ASSIGNMENT QUESTIONS Question 1 Sarah graduated earlier this year and began working at an accounting business called Online and Face to Face Accounting". The accounting business was founded in 2018 by Michael and Tom and has been carried on continuously since then. It has been very successful and taken on 8 new joint owners since the business started, bringing the total number of joint owners to 10 at present. All the joint owners have agreed that net profits of the business would be shared equally, and that business policy matters are to be agreed and any differences resolved through mediation. Sarah is paid a salary of $55,000 per year. This is a fixed salary that does not change according to the profit made by the Online and Face to Face Accounting" business. Since she began working at the accounting business, Sarah has been very diligent and committed. She has quickly become more involved with different aspects of the accounting business, especially with the business' online clients. Everyone has noticed her work ethic and commitment to the job and she has already been voted Star employee of the month on three occasions. This has caused one of the founders of the accounting business, Michael, to allow Sarah to work closely with him on major client engagements. In early June, Michael had an important meeting with a potential new client, Creative Ads Pty Ltd. The managing director of Creative Ads Pty Ltd is Emily. Michael attended the meeting with Sarah and he introduced her as a "partner. Sarah was a little surprised at being called this but saw it as nothing more than a sign of respect from Michael. 1) Is the business structure of Online and Face to Face Accounting" a partnership and is Sarah a partner of the partnership? Use the Partnership Act and any relevant case law to support your argument and conclusion. (10 marks) The meeting with Emily of Creative Ads Pty Ltd went very well and the company has become a new client of Online and Face to Face Accounting. Michael was able to achieve this at the meeting in part by agreeing to use Creative Ads Pty Ltd for some advertising for "Online and Face to Face Accounting". Soon after the meeting, Michael signed an advertising contract for $20,000 on behalf of "Online and Face to Face Accounting". A couple of weeks later, the advertisements were provided to Michael who was very happy with them. An invoice was enclosed that he gave to Tom's personal assistant staff so that it could be arranged for Tom to make the payment. The invoice was due to be paid on 30 June by electronic funds transfer but payment was not made by then. On 7 July, Emily phoned "Online and Face to Face Accounting but could not get hold of Michael. However, she spoke to Tom and asked for immediate payment of the invoice. Tom had been very busy and undertook to get back to Emily. It was only then that Tom looked at the advertisements and was unhappy with them. He phoned Emily and stated that he never requested the advertisements and that, even if he did, they were not suitable and so he refused to pay the invoice. 2) Is Tom liable to pay the invoice? Use the Partnership Act and any relevant case law to support your argument and conclusion (5 marks) Question 2 As matters have turned out, the invoice was paid and the advertisements from Creative Ads Pty Ltd immediately proved very effective in gaining Online and Face to Face Accounting" many new clients. The business has quickly grown exponentially with its revenue reaching $40 million. The business has had to employ many more employees and the workforce has increased to 50 employees. The decision has been made to purchase new office space in an office tower on Grenfell Street in the city of Adelaide. This will bring the total value of business assets to $10 million. Tom and Michael and the other joint owners are considering whether it is time to change the business structure. The following objectives have been discussed and agreed by all: 1. They want to eliminate or reduce their personal liability. 2. They want to be able to protect assets, both personal assets and business assets. 3. As the business profits grow, they want the profits to be retained for business development and further expansion. 4. They want to minimise income tax. 1) Which other business structures would be relevant in this context, and what would be the advantages and disadvantages of the relevant business structures in the circumstances mentioned? Which business structure would you recommend to achieve the objectives stated? (10 marks) The "Online and Face to Face Accounting business is now incorporated. Tom has recently come into the new office and as he exits the lift he is struck by a trolley full of new computer equipment which then all falls on him. He is badly injured and unfortunately dies a few days later. Tom's spouse has made a claim for compensation under the company's insurance policy that covers death of an employee, but the insurer refuses to pay. The insurer argues that Tom was a joint owner of the "Online and Face to Face Accounting business and not just an employee. 2) Is the insurer justified in refusing to pay Tom's spouse a compensation payment on the ground argued by the insurer? Use the Corporations Act and any relevant case law to support your argument and conclusion