This question is about the comparison between the partnerships and company. The question require us to determine whether which type of business structure is suitable for Mr. Azwan and Mr. Zuhri and advise them. In the end, we will be able to know about what the differences between partnerships and company are and why it is better to open up either one of these business structure.
A partnership consists of two or more members in order to form a partner relationship and they share their ownership in making a business. Partnership is easier to form and it is cheaper. The maximum number of partners that is needed to form partnership are twenty. Partnership exists on a business in common with a view of profit, liability, expenditure and responsibility (Kunz, 2015). Besides, the shares of a partner will not be able to transfer to another person without the agreement of the owner and thus, when one of the partners went into bankrupt, insanity, retire or death, the partnership will dissolves. The partners will entered into a contractual agreement only among themselves and not with the firm (Pushparaj, 2012).
2.0.2 Raising Money
In raising money, the partners have to invest in their funds in order for the business to operate. Partners will have difficulty in finding resources and funds as their personal resources and funds are limited (Anon., n.d.). So, if the partners have not enough funds, they are forced to borrow from other sources such as bank and lenders but they will usually imply a high interest on the money that is borrowed. Thus, the partners have to provide security for the loan which means that the borrowers have to mortgage something as a guarantee in order to get the money.
2.0.3 Liability and Distribution of Profits
The partners are liable for their own acts, decisions and debts. Besides, the partners also have unlimited liabilities. The profits earned are separated equally among the partners or is distributed according to the ratio of their proportion (Kunz, 2015).
The property of the firm is under the joint name of partnerships. However, this type of arrangement may be problematic because the partners may contribute different amounts of funds into the company. It will also become a problem when a partner is bankrupt or dead. This is because partnership is not a separate entity, so the partners cannot own the property (Roach, 2012).
Company is owned by the shareholders and is an independent legal entity. Independent legal entity means that the shareholders make decision on who is in charge of operating the company. When setting up a company, the company will have to register under the Company Act before it can be established. It is hard and expensive for the company to establish as there are a lot of fees that have to be included when setting up a company such as corporate tax, administration fees and other fees. The maximum number of members that is needed to form are no maximum where it can be more than hundreds for public limited company and not more than fifty in private limited company. The shares that the shareholders have will be able to transfer to another person without any condition. Thus, when there is death, insanity, retire or bankrupt among the shareholders, the company will continue to operate without any problem. A company can entered into a contractual agreement not only with the company alone but also with the employees (Pushparaj, 2012).
3.0.2 Raising Money
In raising funds, the money is obtained from the investment of the shareholders in the company. It is easier for the company to raise resources as there are a lot of shareholders who can contributed large parts and unlimited resources to the company (Anon., n.d.).
3.0.3 Liability and Distribution of Profits
The company protect the people from the company’s liability. Company is identify as a separate entity and it will has to be responsible for its own debts and legal fees. The shareholders also do not need to worry that their own assets will go into liquidation. Company will have a limited liability and usually, it is easier to raise money. The profits earned will be distributed to their shareholders according to the proportion of investment that they invest in the company (Kunz, 2015).
A company has the rights to gain or discard the property. As company is an independent legal entity, the creditors can take back their money by selling the property of the company. This property is owned by the company and it is not belong to the shareholders alone. It is for the use of the company’s benefit. Thus, the company will be able to enjoy the benefits of the property even though the property is contributed by different shareholder (Anon., n.d.).
In conclusion, it is better for Mr. Azwan and Mr. Zuhri to open a company as they will have a limited liability. They will not have to be worry about the money as it can be obtain when a new shareholder comes in and contribute their capital. As most people open a business because of the reason to grow, they should not open a partnership as partnership do not have a perpetual succession. Establishing a company also guarantee a greater chance of getting the money back in a long term. In addition, if open a partnership, one would scared that the other partner would become a sleeping partner. Thus, it is better to choose to open a company compare to partnership.
5.0 Ultra Vires Doctrine
This doctrine origin from the word ‘ultra’ with the meaning of beyond while ‘vires’ represent power (Lawteacher, 2015). Ultra vires doctrine is the doctrine when a company enters into a contract and act beyond the objectives or power of the company, the contract is illegal and void. The company established under this doctrine has limited purposes and authority to do its job (Farlex Inc. , 2015). Sometimes, this doctrine is used when the directors of the company are seen to have exceeded the uses of the authority that is held by them. This ultra vires doctrine is also established for the protection of creditors and investors of the company. It helps to prevent the company from taking extra money from the investors for other purposes other than which are stated in the Memorandum. So, the investments of investors are protected and ensured not to be used for non-relevant purposes. This doctrine also protects the creditors by ensuring that the money invested is not loss in the activities that they are not participated (Lawteacher, 2015). The doctrine of ultra vires is shown in the case Ashbury Railway Carriage and Iron Company v Riche. http://smallbusiness.chron.com/differences-between-sole-proprietorship-partnership-corporation-3990.html http://smallbusiness.chron.com/accounting-difference-partnership-corporation-66325.html http://smallbusiness.chron.com/s-corporation-vs-partnership-pros-cons-46883.html http://www.publishyourarticles.net/knowledge-hub/business-studies/difference-between-a-partnership-firm-and-a-company.html