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Scenarios of Business Law
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BUSI2023 Business Law – Learning Activity 6Answer:
The business should be structured as general partnership where the partner manage the company and
assume responsibility for the partnership debts and other obligations. John and Joy can form this type of
partnership and John’s parent could be considered as partner who act as an investor but have no control
over the company. It makes the company legally responsible for providing them their return on
investment after certain period. In addition, when John and Joy form the business as partnership, they
do not have to pay income tax but passes through any profit or loss to its partner. Personal liability is the
major concern in partnership to structure the business. The partners are generally liable for the
partnership’s obligations and debts. In this case, both Joy and John hold the major percentage of shares
and are equally responsible for the decision making and operation of company. It requires more legal
and accounting services thus is more complex than proprietorship but this is still better option to save
the interest of both the partner.
The loan should be structured in a manner that the company receives the investment in parts after
certain periods. The amount should be disbursed only after the evaluation of performance of last
investment and future prospects. Initial amount should be invested to cater fixed mandatory start-up
cost. The followed up investment will be depending upon the performance of company. This will
prevent the investment in wrong direction (even if company is making losses). The cash flow should be
calculated and on its basis the revenue model and pricing will be decided. The loan can be further
divided into cash flow loan and working capital loan. Cash flow loan can be used to help the business
meet its daily needs meanwhile working capital loan can be used to finance everyday operations of the
company. As a result, the total loan amount can be utilized in an effective manner.
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