The main issue in the given scenario is to advice Rohit, Ariel, Charn and Levi on the most appropriate business structure that will be suitable for their proposed business.
In Australia, any person who intends to intend to initiate a business can have various options, such as, a business can be established as a sole trader ship, as a limited liability partnership or as a company.
In sole trader ship, a single man is capable to formulate a business and there are no requirements of other persons to form any kind of association with such sole trader. A sole trader has a benefit to procure every benefit and has a disadvantage to bear all the risk.
A company is an entity which acquires its status only when the same is registered as per the requirements of the legislation of the country. Once a company is registered in Australia, then, it has an obligation to comply with the provision of the Corporation Act 2001 apart from other rules and regulations that are imposed on a company. Mainly a company is an entity which has a separate legal personality and is distinct from its members. 
The main advantages of incorporating a company are first, in a limited liability company, the liability of the shareholders is limited; second, once a company is registered then such company is a separate legal entity in law, that is, the members of the company is distinct from the company and any action of the company is its own action; third, a company has several tax advantages; forth, it is very easy to procure finance by way of investments and assets can be procured very easily; fifth, a company has perpetual succession and never dies; professionalism can be achieved by employing experts from diversified filed.
However, there are few disadvantages that can also be associated with a company. The same are first, it is cumbersome to register the company and requires huge paperwork; second, the structuring of the company is very difficult; third , the company must follow the provisions of the Act 2001 and ASIC rule; forth, at times the directors acts in such a manner which is unfair and oppressive to the shareholders; fifth, there is an obligation to maintain books and records which requires expense and time.
Another business choice is by way of a partnership. A partnership is a kind of business structure wherein two or more than two persons forms an association to carry out a business with an expectation to share losses and profits deriving out of the business. In Hurst v Bryk and Others (2000) the scope of partnership was rightly established.
A partnership also has few advantages, such as, first, the capital requirement for the initiation of a partnership is very less and thus requires very less investment; second, the formation of a partnership is very simple; third, the firm does not require any reporting system and thus has less paper work; forth, confidentiality remains as no outsider is allowed to involved in the working of the form; Fifth, the partners are very proactive in their respective fields and thus are professional in their approach; sixth, there are tax advantages.
There are also few disadvantages in a partnership form of business, such as, first, there is presence of unlimited liability and the partners are liable for all the liabilities of the firm regardless of their share in the firm, second, there is over indulgence of the partners in the working of the firm and thus results in conflicting situations and is held in Checker Taxicab Co Ltd v Stone (1930); third, there is no rule of separate legal personality; forth, it is easy to dissolve a partnership and is held in Mackie (1989).
Thus, the law is now applied to the facts.
Application of law
Since there are four people, that is, Rohit, Ariel, Charn and Levi, who wants to initiate business, thus, a sole trader ship is not the right option.
Now, the two major options from which the business structure can be selected is a partnership or a company.
After applying the law and considering the advantages and disadvantages of both the company and a partnership, it is advisable, that Rohit, Ariel, Charn and Levi must carry out their business by way of a Company. The main reasons for the same are:
Since all the friends’ does not have money, so in order to raise investment it is advisable to form a company as raising assets and capital is very easy in a company which is not present in a partnership as it requires personal investments of the partners.
Since none of the friends like Charn, thus, there can be situations of conflicts and cn hamper the partnership, thus, it is advisable to form a company to avoid any kind of conflicts.
As per the facts, Rohit (software engineering) has developed the software of the application; Ariel (nursing student) has supplied medical information; Charn (accounting student) and can deals with business risks; Levi can deal with legal issues. So since all the friends are not experts but still studying their respective fields, hence, there will be less professionalism and they have to hire experts which will raise their expenses.
If a company is formulated then their liability will be limited in nature and thus will not have to face financial burden in future. Since all the finances will be raised by the friends thus any financial burden will not be imposed upon them personally and it is the company who will be the ultimate sufferer;
If the friends decides to take financial help from the father of Charn, who is an illegal drug dealer, then, if a partnership is formed then, there is no concept of separate legal entity, thus, any legal consequences will also hamper the interest if all the friends. However, if a company is formed, then there is applicability of a separate legal entity and the acts of the firm will not impose any liability upon the members of the company, thus, all the friends can protect their interest.
The dissolution of a company is very difficult. Thus, even if conflict arises, then it is not easy for the friends to dissolve the combat thereby will protect the investors in the long run which will not be the case if the partnership is formed. As in the partnership the dissolution is very easy, that is, there is the dissolution of the firm when there is incoming or outgoing of the partners in the firm.
If a company is formed, then there are several tax advantages that can be attained by the friend which is not present in the firm.
After evaluating all the advantages and disadvantages of both the partnership and the company form of business structures it is suggested that all the friends must carry out their business by way of a company so that the company run perpetually and their liability remains limited. So, a company must be formed by all the friends, that is, Rohit, Ariel, Charn and Levi.
It is now assumed that the business is set up as a partnership form of business under the Victorian partnership law. it is the Partnership Act 1958 which is governing legislation to govern the partnerships established in Victoria.
However, there are three problems that are raised. The same are analyzed hereunder:
Whether there are any legal issues involved if the business is carrying out any illegal activity
As per section 5 of the 1958 Act, in order to form a partnership, there must be two or more than two persons who intend to carry out business with a motive to share profits and losses. In order to establish a partnership there must be presence of the principle if agency and just because there is presence of co-ownership will not make an association a partnership and is held in section 6 of the 158 Act.
Now, whenever a partnership is formed, than, as per section of the 1958 Act, every partner is liable to the acts of the other partners of the firm and vice versa. Any unauthorized action which is undertaken by the partners in the name of the firm will make the firm liable for the same and the partners and vice versa.
The law is now applied to the facts.
Application & Conclusion
It is now submitted, that a valid partnership is established amid the partners as per section 5 of the 1587 Act.
It is a settled law that selling a product that encourages people to do their own surgery is illegal. Further, the police are investigating and criminal charges are likely. Further, a number of customers who injured themselves are suing the business for negligence.It is submitted, that in a partnership, any action of a partner will make all the other partners liable for the same and the firm and vice versa. As per section 10 of the 158 act, even an unauthorized action by the partner in the name of the firm will make all the partners accountable for the same.
Thus, if an illegal action is undertaken then it will make all the friends, that is, Rohit, Arial, Levi and Charn liable for the same.
Can Rohit be held liable under the law for diverting the revenues of the firm?
As per section 11 of the Act, no partners is permitted to use the partnership funds for any personal use and if any misappropriation is done then it is the firm which should compensate the outsiders for the losses under section 15 of the Act. as per section 33 of the Act, if any advantage which is undertaken by the partner which is undue in nature then such partner must compensate the loss to the firm.
Application & Conclusion
Now, since Rohit has built an application which automatically diverts one half of the sales revenue to him personally, then, such an action is a clear violation of section 11, 15 and 33 of the Act. Thus, Rohit must compensate the loss to the firm and cannot take any undue advantage to bring any personal gain for him.
Whether Charms father can have access to the business records and accounts?
As per section 32 of the 1958 Act, every partner has an obligation to provide accounts and every information that impacts the partnership to the legal representatives of the partners and the partners. This obligation is compulsory and must be abide by the partners.
Application and conclusion
Now, the father of Charn is his legal representative, thus, as per section 32 of the Act, he has the right to have access to the business records and accounts.
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