Answer all questions.

This paper is worth 40 marks.

James and Cathy enter into an agreement to promote and sell hand blended perfumes. James agrees to provide the finances and Cathy agrees to identify suppliers and customers. James and Cathy agree to share profits equally.

Question 1: Advise James and Cathy what business structure they have created? Give reasons for your answer. [5 marks]

Question 2: As part of your advice to James and Cathy, what other forms of business structures are available and may be suitable for their business. Justify your advice. [5 marks] Initial sales of the hand blended perfumes were excellent, but James and Cathy became overwhelmed with the level of commitment involved in running the business. They both had full time jobs and families and were finding it difficult to give time to the business. They approach Pip and Lou, directors of Bebe Ltd - a high end retailer. Was Bebe Ltd interested in purchasing their business? One facet of the Bebe Ltd store business was perfumes, which were decanted by store assistants into crystal bottles at customers' requests. Pip had a strong background in business and enjoyed her role as Chairman of the Board. Lou, a nonexecutive director, had previously worked in Paris as a 'nose' (perfume developer) for a French boutique. At the end of 2018 Bebe Ltd agreed to purchase their hand blended perfumes business and James and Cathy became shareholders (they did not take on a directorship of the company). For most of 2018, Bebe had struggled financially as Australia's taste for luxury goods seemed to evaporate. At the start of 2019, Lou treated herself to a trip (private holiday) to Hawaii to clear her mind. While she was there, she found a small boutique that sold hand blended massage oils. One of these (based on the gardenia flower) was said to have herbal and floral remedial properties. Lou bought a large amount of this oil and gained a discount price for it due to her bulk purchase. On returning to Australia, Lou began using the massage oil at her small proprietary company she established which offered alternative medicine therapy and massage. The gardenia oil seemed to make clients so well and fit that clients wanted to start buying it for home use. Lou would not allow this as she wanted it to be an internal salon special treatment. On returning from holidays, Lou contacted Pip, who made a number of suggestions about Bebe Ltd. First, Pip suggested changing the focus of the business so that it was more like a mainstream department store and less high-end and specialised. Lou said she found this strange given that most people in the retail sector were predicting 2019 would be a bumper MBS518 2021 Practice Case Study Assessment 2 year and that the 'big end of town' would 'splurge' again to make up for the restraint they had recently shown. Pip replied: "I know it seems strange, but my new business analyst and demographer said that series of predictions would be proven incorrect." Around the same time, rumours commence that an interstate luxury retailer is considering a takeover of Bebe Ltd. Pip considers issuing more shares.

Question 3: Advise Pip and Lou on all the legal issues in this case. [20 marks]

Question 4: James and Cathy, as minority shareholders, became concerned about the activities of the directors and if the company has missed out on the profits. Advise James and Cathy if the directors have breached their duties to the company and how they can ensure the company take legal action to recover the loss of profits. [10 marks]