Question

Your Brief

In this problem, you are working at an accounting firm. Your overall task is to advise clients on the business structure that is most suitable for their plans, a partnership or company. The clients’ circumstances are extremely important considerations. You should also avoid any advice on taxation. You may assume that the clients specifically instruct you not to advise on taxation. The Clients Your clients are three adult members of the same family - two sisters, Greta and Mariana, and one brother, Ted. Greta, Mariana and Ted attend your office and they want advice. Greta, Mariana and Ted want to open a business which supplies imported Russian food to restaurants. They think this will be a profitable business because there is a lot of demand for Russian caviar and vodka in Melbourne. Mariana and Ted think that a partnership is a suitable business structure, but Greta thinks that a company is the most suitable business structure. The clients have expressed concern that third parties could take legal action against them or the business structure once the business is operational. Your Task Part A – Written report You need to write a report to your supervising partner, Rebecca. Rebecca has asked you to provide her with a report which explains:

1. the costs, administrative and regulatory burdens of setting up and running partnerships and companies;

2. the potential liability to third parties for the two business structures of interest, the partnership and the company, and their participants;

3. the importance and differences of the fiduciary duty owed in the operation of the two business structures, the partnership and the company. The clients wereconfused by the term fiduciary duty and its relevance to the two business structures, so Rebecca wants you to explain the duties of partners in a partnership and the duties of directors in a company, and the difference between them;

4. your recommendation on which business structure would best suit the clients planned business. You need to be specific and explain why you recommend a particular business structure. If you choose a company, what type of company is most suitable? If you choose a partnership, what type of partnership is most suitable?

Answer 1

Dear, after analysing the above scenario we can say-

1) operating and running expenses related with companies is higher as compared to partnership.

And obviously much complicated in case of company when compared to partnership

2) Business liabity will be same for both structure of business but personal liability is limited in case of company.

3)In a partnership, every partner is personally liable for the collective debts of the business. In legal jargon, partners are jointly and severally liable for partnership debts.

If the company enters into a contract that it cannot complete, then it is the company that is liable for any debt, not the individual shareholders. Creditors have recourse only to the assets of the company and not the assets of the owners.

And in case of a limited liabilty partnership, we can have all the advantages of a company and even at less legal obligations

4) we recommend them to go for partnership form( limited liabilty partnership) of structure as it is seen that third parties could take a action against them, and in the company form of structure the directors not personally liable( not in case they acted beyond their power and rights)