Q1 Which of the following is most likely to be a partnership?

Group of answer choices

1 Ash and Bella agree to start a restaurant business called The Oasis. They agree that Ash - who is a chef - will receive sixty per cent of the net proceeds and Bella will receive forty per cent. While they have not yet opened the restaurant, they have located suitable premises and are in the process of remodelling it for the business.

2 Gordon is an electrician. He owns all his equipment in his own name and runs the business in his name. Gordon employs Matt and pays him five hundred dollars per week plus a bonus of one hundred and fifty dollars per week if clients are billed in excess of five thousand dollars for the week.

3 Laura registers a company called Laura Pty Ltd to conduct a stockbroking business. Pursuant to the terms of the constitution, the company is required to pay a dividend every year to the shareholders in an amount equal to the net profits generated by the company that year.

4 Pete and Dave start a business selling chicken. Dave is an excellent chicken farmer and Pete is a superb chicken salesperson. They agree that they will share the gross proceeds from sales, with each receiving half of those gross proceeds. Dave will be responsible for his costs associated with breeding the chicken and Pete will be responsible for his costs associated with selling the chickens.

Q2 Julian and Samantha have resigned from their jobs in order to work together full-time on designing a software package that detects plagiarism in student assignments. They have already been able to sign highly profitable deals with a number of Universities, meaning that they are very confident that they will make a big profit each year for at least the next five years. They have three adult children, who are university students and have low-income jobs. Their highest priority is to minimise the tax that they have to pay on these profits. Given this priority and given their current circumstances, the best structure for their business (out of the following three options) is likely to be:

Group of answer choices

1 A discretionary trust, where both the income from the trust property and any right to the trust property itself is distributed to the beneficiaries at the discretion of the trustee.

2 A unit trust, with Julian and Samantha each owning half of the units in the trust and having a fixed right to half of any income derived from the trust property and to half of the trust property itself.

3 A partnership, because they will be able to offset business losses against their personal income from other sources in order to reduce their tax.

Q3

Roma Pty Ltd is a trustee company. It has no assets apart from the trust property, which includes eight buildings in Sydney that contain ten pizza restaurants as well as a business that runs those restaurants as commercial operations. The trust deed empowers Roma Pty Ltd to manage the ten restaurants, including the power to borrow money for the purposes of furthering that business. There is no reference in the trust deed to the trustee either having or not having a right of indemnity out of the trust property for debts the trustee has properly taken on in the course of exercising its power as trustee. Recently, Roma Pty Ltd borrowed $500,000 from FirstBank on behalf of the ten restaurants and used that loan to upgrade some of the equipment in the restaurant premises. If Roma Pty Ltd defaults on the loan and FirstBank takes legal action to enforce the debt:

Group of answer choices

1 the court will require Roma Pty Ltd to draw on the trust property to satisfy the debt because Roma Pty Ltd is entitled to be indemnified out of the trust property.

2 the court will require the directors of Roma Pty Ltd to personally repay the debt.

3 the court may require Roma Pty Ltd to draw on the trust property to satisfy the debt, but only if all of the beneficiaries of the trust explicitly authorised the $500,000 loan.

4 the court will not require Roma Pty Ltd to draw on the trust property to satisfy the debt, because Roma Pty Ltd holds those assets on trust for the beneficiaries.