Types of Companies

Business organizations
Sole trader
Partnership
Trust
Unincorporated not-for-profit (non-profit) association;
Unincorporated joint venture.;
Incorporated associations;
Companies.

Sole trade / sole proprietorship

Simplest form of business organization
Simplicity and control
Easy to organize / minimal regulatory compliance
How many person consists this kind of business
organization?
What are the consequences of this business
organization? Advantages and disadvantages
Compliance requirements
Regulatory purposes
Tax purposes

Real party in interest

Sole trader
The law merely recognizes the existence of a sole trader as
a form of business organization conducted for profit by a
single individual and requires its proprietor owner to secure
licenses and permits, register its business name, and pay
taxes to the national government.
It does not vest a separate personality on the sole
proprietorship or empower it to file or defend an action in
court apart from the proprietor.
Normally, the only available methods of obtaining funds for
a single proprietorship are personal contributions, loans
from financial institutions or private sources.
The ability to borrow money is limited by the potential of the
business, credit standing and extent of properties.

A sole trader is totally dependent upon the life of the trader.

 Business name refers to any name that is different

from the true name of an individual which is used or
signed in connection with her/his business.

Partnership
Who may consist a partnership?
How many persons are required to constitute a
partnership?
How will they constitute a partnership?
What is the purpose of their aggregation/coming
together as partners?

Definition
It is a contract between two or more person to engage
in a profit making activity.
It is an aggregate of individual traders who have come
together for a joint, profit-making business purpose.
What governs the rights and obligations of the
partners?
Does the partnership have a separate and distinct
personality from the partners?

Partnership
Two or more persons bind themselves to contribute
money, property or industry to a common fund with the
intention of dividing the profits among themselves.

Legal basis of partnership

It is essentially a matter of contract.
Rights and obligations are a matter of contract.

What is the form of contract?

Formation of a partnership
Initial formalities when does a partnership begin to exist?
Compliance requirements
ABN
Tax return

How do you sue a corporation?

Supreme Court General Civil Procedure Rules 2005: the partnership may be sued
for convenience purposes.

Maximum membership
20 persons except:

Law firms 400

Accountants 1,000
Medical practitioners 50
Architects, chemists and veterinary surgeons - 100

What is the effect if a partnership exceeds the number of person?

Elements of a partnership
Existing relationship
Between persons who are
Carrying on a business in common and
Have a view to profit.

Carrying on a business
Business every trade, occupation or profession.
Is it possible that a single transaction amount to the
carrying of a business?
Yes.
United Dominions Corporation v. Brian Pty Ltd. (1985):
A single adventure may or may not, depending upon its scope, amount
to the carrying on a business.
In other words, if that single transaction is the first of the would be
some or many transactions, then an association of persons could be
carrying on a business.

Carrying on a business
Element of continuity or repetition in contrast with an isolated
transaction which is not to be repeated.

Commonality
The partners who are running the business must do so
for all the partners and not just for themselves.
Suppose A and B are partners engaged in real estate
business. A sold a property owned by his wife but did
not account for the profit he made in the sale. Can we
view the transaction to be that of the partnership?

Profit making activity

Can there be a partnership if the business were at a
loss?
If there is a club or society engaged in charity, is there a
partnership?
-No.

When can a presumption of partnership exist?

Cribb v. Korn (1911)
The agreement was for each to take half of the gross proceeds
of the eventual produce.
Similar to a lease.
Eventual profits belong to Rano not Cribb.

Perspectives
Rights and obligations of Partners among themselves
Industrial and general partner

Rights and obligations of Partners to third persons

Partnership and outsiders

Each partner is both a principal and agent of the firm
and the partners.
Transactions entered into by one partner, within the usual
scope of the firms business will normally bind both the firm
and the partners.
Are partners required to specifically authorize a partner to
enter into a transaction?
No, except:
If the partner was acting without authority yet the counter-party knows
this; or
The other party does not know or believe that the person he is dealing with
is a partner in the business.

Ostensible partner

Mercantile Credit v. Garrod (1962)

Garrage business.
The agreement expressly excluded buying and selling
motor vehicles from the scope of the partnship business.
Garrod was a sleeping partner.
Parkin fraudulently sold a car to a third party who later
sued for the recovery of the purchase price.
ISSUE:
May Garrod be held liable for the contract entered into
by Parkin?
HELD:
Yes. The transaction entered into by Parkin is in the usual
course of business.

Types of partnership
General and Limited
General - partners contribute all the property which
actually belongs to them to a common fund, with the
intention of dividing the same among themselves, as
well as all the profits which they may acquire therewith.
Limited partnership is one formed by two or more
persons, having as members one or more general
partners and one or more limited partners. The limited
partners as such shall not be bound by the obligations
of the partnership.

Liability of General partners for

debts of the partnership
General partners do not have limited liability.
If the firms assets are insufficient, each partner is liable to the full extent of
her or his personal assets for debts and other obligations incurred by a
partnership.
The nature of liability of each partner is:
solidary or joint.
This means that each partner is liable not just for his share of the debt but for the
whole amount.

If you are a creditor of a firm, if the partnership of A, B and C (with C being

the more financially well off), who would you sue?
While a creditor has a choice of suing C alone for the debt of the partnership, the
better approach is to sue for all the partners. The reason is that the obligation of each
partner is solidary, if the other partners are not impleaeded and a judgment is
rendered, the creditor will be barred from pursuing any subsequent proceedings
against the other partner under the rule on res judicata.

Suppose C ran off. Only A and B are left. Are they obliged to pay for the
share of C in the debt?
Yes. Again, the rule on liability is solidary.

Liability for tort

The partners are jointly and severally liable for the tort
done by each partner provided:
The tort was committed in the ordinary course of business; or
With authority.

Distinguish this rule from liability for debts.

Under the rule in Victoria, a plaintiff can bring separate
actions against the firm and /or some of the partners.

Limited partnership
Limited partners are investors who do not normally
involve with the management of the partnership.
Advantage:
The limited partners enjoy being quarantined from the debts
and obligations of the partnership except when he/she acted
with ostensible authority.

Ostensible or Apparent Authority

Partners and people who hold themselves out as
partners, or who consent or acquiesce to being held
out, may be liable in contract or tort if:
1.
2.
3.

There is representation that the person is a partner, either

by that person or someone else;
Credit is given to the firm; and
That credit is given in reliance on that representation.

Lynch v. Stiff (1943)

Lynch was a salaried partner in a law firm.
Stiff had been a client for many years and Lynch is the personin-charge of his legal affairs.
Stiff instructed Lynch to sell his properties.
Then Lynch remitted the proceeds to Williamson, the firms
partner, who apparently misappropriated the money.
Stiff sued Lynch.
Is Lynch liable considering he is merely a salaried partner?
HELD:
Yes. Lynch was held out as a partner. Thus, even though he is not
a partner, the firms representation was that he is a partner, to
which he consented, and this fact was relied upon by Stiff.

Relationship between the partners

A partnership is essentially a fiduciary relationship based on mutual trust and confidence between
partners.
Obligations of partners:
As fiduciaries, partners have mutual rights and duties which generally require them to act in good faith and for
the common good of the partnership.

A partner cannot be admitted without the consent of all the partners or as specified in the
contract.
Partners are entitled to be indemnified for payments and liabilities made or incurred in conducting
the firms business.
Rule of Majority
Differences in opinion are to be decided by a majority of the partners.

May a partner assign his or her share in the partnership without the consent of the other partners?
What are the consequences if he does so. What are the rights of the assignee?

Expulsion
The power is provided for in the contract, usually vested in the majority.

Partnership property
Basic rule:
All property that was originally brought into the partnership,
or is acquired later, is partnership property.
Presumption on the use of partnership money:
If a property is bought using partnership money, the property is
presumed owned by the partnership.

Distinguish partnership property from property being

used in the business.

Harvey v. Harvey (1970)

Because of his illness, Harold entered into a contract of
partnership with his brother Horace.
Harold agreed to provide the land, stock and machinery while
Horace agreed that he and his sons would provide skill and
labour.
The arrangement would give Horaces sons experience in
running a roperty and would keep the land operating until
Harolds son was old enough to take over it.
The Partnership eventually dissolved.
Horace claimed that he owned half of the land. Is he correct?
HELD:
No. The partnership had only been formed to keep Fonthill
going until Harolds son was old enough to run it himself.

Incoming and outgoing partners

Every time a new partner is admitted or partner retires,
resigns or dies, a new partnership relationship is
created.
Liability of an outgoing partner
He is still liable for debts incurred after joining but before
leaving the firm.

Requirements for outgoing partners:

Any change in partnership membership, notice must be sent
to all creditors and clients.
Until notice is given, a person is entitled to rely on the
apparent authority of the outgoing partner.

Termination and Dissolution of

Partnership
Since a partnership is a contractual relationship, the
partners can specify that the partnership will continue
to exist even if there is a change is membership
composition.
General Rule:
Partnership dissolves if a partner dies, retires or becomes
bankrupt.

Recall:
When a partnership exceeds the number of partners What is
the legal effect?
It is dissolved by operation of law.

Dissolution of a partnership by court

order
Petition by one or more partners based on the following
grounds:
1.
2.
3.
4.
5.

Lack of capacity due to mental illness;

Permanent incapacity;
Willful or persistent breach of partnership agreement;
The business can only be carried on at a loss; and
Just and equitable grounds.

Consequences of dissolution
Requirement:
Notice
Winding up

If business is continued without winding up, what is the

legal effect:
Outgoing partners are still entitled to the net profits of the
partnership.

Who settles the affairs of the partnership?

The partners; or
A receiver.

Concurrence and preference of

credits
Order of preference:
1.

Debts and external liabilities

a.

2.
3.
4.

Paid through profits then through capital;

Repayment of advances to partners;

Repayment of capital to partners; and
Share in the remaining assets in the same proportion as
the partners had shared profits.

Distinctions
Partnership

Corporation

Manner of Creation

Mere agreement

Certificate of Registration by
ASIC

Number of
Organizers

Two or more

minimum

Powers

Restricted

Agreement

Authority of those
compose

Mutual agency

Shareholders are not agents

Transfer of Interest

Corporate shares are freely

transferrable without the
consent of other stockholders

Interest cannot be transferred

without the consent of the other
partners

Succession

None dissolution

Corporation exists even

stockholders die.

Separate
Personality

None

A corporation is a separate
person from the stockholders.

Similarities
Both are composed of group/s of persons
Capitals are derived from their components
There is distribution of profits (proprietary)
Both act only through their agents
Both can be organized only where there is a law
authorizing their organization.

Business trust
One person conveys a property to another for the
benefit of a beneficiary.
It involved the appointment of a trustee by a trustor for
the administration, holding, management of funds
and/or properties of the trustor by the trustee for the
use, benefit or advantage of the trustor or of others
called beneficiaries.
Legal title is with the trustee who holds and manages
the property for the benefit of members, who are
beneficiaries of the trust with equitable interests,
usually represented by transferable certificates.

Trust
Third
person A
Trustor

Trustee
Third
person B

Beneficiari
es

Unincorporated not-for-profit
association
Social or sporting club
Not for profit
Any profits are used solely for the purposes for which
the association was formed
Distribution of profits to members is prohibited

Joint ventures
Traditional single project (not continuing basis)
Partnership
Joint venture company

Corporate forms of association

Corporations
Corporations
Corporations
Corporations

formed by Royal Charger

sole
formed by special statute
formed by registration

Cooperative
Incorporated associations
Trade unions
companies

Incorporation of an Association
Eligibility:
1.
2.
3.

Lawful purpose, not for profit;

Must not be formed for trading purposes or to secure a
pecuniary profit from its members;
Minimum number of members (five-seven).

Procedure
1. Application for registration
2. Approval of statement of purposes and rules
3. Corporation name use of Incorporated or Inc.
4. Lodging of the application and statement of purposes
and rules.

Consequence
The association becomes a separate legal entity, like an
ordinary company.
Note:
A property previously owned by or on behalf of an
unincorporated association vests aut0matically in the
incorporated association.
Limited liability
The members have no right or interest in the associations
property.

Rules
Equivalent of Constitution
Statement of Purposes
Rules to regulate its internal affairs

Replaceable rules equivalent

Model Rules

Amendment like in a corporation , 75% of the

members must approve a special resolution amending
the internal rules.

Distribution of Surplus Assets

Surplus assets are to be transferred to another
association with similar objects and purposes.
Prohibition of assets to members
Imposition of varying judicial control over certain
dispositions
Exception:
Queensland the members have power to decide on the
disposition of surplus assets by special resolution,
regardless of the manner in which an association was
wound up.

Classification of companies
According to liability of members:

Limited by shares
Limited by guarantee
No liability
unlimited

Limited by shares
Features:
In the event that a company does not have sufficient assets to
meet all its debts, each member is only liable for unpaid
shares
Limited or Ltd.
Creditors usually require personal guarantee

Limited by guarantee
A member is not required to contribute unless and until
there is a shortfall when the company is wound up.
The constitution must prescribe the amount of
guarantee.

No liability
Applies only to mining companies
Sole purpose is mining

Suppose the company needs to raise capital, what

should it do?
If the shareholders do not pay, what is the remedy?

Unlimited company
Has share capital but has no limit placed on the liability
of the members.
Resembles partnership because each member can be
held liable for the full amount of any shortfall between
the companys shares and it debts.

Companies classified by public

status
Public
Any company that is not proprietary.
Listed
unlisted

Proprietary
Small; or
Large.

Requisites of proprietary
1. Have no more than 50 non-employee shareholders
2. Must not engage in any activity that would require
disclosure to investors

Differences between public and

proprietary
Number of directors
the internal rules that apply
Ability to raise funds

Advantages of classification of
proprietary companies
What are the advantages of the classification?

Change in status
What are the allowed conversions?
Give the requirements