Scott is looking to start a new business selling organic food to try and target the current healthy food craze in Australia. He wants to call the business Organic. But he does not know what type of business structure to set up for Organic. Johnny is Scott's accountant and initially suggested to Scott that he sets up a sole trading or a proprietary company.

Scott decides to set up a company. He is now confused whether he should set up a proprietary or a public company. You are now tasked to explain the difference to Scott.

Johnny becomes Organic's accountant. After Johnny is accused of misleading the board, Amber is appointed to replace Johnny, and Johnny is instead given responsibility for setting up Organic's new vegan confectionary business. The new business makes a substantial loss, but Johnny initially conceals the full extent of the problem in his monthly reports.

The shareholders now come to you for advice. They believe the directors breached their duty of care, skill and diligence by not terminating Johnny's employment and still relying on his misleading accounting report on the new business.

C. Advise the shareholders on whether the directors have breached their duty of care, skill and diligence? (10 marks).