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Partnership Act Scenario Analysis Fashion Firm

Question

Read the following facts. Using only principles, concepts and law discussed under the Partnership Act 1891 (SA)), answer each question:  

Helen Wong is a talented fashion designer who has recently won a number of awards in fashion design in Australia.  She has been dreaming of setting up her own line.  Her former design teacher Mario, being impressed by the recent achievement of his star student, suggests that they set up a business together . Mario’s idea is that Helen should assist him in designing luxurious clothing for a niche market, the target being young famous movie stars and young top models who need exquisitely designed clothes for special occasions . Helen should be mainly responsible for approaching potential clients to find out what they need and make sketches to be approved by Mario and to be produced upon Mario’s approval.  Mario suggests that as the scale of the business will probably be small, they should hire Mario’s friend Peter to be in charge of the accounting and administration work. The proposed business will be run out of Mario’s property which is in a commercial building.
 
1. Helen asks you for advice on the most appropriate form of business structure for the proposed business.  Advise Helen on the options in respect of business  structures, the advantages and disadvantages of each structure and your recommendations. Helen and Mario have finally decided to set up their business as a general partnership and would like to call their business “chic couture”.  Helen and Mario have decided that Helen will be responsible for buying the office equipment and equipment for sketching designs while Mario will be responsible for sourcing and buying fabrics and all the necessary accessories for producing clothing for clients.  It was agreed that neither of them could make any single purchase above $3,000 without the other’s consent.

2.  Advise Helen on what she needs to do to establish this partnership. The business is a success and continues to flourish.  Helen and Mario decide to go on a business trip to Europe to watch fashion shows and get to know more fashion icons in the hope of expanding their clientele.  As Peter has to leave Hong Kong to take care of some important family affairs , he will also be away from office.  Helen and Mario therefore decides to entrust their neighbor Mr. Lee with the keys of the office and ask him to keep watch of their office while they are away.   While they are gone there is a fierce typhoon and  the windows in the office is broken by the wind when the typhoon signal no. 8 is hoisted.  Mr. Lee sees the broken window and tries to call Helen and Mario to let them know about it.  He is unable to get through to either Helen or Mario on their mobile phone so he arranges for one of his friends, who is a local contractor, to put a board over the window and seal it to ensure no more water can get into the office. Unfortunately this work occurred on a public holiday so the builder charged twice his usual rate.  He gives Mr. Lee an invoice for $2,000. Helen returns from the business trip a few days before Mario. When she returns, Mr. Lee gives her the invoice from the contractor.  While thankful that Mr. Lee helped to make arrangement  to protect the office, she is shocked at the large amount of the invoice and believes she should not have to pay it.

3.  Advise Helen whether the partnership needs to pay the amount stated on the invoice from the contractor. While Mario is still in Europe, Helen receives a large order for dresses from a generous client and Helen needs to purchase a high performance computer and the appropriate software  from High Tec Supplies Pty Ltd. to do sketches for this client  within a short period of time. The high performance computer and the software will costs more than $3,000.As the client has set Helen a deadline for making the sketches and Helen wants to show them to Mario for approval when he comes back in a few days, Helen proceeds to purchase the computer and software for  $3,500 without consulting Mario. Subsequently the order from the generous client falls through and Helen and Mario do not want to pay the bill from High Tec Pty Ltd.

4.  Advise on the position of Helen, Mario and MarMario Art in relation to the $3,500 bill from Art Supplies Pty Ltd. On her business trip to Da Fen, Mario discovered that high quality artworks could be produced by Chinese artists at significantly less cost than the artworks produced by Helen.  Mario therefore established a business producing reproduction artworks painted by Chinese artists.  Mario felt that Helen did not have anything to contribute to this new business, and she did not want to hurt Helen’s feelings, so she did not mention this new business venture to Helen.  However, Helen subsequently discovers Mario’s involvement in the new business.  She also discovers that it was Mario’s new business that ultimately won the contract to supply the artworks for the large new office building.

5.  Advise Helen what, if any, rights she may have arising from the above. Following the difficulties between Helen and Mario discussed above, they decide that they can no longer continue in business together.  They agree to end the MarMario Art partnership.  Mario leaves all the art supplies with Helen but takes all the office supplies. In addition, over the period of the partnership, the art studio apartment has increased in value due to a property boom. Helen argues that she is entitled to a share of that
increased value.

6. Advise Helen on the distribution of assets upon the dissolution of MarMario Art.
 
Summary

The question from company law is a scenario where in Helen Wong, an award-winning fashion designer is approached by her mentor Mario who suggests her to join his to-be formed fashion designing company where Helen will join as partner and will assist Mario in designing luxurious clothing for young movie stars and young top models. Helen’s job here is to contact potential clientele and get designs approved from them and Mario will work on the final apparel. Helen wants your suggestion in deciding the final structure of this partnership firm.

Total Word Count 1833

 

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