members can enter into a profit to share them equally and also benefit from it. In cases when the contract which is entered into between the parties is authorize, the partners can be bound by the terms of the contract. Partnership is a very simple business structure and the formalities to enter into an agreement is not as complex as a company. In cases of written partnership deeds, the statute mandates that the regulations are upheld and it is not a mandate as partners can also enter into verbal agreements where the intention as well as the rights of the parties can be inferred from their conduct. The partners mutually agree on a change or alteration and they also denote among themselves how they want to be governed by the agreement. The method for the distribution of profits is very simple as the partners share the profits among themselves. The ultimate goal of a partnership firm is to make profits. The partners have their specified and denoted interest in the business and their liabilities are individual where each partner shall be individually liable. The interest of the firm shall be kept at priority and all the accounts of the firm shall be handled with honesty. The partners shall have their individual and separate share in the returns and they shall be liable for their parts individually.
Companies, on the other hand, are considered to be legal entities in the eye of law and they have the power to enter into a contract and also own properties in its own name. The method of incorporation of a company is a very lengthy process which sets out all the rights and duties of the members of the company. The company is considered to be a juristic person as it has the power to sue and also be sued. Under the structure of a company, the directors have been given many powers and they are held to be liable when the company incurs debts. A company is limited by shares and in such cases the shareholders are responsible for the shares they have invested. In cases of company, there needs to be an initial investment which is made by the shareholder. The risk in case of company is lesser and the members are not held to be personally liable and the company becomes liable. The most important element of a company is the concept of corporate veil which acts like a shield and protects the directors and the shareholders. The company has a legal entity which is not the same as the director’s and the property is owned by the company in its name and not by the members. The company acts and functions independently and therefore the members of the company are not held liable for the functions of the company. The company can raise money from the public and the liabilities are entirely the liabilities of the company and not of the members.
The two structures are very widely used and both of these have their positive and negative sides. In the present factual scenario concerning the family members, it can be said that the company structure would be a better structure for them. Though the partnership is based on trust and good faith and it follows a simpler step of setting up, the corporate veil saves the members from any fraud or litigation, The Company is given the status if a separate legal entity and therefore the company is sued in cases of any unlawful activities. The members are protected from the shield of corporate veil. The risk associated with partnership firm is more as the partners are considered to be liable. If the risk is also assessed in cases of both the structures, it can be said that company has lesser risks attached to it.
This is a landmark case as it sets the precedence of corporate governance as well as the rights and duties of the directors. The case is concerned with company fraud and what are the actions permissible by a director under the framework of corporate governance. In this case, the director of HIH was convicted by the court and was held to be indulging in corporate fraud. This case is remarkable for being one of the greatest cases of corporate fraud in the history of company law. In this case, there was a collapse of the corporations which are famous for being effluent and the companies Answett, OneTell and Adler collapsed as a result. The Corporations Act is the primary legislation that deals with the rights and duties of the directors and their expected behavior. Corporate Governance is the principle of ethics and principles that govern the way the companies should function and it also lays down the principles that are held to be acceptable by the law. In cases of breach of corporate fraud, the companies shall be held liable and they shall have to pay damages. The director of the company HIH was accused of indulging in corporate fraud and it was held that he had mislead the company into making profits which turned out to be fraudulent because he had the intention of deceiving the company and its members. The corporates in Australia are governed by the principles of Australian Securities Act and as per its provisions, the corporates are made to abide by their rules and governance. The companies should abide by these rules and they shall also ensure that the members do not knowingly hamper them and therefore they should be penalized in cases of breach of those principles. The Australian Securities Exchange has also imposed certain recommendations which needs to be followed by the companies and if there is a violation of those, the directors and the shareholders shall be made liable. In this present case, there was an accusation of corporate fraud against the directors as he had used information that were not meant to be divulged and the director had very knowingly mislead the company into making losses. The director with the intention of defrauding the company indulged in corporate fraud as he sanctioned certain acts which had adverse effect on the economy of the company. The court held that Rodney Adler had committed fraud and therefore he was ordered to stay away from the functioning of the company and was declared to be barred from working for the company, the court sentenced him to 20 years of imprisonment and was held that he had mislead the company into making losses. The director should act in the best interests of the company and shall not advance his own profits ahead of the company’s. The company be led by the directors and therefore the directors have to keep the fiduciary relationship enact. The directors cannot act in their personal interest and shall not harm the country knowingly. The intention of the director is of essence. As per section 180 of the Corporations Act, the director shall maintain the fiduciary relation and shall act in good faith. The director has to advance the best interests of the company and has to act with proper care as well as with due diligence. The director shall also maintain transparency and efficacy of his actions. Section 181 of the Corporations Act deals with the core obligations of the director where he shall be responsible for the proper conduct of the company. The provisions of the Corporations Act was laid down in the landmark judgment of Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821where the court held that the director is duty to bound to act in good faith and also exercise due diligence and care in exercise of their duties. As per the provisions of section 206A of the Corporations Act, the information which is gained by the director shall be properly used by him and he shall not cause any unjust information to deceive the public. In cases when the director is accused, he can take the defense that he did not have the intention to dupe the company.
0:00-1:20- The company can therefore be incorporated as well as unincorporated. There are many advantages of a company as they have a legal entity and also can enter into contracts and have the power of owning properties. These are all attributes of being recognized as a judicial body. Partnership is one of the most used business structures which is entered into between the parties for the purpose of making profits. The goals and objectives of this business structure is to maximize profit. The partners enter into a written contract to be bound by the terms of the agreement
1:21-1:40- There are various ways to enter into business and it can be done with the help of the coming together of the partners. When the partners decide that they do not want to take the burden of the business solely and they want to share the profits and the losses, in that case, they can go for partnership. In partnership, the members share the liabilities, the losses as well as the profits. The common law does not have a bearing in the initiation of a company and it can be formed by statutes. The shareholders in the terms of the company parlance are the owners of the rights of the company and they are held to be liable only for the shares or the issue prices they have invested. The issue prices are determined by the company and are also issued by the company.
1:41-2:00- Partnership is based on trust and good faith and the partners are bound by a fiduciary relationship. Partners are indecently responsible for entering into the contract and they do so in their individual capacity. The firm does not enter into the contract and the firm is not considered a legal entity. The Partnership Act, 1891 governs the law of partnership in Australia. The liability of the partners under the partnership legislation in Australia is unlimited. The agreement governing the rights and duties of the parties are written and in formal manner and it is called the partnership deed. The members of the company are held to be liable for the debts that are incurred by the company and they can also be sued for fraud. The company in Australia is incorporated as per the statutes and therefore the principle governing the statute is that the shareholders and the members shall be held liable for the debts that the company incurs.
2:01-3:00- The benefit of this system is that the company shall sue and in cases when the company is sued, the members shall not be personally held liable and they will not have to bear the responsibility individually. The Corporations Act is the legislative authority that deals with the rights of the shareholders and the directors of the company and lays down the guiding principles for the conduction and incorporation of the company. The partnership deed governs the rights and in cases when there is no formal written agreement between the parties, the same can be inferred from the conduct. If the parties give out the impression by their behavior that they are in a partnership agreement, then it cannot be denied and the behavior shall be indicative of an agreement. The behavior could be in the manner of mutual sharing of profits and losses or being responsible for the conduct of the partners in the firm.
3:01-3:45- The partners shall have unlimited liability for the dents that are incurred by the firm and the partners in the firm can be sued separately. Partnership can be dissolved and also co-ownership is not a proof of partnership. The partners have to maintain harmony and they cannot be held to be acting in conflict with the interest of the partners or the firm. The company is considered to be a juristic person as it has the power to sue and also be sued. Under the structure of a company, the directors have been given many powers and they are held to be liable when the company incurs debts. A company is limited by shares and in such cases the shareholders are responsible for the shares they have invested. In cases of company, there needs to be an initial investment which is made by the shareholder.
3:46- 4:20- Market risk as well as risk assessment are two important factors that should be taken into account while dealing with business structure. If the risk is also assessed in cases of both the structures, it can be said that company has lesser risks attached to it. The ultimate goal of a partnership firm is to make profits. The partners have their specified and denoted interest in the business and their liabilities are individual where each partner shall be individually liable. The interest of the firm shall be kept at priority and all the accounts of the firm shall be handled with honesty.
4:21-5:00- The ultimate goal of a partnership firm is to make profits. The partners have their specified and denoted interest in the business and their liabilities are individual where each partner shall be individually liable. The members in the company are not held liable and the company is made accountable.
References
ASIC v Adler (2002) 20 ACLC 576; 41 ACSR 72.
Bottomley, Stephen. The constitutional corporation: Rethinking corporate governance. Routledge, 2016.
Corporations Act, 2001 S. 180.
Corporations Act, 2001 S. 181.
Corporations Act, 2001, S. 206A.
Hannigan, Brenda. Company law. Oxford University Press, USA, 2015.
Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821.
Issacharoff, Samuel, and Thad Eagles. “Australian alternative: A view from abroad of recent developments in securities class actions.” UNSWLJ 38 (2015): 179.
Jackson, Kody. “Behind the Corporate Veil.” ReVista (Cambridge) 15.1 (2015): 50.
Ke, Yongjian, Marcus Jefferies, and Peter Davis. “A Comparison of Public Private Partnership Environment Between Australia and China.” Proceedings of the 21st International Symposium on Advancement of Construction Management and Real Estate. Springer, Singapore, 2018.
Macey, Jonathan, and Joshua Mitts. “Finding order in the morass: The three real justifications for piercing the corporate veil.” Cornell L. Rev. 100 (2014): 99.
Méndez, Carlos Fernández, Shams Pathan, and Rubén Arrondo García. “Monitoring capabilities of busy and overlap directors: Evidence from Australia.” Pacific-Basin Finance Journal 35 (2015): 444-469.
Roness, Paul G. “Types of state organizations: Arguments, doctrines and changes beyond new public management.” Transcending new public management. Routledge, 2017. 77-100.
Talbot, Lorraine. Critical company law. Routledge, 2015.
Tushnet, Mark. “Comparative constitutional law.” The Oxford handbook of comparative law. 2017.
Veldman, Jeroen. “The Separate Legal Entity and the Architecture of the Modern Corporation.” (2018).
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