Corporations Law - Week 1

(1) Why would you choose to run a business as a partnership?

* Pooling of resources – knowledge and expertise;

* To carry on a business in common with a view of profit

(2) A and B are in partnership as accountants. Without B’s knowledge, A, in the name of the partnership, entered the following transactions, although he had no express authority to do so:

(i) purchased new office stationery and equipment.

(ii) purchased from the Royal Shakespeare Company the rights to produce ‘The Merchant of Venice’ at Melbourne’s Princess Theatre.

(a) Discuss the liability of the partnership.

(b) Can B be personally liable for either of the transactions?

* Agency is the foundation of partnership liability. If a partner acts within the usual course of the partnership business, they would then be an agent for the purposes of binding the firm.

* In regards to the first scenario, B would be personally liable as the purchase of office equipment is categorised as acting within the usual course of the partnership business as the purchase of office equipment would be a necessity to a firm of such nature. However;

* Purchase of a right to entertain at a theatre would not bind the firm as the transaction is clearly something not an accountancy firm would engage within.

(3) Andy, Bob and Chris were old school friends. Bob and Chris were running a surf shop together. The business was having financial difficulties. Andy had recently inherited a lot of money and Bob and Chris asked him to lend the business $100,000 to enable them to buy sufficient stock for the summer season. Andy wanted to help his friends but also wanted to ensure that he would get his money back. He knows nothing about surfing but has agreed to lend Bob and Chris the money in return for a payment of $10,000 per year out of the gross returns of the shop. Discuss whether or not a partnership exists between Andy, Chris and Bob.\

* Partnership between Andy and Chris exists....