Essay Marcella May Form a Partnership With Kurt Huxley – Law Assignment Help

Assignment Task

 

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Problem Set 6 asks you to write a letter of advice to your client, Marcella Hall on the issues raised by your client. Marcella wants to purchase a business. The problem set contains one graded task worth.

This is a completely different fact scenario to Problem Sets 2- 5.
You are told to assume it is 20 April 2021. Marcella is considering purchasing a pottery import business from Jake Moffat. You are required to write letter of advice on the 7 issues that your client Marcella has raised in the attendance memo.
There is reference material for each of the 7 issues that you are referred to in “How to do” and it is expected that this is read and understood before you draft your letter.

Partnership
There is a distinct possibility that Marcella may form a partnership with Kurt Huxley (who has successfully run small businesses before) before buying the business. You are asked if duty is payable on the formation of the partnership which holds no dutiable assets. You are also asked to explain a partnership acquisition. Refer in particular to s41 Duties Act 2001 (Qld).
SignangeThe second point you are asked to consider is the options for erecting signange on the building. The seller/existing lessee, Jake Moffat occupies the business premises pursuant to a seven year registered lease, which the client has not yet seen.
Jake has told Marcella that there is a clause in the lease that has prevented her from putting any signage on the building. Marcella and Kurt feel that a sign would attract customers, and without it, the growth of the business would be effected.
The starting point is always the lease document itself to see what is permitted in the way of signage. You do not have a copy of the lease as yet although your client has requested a copy be sent. You need to confirm that you have not yet seen the lease.
You are told to consider the options that might be available concerning the erection of a sign on the building. For example if the lease prevents the erection of signage without the consent of the lessor, what can your client do? On that point see s121(2) Property Law Act 1974 (Qld). But not all leases require the lessor’s consent to improvements. If the lease outright denies any signage, then what is your advice? It may also be the case that Council by laws and/or regulations impact on what signage right can be granted or exercised. But note that in terms of what the client should practically do, if it is the case that the lease prohibits signage it would be sensible to have Marcella find out why the lessor has taken this position.

Transfer duty on the purchase contract
You are asked two questions on the topic of duty. First Marcella wants to know how much duty will be payable on the purchase contract. Second she asks how it is calculated. Marcella would like to see the calculations and explanations as appropriate. The Duties Act 2001 (Qld) imposes transfer duty on the dutiable value of dutiable transactions. The dutiable value is the consideration which in our case is $348 000. 00.
Rates of duty are found on the Office of State Revenue website http://www.qld.gov.au/housing/buying-owning-home/transfer-duty-rates/The correct bracket is where the dutiable value is $75,000 – $540,000.

Doubtful debts
Marcella has been told that the seller’s books of account provide for ‘doubtful debts’. Your letter needs to explain if a ‘provision for doubtful debts’ is the same as ‘bad debts written off’, and if not, the difference. Read the relevant paragraph in the Practice Paper – ‘Sale and Purchase of a Business’. Do not cut and paste your response from the practice paper, draft the explanation in your own words.

Restraint of trade
Marcella would like a clause in the contract restraining the seller from opening a competing business. You are asked whether Marcella can have a provision to this effect? You are told to explain how standard condition 12 REIQ contract operates to protect the client.
Be aware that legislation such as the Competition and Consumer Act 2010 (Cth) impose restrictions on clauses seeking to restrain business activities.
Be aware that a restraint of trade clause is merely an agreement between the parties that may or may not be enforceable. It is for the courts to declare that it is reasonable and an injunction would be granted in that case restraining the seller from trading in the specified area for the specified time.
 

Stock in trade
Firstly you need to explain briefly the process outlined in standard condition 4 of the REIQ contract. Keep it brief and straight forward.
Then you need to advise Marcella as to what the “landed invoice cost” method of costing means. The landed invoice cost method is the most common way to value stock in trade when calculating the price to be paid at settlement. Keep the explanation of what “landed invoice cost” means simple; do not get bogged down here. In practice definitive advice on this point would be provided by an accountant.
00FYI only – As regards the issue of valuation of trading stock there are three bases for valuation. These are:
Cost or ‘landed invoice cost’
market selling value
replacement value

The value given to trading stock in a contract of sale of a business (i.e. its sale price) is one or more of these three methods. Practically speaking, it is usually cost.
00FYI only – As regards the issue of valuation of trading stock there are three bases for valuation. These are:
Cost or ‘landed invoice cost’
market selling value
replacement value
The value given to trading stock in a contract of sale of a business (i.e. its sale price) is one or more of these three methods. Practically speaking, it is usually cost.

GST
You need to advise whether Marcella will be liable to pay GST on the purchase of the business. You are told that Marcella will be purchasing the business as as going concern, that her accountant has told her that the partnership will have to apply for an ABN and register for GST. Marcella and the seller Jake have agreed to use “GST1” in the items schedule to the REIQ contract, the sale is of a going concern.See paragraph 4.2 Sale and Purchase of a Business PP, standard conditions 3.3 and 3.5 REIQ contract. Also refer to GST Ruling GSTR 2002/5 and the case Midford v DFC of T 2005 ATC 2189; [2005] AATA 623, both of which are found in your library.

You must read the attendance memo dated 20 April this year which is in your in tray. You will need to read the reference and resource material thoroughly before you attempt drafting the letter. This problem set will require that you consider many commercial and practical issues for your client. This can be a stressful time for your client as they are often dealing with their sole source of income, significant sums of money and lots of legal documents e.g. Leases, mortgages, and other security agreements.For the purpose of this task your letter only needs to deal with the 7 issues specifically raised by your client.