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Business Law Assignment Analysing Legal Issues of a Business Scenario

Question

Task: Business Law Assignment Part 1: Project tasks
Scenario

Anna and Cooper have decided to start their own marketing business and have come to you to seek advice on the common business structures in Australia. You are employed by Bluebottle Tax Agent and Business Advisers. Anna and Cooper are currently employed in the family business, a large marketing firm for around 10 years (Creativity). They want to leave the family business to start their own firm. They have some funds put aside to meet the set-up costs for the business. They expect their business will earn around $200,000 in the first year of operation as Cooper expects to rapidly expand his client base. Anna and Cooper both own their own homes and have other assets. They are concerned about their tax liability as the business earnings increase and they do not want their personal assets to be available to satisfy debts of the business. They want to minimise cost involved in setting up the new structure. Anna and Cooper have asked you to recommend a business structure that might best suit their needs. To complete this part of the assessment, you will be required to complete research to allow you to answer the short answer questions below:

Task 1 Research and analyse business structures-
Before advising Anna and Cooper you are required to research different business structures (Sole trader, Partnership and Trust) and legal entities (Company), interpret your research to analyse the impact of legal issues including the ease of establishment, size, risk and complexity in running.

Required:
(a) Research areas of risk and analyse how legal issues impact on different types of business structures used in Australia including a Sole Trader, Partnership, Company and Trust.

(b) Evaluate the relevance of your analysis to the client’s circumstances. Include your evaluation in Column 6 of the Table below.

(c) Based on your evaluation formulates the recommendation you will give to the clients based on their circumstances and the relevant law.

Task 2 Prepare a business report-
Based on your recommended business structure in Task 1 above, prepare a short business report to demonstrate the plan for the new marketing business strategies to Anna and Cooper (the clients). You will use the report to discuss your research and recommendation with your supervisor, to seek advice and guidance (Part 2 Task 3) and to have a discussion with your clients explaining your strategy (Part 2 Task 4).

Part 2: Research, recommend and update
Scenario

Anna and Cooper have returned to see you again and have asked for your advice. You have asked them background information before you can provide any advice.

Anna and Cooper left their jobs at Creativity after a family argument and started their own firm on 5 January, 2019 following your previous advice to them. Anna had been working in the office of Creativity for last 10 years from the age of 14, where most recently she held a senior management position. Her brother Cooper had also been working with the business in the marketing division for 8 years since leaving school and was the head of the division. After your business structure recommendation, Anna and Cooper decided to incorporate a company to run their marketing business, Master Marketers Pty. Ltd. Anna and Cooper are directors and members of the newly formed company. They located suitable business premises and signed a lease agreement with Rain & Stars Pty Ltd, stating that lease would commence upon renovations that were expected to be completed by mid?February 2019. On 1 February 2019 Rain & Stars Pty Ltd advised Anna and Cooper in writing that they did not intend to complete the renovations as the economy was not what they had expected at this time. Anna and Cooper are very upset and distressed, as they will not be able to open their new business as expected.

Anna left her mobile phone in the local coffee shop later that afternoon. She immediately posted signs offering a reward of $250 for anyone who returned her phone undamaged. Cosmos, the local café cleaner found the phone later that night in the course of his employment. He had not seen the poster for the reward of the phone. Cosmos returned the phone to Anna and claimed the reward.

Finally finding new business premises to lease, Anna and Cooper opened their new business on 1 May 2019 (10 weeks later than expected) as Master Marketer Pty. Ltd. They immediately commenced an intensive marketing campaign to try and boost their client base as the unexpected delay in opening had really hurt them financially. As part of their marketing campaign they engaged in print media, radio, television, social media and letter writing campaigns, including writing to all businesses (including some of Creativity’s clients) in the area. As a result of the intensive marketing campaign the business client base grew rapidly including several of Creativity’s top clients. Their newspaper advertisements stated: “*FREE social media marketing for all new clients until 30 June, 2019. Conditions apply.” The conditions attached to the offer were not displayed on the same page as the advertisement and provided that a $300 design fee related to any social media marketing. When they started working in the family business, they both signed employment contracts which contained the following term:

“The employee agrees that upon ending their employment with Creativity, they shall not for a period of 5 years after his/her termination engage in any employment involved in any managerial or marketing capacity with any company, anywhere in Australia that may compete in the same industry as Creativity. The employee also agrees that upon termination of their employment they will not seek to solicit any of Creativity’s customers or other staff members”.

Anna and Cooper have also just received a letter of demand for rent from Rain & Stars, demanding payment of rent from 15 February 2019. You are to advise Anna and Cooper if they are required to continue with this lease, on account that the renovations were not completed and they were advised that Rain & Stars had no intention of completing them. Anna and Cooper have asked for your advice. You have explained to them that you need to research some areas to make sure there are no changes to existing law/new laws and you will provide them with up to date and accurate advice.

Required:
Complete the following four tasks, ensuring you research relevant laws with reference to cases where applicable.

This task requires you to review the client’s circumstances and the relevant consumer and contract law, apply the law to the client’s circumstances and advise the client.

Task 1-
(a) Identify information to guide research: Using the information in the scenario above, identify issues relevant to contract and consumer law, collate and process this new information to guide your research to gather further information to provide advice to the clients. (100 – 150 words)

(b) Collect and collate client’s available information for analysis. Collect any additional information you would need from your client to identify the client’s circumstances and to inform your research of their circumstances. Record that additional information here and combine it with relevant information extracted from the client scenario.

Task 2 Plan and manage tasks and conduct research and develop solutions-
In Task 1(a) you identified legal issues relevant to contract and consumer law that related to your client’s circumstances. Task 2 requires you to develop a plan to manage your review of legal sources relevant to those issues and conduct that review. Create a plan itemising the tasks you will need to complete in order to manage your review. Include in your plan the legal sources you will access that relate to the issues you have identified and explain how this plan might contribute to achieving your broader goal of providing advice to your clients

Research information and analyse relevant legal sources that relate to the client’s circumstances and detail the aspects of contract and consumer laws that relate to the client’s circumstances. (600- 800 words). In your answer include details of the legal sources you used to conduct the review and the date the sources were accessed. If an internet source is included, name of the source (e.g. website title) and the URL should be included.

Task 3 Develop solutions and recommend changes-
Based on your review in Task 2, what solutions would you recommend to your clients to address their legal issues? What recommendations would you make to your clients about the issues that have arisen relevant to contact and consumer law? Summarise the outcomes of the recommended changes. (600-700 words)

Task 4 Advise clients about risks and their management-
Write a letter to Anna and Cooper explaining the areas of risk to their organisation that arise from their circumstances and how these can be managed. (600 – 800 words) Required: Your advice must be based upon your review and consolidation of all relevant information and must apply relevant legal principles and legislation. In addition, your letter must: include the following:

  • a summary of client circumstances and the legal issues raised;
  • an analysis of each issue and the risk to business operations with reference to legal principles and relevant legislation;
  • presentation of advice to the client on solutions to the legal issues after a review of all research and relevant information; and
  • recommendations as to changes to business operations to address risks raised by the legal issues.

Answer

Business Law Assignment Part 1
Task 1: Research and Analysis of Business Structures

Column 1: Business Structures and How it Operates

Column 2: Legal Principles of Establishment

Column 3: Size

Column 4: Risk Implications

Column 3: Complexity in Operation and Tax Implications

Column 6: Relevance to Clients

Sole Trader

· Registered name and they should be

· Registration under the GST.

· The turnover is more than $75,000.

Small

· Personal Liability(Kappel, 2019)

· Difficulty in obtaining capital

· Opportunity Cost

· Mismanagement of tax

There is a low level of complexity because only personal tax needs to be paid.

This business structure is not relevant for the client because there are two people involved in the business.

Partnership

· A legal agreement between the partner

· The turnover must be $75,000 or more.

The minimum size of a partnership must be two individuals and the upper limit is 20 people.

· Loss of autonomy (Martinuzzi, 2017)

· Risk of conflicts between partners

· Resource drainage

· Absence of stability

· Selling complications in future

The partnership needs to pay the federal tax and the partners need to pay the income tax.

As per the analysis, this form of business is relevant for the clients because establishment criteria are aligned with the circumstances of the clients.

Company

· Legalregistration(Julianne and Leybag, 2018)

· Licensing

· Occupational health and safety.

· The turnover must be more than $2 million per year.

Medium and large

· Loss of market shares (Hill, 2021)

· Reduction in share value

· Lack of investment

· Anticipation Failure

 

There is a presence of complexity as the companies need to pay the corporate taxes.

This business structure is also not relevant for the clients because the turnover of the clients is less than required.

Trust

· Australian Business Number,

· Tax File Number and

· Turnover must be $75,000 and more.

More than one trustee and there can be several beneficiaries.

· A complication in a legal document

· A shortcoming in goals is inevitable

· Small details can be missed

· Difficulties in the refinancing of trust property.

Complexities can arise due to the factors like an accounting of the income and principles.

This business structure can also be relevant for the business because of the turnover of aligned.

Column 7: Recommendation                                                                                                   

The business structure that can be recommended to the clients is the partnership business structure. The legal aspect of the partnership is governed by the Partnership Act 1895 this structure is recommended because the clients want to minimize the cost. With the help of a partnership structure, they can share the cost and liabilities of the business as well.

 

Task 2: Business Report
Based on the given case scenario, it can be said that the purpose of the engagement with the clients is to find a way to avoid tax issues and minimize the business operating cost. Considering the client's business scenario, it can be suggested that Anna and Copper need to go after Partnership business structures so that they can divide their expense as well as tax liability and cost equally and this will help them to free themselves from tax and higher cost burden. Hence, the four legal principles of the establishment are

  • Registered name and they should be and under GST
  • A legal agreement between the partner
  • Legal registration and licensing
  • Australian business and tax number

Part 2
Task 1: Identification

(a) Identification of issues relevant to contract and consumer law
As per the given case scenario, it has been found that Anna and Cooper agree to lease a business location wherein they can expand their business and signed the agreement with Rain & Stars Pty Ltd. The contract and consumer law that Anna and Cooper can claim for national unfair terms of contract law covering standard form consumer and small business agreement as well as national regulation guarantees rights of a consumer. However, the applicable law concerning the given case scenario comes under Sec 18 of the ACL that prohibits an individual, involved with trade and commerce, from indulging in fraudulent activitiesanddistortedconducts (Gov.au, 2021). Thus, it can be said that under the said section Anna and Cooper can claim against the misleading conduct performed by Rains & Stars Pty Ltd. There is also another issue faced by the client is a five-year contract of employment with Creativity.

(b) Collection and collation of client’s available information for analysis
As per the given case scenario, it can be said that Anna and Cooper are trying their best to start a new marketing business after they left their jobs at Creativity. There are several issues wherein Anna and Cooper were facing such as issues in the lease of a selected business premise and their employment contract with Creativity. However, the information that needs to collect from the client as per their circumstances is as follows:

  • The client needs to provide a clear agreement with Rains & Stars Pty
  • Needs to show the contract terms with Creativity
  • The financial position of the client
  • Any other issues related to their circumstances

However, all these details need to be collected and should be documented with relevant law issues that have been identified in task 1 i.e., business premises lease issues and employment agreement with Creativity.

Task 2: Planning and Management
(a) Identification of Legal Issue and Legal Sources

Legal Issues

Legal Sources

Breach in the agreement of lease

Lease Contract

Violation of agreement 

Employment Contract

 

(b) Analysis of Relevant Legal Sources
The identified legal sources are lease contracts and employment contracts in the case of Anna and Cooper due to the legal issues they are facing. The first legal source is the lease contract because, in the case of Anna and Cooper, there has entered into a lease agreement with Rain & Stars. However, the term of the lease agreement was not fulfilled by Rain & Stars and they demanded the amount of rent from Anna and Cooper. The lease contract states that the agreement upon which the contract has been made needs to be fulfilled by both parties (Singer et al., 2017). If any of the parties fails to fulfill the agreed terms then there is a breach of the contract. This is the first issue of Anna and Cooper that they have encountered with Rain & Stars because the latter has agreed to renovate the premises but they demanded the amount of rent without any renovation. This shows a Rain & Stars has breached the terms of the contract.

The case law of Shevill v Builders Licensing Board (1982) can be taken into consideration for a better understanding because in this case as well, Shevill continuously paid late rent which resulted in the breach of contract. The contract between Shevill and the builders stated that if the rent was not paid within 14 days then the lessee would be breaching the contract (Golru, 2019). Despite notice, Shevill continued to breach the contract that led to the builders taking legal action against him. Similarly, Rain & Stars has also breached the contract by not renovating the premises. This means Anna and Cooper have the right to take legal action against Rain & Stars for breaching the terms of the contract they had agreed upon.

The second legal source that has been identified is the employment contract due to the legal issue of violation of agreement because when Anna and Cooper worked in Creativity, they had signed a contract. In the contract, they had agreed that they shall not indulge in any managerial or marketing activity for 5 years after they had terminated their contract with Creativity. However, they got engaged in a marketing campaign for their new company and this violated their agreement with Creativity. This legal issue is related to the employment because Anna and Cooper were employees who have breached the contract with their employer, i.e. Creativity. The employment contract in Australia is governed by common law and these laws are specified by the employers (Elton, 2019). The contract is to be signed between the employers and the employees so that they can have legal proof of their employment. This contract is governed by the national, state, and territorial government so that the interest of both employees and employers can be safeguarded. The employment contract includes a workplace agreement that gives the power to the employers to lay down the condition of their employment. The employment contract defines the rights and responsibilities of both the employer and the employees. The relevant case law that can be considered in this situation is the Quinn v Jack Chia (Australia) Ltd (1992) case that deals with the grounds on which the employment contract can be terminated by either party (Ottley, 2017). If there is bread in the contract then the plaintiff can either terminate the contract or take legal actions against the defendant. In the same manner, Anna and Cooper have breached the contract with their employer by indulging in a marketing campaign for their new business.

Task 3: Solution and Recommendation
With an in-depth analysis of the legal issues of Anna and Cooper and its legal source, few solutions can be recommended to them. These solutions will help them to respond to the issues and carry on their business smoothly and ensure the growth and development of their business effectively.

Abate the Rent- The first solution that can be given to Anna and Cooper is the abatement of the rent because Rain & Stars were not able to fulfil the term of their agreement. This given Anna and Copper the right to abate the rent and they can refuse to pay the rent since the renovation has not been done (Haug, 2020). The agreement between Anna and Cooper and Rain & Stars clearly states that the latter had agreed to provide renovated premises but instead they demand rent without renovating the premises. In this situation, Anna hand Copper can refuse to pay the rent because Rain & Stars has not met the terms of the contract. Therefore, this is the first solution that can be recommended to Anna and Copper regarding their legal issues.

Terminate the Lease- A lease contract can be terminated when the term of the lease has ended, if there is a breach in contract or if the parties agree voluntarily (Queensland Government, 2020). In the case of Anna and Cooper, there has been a breach in the lease contract by Rain & Stars, according to the termination requirement, Anna and Cooper can terminate the contract with Rain & Stars. With the termination of the contract, Anna and Cooper can end the lease contract with Rain & Stars on the ground that they did not renovate the premises for Anna and Copper. This is because Anna and Copper have all the valid reasons for the termination of the lease contract with Rain and Stars. The termination of the lease contract will allow them to avoid any further complications and conflict with Rain and Stars.

Sue for Performance- Legal action can be taken against Rain & Stars because they violate the lease agreement. This can be done under the provision of specific performance and this can be enforced in the real estate contract. A buyer can sue the seller when they enter into a binding contract and the seller violates the clauses of the contract (Norton, 2020). Similarly, there was a contract between Rain & Stars and Anna and Copper where the former has violated the terms. On this ground, Anna and Copper can sue Rain & Stars for performance because they have not performed as per the expectations of Anna and Copper. This is because Anna and Copper have expected the company to renovate the premises but they did not fulfill their obligations.

Recognition of Business Structure- since Anna and Copper has breached the contract with their employers by indulging in a marketing campaign for their new firm. The solution that can be given to Anna and Copper for avoiding any legal lawsuit is the comparison of two business industries. This is because the contract between Anna and Copper and their employer states that their business should not be in the same industry as Creativity. It will be viable for Anna and Copper to identify their business industry because before starting a new business, a businessman always analyses the industry to find out about the competition in the market (Berry, 2019). If the business industry is different then there can be no legal lawsuit again Anna and Copper and they can avoid any complications with creativity.

Task 4: Letter to Anna and Copper
To,
The CEO
Anna and Copper
It is to inform you about the areas of risk to their organization that arise from their circumstances and the way such risk can be managed. However, after the analysis of the information given, we have identified various circumstances wherein you have given resignation from their employment even though they were under 5 year's employment contract. They decided to start up their own business Master Marketers Pty. Ltd for which they had signed a lease contract with Rain & Star Pty Ltd for the business location. However, the construction company could not complete the contract but they are asking for complete payment, which is another circumstance in this case.

Therefore, with the consideration of the above circumstances, it can be said that there have been two legal issues identified in this case. Firstly, there has been a violation of the employment contract by you because your previous company is still contracted with you until 5 years of employment. This can harm your company because the ownership profile might not be as impressive as it should be. As per the Australian corporate law, the breach of employment contract, the employer may seek compensation because of which you might deal with the financial loss that would lead to a negative impact on your start-up. Therefore, to avoid the risk to hurt the organization, you will have to legally meet the owner of your previous company to resolve the contract between you so that you can have a better company profile (Leeks et al., 2019).

Secondly, the legal issue identified in the case study is the violation of the contract by Rain & Star Ltd because they did not complete the reconstruction but is asking for complete payment. As per the Australian Contract Law, the breach of contract by any of the parties can lead to the dismissal of the contract as a whole. Hence, to mitigate the risk from the identified issues, you must take legal help to dismiss the contract between them and refuse the payment asked by Rain & Star Ltd.

However, the recommendations that I would provide you as to changes in the business operation to address risk raised by the legal issue are as follows:

  • You must start an afresh business without any previous interference. To make that sure, you must have to resolve things by taking legal help with their previous company so that they do not have to deal with the consequences of breaching the employment contract.
  • You must legally terminate the contract as a whole so that the constructing company cannot ask for any payment from you.
  • You must also claim for the loss that you had to bear because they breached the contract at the last moment. The loss or damage that you have incurred shall be paid by the construction company as per the law.

References
Berry, T. (2019). Industry Analysis: Know Your Industry Before You Start Your Business -. [online] Bplans Blog. Available at: https://articles.bplans.com/know-your-industry-before-you-start-your-business/ [Accessed 12 Aug. 2021].

Elton, W. (2019). All about Employment Contract in Australia [updated]. [online] Zegal. Available at: https://zegal.com/blog/post/employment-contract-australia/ [Accessed 12 Aug. 2021].

Golru, S. (2019). Case Note: Shevill v Builders Licensing Board. [online] Sara Golru. Available at: https://www.saragolru.com/post/case-note-shevill-v-builders-licensing-board [Accessed 12 Aug. 2021].

Gov.au (2021). Legislation | Consumer Law. [online] consumer.gov.au. Available at: https://consumer.gov.au/australian-consumer-law/legislation#:~:text=Section%2018%20of%20the%20ACL [Accessed 12 Aug. 2021].

Haug, D. (2020). Rent Abatement - Is It Really FREE RENT for your business? [online] Lighthouse Commercial Real Estate Madison WI. Available at: https://www.lighthousecre.com/cre-terms/rent-abatement/ [Accessed 12 Aug. 2021].

Hill, B. (2021). Risks That May Affect Implementation of Business Strategies. [online] smallbusiness.chron.com. Available at: https://smallbusiness.chron.com/risks-may-affect-implementation-business-strategies-66796.html [Accessed 12 Aug. 2021].

Julianne, J.L. and Leybag, J. (2018). Legal requirements for starting a business. [online] Mybusiness.com.au. Available at: https://www.mybusiness.com.au/management/4472-legal-requirements-for-starting-a-business-2 [Accessed 12 Aug. 2021].

KAPPEL, M. (2019). Types of Business Structures | Sole Proprietorship, LLC, & More. [online] Patriot Software. Available at: https://www.patriotsoftware.com/blog/accounting/a-guide-to-basic-business-structures/ [Accessed 12 Aug. 2021].

Leeks, J.D.-A.E., Johnson, D.G., Hickman, K.P. and Smith, P.J. (2019). Spotlight: breach of contract claims in Australia. [online] Lexology. Available at: https://www.lexology.com/library/detail.aspx?g=d573148e-f91f-45fe-a4ed-764f35379363#:~:text=In%20Australia%2C%20a%20cause%20of [Accessed 12 Aug. 2021].

Martinuzzi, B. (2017). What Are the Advantages and Disadvantages of a Partnership? [online] Business Trends and Insights. Available at: https://www.americanexpress.com/en-us/business/trends-and-insights/articles/what-are-the-advantages-and-disadvantages-of-a-partnership/ [Accessed 12 Aug. 2021]. Norton, T. (2020). What is Specific Performance and When is it Available in a Real Estate Contract. [online] Norton & Associates. Available at:< https://constructiondefect.com/what-is-specific-performance-and-when-is-it-available-in-a-real-estate-contract/ [Accessed 12 Aug. 2021].

Ottley, R. (2017). Reasonable notice on termination of employment has it a future? [online] Swaab. Available at: https://www.swaab.com.au/publication/reasonable-notice-on-termination-of-employment-has-it-a-future [Accessed 12 Aug. 2021].

Queensland Government (2020). Ending a lease. [online] www.business.qld.gov.au. Available at: https://www.business.qld.gov.au/starting-business/premises-location/leasing/ending-lease [Accessed 12 Aug. 2021]. Singer, R., Pfaff, A., Winiarski, H. and Winiarski, M. (2017). Accounting for Leases Under the New Standard, Part 1. [online] The CPA Journal. Available at: https://www.cpajournal.com/2017/08/23/accounting-leases-new-standard-part-1/ [Accessed 12 Aug. 2021].

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