Never under-estimate the importance of your business structure!

Choosing the right structure for your business is essential to ensure your assets are adequately protected and your enterprise is properly managed.

Making the right decision can be challenging because there is no one-size-fits-all, and the right business structure can depend on a variety of factors, including (but not limited to):

• the nature of your business and its primary activity;
• the extent of individuals participating in the business (and their relationship);
• the existing structure (if any);
• the need to obtain finance;
• your objectives in terms of taxation, ownership, exposure to liabilities and/or expected income; and
• whether or not the business will operate through multiple entities.

The recent decision of Mir v Mir (No 2) [2024] NSWSC 791 is a reminder that choosing the right business structure can have important legal implications, particularly as it relates to the remedies available to you in the circumstance where you wish to wind up the business.  

This decision relies on the facts on an earlier decision (Mir v Mir [2023] NSWSC 408) whereby three brothers established a highly successful property investment and development business through a large number of companies and trusts.

After one of the brothers passed away, another brother (and their associated entities) initially sought court orders to wind up the business and divide its assets equally between the estates of each of the three brothers.

The basis for this claim was that the business was carried on as an overarching partnership between the three brothers that sat above the various entities that carried out the business and, in turn, as a consequence of the death of one brother (or by giving notice dissolving the partnership) the partnership was validly dissolved, with the result that a receiver should be appointed to wind up the partnership.

Alternatively, the claim was made that the underlying corporations through which the business was carried out should be wound up by court order, a receiver should be appointed to sell the assets and any surplus distributed equally among the trust beneficiaries, and that a number of dissolved ‘sub-partnerships’ should, as a consequence, require receivers to be appointed to wind up those partnerships and distribute the surplus assets between the partners equally.

The court held that there was no overarching partnership. In the alternative, the court accepted the existence of the relevant ‘sub-partnerships’ but rejected the position that effective notice was given to wind up a number of sub-partnerships and that, absent any overriding agreement between the three brothers, the question of what should happen to the entities of that business ultimately depended on the nature of the particular entity.

As such, it is important to obtain legal advice when considering your business structure so that you are aware of the legal implications associated with carrying on your business, as well as its winding up.

If you would like advice or assistance in relation to your business structure, please contact our Accredited Business Law specialists and Partners Justin Thornton on jthornton@marsdens.net.au and Rahul Lachman on rlachman@marsdens.net.au or otherwise by calling them on (02) 4626 5077.

The contents of this publication are for reference purposes only. This publication does not constitute legal advice and should not be relied upon as legal advice. Specific legal advice should always be sought separately before taking any action based on this publication.