PROBLEM QUESTIONS 1. For the past several years, Bobby Byron has been working on

Question

PROBLEM QUESTIONS

1. For the past several years, Bobby Byron has been working on a new design for the manufacture of surfboards. While Bobby believes that the sale of his inventive surfboard will make a lot of money, considerable additional research and development is needed to perfect the design. Indeed, the first few prototype surfboards that were manufactured snapped and one had fins that were too sharp and injured the person using it. Bobby believes that if the design is successful, many thousands of people will want to invest in his company. Advise Bobby about the most suitable type of company for his surfboard design project.

2. What type of company would be best suited for the following organisations:

a. A charity raising funds for cancer research.

b. A major domestic soccer federation.

c. Three friends who wish to start a fashion business.

d. A group of 75 people who have agreed to pool money and invest in the stock market.

e. A mining company that wants to invest in a speculative gold mining venture with its own funds and funds raised from the public.

f. A start-up telecommunications company that needs $1billion for its infrastructure and intends to raise the funds from the public.

3. Blondie Pty Ltd was registered with Matt and Aaron as its directors. Blondie Pty Ltd has issued 5 shares with the following persons owing one each: Matt, Aaron, Jason (Matt’s son), Janice (Aaron’s daughter) and Marilyn (Aaron’s friend). Blondie Pty Ltd operated a business which manufactured and sold widgets. After the company was formed, the following happened. Would the shareholders and/or directors be personally liable to the landlord, NAB Bank, Janice, or Acme Computers Pty Ltd? Explain.

a. Blondie Pty Ltd entered into a lease for new premises where the business was to be headquartered.

b. Blondie Pty Ltd borrowed $100,000 from NAB Bank on an unsecured basis. Matt personally guaranteed the repayment of the loan.

c. Blondie Pty Ltd purchased a block of land from Janice for $500,000 to build a new warehouse. Blondie Pty Ltd gave Janice a mortgage over the land equal to the $500,000 purchase price.

d. Blondie Pty Ltd purchased several computers from Acme Computers Pty Ltd. One third of the purchase price was paid on delivery and the balance payable in equal monthly instalments.

Explanation / Answer

1. As Bobby Byron is in the process of manufacturing surfboards that require more research and development to be done and can yield a good amount of return on success, it is advicable for him to start the business through a One-person Company. This ensures that in case of any failures the liability is llimited and the profits are secured with him at the time of success.

2.

a. For a charity raising funds for cancer patients a not-for-profit organization, a turst setup will be suitable. It will help the organzation for various charity options and tax liability will also be reduced.

c. Three friends who wish to start a fashion business should opt for a partnership firm. The partnership will define the profit sharing ratio and the capital requirements and liability of each friend as an individual and provide them strength of working together as a team.

d. A group of people who have decided to pool their money and invest in the mutual funds instead of the stock market should form an Association of Person. The money will be pooled together and invested collectively instead of individually and will manage the risk at a more acceptable level.

f. The start-up telecommunications company should form a public limited company. The public company is apt because the capital requirement is a large sum and public fundings will be required

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