In the battle between accountants and lawyers one seeks to set up business structures for business owners that reduce the risk of liability whilst the other seeks to make the structures and in some cases their owners liable.
Here is a list of some of some of the common business structures used and how they may perhaps become liable.
|
Structure |
Owner of Assets |
Liability |
|
Sole Proprietor |
The business owner typically has the legal and beneficial title. |
Consider applicable contracts. Usually, the business owner’s personal assets are fair game. If assets were placed into someone else’s name consider (a) resulting trusts and (b) undervalued transactions if you are a trustee. |
|
Partnership (has no legal personality as it is a relationship) |
Generally, every partner is jointly liable: s 9 Partnership Act 1892 (NSW). |
Consider applicable contracts. Personal assets of partners may be fair game. Liability may not follow if it is known that there is no authority: s 5(1) Partnership Act 1892 (NSW). |
|
Trusts (has no legal personality as it is a relationship) |
The trustee has legal ownership |
Consider applicable contracts. The trustee is liable unless it is an agent for the beneficiaries (hard to prove). Trustee may have a right to indemnity against the trust fund for work done in carrying out trust functions. Creditors may potentially rely on an equitable remedy of subrogation. Directors of a corporate trustee may potentially be personally liable under s 197 of the Corporations Act 2001 (Cth). |
|
Company |
The company is the legal owner |
Usually the company. Shareholders may be liable for the unpaid amount of his/her shares. Directors may be liable for insolvent trading: s 588G Corporations Act 2001 (Cth). |
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