Mary, Fred and Chris agree to start a real estate business in Melbourne. Mary is a real estate agent, Fred a tax consultant and Chris a lawyer.
In order to save money, they decide to keep it simple and just write down some rules of their agreement on a serviette. They write that they agree to put equal money into the business and to share the profits equally, and that everyone will be involved in the management of the business. They start their business, which is to provide bespoke service to people wanting to enter into the property market. It becomes very popular as all three are very passionate and know their business.
1a) Under what type of business structure are Mary, Fred and Chris running the business? Give reasons for your answer; in particular support your answer by citing relevant cases and statutes.
Fred also advises clients on the tax implications of any possible purchases. In January 2017, Fred advises X who decided to purchase a property through the real estate agency on the tax implications of purchasing the property. Unfortunately Fred made a mistake in his advice, as he was not on aware of the latest ruling by the Australian Tax Office (ATO). The mistake was quite costly and X had to pay an extra $15.000 in tax. If X had known this, X would have not purchased the property.
b) Discuss whether Fred and/or his business partners are liable for the damages suffered by the customer X? Please make sure that you only assess the legal risks under tort of negligent misrepresentation. Also support your answer by citing relevant cases and statutes.
Without the knowledge or permission of Fred, X had passed on the tax advice to his best friend Y. Based on the advice, Y decided to purchase a property as well but not through the business that Mary, Fred and Chris are running. Naturally Y had to pay an extra $ 18.000 in tax because the advice was incorrect.
c) Discuss whether Fred and/or his business partners are liable for the damages suffered by Y? Please make sure that you only assess the legal risks under tort of negligent misrepresentation. Also support your answer by citing relevant cases and statutes.
The business has been mastering all challenges well so far and Mary, Fred and Chris want to take it to the next step. For this they will need to raise capital. They want to limit their liabilities and also be able to keep the number of investors small and if possible chose who can invest in the business.
2a) Under what type of business structure should Mary, Fred and Chris operate now? Again, support your answer by citing relevant cases and statutes.
After several years Mary decides to leave the business and resigns. For years the business had then been operating as a registered company with Mary, Chris and Fred being directors.
As a farewell present to herself, Mary decides to get a new car. She goes to the car dealership and tells them to charge the company. The dealer checked the ASIC database online, which indicated that Mary is indeed a director as ASIC had not been notified about the change. Mary has now left the country and the dealer is pursuing the company for the debt.
b) Does the business have to pay for the car under statutory rules?