Desiree is a successful sole practitioner offering business consultancy services to a number of local companies. Her chief competitor is Cyndi, who offers similar services. Desiree and Cyndi decide that they wish to work together but are unsure as to which business structure would be most appropriate. They seek your advice regarding which business structure would be most suitable, bearing in mind:

they wish to avoid significant levels of formality and regulation

they want to have flexibility in establishing the procedures by which the business is to be run

they want to be able to run their affairs in private

they want to avoid personal liability for the debts and liabilities of the business

the process of creating the business should be relatively cheap and quick

they do not want to invest significant amounts of their own capital in setting up the business

and will probably wish to raise capital from outside sources

they wish to take on employees.

(a)

Discuss to what extent the various business structures fulfil all, or some, of the above aims and advise Desiree and Cyndi which business structure would be most suitable for their business.

(b)

What defence(s) are available to the directors for what turns out to be not a good business decision? Discuss on the justification on the defence(s) available.