Reference no: EM133062984

Question 1. A and B are in partnership as accountants. Without B's knowledge, A, in the name of the partnership, entered the following transactions, although he had no express authority to do so:

(i) purchased new office stationery and equipment.
(ii) purchased from the Royal Shakespeare Company the rights to produce ‘The Merchant of Venice' at Melbourne's Princess Theatre.

Discuss the liability of the partnership.

Question 2. Tom presently runs a business (as a sole proprietor) transporting pots and plants for wholesale garden nurseries. One of his clients who has a diversified business has just offered him a 12 month contract transporting cranes, forklift trucks and scaffolding between building sites in the CBD. He has a friend, John, who wants to join him in the business. They agree to combine their funds to purchase the specially fitted truck required for the job. They want to run the business as a partnership. Is this a good idea?

Question 3. Lotti, Pearl and Candy set up an accounting practice and decide on a formal written agreement which contains the following: "This business does not give rise to a partnership between the parties and nothing said or done by the parties to this agreement will result in a partnership between them." Lotti provides specialist investment advice while Pearl and Candy do regular accounting work for the clients. They all contribute to the business expenses and divide the profits between them. A new client, Mika, seeks investment advice and is seen by Lotti. The advice Mika receives from Lotti is to invest in Chang Ltd. Lotti's brother Malo is managing director of Chang Ltd. Unfortunately for Mika, Chang Ltd has very few assets and goes into liquidation. Mika phones Lotti to complain but she has left for Singapore permanently.
Mika wants to sue the accounting practice but Pearl and Candy deny any knowledge of Lotti's intentions and deny they are liable. Discuss arguments for: Pearl and Candy and; Mika.

Question 4. Why do you think that public companies are subject to more Corporations Act regulation than proprietary companies? Highlight the important characteristics of each to support your conclusions.

Question 5. Ryan is an ambitious amateur theatrical director who sees a future in commercial promotion of small-scale amateur dramatic productions. The actors will be paid a small fee only but he expects that the business will be profitable. Ryan has been told of the various forms of business organisation, and he asks your advice about the formation of a company. He envisages that a number of his friends would be prepared to invest substantial sums of money, and that 40 or more theatrical acquaintances will be prepared to make a nominal investment as a gesture of support.

(i) Can Ryan form a proprietary company?
(ii) Can Ryan form a no liability company?
(iii) The new company will need a registered office - why is this important?
(iv) Ryan suggests that the company does not need a common seal or a name - is he correct?

Question 6. Nicola and May are presently partners in a business which operates a second-hand book shop. The partnership agreement does not specify the proportion of each partners share in the partnership. They have two employees working for the business. The shop is located in leased premises. The business is doing well and has been profitable for them. An opportunity has arisen to purchase two second-hand bookshops in nearby suburbs. Nicola and May are keen to expand their business. They will need a large injection of funds to purchase the additional businesses. They will need to appoint a manager to at least one of the shops, as they will be fully occupied by the other two. Nicola is concerned about her potential liability for the debts and liabilities of the partnership. Also, she is concerned about the future of the business if one of them should decide to leave, as the lease is in both of their names.

Having regard to the above facts which 2 of the following alternatives are false:
A. Nicola and May are currently equal partners.
B. If they want to raise the funds to purchase the additional business by selling shares in any new company they form then that company will have to be listed on the ASX.
C. If Nicola and May form a proprietary company they will be able to expand their business because a proprietary company has perpetual succession.
D. Nicola and May could be directors of any proprietary company they form but they will need at least one more director to comply with the Corporations Act.

Question 7. Indri runs a soil testing business. He decides to form a company to take over the business. He is the sole shareholder and sole director. Indri sells his business to the company at an inflated price and lends the company $90,000 to help meet the cost of purchase. As security for the loan, Indri arranges a mortgage over a vacant block of land, which he transferred to the company as part of the business sale. In the first year of operation, the business makes a small profit (after paying both Indri and his daughter's wages), but by the end of 2012 it is clear that the building industry is going through a major slump. Indri becomes desperate and works even harder. While working late into the night, Indri badly injures his hand and needs surgery. He is away from the business for 2 weeks. His efforts to keep the business afloat are in vain and the company is forced into liquidation. On realization of the assets, it is found that the company has approximately $95,000 to go towards meeting creditors' claims of $210,000:

(i) If Indri is the only secured creditor, will he get his $90,000 back?
(ii) Can Indri claim workers' compensation for the injuries to his hand and his time off work?