Australian Business Entities: Structure, Liability, and Registration

Posted on Dec 5, 2025 in Law & Jurisprudence

Business Organisations and Legal Structures

Agency in Business Organisations

  • Partnerships and companies contract through agents.
  • Partners can be agents of the partnership; directors are agents of the company.
  • In most cases, agents will have actual authority.
  • If no actual authority exists, ostensible authority may apply.

Types of Business Structures

Associations (Not-for-Profit)

These organisations are not for profit, but for members.

Types of Associations:

  1. Unincorporated Association (More than 2 members)
    • Liability to outsiders is uncertain.
  2. Incorporated Association (More than 5 members)
    • Must be registered.
    • Members’ liability is limited.
    • The association can be sued.

Sole Trader Structure

  • This is where one person owns the business.
  • The sole trader takes profits and bears losses.
  • Unlimited personal liability applies.
  • Minimal formalities are required.

Partnerships under the Partnership Act

The relevant statute is the Partnership Act, which is State legislation.

  • Each state of Australia has a Partnership Act.
  • The Partnership Act determines the obligations of the partners to each other and to outsiders.

Defining a Partnership

  • A partnership exists where two or more carry on business in common with a view of profit (s.1 Partnership Act (NSW)).
  • Section 2 of the Partnership Act sets out rules for determining the existence of a partnership. For example:
    • Net rather than gross returns are more likely to create a partnership.
    • Receipt of a debt by installments out of accruing profit does not necessarily create a partnership.
  • Partners are agents of the partnership in certain circumstances (s.5 Partnership Act).
  • An important factor in establishing agency is whether the partner is carrying out the usual partnership business.

Partner Liability to Outsiders

  • Partners’ liability to outsiders can be:
    • Joint (s.9 Partnership Act – contract)
    • Joint and several (s.12 Partnership Act – tort and fraud)
  • Case example: Polkinghorne v Holland
  • Partners’ arrangements between themselves do not prejudice outsiders’ rights under the Partnership Act.

Internal Partner Relationships

  • Section 24 of the Partnership Act sets out certain relationships between the partners themselves unless a contrary intention exists. For instance:
    • The equal sharing of capital and profits.
    • The equal contribution to losses.

Fiduciary Duties and Dissolution

  • Partners have unlimited personal liability.
  • Partners may be liable to outsiders even after leaving the partnership (s.17, s.36 Partnership Act).
  • Partners are fiduciaries (s.29, s.30 Partnership Act).
  • It is important to distinguish partnerships from joint ventures.
  • Case example: UDC v Brian

Companies and Corporate Registration

Company Registration Process (Corporations Act)

  • Companies are regulated pursuant to the Corporations Act (Cth), which is Commonwealth (federal) legislation.
  • All companies that operate in Australia must be registered.
  • Companies are registered at ASIC (s.117 Corporations Act).
  • Upon registration, ASIC will issue:
    • Certificate of registration (s.118)
    • ACN (Australian Company Number), a 9-digit number
  • Registration process details are available at www.asic.gov.au (for companies – Starting a company).

Effects of Company Registration

  • Following registration at ASIC, a company comes into existence and adopts a legal status (s.119).
  • A company has perpetual succession. A company exists until deregistered (s.601AD).
  • Shares may change hands in an existing company, but the corporate entity continues without change of legal status.

Legal Capacity and Powers

  • Companies are legal individuals. They have the legal capacity of an individual plus ‘body corporate’ powers (s.124):
    • Issue shares (share capital);
    • Issue debentures (loan capital);
    • Power to acquire, hold, and dispose of property;
    • Grant a circulating security interest;
    • Register as a company in a foreign jurisdiction;
    • Capable of suing and being sued.

The Corporate Veil Doctrine

  • As a separate legal entity, a company is distinct and separate, not only from other companies, but also from its own members and directors (The Corporate Veil).
  • Key Corporate Veil cases illustrating separation:
    • Salomon v Salomon (company and its controllers)
    • Macaura v Northern Assurance (company and its members)
    • Lee v Lee’s Air Farming (company and its employee)
  • The corporate veil protects (in most cases) company management from liability.
  • However, the court will lift the corporate veil if it is used for fraud; to avoid a contractual or a legal obligation; or where there is insolvent trading (s.588G).
  • Cases where the veil was lifted:
    • Gilford Motor Co Ltd v Horne (avoiding a contractual obligation)
    • Creasey v Breachwood Motors Ltd (avoiding a legal obligation)

Classification of Companies

Companies are classified by:

  1. Member Liability
    • Limited by shares (public or proprietary)
    • Limited by guarantee (public only)
    • No liability (public only)
    • Unlimited liability (public or proprietary)

    Note: Companies limited by shares are the most common form of company. In companies limited by shares, shareholders’ liability is limited to the unpaid value of their share (s.516).

  2. Public Status
    • Public companies (Ltd)
      • Listed (ASX)
      • Unlisted
    • Proprietary companies (Pty Ltd)
      • Small
      • Large

Corporate Group Structures

  • A subsidiary is a company controlled by a holding or parent company (s.46).
  • Where there is 100% ownership of a company, that company is called a wholly owned subsidiary.