M11 Business Structures 2024

Markets and Legal
Frameworks
Module 11
Business Structures
Faculty of Business and Law | Curtin Law School CRICOS Provider Code 00301J
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MODULE
OBJECTIVES
After completing this module, you should be able to:
Distinguish the main business structures that Understand the terminology used in relation to
are found in Australia different business structures
Understand the legal consequences of utilising Explain how different business structures are
different types of business structures created and operated
Types of business structures
Click the tabs below to learn more.
Introduction Most frequently used Choosing a business structure
• In Australia, a business owner has a choice as to how they

structure and run their business.
• A range of factors must be considered when determining
what type of organisation or legal structure is most suitable
for a particular business.
• As a general rule, simpler structures are suitable for smaller
businesses and larger enterprises require more complex
structures.
• Each business structure places different degrees of liability
on the business owners and operators. Important to
understand in order to select the best legal structure for a
particular business.
• The most frequently used business structures are:
Sole proprietorships Partnerships Trusts Companies
• Franchises, Co-operatives and Joint Ventures are also quite common structures but they won’t be covered
here.
Choosing a business structure
• Things to consider can include:
o size of the business o costs of establishing and running the business

o level of risk involved o regulation and intervention of the law
o purpose of the enterprise o taxation
o capital requirements o control and decision-making
o privacy and disclosure o ease of transferring the business
o whether the business is likely to last for a o asset and intellectual property protection
long time or even forever
Sole Proprietorships
Sole proprietorships
Legislations, formalities, reporting and
Introduction Features and responsibilities Advantages and disadvantages
registration
• An individual who owns a business enterprise as a principal.

• This type of business structure is otherwise known as a ‘sole trader’.
• Examples of this structure include butchers, small retailers,
photographers, beauticians, hairdressers, plumbers, grocers and builders.
• The simplest way to set up and operate a business.
• Can trade under their own name or under a different trading name. Must
register a business name with ASIC if they trade under a name that is
not their own. Sole proprietorships
registration
• Sole proprietor has full control over the assets of the business and business decisions.
• Sole proprietor is completely responsible for all risks associated with the business (unlimited liability).
o At law, the business is not a separate legal entity from the principal.
o This also leads to a succession problem.
• Initial capital comes from own resources or by taking out personal loans.
• Sole trader receives profits not wages (pays tax on profits at individual tax rate)
o They can however employ people on wages to work in the business.
Legislations,
Governance, formalities, reporting and
registration
• No legislation that specifically regulates sole traders.

o Though subject to CCA and ACL (Consumer legislation).
• Few formalities required to set up business thus low establishment costs.
o Professional qualifications/accreditation might be required however.
• Fewer reporting requirements and greater privacy.
• Registration for GST (must register if annual turnover is more than $75,000).
registration
Advantages Disadvantages
• Easy to set up with low costs. • Unlimited liability.

• Greater control/privacy and minimal • Difficulty of raising capital.
regulation.
• Higher rate of tax paid on profits earned
• Earn all/majority of the profits. (individual tax rate > tax rate for
companies).
Partnerships
Definition
• A partnership subsists between persons carrying on a business in common with a view to

profit.
• There are three components to this which must be proven to show that a partnership at
law exists:
o a commercial relationship exists between the parties (an enterprise);
o a common business is conducted by the parties (that is, there is some mutuality);
and
o a business is conducted with a view to profit (to share profit).
Partnerships • Partnerships may be between 2 and 20 people. Once a partnership is of more than 20
people, it normally must incorporate as a company: Corporations Act 2001 (Cth) s 115.
There are many exceptions with professions though.
• The exceptions include stockbrokers, medical professionals, architects, pharmaceutical
chemists, veterinary surgeons, accountants and law firms.
Partnerships
Creation and regulation Other regulations & registration
• Is relatively easy and inexpensive to set up.

• There are two types of partnerships - general and limited.
• Created and regulated by partnership agreement; supplemented by Partnership Act of relevant state.
• In WA, we have the Partnership Act 1895.
• The common law also applies to resolving legal issues involving partnerships, and compliments each state’s
Partnership Act.
• The partnership must be for a legal purpose and cannot be contrary to public policy.
• They must also satisfy the requirements of professional groups that have the power to regulate their profession
e.g. lawyers cannot enter into a partnership with non-lawyers.
Partnerships
Creation and regulation Other regulations & registration
• Other regulations include health and safety requirements, licence requirements and the obeyance of statutory
provisions i.e. the Australian Consumer Law in their delivery of services.
• Partners must register a business name if the partnership name is different from their personal names.
o Deters other businesses from using a particular business name.
o Expedient for when partners come and go and doesn’t require a name change.
o Provides a public record of the persons behind the business, and when non-personal name is used this can
avoid claims by outsiders for misleading behaviour or the making of false representations.
Partnership agreements
• Can be express or implied.

• Express agreements (in a written form) can resolve a lot of potential problems and keep partners accountable with their
behaviour.
• Agreements can establish:
o The very existence and membership of the partnership
o Rights, liabilities and contributions of each partner
o The genuineness of the partnership for taxation purposes
o May modify some implied terms set by the legislation
• Partnership agreements can be made through a standard form
• In the absence of an agreement, the relevant state’s Partnership Act will determine the rights and duties between the
parties.
Partnership: Legal significance
• Partners have no separate legal existence from the

partnership. They thus have unlimited liability for the
debts or unlawful actions of the partnership.
• Partners are both principals and agents for each other –
their actions bind other partners.
• The partnership may enter into contracts and be sued.
• Partners do not receive a salary and cannot be employees.
• The partnership doesn’t pay income tax on the income
earned. Each partner pays tax on the share of the net
partnership income they receive.
Rights and duties
Partnerships: rights and duties Partnerships: rights and duties (cont.)
Partnerships: rights and duties
• Every partner may take part in the management of the partnership business.
• Partners are entitled to share equally in the capital and profits of the business; they must contribute equally
towards any losses by the firm, whether of capital or otherwise.
• Partners are entitled to indemnification (compensation) for any payments or personal liabilities incurred in
the ordinary and proper conduct of the business of the firm, or for anything necessarily done in the interests
of the business or property of the firm.
Rights and duties
Partnerships: rights and duties Partnerships: rights and duties (cont.)
• The partnership books are to be kept at the place of business of the partnership, and every partner has the
right to access, inspect and copy those records.
• No new partner can be admitted without the agreement of all the existing partners.
• Partners cannot be expelled from the partnership unless the partnership agreement allows for this.
• Differences of opinion between partners as to ordinary matters connected with the partnership business
(such as the purchase of equipment) may be decided by a majority of the partners, but no change may be
made in the nature of the partnership business (such as a change to the type of business conducted) without
the consent of all existing partners.
Limited liability partnerships
• Allows for non-participating (investors), working or general partners.

• Must have at least one general partner with unlimited liability.
• Offers a simpler means of limiting personal liability, without the expense of registering and meeting the regulatory
requirements of a company.
• Allows for more confidentiality than a company.
• Losses sustained by the partnership not distributed to the individual partners.
• Now taxed like companies.
• Must be registered according to the requirements of their state (Limited Partnerships Act 1909 (WA)), and disclose
specific details as to the identity and responsibility of each partner.
• Main advantage is that silent (non-participating) partners who do not take part in the management can be designated
as ‘limited partners’.
• Allows for silent partners (non-participating) to invest without incurring any liability beyond their original
contribution.
Dissolving a partnership
• Refers to the ending of the partnership.

• When a partner leaves or joins a partnership, the effect is to
dissolve the earlier partnership.
• In the absence of any agreement, a partnership will be
dissolved by the death or bankruptcy of a partner.
• May be dissolved where the nature of the partnership becomes
illegal, or when it is unlawful for the particular members of
the partnership to continue the business.
• A court can dissolve a partnership if one of the partners is of
unsound mind, engages in illegal conduct or where the
partnership business cannot be carried on except at a loss.
• A partnership that is to operate for a fixed term is dissolved
when that term expires.
Partnerships: Advantages and disadvantages
• Simple and inexpensive to set up - Less • Not a separate legal entity. Each partner is
formality. fully responsible for debts and liabilities
incurred on behalf of the business by other
• Minimal reporting requirements - Greater
partners - with or without their knowledge.
privacy.
• Potential for disputes over profit sharing,
• Shared control and management (with greater
administrative control and business direction.
flexibility) as well as the pooling of resources
and skills. • Changes of ownership can be difficult and
generally requires a new partnership to be
• Relatively easy to dissolve the partnership or
established.
to resign and recover your share.
• Income splitting, since tax is assessed on
each individual partner’s income.
Trusts
Definition
A trust is an equitable obligation that rests on a person (the trustee) who is personally
responsible to deal with specified property (the trust property) for the benefit of
another person or persons (the beneficiary/beneficiaries).
• It has origins in equity law.
• Parties are settlor, trustee and beneficiary:
o the settlor creates trust by settling property upon
o trustee for the benefit of
o beneficiaries
• A critical feature is intention to create trust. Trusts
• The trust is not a legal person - trustee is legal owner of trust property, beneficiaries
hold equitable title i.e. their interest is protected by equity.
NOTE: Settlor
Can be the
same person
TRUST
PROPERTY
Legal title Equitable title
Trustee Beneficiary(s)
Types of trusts
• A business can be administered through a trust, but trusts were not invented for that purpose.
• As settlor, a person can vest assets of their own into a trust fund, appoint themselves as the trustee of the fund for the
purpose of running a business, and appoint themselves, with others, as the beneficiaries.
• Note however that one person cannot be settlor, trustee and sole beneficiary. There must be other beneficiaries to
make the trust structure work.
• Main benefit of running a business through a trust is tax minimisation.
• There are different types of trusts - Trading, Unit, Superannuation, Family, Charitable, to name a few. It is quite a
complicated structure, so you would want to consult with an expert if you are considering creating a trust.
• A trust that carries on a business must have its own Tax File Number (TFN), and the trustee must submit an annual
tax return showing the income earned.
• How the income is taxed depends on whether, and exactly how, it is distributed.
Trading trusts
• Where a trust is used to conduct the trading of a business (that is often a family business).
• Sole proprietor disposes of business to a trustee, usually corporation.
• Beneficiaries are proprietor and family members who receive income of business through a distribution by trustee.
• If the trustee of a trading trust is a company the following documents need to be prepared:
o Company constitution; and
o Trust deed.
• Useful for asset protection and confidentiality. Also have benefits that include taxation flexibility and control without
ownership.
Trusts
Creation and regulation Trustees Act 1962 (WA)
Creation and regulation
• A trust does not need to be formally created but it serves the interests of each of the parties to the trust to
create a ‘deed of trust’, especially when the trust is formed to operate a business.
• As the ‘deed of trust’ is a legal document, it should be created by a lawyer or accountant.
• The operations of the business will have to be outlined in the trust deed.
• The trust deed should outline (among other things):
o the trust assets and who the trustee and beneficiaries are;
o the trustee’s obligations to the beneficiaries; and
o the powers of the trustee in administering the trust.
Trusts
Creation and regulation Trustees Act 1962 (WA)
• Where the trust deed is silent on important details, the provisions of the Trustees Act 1962 (WA) will
supplement the terms of the trust deed.
• The provisions of this Act cover matters such as:
o The appointment of trustees (i.e. any legal person can be appointed and the appointee can disclaim);
o The duties of trustees (i.e. to complete all duties personally; maintain and care for the trust property; and
keep accounts);
o The powers of trustees (i.e. to sell, lease or exchange trust property; to be reimbursed by the trust for funds
personally expended in furtherance of the trust); and
o The powers of the court (i.e. to remove a trustee, if this is required in the best interests of the trust).
Trusts: Advantages and disadvantages
• Tax minimisation and asset protection. • The structure is complex.

• Limited liability is possible if a corporate • The Trust can be expensive to establish
trustee is appointed. and maintain.
• The structure provides more privacy than a • Problems can be encountered when
company. borrowing due to additional complexities
of loan structures.
• There can be flexibility in distributions
among beneficiaries. • The powers of trustees are restricted by the
trust deed.
Companies
What is a company?
Definition The powers of a company
• A company is an artificial entity that is recognised by the law upon

registration with the Australian Securities and Investments Commission
(ASIC).
• Once a company is registered it becomes an incorporated company that is
regulated by the provisions of the Corporations Act 2001 (Cth).
• In Australia, ASIC and its subsidiary bodies have the responsibility of
ensuring that companies comply with the law.
Companies
What is a company?
Definition The powers of a company
The powers of a company registered under the Corporations Act are set out in s
124, which provides that a company has the legal capacity and powers of an
individual both in and outside of Australia. A company is:
• a legal person in its own right;
• has a legal personality distinct from that of its directors, shareholders
(members) and company workers; and
• is endowed with capacities similar to those of a natural person (to enter
into contracts, purchase property, borrow money, bring a legal action etc.)
Separate legal existence is a key feature of a company. The company has a legal
personality distinct from that of its directors, shareholders (members) and
company workers. Salomon v Salomon & Co [1897].
Classification of companies
Introduction Proprietary companies Public companies
• A company can be either a public or proprietary company.

• A proprietary company is usually smaller than a public company.
o Often used for family enterprises or small businesses.
o More than 90% of companies in Australia are proprietary companies.
• A public company is a company that is not registered as a proprietary company.
o Not restricted in their ability to raise capital from the public through an issue of shares or borrowing.
o No Liability companies are a form of public company created especially for the Australian mining industry
(will have ‘NL’ in official name).
• The Corporations Act further classifies companies according to the liability of members e.g. limited by shares,
limited by guarantee.
Proprietary companies
Characteristics of a propriety company
• It must have ‘Proprietary’ (or Pty Ltd) in name.
• It is smaller than a public company.
• It limits shareholders - minimum of 1 to maximum of 50.
• It cannot be listed on the Stock Exchange.
• There is no age limit on directors (must have at least one).
• It is not required to hold annual, general or statutory meetings.
• It cannot raise funds from the public.
• It can limit the transfer of its shares.
• It can be a one-person company.
• Examples of proprietary companies are Western Meat Exporters Pty Ltd, Meriton Group
Pty Ltd, Barbagallo Holdings Pty Ltd.
Public companies
Characteristics of a public company
• The name has to end in Limited (or Ltd).
• It is not a proprietary company.
• There is no limit on shareholders - 1 upwards. (không giới hạn thành viên,
không giới hạn cổ đông)
• There is no limit on fund raising ability. (không giới hạn khả năng huy động
vốn)
• It can seek listing on Securities Exchange.
• It needs 3 directors. (3 giám đốc của Rio là ai)
• There are significantly heavier regulations on public companies e.g. they
must prepare a financial report and a directors report every financial year
and lodge these with ASIC.
• Examples of public companies are BHP Group Limited, Coles Group
Limited,
Faculty of Business Wesfarmers
and Law | Curtin Law School Limited. CRICOS Provider Code 00301J
The company constitution – Điều lệ công ty
Introduction
• The company constitution sets out the rights and duties of company members
and officers and the procedures related to the governance of the company.
• A constitution no longer mandatory.
• A company can choose to be governed by replaceable rules in the Corporations
Act. Replaceable rules cover management aspects of a company.
• A company can mix replaceable rules with rules of its own in the constitution.
• A company can change its constitution by special resolution (requires not less
than 75% of the members voting for the change).
• Any change to the constitution must be in good faith and in the best interests of
all members of the company.
Introduction Directors of a company Duties of directors

The company constitution
Directors of a company
• A director is a person who makes important decisions concerning the company’s business and its financial
standing.
• Every company must have directors:
o public company – 3 of whom 2 are resident in Australia;
o proprietary company – 1 who is resident.
• Collectively known as the board of directors.
• There are different types of directors e.g. Managing director is the CEO who is very involved in the business
in contrast to a Non-executive director who does not take an active part in the day-to-day management of the
company.
• Are required by law to apply for a director identification number.

The company constitution
Duties of directors
There are many duties imposed on directors throughout the Corporations Act and the common law.
• To act with care and diligence - AWA Ltd v Daniels (t/as Deloitte Haskins & Sells) (1992).
• To act in good faith in the interests of the company and for a proper purpose.
• Not to use position to improperly gain advantage or benefit - Australian Securities and
Investments Commission v Adler (2002).
• Not to improperly use information to own advantage or to detriment of company - Australian
Securities and Investments Commission v Vizard (2005).
• To prevent a company trading while insolvent.
• To disclose important information and present accurate financial reports.

Winding up a company
Winding up a company brings an end to its existence. This can occur in two
ways:
• Voluntary winding up – initiated by members. Can occur when the company is
solvent or insolvent.
• Compulsory winding up – initiated by an interested person (creditors,
members, directors) or by the court when the company is insolvent and unable
to pay its debts.
A liquidator administers the winding up (takes over assets and control of the
company, pays debts owing to creditors, distributes surplus funds to members).
They then will deregister the company with ASIC.
Companies: Advantages and disadvantages
• Company stands as separate legal person - liability • The company can be expensive to establish,
for shareholders is limited. maintain and wind up.
• Ease of transferring ownership by selling shares to • The reporting requirements can be complex.
another party. (Dễ dàng chuyển nhượng quyền sở
• Your financial affairs are public. (vấn đề về tài chính
hữu bằng cách bán cổ phần cho bên khác.)
hoàn toàn công khai)
• The company can trade anywhere in Australia.(có
• If directors fail to meet their legal obligations, they
thể giao thương mọi nơi ở Úc)
may be held personally liable for the company’s
• Members able to elect management. debts.
• Taxation rates are more favourable (30% tax rate • Profits distributed to shareholders are taxable.
for companies).
• The founders and original owners of a company can
• Greater access to a wider capital and skills base. lose control of the company if an outsider purchases
significant numbers of shares.
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Markets and Legal

After completing this module, you should be able to:

Introduction Most frequently used Choosing a business structure

• In Australia, a business owner has a choice as to how they

Introduction Most frequently used Choosing a business structure

• The most frequently used business structures are:

Sole proprietorships Partnerships Trusts Companies

Introduction Most frequently used Choosing a business structure

Choosing a business structure

• Things to consider can include:

o size of the business o costs of establishing and running the business

• An individual who owns a business enterprise as a principal.

• No legislation that specifically regulates sole traders.

• Easy to set up with low costs. • Unlimited liability.

• A partnership subsists between persons carrying on a business in common with a view to

Creation and regulation Other regulations & registration

• Is relatively easy and inexpensive to set up.

Creation and regulation Other regulations & registration

• Can be express or implied.

• Partners have no separate legal existence from the

Partnerships: rights and duties Partnerships: rights and duties (cont.)

Partnerships: rights and duties

Partnerships: rights and duties Partnerships: rights and duties (cont.)

• Allows for non-participating (investors), working or general partners.

• Refers to the ending of the partnership.

Legal title Equitable title

Creation and regulation Trustees Act 1962 (WA)

Creation and regulation

Creation and regulation Trustees Act 1962 (WA)

• Tax minimisation and asset protection. • The structure is complex.

Definition The powers of a company

• A company is an artificial entity that is recognised by the law upon

Definition The powers of a company

• A company can be either a public or proprietary company.

Introduction Directors of a company Duties of directors

Introduction Directors of a company Duties of directors

Introduction Directors of a company Duties of directors

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