Question One Business entities

Alan was the owner of a restaurant called Peking Duck. He had been fortunate enough to buy

the premises in which the restaurant was situated and to furnish it as he had wanted. Due to a

huge increase in recentcompetition in the surroundingarea, Alan's profits declined and he

struggled to meet costs.He approached his friend Bing for a loan of $100,000 and they agreed

to draw up a loan agreement which included the following:-

The lender will receive a share of the profits and losses to the extent of 40%.

The lender has the right to examine the business books at will.

The lender has a right to receive a quarterly business statement.

The lender has the right to be consulted and contribute to any major decisions regarding

the business.

With the injection of money into the business, Alan and Bing decided that the way to improve

trade was to refurnish the restaurant.Most of the money was spent on this and the business

improved and made a profit.Bing spent considerable time at the restaurant and came to know

many of the suppliers some of whom thought he was in a partnership with Alan.

Three years later, Alan decided he wanted to retire and sell the business.He consulted with

Bing who told Alan he would be happy to buy out Alan's share of the partnership.Alan was

surprised.HehadneverconsideredBing to beapartner althoughBingobviouslythought

himself to be one.Bing argued that the $100,000 was the equivalent to of the capital that

Alan had contributed and that he was therefore entitled to of the proceeds of the sale of the

assets of the business.

Using the Partnership Act 1891 (SA) and relevant cases discuss whether Alan and Bing

are in a business partnership

Vera was the owner of a gymnasium called Fitness Galore on McIntosh Street in Rouse Hill since April 2018. Due to an increase in recent competition in the surrounding area, business had declined, and the gymnasium had not made a profit in months.

In January 2020 she approached her friend Aaron for a loan of $300,000 and they agreed to draw up a loan agreement which included the following:-

• Aaron will receive a share of the profits and losses to the extent of 50% and be working in the business from Friday to Sundays.
• Aaron has the right to examine the business books at will and receive a quarterly business statement.
• Aaron has the right to be consulted and contribute to any major decisions regarding the business.

With the injection of money into the business, Vera and Aaron decided that the way to improve trade was to buy state of the art equipment and to undertake a television and radio and print media marketing campaign to recruit new members.Most of the money was spent on this and the business improved and made a profit.

a)Discuss whether Vera and Aaron are in a business partnership.

b)In June 2020, Vera takes some time away from the gym to have a long overdue holiday. Aaron, without consulting Vera decides that the treadmills they have purchased for the gym are outdated and purchases 10 new Jurrasic Treadmills at a total cost of $100,000.00 from Premium Fitness Equipment (PFE). On Vera's return she notices the new treadmills and whilst sorting through the mail she finds a letter of demand from PFE addressed to her demanding immediate payment of the Tax Invoice for $100,000.00.

c)In November 2020 Lincoln starts working at the gym on the weekends as a safety quality assurance officer. On Saturday he was told that one of the exercise machines was malfunctioning and that he was to put an "Out of Order' sign on the machine immediately.He had an argument with his mother the night before and was so preoccupied on his phone that he completely forgot to put up the sign. While Victoria, one of the members, was using the machine, the weight unexpectedly dropped and caused an injury to her back.As a result of the injury Victoria is claiming $5000.00 from Fitness Galore for medical bills.

d)Vera and Aaron have recently been considering whether a sole trader or a proprietary company limited by shares structure would have been better alternative business structures to use instead of their current business structure. Explain your answer with reference to the following: a. Characteristics of each of these structures. b. Potential liability faced by them through use of each of these structures c. Reporting Burden with each of these structures.

Please answer a) to c) in IRAC format, discussing fully all relevant legal issues that arise in the circumstances. For d), you need not use the IRAC format to answer it. Your answers for all of the above questions must be supported with relevant legislation and case law authorities.