The Commentaries on the Law of Partnership - Myassignmenthelp.Com

Question: Discuss about The Commentaries on the Law of Partnership. Answer: Introduction There are different forms of business structure which can be adopted by individuals for carrying on their business. Each of these is marked with their unique features which help in identifying these easily[1]. This report is concentrated upon analysing the case of Mr. and Mrs. Smith, particularly in context of their present business structure and the future business structure suitable to them, based on their requirements. Present Business Structure and its drawbacks The sole trader, as a business structure is such form where the business is operated and run by a single proprietor. This sole trader can hire people for carrying on the work, who work for him/her, but the business is solely run by such trader. Partnership is another major form of business structure in Australia where the business is run by two or more people. The business is run for common purpose and the profits of the partnership firm are shared equally[2]. On partnerships in Victoria, the Partnership Act, 1958[3] is applicable. The definition of partnership is given in section 5 of this act, where the partnership is defined as the relationship present between different people, were the business is carried with the view of earning profits and in common manner[4]. Thus, even when unknowingly, two or more people come together to run a common business and share profits, a partnership would be formed, as the partnership deed is not a compulsory document. As a result of partnership, th e partners can be held liable for the acts of other partners. A contract made by one partner is deemed as a contract of all partners[5]. Also, per se section 10 of this act the partners have to bear the liability of acts undertaken by the partnership firm as the partners have the intention of running the business commonly[6]. In the present instance, a sole trader form of business structure was being operated by Mrs. Smith till six months back. Upon Mr. Smith joining the business with his wife, the business was transformed from sole trader to a partnership. This is because Mr. Smith was working with his wife, which shows the business was being run in a common manner by the two. As a partnership deed is not a compulsion, by their coming together, running the business, and sharing profits, a partnership had been created. It is not compulsory in a partnership that all the partners are named in the contracts of the partnership and a contract in name of one partner binds all the partners. This means that the naming of Mrs. Smith in the contracts of the business would not mean that a sole trader business structure was present due to the presence of different features of partnership. Due to these reasons, it can be clearly stated that Mr. and Mrs. Smith were running their business in a partnership business struc ture. As a result of running a partnership form of business structure, Mr. and Mrs. Smith face a range of risks associated with this form of business structure. The first and foremost risk which makes this form unattractive is unlimited liability of the partners. As a result of this unlimited liability, the partners are made liable for the debts of the partnership firm where the firm is not able to pay off its debts, particularly in cases of its dissolution[7]. The liability of partners in such cases reaches their personal assets, which can be attached or sold off to pay the debts of partnership. The next risk which comes in this form of business structure is the joint and several liabilities of all the partners for the acts undertaken by a single partner. The reason for this the operation of agency law as a result of which the partners are held as agents of each other and have to face consequences of acts undertaken by the other. The next risk is the possibility of breaching the law of di fferent jurisdiction as each state and territory in Australia has a separate partnership act, and keeping track of this can prove cumbersome. Lastly, a disagreement between partners can result in the end of partnership[8]. Business structure for future Another substantial form of business structure which is more than often adopted by people transforming their business from partnership or form sole trader is company. The companies in the nation are governed by the Corporation Act, 2001[9]. As this is the act of commonwealth, in every state and territory of the nation, this act applies uniformly. Again, as compared to the partnership form of business structure, the shareholders of the company are not faced with unlimited liability. In other words, the shareholders have limited liability due to which in cases of the company being wound up, the shareholders can only be made liable for the sum of unpaid amount on their shares. There is also an ease in transferring the ownership in company, in comparison to partnership, as this can be done by selling the shares to another person. The company form of business structure also has the benefit of its ability to raise funds from the public. However, this comes with limitations based on the typ e of company. When it comes to public company, funds can be raised from general public; but in case of proprietary company, funds can be raised only from the known people, which include friends and family[10]. In the present instance, Mr. and Mrs. Smith should opt for company as a business structure for their future due to the different advantages posted above. This would particularly enable them to gather funds from various places, on the basis of the type of company chosen by them. The company form of structure would safeguard the personal assets of the people running the business. The talent pool can be easily hired raising the skill of the company. Again, due to the commonwealth act being applicable, the variations in law based on different jurisdiction would not have to be worried about. In the present instance, Mr. and Mrs. Smith can benefit by opting for company form of business structure as this would allow them to transfer their ownership to their sons by selling their shares to their sons. They can also continue running the business by simply selling off part of their shares to their sons. However, in doing so, they need to be made aware of the different drawbacks of company form of business structure. These include high costs of running and establishment. There is also high complexity in this form which makes it difficult to run in comparison to partnership. The affairs of this form are open to public, which would make it difficult to keep it as a family business[11]. Conclusion and recommendation Thus, on the basis of the discussion carried on above, it becomes clear that Mr. and Mrs. Smith were running a partnership form of business structure. As a future recourse, they should opt for a company form of business structure as this will serve dual purpose. This would help them in expanding their business and raising funds from public as and when needed; and would also help in including their sons in the business or leaving the business to them, to be run in an equal manner. This would also enable to steer clear of the different demerits of partnership form, particularly in context of unlimited liability and the hassle caused due to applicability of different laws in different jurisdictions of the nation. To keep the business private, they should opt for a proprietor company business structure. Bibliography Cassidy J, Concise Corporations Law (The Federation Press, 5th ed, 2006) Gibson A, and Fraser D, Business Law (Pearson Higher Education AU, 2013) Latimer P, Australian Business Law 2012 (CCH Australia Limited, 31st ed, 2012) Story J, Commentaries on the Law of Partnership, as a Branch of Commercial and Maritime Jurisprudence, with Occasional Illustrations from the Civil and Foreign Law (The Lawbook Exchange, Ltd., 2007) Vickery R, and Flood M, Australian business law: compliance and practice (Pearson Australia, 2012) Wagen LVD, and Goonetilleke A, Hospitality Management, Strategy and Operations (Pearson Higher Education AU, 3rd ed, 2015) Legislation Corporations Act, 2001 (Cth) Partnership Act, 1958 (Vic) [1] Andy Gibson and Douglas Fraser, Business Law (Pearson Higher Education AU, 2013) [2] Lynn Van der Wagen and Anne Goonetilleke, Hospitality Management, Strategy and Operations (Pearson Higher Education AU, 3rd ed, 2015) [3] Partnership Act, 1958 (Vic) [4] Partnership Act 1958, s5 [5] Joseph Story, Commentaries on the Law of Partnership, as a Branch of Commercial and Maritime Jurisprudence, with Occasional Illustrations from the Civil and Foreign Law (The Lawbook Exchange, Ltd., 2007) [6] Partnership Act 1958, s10 [7] Roger Vickery and MaryAnne Flood, Australian business law: compliance and practice (Pearson Australia, 2012) [8] Paul Latimer, Australian Business Law 2012 (CCH Australia Limited, 31st ed, 2012) [9] Corporations Act, 2001 (Cth) [10] Julie Cassidy, Concise Corporations Law (The Federation Press, 5th ed, 2006) [11] Ibid