Assessment 2 Questions
Short Answer questions (12 marks).
- Explain what factors are considered in determining whether a partnership exists. (4
marks). - Why is agency an important concept in partnership law? (4 marks).
Unit 200183 Law of Business Organisations Autumn 2021 pg. 3 - Discuss the legal consequences flowing from the legal principle established in
Salomon v Salomon & Co Ltd [1987] AC 22 House of Lords (UK). (4 marks).
Problem Based Questions (23 marks)
Question 1: (8 Marks)
Helen one of two original partners in a printing business that had grown over the years
from a two-person partnership in 2001 into a very successful business with 15
partners. The business started on a very informal basis, with no formal partnership
agreement ever being drawn up between the partners. Over the years Helena had
drawn money from the firm account to pay for her personal debt, claiming she was
repaying loans she had incurred for an on behalf of the firm. There is no evidence to
suggest that this was the case and the other partners, while they were not happy with
what she did, had not publicly complained in partner meetings. However, things came
to a head when the partnership suddenly showed a significant decline in 2005 and it
was apparent that Helena’s drawings were contributing significantly to the profit
downturn.
Advise the partnership.
Question 2: (15 marks)
Janice, Grace, and Aly who were fashion designers decide to form a company
‘Fashion Designs Pty Ltd’. They decided that they will be the only shareholders and
directors of the company. Janice and Grace held 35% of the shares and Aly held the
remaining 30% of the shares in the company. Aly is not involved in the process but is
promised to get a $30, 000 from the creation of the company. Janice and Grace
oversee the registration of the company. Janice oversaw finding a warehouse from
which the company is to run the business. Grace gave instructions to Janice not to
sign any lease without her approval.
Unit 200183 Law of Business Organizations Autumn 2021 pg. 4
Janice found the perfect warehouse for their business after two weeks and she
becomes very excited. Besides Janice, there were five other interested parties wanting
to rent the warehouse. Janice attempted to get in touch with Grace numerous times
but was not able to as Grace on a business trip in Paris sourcing suppliers for their
business and agents to market their product. Not wanting to lose the deal, Janice
signs the lease with Samuel, the owner of the warehouse for and on behalf of ‘Fashion
Designs Pty Ltd’ and as agents of Grace and Aly. The lease is for a period of four
years.
The company Fashion Designs Pty Ltd is registered after one week from the signing
of the lease and on the first meeting of directors, a resolution is passed not to accept
the contract because Grace and Ivy considered that a similar warehouse can be
leased at a cheaper price.
Advise Janice, Grace, and Aly on,
i) their liability if Fashion Designs Pty Ltd decided not to go ahead with
the contract after 1 month of the company’s creation; and
ii) if the directors ratify the contract.
