BSB250 · Business Citizenship
Business Structures & the Corporate Form
This chapter answers the W10 question "what is the best legal structure for my business?" across the three for-profit forms BSB250 examines — sole trader, partnership and company — with the whole topic hinging on one idea: whether the business is a separate legal entity. That single line splits the unlimited-liability structures (sole trader, partnership) from the company's limited liability, and on the open-book final the move is to name the structure from the facts, then trace who is personally liable, citing the right section or case.
What this chapter covers
- 01Sole trader: owner-is-the-business and unlimited liability
- 02Partnership and the s 5(1) three-part test
- 03Mutual agency and joint & several liability
- 04Company as a separate legal entity (Salomon v Salomon)
- 05Limited liability and the corporate veil
- 06Perpetual succession and incorporation via ASIC
- 07Lifting the veil: fraud, façade, statute
- 08Naming the structure, then tracing liability (ILAC)
Name the Structure, Trace the Liability
- +1Issue: identify the structure of (i) the grooming van and (ii) the collar stall, then determine who bears the $4,200 supply debt Dev ordered.
- +1Law (van): a partnership arises under Partnership Act 1891 (Qld) s 5(1) where persons are carrying on a business, in common, with a view to profit; it can form without any written agreement (Canny Gabriel v Volume Sales), and carries mutual agency plus joint and several unlimited liability.
- +1Application (van): running the van together for eight months, choosing routes jointly and sharing profit equally satisfies all three limbs, so the van is a partnership. Dev's supply order is an ordinary business dealing, so mutual agency binds both siblings and the $4,200 is owed jointly and severally — the supplier can pursue either Dev or Esha for the full amount.
- +1Law + Application (collar stall): one person trading alone and keeping all income is a sole trader — no separate legal entity, the owner is the business, with unlimited personal liability. The collar venture is legally separate from the van and does not expose Dev.
- +1Conclusion: van = partnership, so Dev and Esha are jointly and severally liable for the $4,200; collar stall = sole trader, so Esha alone bears its debts. Advise that a written partnership agreement and/or incorporation would cap this exposure.
Key terms
- Sole trader
- One individual carrying on business in their own right with no separate legal entity — the owner is the business, keeps all profit, is taxed on it as personal income, and bears unlimited personal liability for the venture's debts.
- Partnership
- The relation under Partnership Act 1891 (Qld) s 5(1) between two or more persons carrying on a business in common with a view to profit; not a separate legal entity, featuring mutual agency and joint and several unlimited liability, and capable of arising unintentionally.
- Separate legal entity
- The principle (Salomon v Salomon & Co Ltd; Lee v Lee's Air Farming) that on incorporation a company becomes a distinct legal 'person' that can own property, contract and sue or be sued in its own name, separate from its shareholders and directors.
- Limited liability
- A shareholder's exposure to the company's debts being capped at the amount unpaid on their shares; fully-paid shares mean no further liability, because the company — not the shareholder — owns the debts.
- Mutual agency
- The feature of a partnership whereby any partner can bind every other partner in contracts made in the ordinary course of the business, even without the others' specific consent.
- Corporate veil
- The legal screen between a company's liabilities and its owners' personal assets; courts lift it only rarely — in cases of fraud, a mere façade or sham, or where a statute expressly imposes liability.
Business Structures & the Corporate Form FAQ
What is the difference between a sole trader, a partnership and a company?
A sole trader is one owner with no separate legal entity and unlimited liability. A partnership is two or more people carrying on business in common for profit — also not a separate entity, with mutual agency and joint and several unlimited liability. A company is a separate legal entity (Salomon v Salomon) that gives its shareholders limited liability and enjoys perpetual succession.
Can a partnership exist without a written agreement?
Yes. A partnership is created by operation of law whenever the s 5(1) three-part test is met — carrying on a business, in common, with a view to profit — so it can arise unintentionally, even with no written agreement (Canny Gabriel v Volume Sales). An agreement is recommended but not required to form one.
What does separate legal personality actually mean for a company owner?
It means the company is a distinct legal 'person' that owns its own debts, property and contracts. The owner's personal assets are shielded behind the corporate veil, so a shareholder's exposure is capped at any amount unpaid on their shares — the result confirmed in Salomon v Salomon and Lee v Lee's Air Farming.
When can a court lift the corporate veil?
Rarely. Limited liability is the default and courts only pierce the veil in narrow cases: fraud, a mere façade or sham, or where a statute expressly imposes liability. Separately, a director can still be personally liable for insolvent trading, and a personal guarantee waives the shield voluntarily.
Is a joint venture the same as a partnership?
No. A joint venture is not a partnership — it lacks mutual agency and shared liability, so one participant does not automatically bind or become liable for the others the way partners do under s 5(1).
Exam move
Treat every structures problem as a two-step rail: first name the structure from the facts (one owner = sole trader; two-or-more carrying on business in common for profit = partnership under s 5(1), which can be unintentional; incorporated = company), then trace the liability (sole trader and partnership = unlimited, with partnership adding mutual agency and joint and several exposure; company = limited behind the veil per Salomon). Always cite the section or case, and before concluding the owner is safe, check the exceptions — veil-lifting (fraud / façade / statute), a personal guarantee, or insolvent trading. Memorise that the whole topic flows from one question — separate legal entity or not — and you can reason any fact pattern to a defensible call.
