Question 1

We are 1 June 2020 and Chidi is very happy.Having just graduated, he is starting a new position at an accounting firm called Numbers R'US. Although it was founded in 2019, the firm has been very successful and is made up of 10 partners, including Michael and Tom, the two founding members. The firm is not an incorporated limited partnership.

Chidi is working at Numbers R' Us full time and is quickly becoming more involved with the business of the firm. He is paid $65, 000 per year. This is a fixed salary that does not change according to the profit made by the firm. He is very diligent and full of promise. Everyone notices his work ethic and commitment to the job. Within a few weeks, Chidi has become a star employee. So much so that from now on, Chidi will work with one for the founding members, Michael.

On 3 July 2020, Michael has an important meeting with a potential client of the firm, Sparkling Ads Pty Ltd. The managing director of Sparkling Ads is Emily. When Michael arrives at the meeting, he introduces Chidi as 'his partner'. Chidi is a little surprised as this title but sees it at nothing more than a sign of respect from Michael.

A.Is Chidi a partner of the firm? Use the Partnership Act and case law to support your argument. (10 marks)

The meeting goes very well and Michael signs an advertising contract for $10,000 on behalf of the firm at the end of the meeting.

A couple of weeks later, the ads are delivered and Michael is very happy with it.The invoice is enclosed and he gives it to Tom, another partner to pay. The invoice was due to be paid on 20^th July but it has not been processed by Numbers R'Us.On 22th July, Emily cannot get hold of Michael. She contacts Tom and asks for immediate payment. Tom has been very busy and only now look at the ads. He calls back Emily and states that he never requested the ads and that even if he did, they are so horrible, they will drive customers away and not attract them. He refuses to pay.

B.Is Tom liable to pay? Use the Partnership Act and case law to support your argument (5 marks)

Question 2

We are now 10^th August 2020, and the dispute over Numbers R' US is now settled. The ads from Sparkling Ads are proving very good and customers are rushing in. The firm keeps on growing. Their revenue is now reaching $49 million. They have had to employ many more employees. The works force is now 150 employees. Tom and Michael are wondering whether it is time to change business structure. They will be happy to provide the capital but as the dispute with Sparkling Ads has shown, they are currently very vulnerable.They have the following requirements:

1.They want to minimise their income tax.

2.They want to be able to protect assets. They have recently bought a new office space and upgraded their offices to the new brand new fully furnished floor in an office tower on Grenfell Street.The total of their gross assets is $10 million.

3.As the profits grow, they want to be sure the profits can be retained for business development and further expansion.

A.What business structure would you recommend? What would be the advantages and disadvantages of relevant business structures in this context? (10 marks)

On 26^th August 2020, Numbers R'Us is incorporated. The same day, Chidi come into the office and is hit by an office trolley full of new computer equipment. He falls to the floor and his leg is badly injured. He will require surgery and rehabilitation.

B.Is Chidi entitled to worker's compensation?Justify your answer.(5 marks)