Question

cenario Part 1 Koorine and Tau are good friends who have known each other since starting high school. Upon finishing school Tau enrolled in a Bachelor of Business (Financial Planning) and Koorine travelled overseas where she studied accountancy and worked for a number of years in an accountancy firm. Tau has also worked since graduation as a financial planner with a local firm. When Koorine returned to Australia and caught up with Tau, they decided to go into business together under the name FinRight. Tau handles the financial services and planning side of the business and Koorine provides the accounting services. They rent premises together and have some administrative assistance. They have never executed any formal agreement but have always shared the profits and losses. It initially cost them $40,000 to set up the business. Tau contributed $25,000 and Koorine contributed $15,000. Business is growing quickly and going really well. In the last financial year, the business made a profit of $220,000. Unfortunately, problems arose when Tau claimed that he was entitled to 70% of the profit because he generated 70% of the revenue, and he argued that his initial contribution was greater. To try to increase her contribution, Koorine decided to purchase expensive computer equipment and software from Computers2U. It cost $10,000. Koorine did not consult with Tau about the purchase and when Tau was presented with the invoice from Computers2U, he refused to authorise payment. Unfortunately, Tau was unfamiliar with the new computer equipment and as a result produced a misleading report. This led to negligent advice being given to a client, KX, who suffered some financial loss as a result. Both KX and Computers2U and have talked of suing FinRight if a resolution is not reached soon. Despite their recent disagreements, Koorine and Tau are determined to work through their differences and make a go of their business, if they are able. They would like your advice. Please advise on the following matters using case law and statute to support your answers:

3. Discuss what business structure you would recommend going forward for

their situation (based on the information provided above). Outline your

advice, including clear reasons supporting your recommendation(s) as well

as the reasons for discounting the business structure(s) you do not think are

suitable for them, making reference to and discussing any relevant law

Answer 1

There are various business structures are available and all are legally approved. Thus any person want to explore any suitable business structure, he can use it as per his suitability. Following are the main business structures available as Proprietorship, Partnership, Corporation and S Corporation.

Proprietorship is the business structure where one person has the overall responsibility of the business; Partnership is the business structure in which two or more than two people/firms/partners come together to form a business and is jointly responsible for the business structure and they shares the profit and expenses of the partnership organization among the partners.

Corporation is business structure which is more complex and it has certain rights, privileges, and liabilities beyond of those of an individual. S corporation is the further sub part of the business structure.

Tai and Koorine are operating like a partnership business, but legally they have not made any partnership firm. Since Tai and Koorine are the two partners for the business and they both have the overall responsibility of the business.

Advise for Tai and Koorine: Since Tai and Koorine both are working like in a partnership business structure, we would like to advise them to have the formal partnership firm signed up legally so that they can declare it as a legal partnership firm. They should also work out the terms and condition for their expenses and profit sharing for the business so that they can avoid the issues like equal or unequal sharing of profits among them. Thus the proper legal partnership firm will make the full rules and regulations for the proper functioning of the business and it will reduce the internal issues/grievances among the Tai and Koorine.