Question 2: (15 marks) Ella, Katie, and Sammy, who are fashion designers, decide to form a company called EKS Fashion Designs Pty Ltd (EKS Designs). They decide that they will be the only shareholders and directors of the company. Ella and Katie hold 35% of the shares, and Sammy holds the remaining 30% of the shares in the company. Sammy is not actively involved in the formation the company but is promised to receive $30,000 from the creation of the company. Ella and Katie oversee the registration of the company. Ella oversees the finding of a warehouse from which the company is to run the business. Katie gives instructions to Ella not to sign any lease without her approval. Ella finds the perfect warehouse for their business after two weeks and she becomes very excited. Besides Ella, there were five other interested parties wanting to rent the warehouse. Ella attempts to get in touch with Katie numerous times but is unable to LAWS2010 Law of Business Organisations, Autumn 2023 Assessment 2 do so as Katie is on a business trip in Paris, sourcing suppliers for their business and agents to market their product. Not wanting to lose the deal, Ella signs the lease with Samuel, the owner of the warehouse for and on behalf of EKS and as agents of Katie and Sammy. The lease is for a period of four years. The company EKS Designs is registered one week after the signing of the lease and on the first meeting of directors, a resolution is passed not to accept the contract because Katie and Sammy consider that a similar warehouse can be leased at a lower price.

Advise Ella, Katie, and Sammy on their liability,

i) if Fashion Designs Pty Ltd (EKS Designs) decides not to go ahead with the contract after 1 month of the companys creation. (10 marks)

ii) if the directors ratify the contract. (5 marks)