ESTION 7.

Sally has been running a small business as a financial adviser in Melbourne for a number of years. In July 2015 the workload became too much for Sally so her friend Anna came into the business. Anna was relatively inexperienced in financial advice, but had strong accounting skills and a number of existing clients who would now be serviced by Sally and Anna. Sally and Anna agreed that Anna would be paid a salary, 20% of the net profits of the business, and have an equal right to participate in the decisions involving the management of the business. Sally and Anna decided that Anna would be responsible for clients accounts and taxation returns, but that Anna would refer all clients investment advice inquiries directly to Sally. The business was called SA Finance Services.

In January 2016, a long term client approached Anna to prepare his annual income tax return. As the client was recently retired, he also asked Anna for advice on his retirement saving. Instead of referring the client to Sally, Anna advised the client directly. Anna negligently advised the client to invest in US Bonds without advising the client of the potential risks involved if the Australian dollar decreased in value compared to the US dollar. Since that time, the Australian dollar has unfortunately dropped by 15% relative to the UD dollar. The client was very unhappy as he had relied on Anna to advise him of secure investments for his retirement savings, and has now suffered considerable losses.

Required:

a) What type of business structure is SA Finance Services? Give reasons for your explanation.

b) The client intends to sue SA Financial services for compensation for his losses caused by Anna's negligence and for breach of contract. Who would be liable for the client's losses?

c) Sally is very unhappy with the situation and would now like to terminate her professional relationship with Anna. Advise Sally what steps she should take.