Commercial Law II Take-Home Test: Partnership and Company Law

This document presents a detailed solution to a Commercial Law II take-home test, focusing on the business operations of Judy and Matt. It analyzes their current partnership structure and the legal formalities they must comply with. The solution addresses liabilities related to Bell Gorge and Gisela, determining who should be sued in each case. Furthermore, it explores the optimal business structure (Proprietary Limited Company - Pty Ltd) for expansion, emphasizing the benefits of limited liability to protect personal assets. The document outlines the steps for incorporating a company and compares the legal advantages of a company versus a partnership. Key legal concepts such as contract law and the Corporation Act 2001 are applied throughout the analysis, providing a comprehensive understanding of commercial law principles within the Australian context.

COMMERCIAL LAW II
TAKE-HOME TEST

Table of Contents
MAIN BODY...................................................................................................................................3
Business Structure operated by Judy and Matt...........................................................................3
Formalities that Judy and Matt had to comply while establishing their business.......................3
Who should be sued by Bell Gorge.............................................................................................4
Who should be sued by Gisela....................................................................................................5
Business structure that should be adopted in case of expansion.................................................6
Steps for incorporating a company.............................................................................................6
Company or Partnership- Which is a better option legally.........................................................7
REFERENCES................................................................................................................................8

MAIN BODY
Business Structure operated by Judy and Matt
At present, Judy and Matt are having a partnership business structure where there is equal
share of profits and losses between both the partners. As per the Partnership Act, 1891 of
Australia, two are more people are said to be partners when there is joint ownership over the
concerned business and profits or losses are shared equally or in previously agreed ratio. When
such partners come together to operate a particular business, the business is said to be in
partnership.
In the present case, Judy and Matt despite being married, share profits equally i.e. it
clearly symbolizes that the business structure which they have adopted for their tourism business
is partnership structure (Barraket and et.al., 2017). Further, in the entire case study, while
discussing different liabilities and responsibilities that they have to bear as land tourist operators,
like responsibility of safety of the touristers that they are taking with them lies with the tourist
operators and not with the state government, every time it has been stated that responsibility is of
'Judy and Matt' thus clearly stating that both are different parties having equal liability and equal
profits.
Thus it is clear form the description of their roles and liabilities that the business structure
which has been implemented by them is partnership structure.
Formalities that Judy and Matt had to comply while establishing their business.
Initially they have to gain access to all sort of licenses that are required by Australian
Government in order to set up their tourism business like getting their travel agency registered,
gaining Tour Operator Licenses so that they can give tour operating services etc. Their are many
types of insurance as well like business insurance and travel insurance, taking insurance of
public liability as well etc. Public liability here symbolizes that the entire responsibility of all the
tourists travelling with them lies with the tourist operators i.e. Judy and Matt. The state
government is not responsible for any consequences despite the visiting sites where these tourists
are taken belong to the state government. This is the most crucial factor as accidents can happen
any time and if any major accident occurs it can lead to a major loss of business, reputation and
everything else (Ahmadu and Hughes, 2017).
Further, following the guidelines of Corporation Act, 2001, it states that all the contracts
made between state and the commonwealth i.e. the common public all formation and operational

activities will be governed thus giving more power to Commonwealth which in the present case
signifies that Judy and Matt have to follow al the legal compliances before beginning their
service.
Who should be sued by Bell Gorge.
In the present case study, it has been illustrated that Judy and Matt had an informal
agreement with the leaseholder of Bell Gorge, where they took their touristers to visit, regarding
the fees for that property. In the present year, Judy and Matt have taken their customers at Bell
Gorge twelve times and the fees has not been paid by them. Now leaseholders of Bell Gorge
claim that there is a total amount of $7,200 which has not been paid by Judy and Matt. Now,
since leaseholders of Bell Gorge had an informal agreement, this signifies that here was no
written contract between them which would bind the partnership business to compensate the
overdue fees. However, as per the Australian Contract Law, a contract whether written or oral
can be legally binding for both the parties if:-
 There was offer and acceptance between the parties.
 There was mutual consent on behalf of both the parties.
 There was exchange of consideration (Bottomley, 2016).
In the present case, all the three conditions were fulfilled i.e. their was offer and
acceptance where leaseholder of Bell Gorge offered their site as a tourist spot to Judy and Matt
in exchange of a particular fees i.e. $600 per visit which Judy and Matt promised to pay and
accepted the offer of leaseholders. Therefore, their was mutual consent as well and exchange of
consideration too. Hence, today when there is a total of $7,200 which is owed by leaseholders
from Judy and Matt, they have a complete right to sue both Judy and Matt in order to recover
their fees in a legal manner as both the parties, despite having an informal agreement became
legally bound to each other at the time of entering into contract and Judy and Matt are the
rightful owners of the business thus bearing all the liabilities.
Further, it can be clarified that although the partnership business cannot be sued by
leaseholders of Bell Gorge since partnership is not a separate legal entity as per the Partnership
Act; but the owners of the business i.e. Judy and Matt are entirely liable for fulfilling their end of
contract i.e. top pay the other party which is leaseholders of Bell Gorge, the entire fee sum which
is overdue i.e. $7,200 despite having an informal agreement with them (Pearson, 2018).
Therefore, leaseholders of Bell Gorge can sue Judy and Matt in order to recover the entire sum

which is due and further have the right to revoke any future contracts if they wish to do so with
Judy and Matt.
Who should be sued by Gisela.
In this case study, it has been illustrated that Gisela was one of the travellers among
others who were travelling with Judy and Matt's land tourist company and they were visiting
King Leopold Conservation park which comes under the property of State Government. Judy and
Matt, like many other tourist agents, pay a particular fees in order to take their visitors to this
site. Gisela, on one such trip, while she was viewing the rock art paintings made by aboriginal
Australians, slipped down on a wooden staircase and thus got injured. Now, Gisela want to sue
either the state government or Judy and Matt's partnership in order to recover the expenses
incurred in hospital treatment and she needs to decide who is the legally liable party.
Judy and Matt have a contract with state government that states that although the property
belongs to the state government, yet liability of the touristers that they bring to visit these
properties lies with the tourist agents who brought them i.e. with Judy and Matt (McKendrick,
and Liu, 2015). Now since Gisela was the customer of Judy and Matt, they should have
forewarned her and others regarding the different threats of the various locations that they were
visiting or rather provided them with a safety kit which includes safety bands, helmets, gloves
etc. but there is no mention of such briefing related to risk or providing safety kit in entire case
study. Therefore, it can be ascertained that the party which was legally responsible i.e. which can
be sued is Judy and Matt. Apart from this, the clear contract of responsibility between state
government and tourist agents holds tourist agents liable for any damage or injury to the
travellers.
Therefore, in the present case, Gisela should file a lawsuit against Judy and Matt in order
to recover her hospital bill expenses (Spenceley, Snyman, and Eagles, 2019). As per the
agreement, Judy and Matt are completely liable to repay her the amount for which they have
been sued but they have the additional provision of getting insurance amount sine they get the
public insurance i.e. insurance of all the customers that are travelling with them and therefore,
Judy and Matt are not personally liable since they can recover the amount that is to be paid to
Gisela form the insurance company.

Business structure that should be adopted in case of expansion.
Judy and Matt want to expand their business because they do not want to keep their
business limited to providing bus for tourists but rather want to include other facilities like
accommodation, meals etc. i.e. a complete package rather than just a ride. This will boost up
their revenue and profits and also increase the number of months in the peak season i.e. 10
months. Their plan to expand has only one hurdle and that is, they do not want to loose their
personal properties i.e. a school bus which they operate and their house in Derby, if they incur
any potential loss in the business due to various reasons like change in governmental policies,
economical crisis etc. (Altman, 2018).
The best strategy in the present scenario which will give them an avenue for expansion
but also provide safety to their personal assets is forming a limited liability company or a
Proprietary Limited Company (Pty Ltd). As per the section 45A(1) of Corporation Act 2001, the
key terms of Proprietary Company in Australia have been defined. On the basis of revenue and
liability, proprietary companies can be segregated into 'large' or 'small' proprietary and the
liability of the partners is limited up-to the shares that they hold in the company i.e. if the
company turns into a loss making one and if they are not able to pay to creditors, the directors
will be liable only up-to the amount of shares that they hold in company i.e. they would not be
personally liable (Barraket and et.al., 2017).
In the present case study, formulation of Proprietary Limited Company is the best option
for Judy and Matt because even if their speculations and fear regarding strictness in tourism on
behalf of government or other unpredictable changes do come true they would not be personally
liable i.e. their personal assets like House in Derby and the school bus that they operate thrice a
week from Derby to Broome or other wealth as well will not be affected in any manner and they
will be able to retain it. All the creditors and other liabilities will be paid up by particular amount
that is generated during liquidation or winding up of a company.
Therefore, adopting the structure of Proprietorship Limited Company is the best strategy
at present for Judy and Matt if they wish to expand their business further.
Steps for incorporating a company.
If Judy and Matt wish to modify their business structure as that of a company, they need
to follow steps given below:-

 Select a Company name which is not identical to any of the existing companies or
business in Australia and then reserve it generating a unique Australian Business
Number (ABN). The name should exhibit the legal properties i.e. Pyt Ltd in case of a
limited liability company and Pyt in case of an unlimited liability company.
 However, before registering the directors should ascertain the replaceable resources set
under Constitution Act, 2001; constitution or a combination of both that will govern the
practices adopted by company (Steps to register a company, 2019).
 All the legal requirements set under Corporation Act, 2001 should be met.
 Next step is to get consent of director, secretary and Members of the company.
 After this, the last step in process of getting a company registered in Australian economy
is either through Business registration service or through private service provider or
directly through ASIC.
Company or Partnership- Which is a better option legally.
In the present case, Judy and Matt currently have partnership as their business structure
but when compared, the option of incorporating a Pyt Ltd company is a much attractive and
feasible option for them.
The major reason which makes the option of forming a Pyt Ltd company much more
attractive is the fact that in partnership, the liability of partners is not limited up-to the amount of
capital that they have invested in the business but in case of losses or winding up, the partners
have to incorporate their personal assets as well in order to set off the creditors as well (Foran,
and et.al., 2019). Although, the costs of setting up a partnership as well as administrative costs
are comparatively much lower but in Australian economy, the benefits that setting up a Pyt Ltd
company provide are far greater. Along with providing personal security, the directors also get to
avail various tax benefits.
Therefore, legally as well as financially or economically, setting up a Pyt Ltd company is
much simpler and feasible option for Judy and Matt in order to run business successfully and
secure personal assets as well.

REFERENCES
Books and Journals
Ahmadu, M.L. and Hughes, R., 2017. Commercial Law and Practice in the South Pacific.
Routledge-Cavendish.
Altman, J., 2018. Indigenous Australians in the national tourism strategy: Impact, sustainability
and policy issues. Canberra, ACT: Centre for Aboriginal Economic Policy Research
(CAEPR), The Australian National University.
Barraket, J. and et.al., 2017. Classifying social enterprise models in Australia. Social Enterprise
Journal. 13(4). pp.345-361.
Bottomley, S., 2016. The constitutional corporation: Rethinking corporate governance.
Routledge.
Foran, B., and et.al., 2019. Australian rangeland futures: time now for systemic responses to
interconnected challenges. The Rangeland Journal. 41(3). pp.271-292.
McKendrick, E. and Liu, Q., 2015. Contract Law: Australian Edition. Macmillan International
Higher Education.
Pearson, G., 2018. Enforcement and Effectiveness of Consumer Law in Australia.
In Enforcement and Effectiveness of Consumer Law (pp. 75-97). Springer, Cham.
Spenceley, A., Snyman, S. and Eagles, P.F., 2019. A decision framework on the choice of
management models for park and protected area tourism services. Journal of Outdoor
Recreation and Tourism. 26. pp.72-80.
Online
Steps to register a company. 2019. [ONLINE] Available through :<https://asic.gov.au/for-
business/registering-a-company/steps-to-register-a-company/>