PAPUA NEW GUINEA UNIVERSITY OF TECHNOLOGY

DEPARTMENT OF BUSINESS STUDIES

AC414 - COMPANY LAW LECTURE NOTES

UNIT 0NE- INTRODUCTION TO COMPANY LAW

UNIT CONTENT
Study Unit Title Learning Page
Outcomes
1 INTRODUCTION TO COMPANY LAW KAC 3
1.1 Definition of a “Company” KC 3-4
1.2 Historical Development KC 4
1.2.1 Development of Corporations in England and KC 4-5
Australia
1.2.2 Development of Company and Company Law in KC 5-6
PNG
1.3 Company Compared to other Business Entities KCA 6
1.3.1 Corporation /Company KCA 6-7
1.3.1.1 Attributes of a Corporation/Company KCA 7-9
1.3.1.2 Characteristics of Corporations/Companies KCA 9
1.3.1.3 General Advantages and Disadvantages of a KCA 9-10
Corporation/Company.
1.3.2 Partnership KCA 10
1.3.2.1 Definition KCA 10-11
1.3.2.2 Reasons For Choosing Partnerships KCA 11-12
1.3.2.3 Disadvantages in Partnership KCA 12-13
1.3.2.4 Characteristics of Partnerships KCA 13-14
1.3.2.5 Summary KCA 14
1.3.3 Sole Proprietorship KCA 14
1.3.3.1 Definition KCA 15
1.3.3.2 Characteristics of Sole Proprietorships KCA 15-16
1.3.3.3 Summary KCA 16
1.3.4 Joint Venture KCA 16
1.3.4.1 Definition of Joint Venture KCA 16
1.3.4.2 Brief History of joint Ventures KCA 17
1.3.4.3 Nature of Joint Venture KCA 17
1.3.4.4 Reasons for forming Joint ventures KCA 17-18
1.3.4.5 Other Special Considerations KCA 18-20
1.3.4.6 Requirements for Joint Ventures KCA 20
1.3.4.7 Examples of Joint Ventures KCA 20
1.3.5 Trust KCA 20-21
1.3.6 Agency KCA 21
1.3.6.1 General Nature of Agency KCA 21-22
1.3.6.2 Liability of Agent to Third Party KCA 22
1.3.6.3 Liability of Agent to Principal KCA 22-23
1.3.6.4 Liability of Principal to Agent KCA 23
1.3.6.5 Duties Owed by Agent to Principal KCA 23
1.3.6.6 Termination of an Agency KCA 23-24
1.3.6.7 Agency Relationships KCA 24
1.3.7 Statutory corporations KCA 24
1.3.8 Unincorporated Associations KCA 24-25
1.4 Ways to Form Companies KCA 25
1.5 Types of Companies KCA 25-27

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Unit Objectives
By the end of this Unit, students will be able to define what a Company is, understand the
history of the development of company law in England and its influence in PNG company law;
begin to grasp the concept of separate legal personality and its attributes; describe the
characteristics of a company as a form of business organisation compared with other forms of
business organisations; and appreciate the challenges of corporate compliance and
governance in PNG.

Learning Outcome

INITIALS WORDS PARTICULARS

A Application Draw, Design, Apply, evaluate, Synthesise

etc.

C Comprehension Explain, Discuss, Differentiate etc.

K Knowledge Define, Identify, List etc.

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1. INTRODUCTION TO COMPANY LAW

As the name suggests; Company Law is the collection of various legal aspects that govern the
formation, running and winding up of a Company1.

Therefore, in this course we will consider the various stages of the ‘corporate lifespan’; which
includes; registration and incorporation of a company, its existence, character and attributes, its
operations, the duties and responsibilities of its Directors and Shareholders, and its liquidation
and winding up.

Note that in Papua New Guinea (PNG), Companies Act 1997 governs most/all aspects of the
registration, operation and winding up of companies. Thus, it is also important to gain an
understanding of the structure and purposes of the Companies Act 1997.

Companies are creatures of statute and must therefore be governed by the statute itself, as
Lord Halsbury LC remarked in Salomon v Salomon & Co Ltd [1897] AC 22:

“My Lords, the important question in this case, I am not certain it is not the only question, is
whether the respondent company was a company at all—whether in truth that artificial creation
of the Legislature had been validly constituted in this instance; and in order to determine that
question it is necessary to look at what the statute itself has determined in that respect. I have
no right to add to the requirements of the statute, nor to take from the requirements thus
enacted. The sole guide must be the statute itself”.2

“If the very nature of law is to control and regulate relationships, we need to identify those
relationships that are affected by the Companies Act. Consider for example the relationships
between the company and its shareholders; the company and its creditors; and the company
and its directors. The Companies Act creates the legal environment within which companies,
once established, function.”

It is also vital to recognise the public policy issues that underpin the law. For example, how
should the Companies Act strike a balance between the company’s interests in facilitating
business and maximising profits on the one hand, and simultaneously protect investors and
creditors against unreasonable risks on the other? These issues have received much media
coverage in the US and Australia with the spectacular collapses of Enron, WorldCom (US), HIH
and One-Tel (Australia) and the global financial crisis in recent years.

Note that the Companies Act 1997 has been amended to keep up with the changes in society
and business transactions. The recent amendment in 2014 was to facilitate online filing.

1.1 Definition of a “Company”

Wikipedia defines Company as “an "artificial person, invisible, intangible, created by or under
law,3 with a discrete legal personality, perpetual succession, and a common seal. Except for

1Take note that the terms ‘company’ and ‘corporation’ will be used interchangeably throughout this course as they
bear the same meaning – separate corporate legal personality.
2 Salomon v Salomon & Co Ltd [1897] AC 22
3 Compare a definition of a corporation: "Perhaps the best definition of a corporation was given by Chief Justice
John Marshall in a famous Supreme Court decision in 1819. A corporation, he said, 'is an artificial person,
invisible, intangible, and existing only in contemplation of the law.' In other words, a corporation [...] is an
artificial person, created by law, with most of the legal rights of a real person." Pride, William M.; Hughes,
Robert J.; Kapoor, Jack R. (1985). "4: Choosing a form of business ownership". Business. CengageNOW Series

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some senior positions, companies remain unaffected by the death, insanity, or insolvency of an
individual member.”4

Investopedia states that in business terms, “A company is a legal entity formed by a group of
individuals to engage in and operate a business enterprise in a commercial or industrial
capacity. A company’s business line depends on its structure, which can range from a
partnership to a proprietorship, or even a corporation.”5

What all this means is that, a company is a legal entity created by people who have common
goals. These individuals, whether natural, legal or a mixture; then comply with and register the
company in accordance with the Companies Act 1997 and other relevant laws.

Upon successful completion of registration, a company assumes a legal personality and has
rights and obligations similar to a natural person. Thus, it can sue if its rights are breached and
or be sued if it breaches another person’s rights. It is separate from its members or
shareholders.

Note that the structure of a business is important in determining the line of business it engages
in, its rights and responsibilities and relationship to its clients, shareholders/members and the
society.

Take note that the terms ‘company’ and ‘corporation’ will be used interchangeably throughout
this course as they bear the same meaning – separate corporate legal personality.

1.2 Historical Development

1.2.1 Development of Corporations in England and Australia

Corporations have existed since Roman times. In the English legal system from which
Australia’s legal system developed, incorporation was originally granted by the Crown in the
form of royal charter to important trading corporations. Later, Acts of Parliaments created
specific corporations.

In the 19th century, general corporations’ legislation enabled groups of people to incorporate
for commercial and other purposes. Incorporation was desired principally because of limited
liability - this protects personal assets of the members of the corporation from being able to be
accessed to pay company debts.

Australian legislation has, to a large extent, been based on English law. However, there are
some notable Australian factors that have influenced the development of Australian company
law, namely:

* The political system, and

** constitutional constraints.

(10 ed.). Mason, Ohio: Cengage Learning (published 2009). p. 116. ISBN 9780324829556. Retrieved April 20,
2019.
4 https://en.wikipedia.org/wiki/Company
5 https://www.investopedia.com/terms/c/company.asp

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The historical developments of corporations law in England and Australia have significance for
PNG to the extent that PNG, through its colonial relationships, has adopted and modelled its
corporations laws along England’s and Australia’s.

1.2.2 Development of Company and Company Law in PNG

PNG legislation, though modelled on Australia and New Zealand acts, has, to a large extent,
been based on English law. Prior to 1997 PNG companies acts were modelled on Australian
acts and from 1997 is modelled on the New Zealand act.

The English common law and rules of equity are relevant and applicable to companies in PNG
- for example, remedies available to shareholders and duties of directors.

Development of PNG corporate law from the colonial era to now has largely been driven by
foreign interests through investments. Initially foreign investors established companies or other
commercial arrangements to carry on business in the exploitation of natural resources in PNG
and in recent times in manufacturing and marketing. Today a lot more PNG companies carry
on business in all sectors of the economy – developing natural resources, manufacturing,
service delivery and marketing.

PNG’s membership of the World Trade Organization has led to the removal of trade barriers
and opening of its domestic market to foreign competition in goods and services. More foreign
companies are entering the PNG market. The presence of these foreign companies and
particularly large transnational companies in PNG can inspire development of corporate
regulation and governance.

The principle of Salomon’s case, that is, that a company is separate and distinct from its
directors and shareholders, was applied in Lee v Lee’s Air Farming Ltd [1961] AC 12 to enable
Lee’s widow to claim compensation in respect of his death. Lee was governing director, the
major shareholder and also, as chief pilot, an employee of the company. Lee as an individual
was thus able to enter into a contract of employment with the company as a separate legal
entity (i.e., separate and distinct from Lee).

In Macaura v Northern Assurance Co Ltd [1925] AC 619, Macaura sold land and the timber on
it to a company in return for all the fully paid shares. He continued to work for the company
felling timber. He retained insurance against the risk of fire in his own name. When fire
destroyed the timber, Macaura’s claim on his insurance policy failed. Because the timber was
an asset of the company, only the company could have an ‘insurable interest’ in it. Macaura,
because he had no legal or equitable interest in the company’s assets, had no insurable
interest and so no recognisable claim on the insurer.

But note Sections 2 and 3 of the Insurance (Miscellaneous Provisions) Act 1975 which has now
altered the principles in relation to insurable interests, in that pecuniary or economic interests
are now recognised as insurable interests. The outcome for Macaura as the only shareholder
and controller of a ‘one-person company’ would be therefore different if this case were decided
today.

However, the principle of separate legal entity in relation to ownership of a company’s assets
remains unchanged.

Under the Act a company has, as a consequence of its creation as an artificial legal entity, the
legal capacity of an individual. It is also distinct and separate from its members, directors,

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managers, employees and third parties (e.g., creditors). Please read ss16 and 17 of the Act. As
a consequence of its status as a separate legal entity, a company has the following
characteristics:

(i) the capacity to sue and be sued - a company can sue and be sued in its own name.

(ii) perpetual succession - a company exists until it is deregistered, that is, it goes on
forever unless its name is struck off the register, regardless of the death of any
member, or all members, and changes in membership over the years.

(iii) common seal - a company may have a common seal bearing its name and can use
this to execute contracts, etc.

(iv) power to acquire, hold and dispose of property - a company owns its own property in
its own name rather than having someone, such as directors, own the property on its
behalf. Members thus do not have a proprietary interest in a company’s property.

(v) liability of members—In a company limited by shares the liability of members is limited
to the capital sum unpaid, if any, on their shares. If it is a company limited by
guarantee, liability is limited to the amount a member guarantees under the company’s
constitution. Members of an unlimited liability company are fully liable for the
company’s liabilities on winding up. Members of no liability company are not liable for
unpaid shares subscription on winding up. The extent of the liability of members thus
depends on the type of company.

1.3 Company Compared to other Business Entities

Although we have briefly examined the characteristics of the legal personality of a company, at
this stage, it is appropriate to contrast the characteristics of a company with the characteristics
of other forms of business organisations in PNG.

1.3.1 Corporation /Company

A corporation is a separate, legal entity formed/incorporated in accordance with appropriate

laws of incorporation.

It is authorized to perform primarily all the business activities an individual can, including such
things as filing and paying taxes, signing contracts, and making loans.

In contemporary business world, the words ‘company’ and ‘corporation’ has come to mean the
same and are used interchangeably.

Both the company and corporation though are interdependent. The company can grow to be a
big corporation and the big corporations need a small-scale business for them to develop their
business.

Many businesses, both large and small, are carried on in the form of a corporation. In PNG the
corporation is created by fulfilling the formal requirements of the Companies Act 1997.

The result of incorporation is the creation of a separate and distinct legal entity. This means
that the corporation/company can sue and be sued in its own name, enter into contracts as can

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a natural person, including contracts with its own shareholders; and hold property in its own
name.

A company is an ‘artificial being, invisible, intangible and existing only in contemplation of law,’
a separate legal entity from its members (also called shareholders), its liabilities being its own
and generally not those of its members. “Company” is the word commonly used for a
corporation engaged in business.

1.3.1.1 Attributes of a Corporation/Company

A corporation has a number of attributes, which may be advantageous to the participants (or
members or shareholders). These include:

(i) Immortality

A corporation is said to have potential immortality, whereas a partnership is automatically

dissolved in a number of situations.

For example, if a partnership consists of only two partners and one of them dies, the
partnership is dissolved.

A corporation, however, does not and even though all its shareholders may change or even
though it may for a time have no shareholders. It even continues to exist in a dormant state
when it has been struck from the Register of Companies, in that it may be restored and then
continue as before.

(ii) Limited Liability

The Companies Act provides that the person who forms the corporation and who become its
shareholders are only required to contribute towards the debts of the corporation one or other
of the following amounts:

(a) The amount that they have agreed to pay for their shares in the corporation, in the
case of a company limited by shares. This may be a very small amount. A corporation might
have only two shares, issued to two shareholders for the sum of K1.00 each.

Technically, these shareholders’ liabilities for the corporation’s debts are limited to the amount
of the K1.00 share price.

(b) The amount that the members have undertaken to contribute to the assets of the
company in the event of its being wound up, in the case of a company limited by guarantee.

It was this characteristic of limited liability which most frightened 19th century courts about the
evolving corporation.

The cautionary suffix “Ltd” (which in some jurisdictions is synonymous with “Inc.”, “Corp.” and
“Co.” so that they also signal limited liability) was originally conceived as a warning to the public
about this dangerous new creature. The cautionary suffix is required: companies may not
delete it from their name or their stationery, signage and advertising, although this requirement
is often infringed.

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Limited liability may, however provide less protection than is often supposed. For example,
when a small corporation is borrowing money or entering into a lease, the principal
shareholders of the company are frequently required to give their personal guarantees in
addition to that of the corporation itself.

Limited liability does provide protection in the case of general trade creditors and in the case of
the company becoming liable for some wrongful act, for example where a company employee
driving the company truck on company business does so carelessly and runs down a member
of the public.

(iii) Transferability

Transferring partnership interests may be difficult and certainly can be cumbersome. The
shareholders interest in corporation (i.e. shares), however, can be made easily transferable. In
most small corporations there may be some restriction on the transferability of shares because,
among other reasons, the shareholders may be actively involved in the corporation and may
not want new shareholders joining them who do not have their same interest or expertise.

(iv) Separate Legal Entity

Corporations formed under the Companies Act 1977 are legal persons and have the ability to
do anything a natural person of full legal capacity can do. The business, which they carry on,
however, may be restricted. The corporation may fall within the definition of a foreign
company, for example, in which case it will be barred from activities, which are limited to
citizens of Papua New Guinea. Or its memorandum and articles may contain a prohibition
against carrying on certain businesses.

The memorandum and articles are publicly filed documents. They are available to advise
persons dealing with the corporation whether or not it is prohibited from carrying on certain
business. The relationships between the shareholders and the directors of the corporation are
also publicly filed. Although uncommon in Papua New Guinea, there may be a shareholders
agreement, which will further delineate the rights and duties of shareholders among themselves
but which will not be publicly available.

(v) Capital

The corporate form may make raising capital for the business easier. One of the original
purposes of a corporation was to bring together a large number of individuals who could pool
their capital (then called joint stock) and carry out enterprise that were too costly for a small
partnership.

Today a corporation may still raise money by the sale of its shares, which may be of various
kinds having different features. A corporation may also borrow money and give debentures or
other security to its creditors. This may be done with either one major lender or through the
sale of portions of the debt security to private individuals.

(vi) Tax Advantages

The corporations separate legal personality also provides it with a number of possible tax
advantages. Some corporations receive preferential income tax treatment and corporations
have more flexibility in deferring taxes and in allowing the division of business income.

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1.3.1.2 Characteristics of Corporations

- Owners of a Corporation have limited liability.

- All income/losses are borne by the corporation and are taxable to the corporation.

- A business corporation continues indefinitely.

- With corporations it is easy to transfer interest in the business unless restricted by

agreements.

- The choice of a tax year for a corporation can be a calendar or a fiscal year.

- Setting up a corporation is more difficult and costly. It requires filling the required
application forms and meeting the relevant fees and other process and procedures to
comply with (provided in the Companies Act 1977 and Companies Regulation 1998).

- Generally, there are no ownership limitations with Corporations. Shareholders numbers

vary.

- Shifting of funds in and out of a business corporation is more complicated for

deductibility purposes, liability protection, etc.

- The recordkeeping requirements of a corporation are complicated; balance sheet

requirements, minutes of meetings, resolutions, other "arm’s length" requirements to
be met.

- The management type of a corporation is centralized with appointment by board of

directors.

- With corporations, there is possibility of double taxation.

- With corporations, there is much more fringe benefit possibilities.

- General ability to retain earnings to up to certain limits.

- Corporations are legality incorporated entities recognized for income tax purposes in
PNG.

- Corporations are obliged to file corporate tax forms with the Internal Revenue
Commission (IRC).

1.3.1.3 General Advantages and Disadvantages of a corporation.

(i) Advantages

Advantages include;

* Limited liability protection to owners,

* Easy transferability of ownership,
* Continuity even if original owners no longer exist,
* Easier estate tax planning opportunities,

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* More possible tax-free fringe benefit plans, and

* More flexible pension plans. In addition, it allows for a number of owners to participate.
Obviously, there can be numerous advantages.

(ii) Disadvantages

Disadvantages of a corporation are equally as numerous;

* A corporation is usually more difficult and costly to set up or terminate,

* Much more planning is required to avoid double taxation issues,
* Recordkeeping can be quite complicated to preserve the limited liability feature,
* Taking money out of the corporation can also get tricky, finally
* Tax return filings tend to be more involved.

1.3.2 Partnership

1.3.2.1 Definition

The Partnership Act defines partnership as “…the relationship that subsists between persons
carrying on a business in common with a view to profit…”6

It goes on to state that “…Persons who have entered into partnership with one another are, for
the purposes of this Act, called collectively a firm, and the name under which their business is
carried on is called the firm-name.”7

Thus, where two or more people go into business together they are seen as having entered
into a partnership and the business name will include the word Firm. Example, SMK
Accounting Firm, SML Law Firm, SMS Security Firm etc.

Whether the partnership is registered or unregistered they are automatically governed by the
Partnership Act and the Underlying Law of PNG8.

Note that the definition of partnership provided by the Partnership Act can also be applied to
sole proprietorships thus raising doubts as to the type of business.

However, in PNG, Section 4 of the Partnership Act provides rules for determining the existence
or otherwise of a partnership.

It is not necessary for there to be a written partnership agreement for a legal partnership to
exist.

Nevertheless, it is generally advisable for partners to enter into a written partnership

agreement, which allows partners to allocate the ownership and profit/loss aspects according to
their contractual terms. Note also that remaining in a partnership allows partners to vary default
provisions of the Partnership Act where they choose to.

1.3.2.2 Reasons For Choosing Partnerships

6 Partnership Act (Chapter 148), Section 3.

7 Partnership Act (Chapter 148), Section 1 (2).
8 Partnership Act (Chapter 148), Section 2.

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There are a variety of reasons for choosing to be in partnership. Some of these reasons are;

(i) Issues with incorporating a company.

This reason is usually applicable to professionals such as Lawyers and others who are
prohibited by their respective professional organisations from carrying out business in the
corporate form.

For instance, In PNG, the Law Society prohibits lawyers from carrying on their practice in the
corporate form. They are able to do so as sole proprietorship or in partnership with other
lawyers. Certain other professions have the same prohibition.

Note that partnerships are used frequently in finance, insurance, accounting, real estate, law,
and other service-related fields.

(ii) Easy formation

Aside from a sole proprietorship, in which a single person is the owner of a business, a general
partnership is one of the simplest business entities to create since there are few legal
requirements for forming a partnership. It is much simpler and cheaper than the incorporation
of a company under the Companies Act.

Typically, a partnership is created when two or more persons enter into a partnership
agreement that sets out the terms of the partnership. However, that is not always the case. For
example, a court may find that a partnership exists between two or more persons in
accordance with section 4 of the Partnership Act even if the persons did not enter into a
partnership agreement and did not intend to create a partnership.

Although it is not essential to have a written partnership agreement, it is prudent to do so for

the obvious advantages that a written agreement has over an oral one.

(iii) Inexpensive too setup

Since there are few legal requirements for forming a partnership. It is much simpler and
cheaper than the incorporation of a company under the Companies Act.

(iv) Partners Share in the Business

All partners share in the management of the business as long as a partnership agreement does
not state otherwise. The Partnership Act imposes a system of rights and duties upon partners,
which they may wish to, vary.

For instance, under the Partnership Act, all the partners are entitled to share equally in the
profits of the business. This may not be the arrangement that the partners want to make and
they are free to change this by private agreement.

This is only one of many such examples. The preparation of a partnership agreement may be
complex and expensive depending on the needs of the partners and the complexity of their
business arrangements.

(v) Limited Regulation

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The law governing partnerships are the Partnership Act and the Underlying Law of PNG.9
These laws do not impose as many formal requirements as other forms of organization such as
a corporation. For instance, no annual reports are required, although owners are required to file
taxes.

(vi) Tax Advantages

In partnerships, the income of the business is presumed to have been distributed to the
owners, who must pay taxes on that income.

Consequently, the partnership income and losses flow through to the partners, and there is no
separate tax rate or income tax return for the partnership.

PNG income tax law requires the partners to calculate the income earned or losses incurred by
the partnership, to allocate the income or losses to the partners and then to include their share
of the income or losses in their personal income tax returns.

Pass-through tax treatment10 results in only the owners being taxed and thus avoids double
taxation on the business income.

Thus, if the partners expect there to be losses in the first years of operation of the business,
they may want to be partners because in the eyes of the Taxation Office they are individuals
and so they can apply these losses as individuals against other sources of income.

(vii) Partnership Accounts

Unlike incorporated companies and other business entities, partnership accounts need not be
made public.

1.3.2.3 Disadvantages in Partnership

The major disadvantages in a partnership are;

(i) Liability

The Partnership Act states that “Each partner in a firm is liable jointly with the other partners for
all debts and obligations of the firm incurred while he is a partner, and after his death his estate
is, subject to the prior payment of his separate debts, liable in due course of administration for
any of the debts and obligations that remain unsatisfied.”11 It also states that “Each partner is

9 Partnership Act (Chapter 148), Section 2.

10 Cornell Law School, Legal Information Institute, Open Access to Law since 1992.
https://www.law.cornell.edu/wex/pass-through_taxation defines Pass-through taxation as: -
“a pass-through business pays no taxes. Instead, some control person pays the business's taxes through that
person's own personal tax return. Pass-through taxation typically applies to sole proprietorships, partnerships,
……, upon that entity's ability to prove that it deserves pass-through status. This is opposed to either
traditional corporations or C-corporations, in which the company itself pays corporate taxes on income the
corporation earns.”
11 Partnership Act (Chapter 148), section 10.

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liable jointly with his co-partners and also severally for everything for which the firm while he is
a partner becomes liable…”12

Consequently, the acts of one partner in conducting the business, even if not authorised by the
others, may bring liability on them all. Thus, partners can be legally bound by contracts
entered into, debts incurred, injury caused to third parties or misapplication of properties by the
other partners in the operation of the business, even where they have not given consent.13

Partnership is therefore suitable only for a relatively small number of people who can put
substantial trust and confidence in one another.

It is also important to be aware that a partnership often arises by operation of law without the
parties having intended to be in partnership, and without any awareness of the rights and
responsibilities the Partnership Act imposes into their business relationship.

(ii) Transferability

While a sole proprietorship can easily transfer his ownership, management and financial
interest it is not so for a partnership as the other partners may have an issue with the transfer
or that it may be contrary to the partnership agreement.

For instance, a partner may freely transfer his financial interest but may not transfer his
management interest without the consent of all of the other partners.

(iii) Continuity

The Partnership Act states “Subject to any agreement between the partners, a partnership is
dissolved as regards all the partners by the death or insolvency of a partner...”14

This means in that in partnerships where there is no agreement or where the agreement does
not cater for the death or insolvency of the partners, and if either of these events happen to a
partner, the partnership is dissolved.

Note also that the withdrawal of a partner may result in the dissolution of the partnership.

1.3.2.4 Characteristics of Partnerships

Here are some characteristics of a partnership;

- In a partnership the owners have unlimited liability for business actions.

- Any income or loss in a partnership is taxable to the partners.

- The partnership ends with the death or bankruptcy of partner.

- Transferability of interest in a partnership may require partner's approval.

12 Partnership Act (Chapter 148), section 13.

13 Partnership Act (Chapter 148), section 11 and 12.
14 Partnership Act (Chapter 148), section 34.

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- The partnerships tax year is usually on a calendar year basis unless business purpose
is met.

- Partnership are reasonably easy to set up but agreements are generally

recommended, and tax identification numbers needed.

- In a partnership there is no limit to ownership. There can be as many partners as the

partnership desires.

- It is easy for partners to shift funds in and out of a partnership but transactions must be
tracked.

- There is a minimum requirement for record-keeping in a partnership. It can be fairly

complicated, especially if partner’s accounts are tracked.

- Unlike sole proprietorships the management type of partnerships is not centralized. It

usually depends on the partners' agreements.

-- In a partnership there is no double taxation problem.

- A partnership cannot retain earnings as it is taxable to partners in year posted whether

or not they are distributed.

- Partnership is a Legal form of business in PNG.

1.3.2.5 Summary

In summary we note that a partnership is an unincorporated business association where two or

more participants carry on a trade or business together, and allocate the ownership and
profit/loss aspects according to their contractual terms. A partnership may result by default.

The disadvantages are similar in scope to a sole proprietorship: No limited liability protection
exists; the partnership usually ends upon the termination of a majority partnership interest, so
continuity is limited; earnings cannot be retained, and tax-free fringe benefits are limited.

This partnership is a separate entity for tax filing purposes, but not tax paying. Rather it is a
form of a conduit where income, losses, credits, and certain deductions are passed along to the
partners' tax situation instead. There is no liability protection for the general partners.

1.3.3 Sole Proprietorship

1.3.3.1 Definition

This is the simplest business form and is common in PNG. A sole proprietorship can be a self-
employed individual who operates a trade or business. Under this form the sole proprietor is
the ultimate decision-maker. The sole proprietor may hire employees to help or engage agents
and delegate his authority, including management authority.

Under PNG laws, the sole proprietor and his business are not treated as separate entities.
They are seen as one and the same legal entity since the owner of the sole proprietorship

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owns all the assets of the business. Therefore, sole proprietors will be directly liable for all of
the debts of their businesses or for any potential damages awarded in a lawsuit.

1.3.3.2 Characteristics of Sole Proprietorships

Below are some characteristics of a sole proprietorship;

- It is easy to set up a sole proprietorship. It usually requires a few administrative and

filing processes.

In PNG most sole proprietorships engaged in business are required to register their
business name with the Registrar of Companies15. Other applicable legal
requirements to comply with are income tax, licensing etc.

In businesses such as Law Firms, Accounting Firms, Building & Construction company
run by one individual, the sole proprietor must obtain business licenses and fulfil
particular requirements of his/her trade, occupation, or profession. Other sole
proprietorships in PNG include security firms owned by a single individual, PMV and
Taxi service, Trade stores and so forth.
- Owner of Sole Proprietorship has unlimited liability for business actions. If found guilty
of wrong doing, the owner is responsible and will bear all liability.

- Any income/losses made by the sole proprietorship is taxable to the individual

proprietor.

- The sole proprietorship ends with the death of proprietor.

- The sole proprietorship can easily transfer his or her interest in the business to another
person or organization.

- The Sole Proprietorship/Proprietor's tax year which is usually on a calendar year basis.
The Internal Revenue Commission (IRC) will give notice and forward appropriate forms
for the proprietor to complete at the end of the year.

- In a sole proprietorship there can be only one owner.

- It is easy to shift funds in and out of the sole proprietorship since the proprietor is the
only signatory to the business account.

- In a sole proprietorship there is little need for record-keeping. It is the easiest of all
business entities as there are no requirements for balance sheet, no accounting to
other owners, partners, shareholders and so forth.

- In a sole proprietorship the proprietor is the sole owner and manager. It is a centralized
management system with the proprietor as the manager.

- With a sole proprietorship, proprietor can plan and put aside as much money as he
wants for retirement or other purposes.

15Sections 8(1), (2) and 9 (1) of the Business Names Act (Chapter 145) and section 4 of the Business Names Act
2014 provides for a person to apply to register a business name. While Schedule 2, Form 1 of the Business
Names Regulation (Chapter 145) provides the Form to complete in order to apply to registrar a business Name.

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- A sole proprietorship cannot offset ordinary business income as passive loss.

- With a sole proprietorship there are no problems with double taxation as the business
and the owner are seen as the same person thus only the one income is taxed.

- In a sole proprietorship earnings cannot be retained as it is taxable to owner in year

posted.

- Sole Proprietorship is a legal and the most common form of business in PNG.

1.3.3.3 Summary

In summary we note that in a sole proprietorship the self-employed individual who operates a
trade or business where all the tax consequences fall to that proprietorship, including all
liabilities, debts, profits and losses.

It is usually the easiest type of entity to set up or terminate. Losses from the business can
offset income from other sources. Management is totally centralized since there is only one
legal owner. Record-keeping may be a bit easier. Taking money out of the business is very
easy.

However, there are some notable disadvantages, also; there is no way to retain earnings like
other business forms; the owner has no limited liability protection; continuity and transferability
of interest is limited; and certain deductible fringe benefits are not available as with other forms
of business.

1.3.4 Joint Venture

1.3.4.1 Definition of Joint Venture

“A joint venture (JV) is a business arrangement in which two or more parties agree to pool their
resources for the purpose of accomplishing a specific task. This task can be a new project or
any other business activity.”16

It is based on contractual arrangement between two or more entities to carry out a business
undertaking in common. A joint venture can be incorporated or unincorporated and is usually
entered into to undertake a specific business activity.

1.3.4.2 Brief History of Joint Ventures

In the United States, corporations cannot be in partnership. Thus, for corporations to enter into
business together it was necessary for them to establish that their relationship is not a
partnership.

Although this may not be the law in Australia or PNG, the mining industry in Australia and
subsequently PNG has historically been dominated by United States

16 Investopedia- https://www.investopedia.com/terms/j/jointventure.asp.

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interest. Consequently, the joint venture concept was imported and used in Australia
and PNG.

Other various incidental advantages of a joint venture made it the desirable business
entity to establish and use for certain business.

1.3.4.3 Nature of Joint Venture

Historically, this type of business organization, was sometimes referred to as a specialized type
of partnership. Despite this, joint ventures are at pains to establish that they are not in
partnership.

Like a partnership and a corporation, a joint venture is a co-operative arrangement, which

spreads and reduces risk. But is less intimate than a partnership and less accountable and
formal in its internal arrangements than a corporation.

The parties to a joint venture usually enter into a detailed agreement which specifies their
respective rights and obligations.

A joint venture differs from a partnership in several respects, the main one being that
the participants do not carry-on business in common.

Rather, each participant contributes funds or other property to an agreed stage of a

project, the fruits of which are distributed directly to them in the manner and
proportions set out in the joint venture agreement.

Each of the participants is responsible for profits, losses, and costs associated with it.
However, the venture is its own entity, separate from the participants' other business interests.

Joint ventures can take on any legal structure. Corporations, partnerships, companies, and
other business entities can all be used to form a joint venture.

Despite the fact that the purpose of joint venture is typically for production or for research, they
can also be formed for a continuing purpose. Joint ventures can combine large and smaller
companies to take on one or several big, or little, projects and deals.

In PNG, the most common enterprises in which the joint venture is used as the vehicle for
conducting the business is in the mining industry, particularly at the exploration stage. An
unincorporated joint venture is often appropriate for mining, oil or gas projects, which generally
involve high preproduction costs.

1.3.4.4 Reasons for forming Joint ventures

Generally speaking, a joint venture is not required to lodge a separate tax return and every
participant may immediately incorporate its share of the costs of the project into its general
income-producing expenses for tax purposes (other than mining and petroleum development
projects, for which such costs must be incorporated into project income-producing expenses).

Furthermore, each participant is free to treat its share of the cost of the project independently of
the other participants, thereby offering greater tax and accounting flexibility than a partnership.

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It is common for an unincorporated joint venture to be formed and managed so that each
participant’s liability is limited to its agreed interest in the project.

There are three main reasons why companies form joint ventures:

* Leverage Resources

A joint venture can take advantage of the combined resources of both companies to achieve
the goal of the venture.
One company might have a well-established manufacturing process, while the other company
might have superior distribution channels.

* Cost Savings

By using economies of scale, both companies in the joint venture can leverage their production
at a lower per-unit cost than they would separately.
This is particularly appropriate with technology advances that are costly to implement. Other
cost savings as a result of a JV can include sharing advertising or labor costs.

* Combined Expertise

Two companies or parties forming a joint venture might each have unique backgrounds,
skillsets, and expertise. When combined through a joint venture, each company can benefit
from the other's expertise and talent within their company.

Regardless of the legal structure used for the joint venture, the most important document will
be the joint venture agreement that sets out all of the partners' rights and obligations. The
objectives of the joint venture, the initial contributions of the partners, the day-to-day
operations, and the right to the profits, and the responsibility for losses of the joint venture are
all set out in this document. It is important to draft it with care, to avoid litigation down the road.

1.3.4.5 Other Special Considerations

* Paying Taxes on a Joint Venture (JV)

When forming a joint venture, the most common thing the two parties can do is to set up a new
entity. But because the joint venture itself isn't recognized by the Internal Revenue Commission
(IRC), the business form between the two parties helps determine how taxes are paid. If the
joint venture is a separate entity, it will pay taxes like any other business or corporation does.
So if it operates as an company, then the profits and losses would pass through to the owners'
personal tax returns just like any other company.

The joint venture agreement will spell out how profits or losses are taxed. But if the agreement
is merely a contractual relationship between the two parties, then their agreement will
determine how the tax is divided up between them.

There may be considerable tax advantages to the joint ventures in not being members of
corporation. The expenditure by each participant is deductible from that participant’s income
from other sources, whereas a corporation’s expenditure is deductible only from its own gross
income.

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In early stages of the venture the income of the venture itself may be small, and so other ability
to set its losses off against its income will be of little advantage; the advantage will all be in
being able to offset the losses against the participants other income. It may well be that this
advantage greatly outweighs the advantage of limited liability which, members of a corporation
have.

* Using a Joint Venture to Enter Foreign Markets

A common use of joint ventures is to partner up with a local business to enter a foreign market.
A company that wants to expand its distribution network to new countries can usefully enter
into a joint venture agreement to supply products to a local business, thus benefiting from an
already existing distribution network. Some countries also have restrictions on foreigners
entering their market, making a joint venture with a local entity almost the only way to do
business in the country.

* Joint Venture vs. Partnerships and Consortium

A joint venture is not a partnership. That term is reserved for a single business entity that is
formed by two or more people. Joint ventures join two or more different entities into a new one,
which may or may not be a partnership.

The term "consortium" may be used to describe a joint venture. However, a consortium is a
more informal agreement between a bunch of different businesses, rather than creating a new
one. A consortium of travel agencies can negotiate and give members special rates on hotels
and airfares, but it does not create a whole new entity.

If the joint ventures are successful in establishing that they are not in partnership then they will
be able to avoid the risks of partnership; mutual agency and unlimited personal; liability for the
debts of the partnership.

Establishing that the joint venture is not a partnership is dependent on the existence of certain
critical terms in the joint venture agreement. (For a judicial analysis of when a business entity
is a joint venture and when it is a partnership, see United Dominions Corp Ltd v Brian (1985,
High Court of Australia).

Unfortunately, the case law is not entirely clear on this issue. Certainly, an express denial of
partnership will not of itself be sufficient if the court regards the association as being in
substance a partnership. It would seem that the critical factor is that gross returns, opposed to
net profits, are what are shared.

One final point, which, the novice may find confusing, is that it is common (though not
universal) for joint ventures to incorporate a company as the vehicle for the joint ventures’
activities. This does not mean that the participant’s relationship has become one of the fellow
shareholders rather than joint ventures; they are both, and it is their relationship as fellow a
shareholder that is governed by the terms of the joint venture agreement.

That agreement, furthermore, may be expressed to take precedence over the memorandum
and articles of the company, and will most circumstances survive the death of the company.

1.3.4.6 Requirements for Joint Ventures

The key elements to a joint venture may include (but are not limited to);

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• The number of parties involved;

• The scope in which the joint venture will operate (geography, product,
technology);
• What and how much each party will contribute to the joint venture;
• The structure of the joint venture itself;
• Initial contributions and ownership split of each party;
• The kind of arrangements to be made once the deal is complete;
• How the joint venture is controlled and managed; and
• How the joint venture will be staffed.

1.3.4.7 Examples of Joint Ventures

Once the joint venture has reached its goal, it can be liquidated like any other business or sold.

For example, the Pogera Joint Venture (PJV) came to its conclusion in 2018 resulting in the
bulk of the interest of the venture reverting to the landowners and Enga Provincial Government.
The venture was concluded based on the agreements signed however the developer and other
stakeholders did not foresee that the minerals would not be exhausted before the end of the
venture agreement. This has resulted in tremendous pressure being exerted on the landowners
and Enga provincial government to enter into another agreement to relinquish their rights once
again.

In 2016, Microsoft Corporation (NASDAQ: MSFT) sold its 50% stake in Caradigm, a JV it had
created in 2011 with General Electric Company (NYSE: GE). The joint venture was established
to integrate Microsoft’s Amalga enterprise healthcare data and intelligence system, along with a
variety of technologies from GE Healthcare. Microsoft has now sold its stake to GE, effectively
ending the joint venture. GE is now the sole owner of the company and is free to carry on the
business as it pleases.

Sony Ericsson is another famous example of a joint venture between two large companies. In
this case, they partnered in the early 2000s with the aim of being a world leader in mobile
phones. After several years of operating as a joint venture, the venture eventually became
solely owned by Sony.

1.3.5 Trust

A trust can be established by deed empowering a trustee to carry on business. In such

circumstances, the trustee holds the assets of the business and runs the business for the
benefit of the trust’s beneficiaries. It is possible for a trustee to be a company, thereby
attracting limited liability and ensuring perpetual succession of the trustee. However, the trust
itself must have a finite life.

The flexibility of available trust structures means that a deed can be drawn to suit most
circumstances. The beneficiaries’ entitlements under a trust structure may be in a fixed
proportion or variable at the discretion of the trustee.

A unit trust structure may be adopted where the beneficiary’s entitlement to the income and
capital of a trust depends on the number of units the beneficiary holds in the trust. Units are
similar to shares in a company, although there are some fundamental legal differences

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between the two. Where a number of separate individuals or companies are involved in a
particular business activity, a unit trust structure can be used. The beneficial ownership of the
trust property is divided into a number of fixed units. Unlike a discretionary trust, which is more
commonly used as a vehicle to conduct family businesses, unit trusts tend not to allow the
trustee the discretion to redistribute the beneficial interest in income or capital among unit
holders.

The principal advantages of a trust structure are that trusts are relatively easy to form and are
subject to relatively few government controls on their formation and operation.

However, certain provisions of the Trustees and Executors Act apply to trusts. Where a
company acts as trustee, it will need to comply with the requirements of the Companies Act.
Certain trustee companies will also need to comply with the Trustee Companies Act.

Generally, trustees are personally liable for their actions as trustees but they may have a right
of indemnity against the trust assets provided they act within the scope of their authority.
However, in recent years courts in other jurisdictions have become increasingly concerned
about this state of affairs and have held beneficiaries of trusts to be personally liable for trust
debts in some circumstances. The courts in PNG may follow this lead.

The principal disadvantages of a trust structure are:

▪ There must be strict adherence to the terms of the trust deed and, where the
trustee is a company; it must also comply with its constituent documents and the
Companies Act;
▪ Legislation relating to the powers and duties of trustees must be adhered to;
▪ The courts have developed a complex set of rules relating to trusts;
▪ A trust structure will not enable individual participants to offset trust losses
incurred in a year of income against assessable income derived from other sources;
and
▪ The taxation regime in PNG does not favour trusts.

1.3.6 Agency
1.3.6.1 General Nature of Agency

“He who does an act through another is deemed in law to do it himself.”

This is a common law maxim, and it is the basis of the law of agency.

Under the normal rule of privity of contract, if one person contracts with another, a third party
can derive no benefit, nor incur any obligations, under that contract. However, if one-person
authorizes another to do an act on his behalf, that other becomes the agent of the first. The act
of the agent, then, under the maxim quoted above, becomes the act of the first person; who,
therefore, “steps into the shoes” of the agent, and becomes liable for the act (and able to enjoy
its benefits) as if he himself had done it in the first place.

The agent has no personal liability; he “drops out” of the transaction.

In commercial matters, the relationship of agency usually arises as a result of a contract

between two people, for one (the agent) to effect a contract on behalf of the other. However,

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this is by no means the only way in which the relationship can arise, nor is the effecting of a
contract the only duty an agent can perform.

The fundamental principle is that, by the agreement of both parties, the agent is enabled
directly to affect the legal relations of another person.

Except in the case of “agency of necessity” nobody can have an agency relationship forced
upon him, nor can it arise other than by agreement (express or implied).

The reciprocal rights and liabilities between a principal and an agent reflect commercial and
legal realities. A business owner often relies on an employee or another person to conduct a
business.

In the case of a business entity or an organization, since it can only act through natural
person agents, the principal is bound by the contract entered into by the agent, so long as the
agent performs within the scope of the agency.

A third party may rely in good faith on the representation by a person who identifies himself as
an agent for another. It is not always cost effective to check whether someone who is
represented as having the authority to act for another actually has such authority. If it is
subsequently found that the alleged agent was acting without necessary authority, the agent
will generally be held liable.

There are various types of agents and their authority may be expressed, implied or by law.

1.3.6.2 Liability of Agent to Third Party

An agent will not be liable for acts performed within the scope of his duties, as long as the
relationship of the agency and the identity of the principal have been disclosed.
When the agency is undisclosed or partially disclosed, however, both the agent and the
principal are liable.

Where the principal is not bound because the agent has no actual or apparent authority, the
purported agent is liable to the third party for any injuries suffered by the third party.

1.3.6.3 Liability of Agent to Principal.

If the agent has acted without actual authority, but the principal is nevertheless bound because
the agent had apparent authority, the agent is liable to indemnify the principal for any resulting
loss or damage.

1.3.6.4 Liability of Principal to Agent

If the agent has acted within the scope of the actual authority given, the principal must
indemnify the agent for payments made during the course of the relationship whether the
expenditure was expressly authorized or merely necessary in promoting the principal's
business.

1.3.6.5 Duties Owed by Agent to Principal

An agent owes the principal a number of duties. These include:

• a duty to undertake the task or tasks specified by the terms of the agency;

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• a duty to discharge his duties with care and due diligence;

• An agent must not accept any new obligations that are inconsistent with the
duties owed to the principal.
• An agent can represent the interests of more than one principal, conflicting or
potentially conflicting, only after full disclosure and consent of the principal.
• An agent must not usurp an opportunity from the principal by taking it for
himself or passing it on to a third party.

In return, the principal must make a full disclosure of all information relevant to the transactions
that the agent is authorized to negotiate.

1.3.6.6 Termination of an Agency

The agency may be terminated in a variety of ways:

1. Withdrawal by the agent; however, the principal cannot revoke an agency

coupled with interest to the prejudice of such interest. An agency is coupled with
interest when the agent himself has an interest in the subject-matter of the agency,
e.g., where the goods are consigned by an upcountry constituent to a commission
agent for sale, with poor to recoup himself from the sale proceeds, the advances made
by him to the principal against the security of the goods; in such a case, the principal
cannot revoke the agent’s authority till the goods are actually sold and debts satisfied,
nor is the agency terminated by death or insanity;
2. By the agent renouncing the business of agency;
3. By discharge of the contractual agency obligations.

Alternatively, agency may be terminated by operation of law;

1. By the death of either party;
2. By the insanity of either party;
3. By the bankruptcy (insolvency) of either party.

The principal also cannot revoke the agent’s authority after it has been partly exercised, so as
to bind the principal, though he can always do so, before such authority has been so exercised.

If the agency is for a fixed period, the principal cannot terminate the agency before the time
expired, except for sufficient cause. If he does, he is liable to compensate the agent for the loss
caused to him thereby.

The same rules apply where the agent, renounces an agency for a fixed period. Notice in this
connection that want of skill, continuous disobedience of lawful orders, and rude or insulting
behaviour has been held to be sufficient cause for dismissal of an agent.

Further, reasonable notice has to be given by one party to the other; otherwise, damage
resulting from want of such notice, will have to be paid.
The revocation or renunciation of an agency may be made expressly or implicitly by conduct.
The termination does not take effect as regards the agent, till it becomes known to him and as
regards third party, till the termination is known to them.

When an agent’s authority is terminated, it operates as a termination of subagent also.

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1.3.6.7 Agency Relationships

Agency relationships are common in many professional areas including;

- employment (Public Servants);
- financial advice (insurance agency, stock brokerage, accountancy);
- contract negotiation and promotion (business management) such as
for publishing, fashion model, music, movies, theatre, show business,
and sport;
- Agents of Law firms and real estate agents etc. create a legal relationship with a third
party for the principal’s purposes and interests; and so forth.

1.3.7 Statutory corporations

Statutory corporations are entities established by specific statutory enactments and have a
separate legal personality with all powers and capacity to carry out its functions or business.

Examples include The University of Papua New Guinea set up under The University of Papua
New Guinea Act or the Bank of Papua New Guinea established under the Central Banking Act
2000.

1.3.8 Unincorporated Associations

A club or society is not, strictly speaking, a business organisation. It may be formed for
recreational or other not-for-profit purposes. Again, it is not a legal person. Its committee is fully
personally liable for debts and wrongs, but members are not liable for the club’s debts merely
because they are members: Wise v Perpetual Trustee Co (1903) AC 139.

The committee has a right to indemnity from club funds for liabilities properly incurred, and may
have the benefit of insurance, financed by the club. Any right to recover indemnity from a
member would depend on committee members being able to show they acted as agent for that
member, perhaps because such a member voted to instruct the committee to enter the contract
or otherwise undertook to accept liability.

1.4 Ways to Form Companies

Companies can be formed in a number of ways;

(a) By Royal Charter (Chartered Companies)

These types of companies are formed by grant of a charter by the Crown. Promoters of the
company petition the Privy Council attaching draft of proposed charter to the petition.

Although they are still used to incorporate learned societies and professional bodies such as
Charted Accountants etc, they are no longer used to incorporate trading companies.

(b) By Act of Parliament (Statutory Companies)

These are companies formed by the Parliament passing an Act. In PNG, such companies are
referred to as Statutory Companies or State-Owned Entities (SOE). Some examples of SOEs

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in PNG include Independent Public Business Corporation17, East New Britain Tourism18, Papua
New Guinea Forest Authority19, National Fisheries Authority20etc.

Note that when SOEs are privatised, they are usually incorporated as registered companies.

(c) By Registration (Registered Companies)

Registration is the most commonly used means of forming a company and virtually the only
method now used to form a trading company.

In PNG a corporation/company is registered under the Companies Act 1979 or one of the
preceding Companies Acts and the Companies Regulation 1988.

Note that other types of business entities such as Partnership, Sole Proprietorship, Agency etc
have various laws Business Names Act, Partnership Act etc which govern their registration.

1.5 Types of Companies

(a) Limited Liability Companies

The term "Limited Liability" refers to the liability of the members/shareholders, not the liability of
the company. The company will always be liable to the full extent of its debts.
However, the liability of the members/shareholders, whether limited or unlimited, is to the
company, not to the individual creditors of the company.

Thus we note that ‘Limited liability’ is a form of legal protection for shareholders and owners
that prevents individuals from being held personally responsible for their company’s debts or
financial losses.

Within some business structures, such as corporations and limited companies, organisations
are registered as distinct legal bodies. Because these kinds of businesses are legally classified
as a ‘person’, they’re able to:

• Keep finances separate from the owners’ personal finances

• Own assets and keep any profits after tax

By separating the finances of the owners and the business, the business becomes responsible
for its liabilities, debts and financial losses.

This distinction creates legal protection for owners and shareholders, who are under no legal
obligation to pay any debts or cover any losses if the business were to fail.

17The Independent Public Business Corporation (IPBC) is an Independent Entity under its own Act which was
established to hold the majority of state-owned commercial assets in trust and to manage those assets to improve
commercial performance and underpin economic development.
18East New Britain Tourism Authority provides a variety of services to its stakeholders. This includes supporting
and monitoring of provincial tourism activities, providing service and assisting local tourist operators.
19The Papua New Guinea Forest Authority (PNGFA) was established in 1993 under the 1991 Forestry Act
replacing the former Department of Forest, and unifying all Provincial Forest Divisions and the Forest Industries
Council. All these came about as a result of the 1989 Barnett Commission of Inquiry into aspects of the forestry
industry.
20 Government statutory authority administering the Fisheries Management Act 1998 and related regulations.

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Any assets which personally belong to an owner or shareholder can’t be seized in order to
repay the debt – therefore, the only potential loss is any capital that’s already been invested
into the business.

* Ltd

In PNG, companies with the suffix “Ltd” added to their name shows that they are companies of
limited liability. Examples include Hertz Rent-a-Car, Nike, Coca Cola etc.

Limited liability companies are public companies, which means the public has a certain amount
of ownership. Public companies may generate revenue in this way, whereas private companies
cannot. Public companies must have at least 3 directors. may have as many shareholders as
they like.

* Pty Ltd

“Pty Ltd” is an abbreviation for ‘proprietary limited’. Proprietary companies are the most
common form of company. This type of company may only have up to 50 shareholders, and
they are private. Private companies are only required to have 1 director.

Note that there is also a difference between Pty Ltd and Pty. Proprietary limited companies (Pty
Ltd) are limited by shares. On the other hand, unlimited proprietary companies (Pty) have share
capital and shareholder liability is not limited.

(b) Unlimited Liability Companies

The alternative to limited liability is unlimited liability. Some kinds of business partnerships have
unlimited liability, as do all sole traders/sole proprietors.

Within the sole-trader business structure, there’s no legal distinction between the business and
the owner. Whilst this means that sole traders can keep all profits they make after tax, they’re
also responsible for any losses incurred by their business and may need to repay debts out of
their own pocket.

Although unlimited liability may be an obvious drawback of the sole trader structure, if you’re
thinking about whether or not to incorporate, this should be weighed up against the relative
ease and low cost of remaining a sole trader.

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