cenario Part 1 Koorine and Tau are good friends who have known each other since
ID: 329303 • Letter: C
Question
cenario Part 1 Koorine and Tau are good friends who have known each other since starting high school. Upon finishing school Tau enrolled in a Bachelor of Business (Financial Planning) and Koorine travelled overseas where she studied accountancy and worked for a number of years in an accountancy firm. Tau has also worked since graduation as a financial planner with a local firm. When Koorine returned to Australia and caught up with Tau, they decided to go into business together under the name FinRight. Tau handles the financial services and planning side of the business and Koorine provides the accounting services. They rent premises together and have some administrative assistance. They have never executed any formal agreement but have always shared the profits and losses. It initially cost them $40,000 to set up the business. Tau contributed $25,000 and Koorine contributed $15,000. Business is growing quickly and going really well. In the last financial year, the business made a profit of $220,000. Unfortunately, problems arose when Tau claimed that he was entitled to 70% of the profit because he generated 70% of the revenue, and he argued that his initial contribution was greater. To try to increase her contribution, Koorine decided to purchase expensive computer equipment and software from Computers2U. It cost $10,000. Koorine did not consult with Tau about the purchase and when Tau was presented with the invoice from Computers2U, he refused to authorise payment. Unfortunately, Tau was unfamiliar with the new computer equipment and as a result produced a misleading report. This led to negligent advice being given to a client, KX, who suffered some financial loss as a result. Both KX and Computers2U and have talked of suing FinRight if a resolution is not reached soon. Despite their recent disagreements, Koorine and Tau are determined to work through their differences and make a go of their business, if they are able. They would like your advice. Please advise on the following matters using case law and statute to support your answers:
2. Discuss what this means for the following issues:
a. What proportion of the profits from the last financial year is Tau
entitled to?
b. Who, if anyone, is legally responsible for the cost of the computer
equipment?
c. Who, if anyone, is legally responsible for KX’s losses?
Explanation / Answer
a. As the investment by Tau and Koorine is in ratio of 8:5, the profits will also be shared in the same proportion.
Profit share of Tau = 220000x 5/8
Profit share of Koorine = 220000 X 3/8
b. According to the duty of partnership both parties are responsible for the cost of computer unless it has been bought at inflated price with intentions of receiving a kickback from seller. Assuming that the price of computer was fair, both are responsible for purchase.
c. Being partners, both Koorine and Tau are responsible for damages done to KX due to wrong information.
The partners are advised to make payment for losses to KX and price of computer to avoid lawsuits.
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