Australian Company Law Essay Example | Topics and Well Written Essays - 1500 words

Australian Company Law - Essay Example Tom and Adam are in a partnership business even though no written agreement has been made. Partnership business can be established through written partnership deed, orally or by estoppels through the actions of the partners1. Rule 6 (3) of the Partnership Act is mainly used by the courts in determining the existence of the partnership relationship. This rule provides that sharing of the profits and losses is enough evidence of existence of a partnership. Joint ownership of property or sharing of the gross returns does not necessary create a partnership association. According to the case of Smith v. Anderson (1880), partnership business must intent to carry on business and not domestic transactions since the repletion or continuity of business transactions will be evidence of a partnership business2. Adam and Tom must be aware that every partner other than in limited partnerships, or incorporated limited partnerships can act as an agent of the business and his actions are binding to t he business.. Partnership business is not regarded as a separate legal entity thus third parties will be contracting with the partners as individual agents of the business. In the case of Mercantile Credit Ltd v. Garrod (1962), the courts held that partners have the capacity to bind the firm and third parties must not have the knowledge that such partner lacks the authority to transact on behalf of the business3. There are numerous advantages and disadvantages of Tom and Adam conducting their business as a partnership. The main advantages of a partnership business include the ease of formation. Partnership formation does not require many legal formalities but only business registration and business permits. Partnerships offer certain tax incentives since each partner share of profits is added to his or other sources of income and taxed as personal incomes. Partnership business allows for flexibility since the partners can easily alter the partnership deed that contains the rights an d obligations of each partner, the profit and loss sharing ratios and liability of each partner depending on the nature of the partnership. Partners can access 50% CGT discount since they hold an interest in each business asset as an individual. The partners also share losses, decision making and responsibilities of running the business. However, Tom and Adam must also understand the disadvantages of partnership form of business since partners are jointly and severally liable for the liabilities of the business. Partnership business lacks continuity since dissolution can be occasioned by the death of the partner, or disagreements of the partners, bankruptcy of a partner, and retirement. It is difficult to transfer the ownership of the partnership business and partners have unlimited liability for the debts of the business. Since Tom and Adam have the intention of expanding their Winery business, I would advice them to form a limited company since their liability will be limited and their business will be a separate legal entity that can incur debts, sue or be sued. A limited company will allow them easy access to expansion capital. Tom and Adam will be able to easily transfer their ownership in the company through sale of their shares to third parties. Limited Liability Company will allow Tom and Adam to limit their tax liabilities since the company is taxed on its own entity. However, there are many legal formalities and strict regulations that guide the registration and operations of