Business Law > Study Notes > LEGL2002 Law of Business Organisations SEMESTER 1, 2020 WEEK 1: CHOOSING A LEGAL STRUCTURE (PART A). (All)

LEGL2002 Law of Business Organisations SEMESTER 1, 2020 WEEK 1: CHOOSING A LEGAL STRUCTURE (PART A). Best Business Law Exam and Study Materials.

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5. Basic concepts/business-structures (part 1) A. Sole Trader B. Partnership Joint Venture ◦ An undertaking in which people come together in business, with each of them seeking an individua... l (not shared) profit Companies ◦ A separate legal entity created by registration with the ASIC (Australian Securities and Investments Commission). Company classified by liability • Companies limited by shares the liability of members is limited to any unpaid amount on the shares they hold • Companies limited by guarantee the liability of members is limited to the amount they have undertaken to contribute, in accordance with the company’s constitution, if the company is wound up • Unlimited companies the liability of members is unlimited, but this type of company still provides the other advantages of the company structure • No liability (NL) companies only available to mining companies; members can choose to forfeit their shares rather than pay any call made on amounts owing • Classified as proprietary or public • Proprietary companies limited to 50 members limits on fundraising activities • Public companies Any company that is not a proprietary company • Listed public companies have their securities traded on a public securities exchange such as the ASX • Unlisted public companies have not listed on a securities exchange Of the following statements, which two are correct? First - A partnership is a separate legal entity. Second - A partnership is formed for profit. Third - A partnership is created by agreement. Fourth - A partnership can potentially exist forever. a. First and fourth. b. First and third. c. Second and third. d. Third and fourth. 2. Hansel and Gretel sign an agreement to form a general partnership for their business making gingerbread houses. Their agreement does not put any restrictions on each other’s ability to manage the business. They initially just make and store the gingerbread houses in Gretel’s home. As the business grows and becomes more profitable, Gretel decides they need another venue to produce and store the gingerbread houses. Gretel finds a commercial kitchen with a large storage area in Lambton and enters into a two-year lease with the landlord on behalf of the partnership. When Hansel inspects the warehouse he is disappointed with it. He informs Gretel that he no longer wishes to proceed with the partnership. Which of the following is the most correct answer: a. It is likely that Hansel would incur no liability with respect to the warehouse lease, as he did not sign the agreement. b. Hansel and Gretel would be jointly and severally liable on the lease as this kind of contract is normal for this kind of business. c. The lease is not binding because at the time it was entered into no partnership existed and thereby it is not binding against anyone. d. Hansel is not liable on the contract because Gretel signed it and he has validly terminated his interest in the partnership. 3. Stephen and Tasha are the only partners in a small accounting firm. The partnership agreement specifies that neither partner is authorised to enter into contracts on behalf of the firm without the express permission of the other partner. Up until recently, both partners have always complied with this restriction. However, recently Stephen signed a contract with Maree, a sales representative for a software company. The contract is to purchase a very expensive accounting and database software package. Stephen did this without obtaining Tasha’s permission. There was nothing about the purchase that would have appeared unusual to Maree. The purchase was carried on in the usual way and purchasing accounting and database software is obviously business of the kind carried on by an accounting firm. Tasha objects to the purchase and refuses to personally contribute to paying for the software or to allow the firm’s funds to be used for that purpose. Stephen cannot afford to pay for the software package on his own. If the software company decides to pursue the debt by taking legal action against Tasha personally, then which of the following statements is true: a. Tasha will definitely be liable under the contract because the contract was for the purpose of the business of the partnership. b. Tasha will definitely NOT be liable under the contract, only Stephen will be liable because he is the one who signed the contract and he did so without Tasha’s knowledge or consent. c. If Tasha can persuade the court that, at the time the contract was finalised, Maree thought that Stephen was purchasing the software for an accounting business that he owned as a sole trader then Tasha will definitely NOT be liable under the contract. 4. Maurice has a tennis court in the backyard of his house and he has made a verbal agreement with Betty that she can use that tennis court to give tennis lessons to teenagers for a six-month period. He is not charging her a set dollar amount for using the court but they have agreed that he will receive five percent of the amount Betty is paid for the lessons during that time - that is five percent of the gross revenue from the tennis lessons not five percent of the amount left once any costs are subtracted. They have not discussed whether they want to form a partnership. They did agree that Maurice has no responsibility for any injuries to the teenagers that may occur while Betty is coaching them on his property, or for losses associated with any other aspect of the tennis coaching business. If a court has to determine whether or not Maurice and Betty have formed a general partnership, which of the following characteristics of Maurice and Betty’s agreement will the court likely regard as most important? a. The fact that Maurice has no obligation to share in any losses or liabilities of the tennis coaching business, as an indicator that it is not a partnership. b. The fact that neither Maurice nor Betty have turned their minds to the question of whether they want to form a partnership, as an indicator that it is not a partnership. c. The fact that their agreement is not in writing, as an indicator that it is not a partnership. 5. Which of the following statements about a partner’s fiduciary and statutory duties to the firm is FALSE. a. Partners can legally agree not to have fiduciary duties to each other. b. Partners cannot compete with the firm without the consent of the other partners - that is, they cannot separately engage in the same business activity as is being undertaken by the partnership. c. Partners must make full disclosure to each other of all matters relating to the partnership business. d. Partners must not personally benefit from the partnership business without the consent of the other p 6. Which of the following is the best description of a joint venture? a. A and B carry on a restaurant business together. b. A and B own land together, A owns thirty percent and B owns seventy percent c. A and B own land together in equal parts, their interests are created at the same time and they agree that if either dies, the other person will automatically receive their share. d. A and B have agreed to stage a concert together and have agreed to share the gross returns from the concert but to keep separate the costs of each of their contributions to staging the concert.6. MCQ practice test week 1 7. Which of the following is correct: a. A public company is limited to fifty members. b. In most instances, a partnership can have no more than thirty partners. c. A joint venture is a business owned by one person. d. None of the above is correct.6. MCQ practice test week 1 8. Which of the following is most likely to be a partnership? a. John and David start a business selling ducks. David is an excellent duck farmer and John is a superb duck salesperson. They agree that they will share the gross proceeds from sales, with each receiving half of those gross proceeds. David will be responsible for his costs associated with breeding the ducks and John will be responsible for his costs associated with selling the ducks. b. Paul is a plumber. He owns all his equipment in his own name and runs the business in his name. Paul employs Matt and pays him five hundred dollars per week plus a bonus of one hundred and fifty dollars per week if clients are billed in excess of five thousand dollars for the week. c. Tory and James agree to start a restaurant business called “Sweet Alex”. They agree that Tory - who is a chef - will receive sixty percent of the net proceeds and James will receive forty percent. While they have not yet opened the restaurant, they have located suitable premises and are in the process of remodelling it for the business. d. Chris registers a company called Chris Pty Ltd to conduct a stockbroking business. Pursuant to the terms of the constitution, the company is required to pay a dividend every year to the shareholders in an amount equal to the net profits generated by the company that year.7. Problem solvi Racing Parts Activity page 10 ◦ David Douglas established Racing Parts as a sole trader business. Five years later he is still using that structure, but has been advised to consider other business structures. ◦ Using the advantages and disadvantages mentioned above, along with the information provided about David’s circumstances at the start of the module, briefly assess the suitability of a sole trader structure for David’s business. ◦ Make a recommendation as to whether a sole trader is an appropriate business structure for David.7. Problem solving Racing Parts Activity page 17 ◦ Using your knowledge of the partnership business structure from the description above, along with the information provided about David’s circumstances at the start of the module, briefly assess the suitability of a partnership structure for David’s business. ◦ Make a recommendation as to whether a partnership is an appropriate business structure for David. ◦ If David were to consider a partnership, who should he consider as potential partners? Why/why not?7. Problem solving John is a foreign exchange trader working for a large bank. John and twenty-five of his fellow workmates decide to leave the bank and start their own foreign exchange trading firm. They decide to operate as a partnership. Do you think this is a good structure for the business? Darryl and Julia are both passionate chess players. They met for the first time at a recent chess tournament. After a short discussion about their love of chess, they decide they should open a chess store together selling exotic chess products to other likeminded chess fanatics. Unfortunately, neither Darryl nor Julia have any money. Julia’s friend, Otis, has told Julia he has saved some money and is looking to invest it in a business. Julia and Darryl approach Otis and pitch their chess store idea. Otis is completely blown away by the pair's enthusiasm for the idea and agrees to invest $100,000. The three agree that Otis will not receive any interest on his investment but will get 50% of the net profits generated by the business. Julia and Daryl agree that they will each receive 25% of the profits generated by the business. Darryl is given the responsibility of finding a suitable location for the business and negotiating a lease. He finds a store in Newcastle West and promptly enters into a lease. As Julia is out of town on business, Darryl signs the lease in his name. He spends some time cleaning up the store and negligently leaves a broom on the floor near the entrance. Darryl engages a firm of architects to prepare designs for the store. When Julia returns, she is told about the new premises. She takes her good friend Glenda to check out the new premises. When they enter the store, Glenda trips over the broom and severely injures her leg. Julia is horrified by the new premises. She doesn’t like the location, she thinks it is too dark and it is too expensive. She tells Darryl that the whole chess store idea just won’t work and she has no interest in pursuing the venture any further. Who is liable for the lease obligations, the architects’ fees and Glenda’s injuries? [Show More]

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