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LAWS20059 Business Structure

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  • Course Code: LAWS20059
  • University: CQ University
  • Country: Australia

Question:

Discuss about the:-

Social partnerships and responsible business.

Directors and officers?

Still a sleepy hollow?

International Journal of Strategic Property Management.

 

Answer:

Introduction

Partnership is a business, which is operated by two or more people, as co-owner and divide income. They act on behalf of the other in their business. However, partnership is a structure of business, which is not separated from the operators. Partnership structure are of two types, such as, general partnership and limited partnership. In the general partnership, two or more people enter into a business together and make a profit; all of them has joint liabilities to it. In the limited partnership, the liabilities of the partners are not several and joint, rather specified. One person has general liabilities and the other partners enjoys limited liabilities. The general partners own the business and the limited partners are not subjected to have control over the company. It is recommended to write up a plan of the business before starting a business of real estate sales. To properly structure a partnership business, the Employer Identification Number (EIN) must be obtained. A proper partnership agreement, in writing, is recommended to maintain. Depending on the nature of the business, a license should also be acquired as a permission to operate. The partnership agreement should state in detail how the income, gains, losses, deduction and credits would be divided between the partners. The capital contributions as well the Social Security Number of the partners shall be clearly included in the agreement. As the personal assets of the partners are exposed in the partnership form, to the creditors, an insurance should be carried for protection. The agreement of partnership should determine the rules regarding the admitting or including new partners in the partnership. Managing of the partnership, authorities to sign a contract should be decided in the agreement. Partnership agreement requires to include the rules regarding voting and the exit strategies. The rules and means regarding dispute resolution should also be included into the agreement of partnership.

 


On the other hand, in order to structure the real estate sales business as a company, the structure should be divided in two areas, such as, real estate management and the team. While the management shall deal with the business administration, the real estate sales team shall look into the sales. The functional areas, making decision and solving problem, achieved responsibilities would be matter to look upon by the management. The company must be registered as a separate legal entity. The liability of the company can be limited or unlimited. The company shall hold a title, have the right to sue or to be sued, have a bank account. Corporations generally consists three groups, a group of directors who direct the business; officers who run the daily business; and shareholders, who invests in the business. In a small company, a single person can direct, conduct and invest in the business. The person who incorporate the company, becomes the owner. By filing a necessary form and paying required fees to the appropriate office, the corporation can be created. A name should be chosen for the corporations. Corporations limits the personal liability of the members for any business debts. The owners and shareholders are not liable to lawsuit and corporate suits. By registering a company as an unlimited or limited one, the liabilities of the investors and directors can be marked beforehand.

To form a real estate sales business, there are several advantages and disadvantages of choosing partnership form of structure. The advantages of partnership is that it runs with collaboration. The partners can share the responsibilities. Additionally, partnership is simple in nature as an operating structure. It is easily managed and the partners can reach to a decision quickly, as there are no shareholders, officers and directors. The relevant Partnership Act and the partnership laws provides a set of laws regarding the formation and running of the partnership, which makes the partners aware of their duties and responsibilities. On the other hand, selecting partnership can be disadvantageous in the context that there are limitations on transferring the ownership, as it cannot be done with the consent of all the partners. The personal assets of the partners are exposed to risk as there is no separate identity of the owners and the business. The liabilities of the partners are extremely high in respect of that. Another issue in partnership is that, it is not perpetual. In case of absence of a provision in the partnership agreement, general partnership is dissolved if a partner dies, or withdraws.

 


Whereas, the biggest advantages of the company structure is that, it holds a legal entity separated from the owners. A company gives protection from liability to the owners. The debts of the corporation is not considered to be that of the owners, the personal assets of the owners are not at risk. Companies are perpetual, it can be transferred to one owner to another easily, by following the due procedure of law. The corporation has the right to sell stocks, to raise funds. The structure of the company can be accepted and understood easily. However, the drawbacks of the company structure are that it can be expensive to establish and maintain. It seem to require the assistance of an attorney to complete the process. Winding up of a company is also not an easy process as it takes time. If the directors fails to comply with their obligation, they can be held liable for the debts of the company. It also requires to keep record of every necessities. The shareholders may also be liable in certain situation.

 


It is recommended to choose a corporation structure in this situation, to form a real estate sales business. As a company holds individual legal entity, the personal liabilities of the owners, directors and shareholders are limited. They will not be amount to liable personally for the debt or loss of the company. Companies shall have its own asset, which will pay off the liabilities for itself. The reason why choosing a company structure will be wiser in this situation is that, the company can sue or be sued on its own name. No officers, director or owner shall be held liable for the act of the company. The clients can include shareholders for the company which will obviously raise money for the company. In case they choose partnership, the business will dissolve if one of them dies or withdraws. This can be severe risk for the business as well as for the partners. Dissolution will cause financial harm to the partners. Furthermore, if they want to add partners in their business, they cannot do so without the consent of the others. If they opt for a company structure, the management can be easier and specialised in this situation.

In order to constitute the reals sales estate business in a corporation structure, the duties of the directors, business judgement rules should be properly informed to the members of the company. The landmark case of  ASIC v Adler (2002) 20 ACLC 576; 41 ACSR 72, is a relevant case in this context as it involves four different types of transaction and some breach of duties according to the Corporations Act 2001. This case deals with the breach of duties of the member of the company and deals with Section 9, Section 180, Section 181, Section 182, 182(2), Section183 and Section 260A of the Corporation Act 2001. Section 9 of the Corporation Act 2001 states that the person who is appointed in the position of a director or alternative director, shall deemed to be the Director of the company. In the case it was held that, a person shall be made responsible for the decision making of the company if he is appointed as director as well as a subsidiary officer of the company. A director must keep informed of the all the activities of the company. Section 180 provides that, directors and the officers of a company are expected to exercise their power with due care and diligence. In the case of ASIC v Alder, the executive directors of the company failed to perform their duty with standard care. In this case, Section 181 and 182 of the Corporations Act, 2001 was highlighted. It was clearly seen that the directors and the executives should act in good faith for the best interest of the company. The Court also held that, the employees should refrain from using their power in an improper way to gain advantages. Section 183, restricts the officers from using any information for any improper purpose. In addition, the Section 260A of the Act prohibits a company from financially supporting a person to acquire shares in that particular company which is its holding company.

 


This case study refers to all the necessary requirements that should be informed of before starting a company. Before Sam, Stan, Fran and Fergie decides to open the real estate sales company, they should be well aware of their duties and responsibilities. As they are from the same family, they should respectively decide their position in the company and discharge their duties as has been imposed on them in accordance to the Corporation Act. The case of ASIC v Adler (2002) 20 ACLC 576; 41 ACSR 72 is significant to describe the roles and duties of the members in order to incorporate and operate the company. This case illustrates the responsibilities and regulation of the directors of a company, which will help Sam, Stan, Fran and Fergie in the course of their business.

 

Reference list

BULL, S. (2013). "Agency and partnership law [2013]." Singapore Academy of Law Annual Review of Singapore Cases 14 (2014): 62.

Burns, P. (2016). Entrepreneurship and small business. Palgrave Macmillan Limited, 2016.

French, D. (2014). French, Derek, et al. Mayson, French & Ryan on company law. Oxford University Press, USA, 2014.

Gerner-Beuerle, Carsten, Philipp Paech, and Edmund-Philipp Schuster. "Study on directors’ duties and liability." (2013).

Hannigan, B. (2015). Company law. Oxford University Press, USA, 2015.

Hargovan, A. (2017). "Still a sleepy hollow? Directors’ liability and the business judgment rule." Australian Journal of Corporate Law (2017).

Junnila, S. (2014). "Partnership practices and their impact on value creation–reflections from lean management." International Journal of Strategic Property Management 18.1 (2014): 56-65.

Keay, A. (2016). L. L. B. DIRECTORS'DUTIES. JORDAN PUBLISHING Limited.

Kumar, S. (n.d.). "Limited Liability Partnership-A New Gateway To Corporate India." Editor’s Preface: 40.

Len, S. and Worthington, S. (2013). Sealy & Worthington's Cases and Materials in Company Law. Oxford University Press, 2013.

Li, O. and Zou, H. (2016). "Directors? and officers? liability insurance and the cost of equity." Journal of Accounting and Economics 61.1 (2016): 100-120.

Lorraine, T. (2015). Critical company law. Routledge, 2015.

May, S. and Crane, A. (2013). Social partnerships and responsible business: A research handbook. Routledge, 2013.

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