Professor Tsang

Topics: Stock, Board of directors, Stock market Pages: 17 (4196 words) Published: October 20, 2012

Why would you choose to run a business as a partnership?


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:

purchased new office stationery and equipment for the firm.
purchased shares to the value of $15,000 in the partnership name in an exploration company soon to be floated on the ASX.


Discuss the liability of the partnership.
Can B be personally liable for either of the transactions?

Andy, Bob and Chris were old school friends. Bob and Chris were running a surf shop together. The business was having financial difficulties. Andy had recently inherited a lot of money and Bob and Chris asked him to lend the business $100,000 to enable them to buy sufficient stock for the summer season. Andy wanted to help his friends but also wanted to ensure that he would get his money back. He agreed to lend Bob and Chris the money in return for a payment of $10,000 per year out of the gross returns of the shop. (a) Discuss whether or not a partnership exists between Andy, Chris and Bob. (b)

Would it make any difference if the terms of the loan provided for Andy to be paid $10,000 per year out of the profits of the business and he was to be consulted on any business decisions involving liability of $5,000 or more? Explain your answer in terms of the Partnership Act.


The Corporations Act 2001 addresses issues relating to the national regulation of companies in Australia. What were the main problems of earlier schemes?


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 but there is a profit to the promoters. In case the show is successful there is the chance of an extended season, country tours or even television broadcast. 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)



What kind of company would best suit the needs of these investors? (a)

who will manage the affairs of the company?
how will they be appointed?
will the company have a common seal?



Nicola and May are presently partners in a business which operates a second-hand book shop. 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.

Advise Nicola on the advantages and disadvantages of forming a company. If you recommend that registering a company which type would be the most appropriate?


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...
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