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Legal forms of business

Your friends Monica and Rachel have approached you with a business idea. They want to open three beauty salons in Adelaide. They have identified the shopping centres where the three salons will be opened. They invite you to a meeting where they present you with a business plan.

They will manage a salon each and their friend Phoebe will manage the third salon. Phoebe does not want to be involved in the business in any way apart from managing a salon.

They ask if you would be interested in investing in the business and they are seeking $150,000 from you. Monica and Rachel each have $50,000 invest. The total invest from all of you will be $250,000.

Monica and Rachel have not done anything further about setting up the business and were waiting until they discuss it with you. They want to call the salons “Friends Essential Beauty”.

a. Whatbusiness set up would best suit “Friends Essential Beauty” and how would you protect your investment in the business?

b. Whatare the advantages and disadvantages of your choice of business set 

c. Howwould you ensure the name “Friends Essential Beauty” is available and what does it cost to register the name?

You have now opened the 3 salons and they have been operating for 3 months. Monica, Rachel and Phoebe are managing the salons and there is a total of 10 permanent staff members.

You have had a few issues with Phoebe’s salon 

Two full time beauticians – Mary and Kate

Casual beautician – Ursula - She is Phoebe’s identical twin sister

Mary has upset a customer by using the wrong product and the customer had a rash all over her. You had advised Mary that she should not use this product but she is a rep for it and thinks it is great. You agree with Monica and Rachel that you want to terminate Mary’s employment.

Kate keeps turning up to work dressed in black (Goth clothing), with an increasing number of tattoos and piercings. You do not feel this is appropriate and want her to stop wearing Goth clothing and remove some of the earrings on her face.

Monica and Rachel attend the “Beauty and Hair Convention” at the Adelaide Convention Centre. They have a stand to promote their “Friends Moisturiser”. They have a banner with “Friends Essential Beauty” behind the table. The Convention is to last three days Saturday/Sunday and Monday. On the stand next to you are Ross and Joey who are manning a marketing stand promoting neon signs for salons. During the convention Phoebe and Ursula have visited the stand a number of times and covered the lunch breaks on Saturday and Sunday. Ursula is going to manage the stand on the Monday.

On the Monday Ursula is managing the stand and gets into conversation with Joey. Joey says to Ursula “I have a great business deal for you. I know you have all set up “Friends Essential Beauty”and I think we can do a deal on three neon signs”. “You can buy three signs for $30,000, a saving of $15,000.” Ursula thinks it is a great idea and rings Phoebe who also agrees with her. Ursula tells Joey we would love to buy them. Ursula and Joey sign an agreement for $30,000 to be paid when Joey delivers the signs the next weekend. Under Ursula’s signature are the words “Phoebe Boufatt, Manager of Friends Essential Beauty.  Ursula does not point out the error.

The next day Phoebe meets with you, Monica and Rachel and tells you of the agreement to purchase the neon signs. Monica and Rachel are very upset and state that Phoebe nor Ursula had no authority to purchase something that expensive. “We cannot afford it,” they tell her. You all agree you will not pay for the signs.

Using relevant legal principles, explain who is liable for the payment of the signs – is it Friends Essential Beauty, Phoebe or Ursula? 

The ACCC has written to you about a few complaints they have received. Please prepare for Monica and Rachel an explanation for each point based on legal principles about the issues raised.

b i. You advertise that “a contribution from every beauty treatment goes to charity” but, in fact, there is no record of any such collection being made nor sent.

ii. You advertise that your “Friends Moisturiser” is made from all natural products but in fact about 20% of the product is artificial food colouring that has been used to give it the unique Friends colour.

iii. Essential Beauty is an already established beauty salon with a large number of salons in Adelaide. They believe you are misleading consumers by havinge a name similar to theirs.

Legal forms of business

In the present situation there are two friends, Rachel and Monica who are planning to open three beauty salons in Adelaide. In such case the most suitable form of business would be a partnership business. Both of them have limited capital to invest in this case. Thus it would be advisable for them have limited liability where they would share the profits as per the ratio of investment (Graw, 2011). For protecting investment they can apply for registration and intellectual properties.

The advantages of partnership are many. When there are two owners, the business formation will be easier and the initial costs will be low. The partnership will have higher borrowing capacity. The income is split so the organisation will able to save tax. In times of need the legal structure can be adjusted easily (Tregoning, 2012). However there are issues too in the case of partnership. In case one partner is under debt the other partner will also have to bear it. The liability in partnership is unlimited. Any wrongful action of one partner will make the other liable.

To make the partnership name available the partners have to register and connect it with an Australian Business Number (ABN) (Buddelmeyer et al., 2010). The organisation who will register the business name is the Australian Securities and Investments Commission (ASIC). For registering the business name with the ASIC the charges for a year is $ 34 and $ 80 for 3 years.

From the instant case scenario it is understood that the three salons are being operational for 3 months. The three friends Rachel, Monica and Phoebe were managing each of the salons. The three salons had strength of 10 permanent employees. Herein the issues had arisen with respect to the salon managed by Phoebe. They are in relation to the two full time beauticians working there.

a. Issues- Herein the issue is with respect to Mary who is working as a full time beautician in the salon managed by Phoebe. The issues created in this case are due to her using a wrong product on a customer. This has resulted in the customer having rashes all over her body. From the instant case scenario four main issues arise. The first is pertaining to the classification of the act in terms of misconduct (Mitchell et al., 2010). The second is what remedies are available to the customer against the organisation. The third is whether the employers can be held vicariously liable for the acts of the employee. The final being whether Mary can be terminated without any reasons.

Rules- The present act of Mary can be considered as serious misconduct as per the Fair Work Act 2009. Under the regulations of the act, Mary had deliberately conducted an act which not warranted by the employer. She had conducted an act which had risked the health and safety of the customer (Smith and Stewart, 2010). The customer is allowed to sue the salon owners for the loss caused to her under the Australian Consumer laws. Under the law of vicarious liability, the employers can be held liable for the act of Mary since she had conducted the act in the capacity of an employee and during the course of employment.

Advantages and disadvantages of partnership

Application- From the instant case scenario it is clear that Mary had committed a serious misconduct as per the Fair Work Act 2009. However under this act the employer must take into consideration various aspects like seriousness of the offense, safety issues or issues of training before dismissing Mary (Sloan, 2010). They cannot dismiss her without proper analysis and inspection.

Conclusion- Thus Mary can only be terminated after sufficient investigation is done by the employers.

b. Issues- In the present scenario the issue arising is with respect to Kate who is a full time staff working in the salon managed by Phoebe. The issue in this matter is regarding the way Kate dresses up and carries herself. She has been described as wearing black Goth clothing with her body covered with many piercings and tattoos (Syed and Pio, 2010). The employer feels that her attire is inappropriate for the surroundings and wants Kate to remove some of the piercings and stop wearing black Goth clothes. From the instant case the only issue that arises is whether an employee can be instructed as to what to wear in the place of employment.

Rules- The rules as to dress code, tattoos and jewellery are clearly discussed in the provisions set out by the Australian Human Rights Commission. The rules should be implemented in the workplace in such a manner so that it does not create discrimination (Maxwell et al., 2013). It should be applicable in such a manner which is applicable on all employees and should not be targeted towards a single person. Even if the rule is applicable to all it may create discrimination for few due to their personal characteristics. In the case of South Australia, the Equal Opportunity Commission has laid down certain rules with respect to dresses, tattoo and piercings in work places. Under the provisions the employer can ask their employees to remove piercings and tattoos while dealing with customers. It does not lead to discrimination.

Application- The rules of the Equal Opportunity Commission are applicable in this case since Adelaide is the capital of South Australia.

Conclusion- Kate will have to follow the direction of her employees as rules exist.

a. The present case scenario shows that a beauty and hair convention is held at the Adelaide Convention Centre which is attended by Rachel and Monica. The convention was being held for three days namely Saturday, Sunday and Monday. The partners intended to promote a moisturiser brand of theirs. The first two days were attended by them. The stand was to be managed by Ursula on Monday. It is seen here that Ursula enters into an agreement to buy three neon signs from sellers from an adjacent stand. The three neon signs were bought for $ 30,000 and the agreement was entered between Ursula and Joey, the seller. The signature put on the agreement was that of Phoebe. Rachel and Monica did not approve of the transaction and cited that both Phoebe and Ursula were not entitled to such transaction.

Protecting investment in business

Issue- From the instant case scenario the question arises as to whose liability resides to pay for the neon signs. The persons in question are Phoebe and Ursula.

Rules- In the present case scenario the rules and laws of agency is applicable. From the nature of work it can be understood that Phoebe acts as an agent to Rachel and Monica. From the fact that Ursula was managing the stand on Monday it can also be inferred that Ursula was acting as an agent to the two owners (Lan and Heracleous, 2010). Under the rule of agency, the agent has to work as per the instructions of the principal. Moreover an agent is also supposed to work with care and diligence. Moreover the fact that Ursula signed the agreement under the name of Phoebe and omitted to mention it to the seller is a clear case of fraudulent misrepresentation (Butler et al., 2013). Cases of fraudulent misrepresentation is covered both under the contract law of Australia as well as the Misrepresentation Act 1972. This is not a case of innocent misrepresentation and the act was intentional on the part of Ursula. Similar details can be found from the case of Commercial Banking Co of Sydney Ltd v RH Brown and Co (1972) HCA 24.

Application- In the present case it is clearly understood that there were no authority given to Phoebe or Ursula to enter into a transaction without the consent of the owners of the salons. However Phoebe is not involved in the transaction and is not aware of the facts. Thus it is a clear case of fraudulent misrepresentation and the owners or Phoebe cannot be held responsible for the acts of Ursula (Thampapillai et al., 2012). Ursula is liable for payment of the neon signs. Moreover she is subject to legal action from both the owners as well as the sellers.

Conclusion- Due to the fraudulent misrepresentation done by Ursula, she is liable to be sued by the sellers and also liable for termination by the employers.

b i. Issues- In the instant situation the Australian Competition and Consumer Commission has alleged that the organisation claims to contribute some portions of the income towards charity which is frivolous. They have found no record of the money being sent or collected.

Rules- According to the Australian Tax Office donations and charities enable an organisation to get tax benefits (Coulton and Ruddock, 2011). Under the rules of Australian Charities and Not for profits Commission (ACNC), it is mandatory for organisations receiving donations to keep records.

Application- The Company can be held liable by ACCC for showing false advertisements and can be penalised for evading tax.

Conclusion- The Company should maintain genuine records to avoid penalty.

ii. Issues- ACCC alleges that the moisturiser they sell contain artificial food colouring whereas they advertise the product to contain natural products.

Rules- Under the provisions of ACCC fraudulent advertisements include claims where organisations say that the products are environment friendly and safe for use (Fatovich, 2011).

Application- The organisation is liable to be penalised for false advertising and is subject to legal implications.

iii. Issues- ACCC claims that there is already a known beauty salon under the name of ‘Essential Beauty’ with various salons in Adelaide. The current organisation has a similar name which is misleading the consumers.

Rules- The ASIC has clearly mentioned that an identical name if causes confusion or misleads the consumers is subject to legal implication. Section 147 (1) of the Corporations Act 2001 (Cth) speaks of identicalness (, 2017).

Application- The owners of ‘Friends Essential Beauty’ have to prove that their organisation is already registered.

References (2017). CORPORATIONS ACT 2001 - SECT 147. [online] Available at: [Accessed 21 Apr. 2017].

Buddelmeyer, H., Jensen, P. H., & Webster, E. (2010). Innovation and the determinants of company survival. Oxford Economic Papers, 62(2), 261-285.

Butler, D., Christensen, S., Willmott, L., & Dixon, B. (2013). Contract Law Case Book.

Coulton, J. J., & Ruddock, C. (2011). Corporate payout policy in Australia and a test of the life?cycle theory. Accounting & Finance, 51(2), 381-407.

Fatovich, D. M. (2011). A stand against drug company advertising. Emergency Medicine Australasia, 23(3), 381-381.

Graw, S. (2011). An outline of the law of partnership. Thomson Reuters.

Lan, L. L., & Heracleous, L. (2010). Rethinking agency theory: The view from law. Academy of Management Review, 35(2), 294-314.

Maxwell, H., Foley, C., Taylor, T., & Burton, C. (2013). Social inclusion in community sport: A case study of Muslim women in Australia. Journal of Sport Management, 27(6), 467-481.

Mitchell, R., Gahan, P., Stewart, A., Cooney, S., & Marshall, S. (2010). The evolution of labour law in Australia: Measuring the change. Australian Journal of Labour Law, 23(2), 61-93.

Sloan, J. (2010). Evaluating the Fair Work Act. Policy: A Journal of Public Policy and Ideas, 26(4), 19.

Smith, M., & Stewart, A. (2010). A new dawn for pay equity?: developing an equal remuneration principle under the Fair Work Act. Australian Journal of Labour Law, 23(3), 152.

Syed, J., & Pio, E. (2010). Veiled diversity? Workplace experiences of Muslim women in Australia. Asia Pacific Journal of Management, 27(1), 115-137.

Thampapillai, D., Tan, V., & Bozzi, C. (2012). Contract Law: Text and Cases. Oxford University Press.

Tregoning, I. H. (2012). Treatment of Partners' Salaries in Australia: a Contentious Issue. Corp. Bus. Tax'n Monthly, 14, 31.

Cite This Work

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