With reference to the Partnership Act 1891 (SA) does a partnership exist, using

Question

With reference to the Partnership Act 1891 (SA) does a partnership exist, using the IRAC method :

Todd and Zac are best friends who both attend a university in Adelaide. Todd is a business student majoring in marketing and Zac is a science student majoring in chemistry. Todd and Zac like beer and last year they decided to make their own home brew. Zac, using his own money, purchased a 50 litre micro-brew equipment set. Todd and Zac worked together to set up the equipment in Todd’s Dad’s shed and they created their first batch of beer. Their initial batch of home brew was actually quite good, and Zac then started experimenting with a range of different grains and fermenting processes. Zac discovered a way which he could use eucalyptus leaves to speed up the fermenting process and enhance the flavour of the beer. They entered their brew into the “Adelaide Extravaganza” home brew contest at the end of last year and won two awards: one for “best tasting beer” and another for “best brewing innovation”. Unfortunately, there was no prize money. After winning the award, Todd started thinking about how they could turn their new beer into a big commercial success, and actively marketed the new beer, which he decided to call “Gum Drop Ale”. Zac was less interested in the business side of things but was happy to keep refining his recipe and the fermenting process. Zac thought Todd would eventually lose focus and was doubtful that Gum Drop Ale would be a big success. However, at the same time, Zac was quite happy to try to make some money doing something he enjoyed. Over the summer break, they continued operating out of Todd’s Dad’s shed to refine the brewing process for commercialisation. In the first few weeks of the summer break, Zac spent most of his time in the shed working on the brewing process and doing experiments with eucalyptus and fermentation. Todd spent that time marketing and networking. For one such marketing venture, Todd gave free beer to all the guests at his brother-in-law’s office Christmas party. Todd’s brother-in-law, Denton, is a big shot lawyer. Both Todd and Zac attended the party. At the Christmas party, Todd was approached by Klaus who is the director of a beer and wine distribution company. Klaus was interested in negotiating a supply contract with Todd, and arranged a meeting with Todd in January. Todd, sensing a big commercial break, decided to lease a section of a warehouse to give the business a professional feel and so that there was enough room to increase production. Todd entered into a one-year lease agreement, which he negotiated orally with the owner of the warehouse. Todd borrowed $10,000 from his Dad to pay a security bond, and three months’ rent in advance. When Zac saw the new premises he said: “cool … our new lab ” but didn’t ask anything about the lease or rent. The next day Zac moved the brewing equipment and his laptop (which contained files outlining the brew recipe and formulas for his innovative fermentation process) to the warehouse.

Explanation / Answer

Answer:

The basic structure to explain IRAC method is to state Issue, Rule, Analysis and Conclusion.

Issue: Here two best friends decided to get into a business without thinking the cost and effect of it. They have simply started something in a whim before deciding the requirements of a buisness, place to set up a business, their roles and responsiblities and the capital it will require to start something in this level.

Rule: With reference to the Partnership Act 1891, any duties, responsibilities and the amount to be invested in the business must be decided in advance between the partners. According to the rule- a contract must be made in writing and signed by the partners.

Analysis: In this case Todd & Zack failed to decide anything before starting this business. They have not finalised any details legally as per the partnership act. Both of them are not aware of the future risk and does not have any solid future plans for this business. Also in this case, the ineterst of Todd & Zack lies in different roles and they are simply not bothered about all the aspects of a business.

Conclusion: Thus, a partnership does not exist between Todd & Zack.

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