QUESTION 1 (4 Marks) Nicola and May are partners in a business which operates a second-hand book...

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QUESTION 1 (4 Marks) Nicola and May are 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 book shops 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 incorporating. If you recommend incorporation, what form of incorporation would be the most appropriate? Why? QUESTION 2 (8 Marks) Marcia is an entrepreneurial 17-year old with a busy window cleaning business. She is studying for a commerce degree. She wants to incorporate her business. She wants to become an employee of the business so that she can be covered by workers' compensation and superannuation. She completes the registration documents for a proprietary company. She uses her own name as the sole director/shareholder but falsifies her date of birth (showing she is 19 years old). ASIC subsequently registers the company having no knowledge of the fraud. A) If the fraud were discovered what could ASIC do about the company? Now assume a slightly different scenario. Marcia does not register her company until she is over 18. She wants to call the company "Marcia's Guaranteed Sparkle Pty Ltd". B) Will Marcia be able to register the company with this name? If so, how can she ensure that no one else uses it before her company is registered? C) Is Marcia required to have a registered office? If so, can she use her parents' home address and, does the office have to be open to the public? D) Does she have to display the company name and/or ACN/ABN - on her accounts? - outside her parents' house? QUESTION 3 (8 Marks) Mr. Shifty, Ms Avoider and Mr. Marginal call to make an appointment with your firm, Fees Ruthless, solicitors. You have been asked to establish their new company (No-Tax Agents Pty Ltd). You advise them not to bother with their own constitution, but instead to rely on the replaceable rules in the Corporations Act. Advise who should be appointed as directors of their company in view of the following information: A) Mr. Shifty states that he does not want to be appointed a director or secretary. He suggests instead that: • his family company be appointed as a director; and • the company not have a company secretary; B) Ms Avoider is currently unavailable for meetings as she has five months still to serve for her last conviction for falsifying company accounts; C) Mr. Marginal is 72 years old and has Alzheimer's disease. A trustee has been appointed to administer his estate. Assume that Mr. Shifty's family company subsequently goes into liquidation. In her report to AS1C, the liquidator states that the secured creditors have been repaid in full, but the unsecured creditors will not receive more than 20 cents in the dollar. The liquidator does not find any evidence of wrongdoing on the part of Mr. Shifty or any of his fellow directors. D) What (if any) ramifications does this have for Mr. Shifty, assuming that ASIC's records show that Mr. Shifty has, over the last nine months, had a similar track record with two other small, proprietary companies?

David · Accepted Answer

Case 1 
Nicola and May are partners; they operate 1 second hand book shop and planning to purchase 2 
other shops for one shop they are planning to appoint manager because both of them can’t 
manage all three together. The property on which they have shop is on lease and the lease 
agreement is in name of both Nicola and May.  
Advantages of Partnership: 
- Easy Formation: 
Formation of partnership is an easy task. Simply oral or written words can bring 
partnership into existence. Partnership carries very less formalities.
-  Large Resources:  
Since the investment requires huge amount of resources. Partnership firm divides the 
amount of resources by the profit sharing ratio. Hence large amount of resources can be 
invested since all partners are supposed to invest in it. A partnership is a place type of 
organization where large amount of funds is accumulated because there is more than one 
person contributes capital or fund. The supplementary financial strength of the partners 
can be exploited to increase the scale of process of the business. To meet the additional 
requirement of fund, new partners can be admitted.
- Diverse skills and expertise. 
In partnership there is a scope of association of persons who have diverse expertise and 
skills. Since each partner possesses different skills, partnership firm can be managed 
efficiently.
- Flexibility of operations: 
The change in the operations due to changes in circumstances can be implemented easily 
and quickly in partnership firms because of less restriction, but it is not possible in case 
of corporation because of the restrictions imposed.
- Sharing of risk: 
The losses and risk in the business in case of partnership are shared by the partners. 
Hence the individual portion of risk of each partner is less if we compare their portion of 
risk in sole proprietorship.
- Benefits of unlimited liability: 
Since the partners in case of partnership have unlimited liability that’s why they manage 
the business in the best manner so that they don’t have to bear loss and pay off the debts 
of partnership firm. 
- Promptness in decision making: 
Since the partners meet quite frequently, they can arrive at decisions promptly. Thus, 
business opportunities requiring quick decision shall not be lost.
- Close Supervision: 
Partners actively participate in the management of business. Close supervision eradicates 
wastage and leads to more efficiency. 
Disadvantages of Partnership
- Limited Capital 
Partnership cannot have an unlimited number of partners. There is a limit to the number 
of partners in a partnership firm. Since there is a limit on the number of partners, 
therefore there is limit on the capital that can be raise.
- Unlimited Liability 
The liability of the partners is limited. This risk of loss of private property inspires 
partners to play safe and avoid further risk.
- Instability 
Successful firm can dissolve on insolvency, death or lunacy of a partner, there will be 
instability in the existence of firms.
- Risk of Implied Authority 
One partner acts as an agent of firm his actions bind the other partners and firms. The 
other partners will be in difficulty if the action of one partner is dishonest.
- Lack of harmony 
It’s rare that two human beings view point will match. The lack of harmony and conflicts 
is not beneficial for business and sometimes results to dissolution.
- Non transferability of interest 
No partner can transfer the interest to another person, the consent is mandatory.
Partnership is the best form of incorporation because:
- Partnership, firm has fewer regulations than, corporations 
There are, various legal requirements which are, large in number required to be followed 
by corporations.

QUESTION 1 (4 Marks) Nicola and May are 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...

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