Law 101 Part 1
Ben and Carl are proposing to start their own business and need to know the most appropriate structure to use when setting up their business. There is clear intention from both parties to establish a business as shown by Ben and Carl’s confidence of “a good gap in the market” that will lead to “the business being a success”.
The three structures available for business owners are sole trader, partnership or company. From the information provided in the scenario Ben and Carl can exclude the sole trader option, as there are two people interested in creating and running the business. A partnership is the most ideal structure for Ben and Carl’s business as it suits their desire to keep the business “as confidential and simple as possible” whilst allowing them access to “capital for expansion”.
For a partnership to be established, Ben and Carl must meet some vital requirements, a partnership is defined as “the relationship that exists between persons carrying on business in common with a view of making profit”. The Corporations Act 2001 also highlights some partnership requirements and states that the maximum amount of members allowed in a partnership is 20 whilst the minimum is 2.
As Ben and Carl are currently the only two people intending to set up their surf wear business, they satisfy this section of the Corporations Act 2001 that allows for a maximum of 20 members. This component is critical in the formation of a business as if the business had any fewer members it would satisfy the requirements of a Sole Trader and if it had more than 20 members it would suit the requirements of a company.
As defined in the Partnership Act 1892, “a Partnership is the relation which exists between persons carrying on a business in common with a view of profit and includes an incorporated limited partnership” a partnership has three key requirements in which