LST5CCL Company and Commercial Law Assignment Help
1) Under what type of business structure is this business running? Furthermore look at everyonewho might be involved in this business, i.e. Jane, Julia, and Mahit and discuss their status in regards to the business.Give reasons for your answer; in particular, support your answer by citing relevant cases and statutes.
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Jane and Julia are definitely following the B2B business model for selling the beauty products under their own brand Rogue. Under the B2B model of doing business, Jane and Julia are wholesalers who are ordering the items from the producer named Neon Lipstickand then selling to their customers through their own e-commerce site. The Business of Jane and Julia are that of an intermediary which is not producing anything of their own but taking advantage of the opportunity that exists for selling goods which were outsourced from the Neon Lipsticks to the ultimate customers as the customers were not in theposition to buy directly from Neon Lipstick company which is a very well known manufacturer of the beauty products. Thus Jane and Julia are being successful in creating their own brand for marketing their product to the end users andgetting aprofit.
However, the business of Jane and Julia are really partnership firm in which there are two partners. A partnership can be defined as a business which has been initiated by two or more individuals ( not exceeding twenty) for undertaking a business ( which is not illegal) or making a profit. A partnership is generally not incorporated and is seen as a business associationamong the individuals who agreedto undertake a profitable businessopportunity by contributing to the business. The individuals are known as the partners of the business or the co0owwners and theyundertake the activity for definiteprofitmotive. Thus if the business is not incorporated then the business would be regarded as a general partnership for all further purpose.
As such a general partnership is not requiredto be incorporated and thus can remain a no tax entity. In such cases, the partners would be taxed individually for their shares in the partnership profits. As the partners are general partners they would have to bear the unlimited liability of the business they run and the losses and the debts they incur. Each of the partners in a partnership would have equal rights to run the business unless otherwise stated in the partnership deed.
Section 5(1) of the Partnership Act, 1891 includes the followings elements to be present for the partnership to take effect.:
a) the business association is carrying on a business or intends to carry on a business.
Business here can be described as an activity involving trading or involves an occupation or even carrying on with a profession such as legal profession etc. further if there is a single transaction only thenwhether a single transaction or two transactions would amount to a business would be inferred from the particulars of the said case. Re Griffin Ex parte Board of Trade (1890) 60 LJQB 325.
If a business is being carried on or not can be relevant form the fact that the courts have specified that the activities were in most cases be required to be repetitive and intention must have been expressed by the partners or the individuals involved for undertaking repetitive activities for making a profit out of the same. The same is evident from the cases involving Ballantyne v Raphael (1889).
Further, in the case of Canny Gabriel Castle Jackson v Volume Sales (1974, the high court has held that :
1. a partnership can be a part of a joint venture program for making profits.
2. Such profits must be shared between the individual partners.
3. The individual partners were very much concerned with the financial stability of their partners the same way individual partners care for
the others in a general partnership and
b) the business must be carried on by all the partners involved or in common
it is not required and possible that all the partners get involved equally all the time in the undertaking of the business activities. Thus not all the partners have to be active partners and thus onepartner can undertake the business with consent form others and carry out the tasks as required. However, it is necessary that the partners develop a mutually agreed set of rights and obligations and the working partners acting for all must not exceed the mutually agreed and rights and obligations and must consult the other partners regarding the applicability of a business transaction and take a decision after the consent form the other partners.
c) the business of the partnership must be done aimed at making a business profit.
The third element is determining if the business which has been undertaken by the individual partners were undertaken keeping in mind the profitmaking desire and the business is carried out for a financial gain. Thusitmight notbe necessary toknowif the partnership orthe venture actually make a profitornot, the desire to make a financial gain outofthe business transaction must be present. In this aspect it can be said that profits are the financial gains generated by a business run by different individuals ( in partnership context) and which has been generated in between two specified dates which might be financial years and the same has been expressed by Fletcher Moulton in the case of Re Spanish Prospecting Co Ltd [1911].
Jane and Julia are thus definitely partners in a B2B business and both of them have demonstrated and fulfilled the three common elements which were required to be present :
a) They intended to carry out a business
b) Both were acting partners
c) Both have profit motive as they were attracted to start the business as there were profitable opportunities. However,Mahit who has supplied funds to Jane is not to be treated as a partner of Jane and Julia and is just a personal lender in relation to jane.
2) Discuss who of the business partners are liable for the damages suffered by Clarissa? Pleasemake sure that you only assess the lega risks under the tort of negligence.Also, support your answer by citing relevant cases.
Jane and Julia ordered a batch of the rogue brand of lipsticks form Nyon Lipsticks and sold one of the same to Clarissa. Clarissa developed an allergy upon the useof the lipstick sold by the partnership of Jane and Julia and the same fact was corroborated by the Expert Dermatologist. ThusClarissa suffered damage asa result of a faulty and prohibited chemical-laced product which was abandoned for use and hence the seller is clearly liable for thelosses and damagesuffered by the customerClarissa.
In this case, the tort of negligence comes into play. Under the torts of negligence, Negligence is said to be involved in a business transaction and other conducts of personal nature if one of the parties involved is found to have failed to take and exercise reasonable care and through their conduct was able to create a situation which gives rise to an unreasonable and unjustified risk of harm. The harm caused by such unreasonable behavior can actually result in either physical harm or harm which of financial in nature and loss of property etc.
The basic tenet of the torts of negligence is that of one of the parties involved is reasonably certainly failed to have taken reasonable care towards the other and asa result of which the other party has suffered physical harm, financial loss or loss ofassetsand properties etc. thus while a businessis being conducted the parties involved must be required to undertake activities with due care and must keep in mind that third parties are not harmed in any way by their said activities and actions (Donoghue v Stevenson, 1932). If the safety of others is not kept in mind and harm is caused to the other parties as a result of the direct conduct of the parties involved the same would amount to negligent conduct and tort of negligence would be applied.
However, negligence on the part of the defendant can only be proved if the following elements as laid down by the courts in previous cases is satisfied beyond doubt:
a) Duty of care :
A duty of care is said to be present if it can be foreseen that the activities involved can pose damage of any kind to the users , other parties and third parties if not undertaken in a prescribed manner and by not following the standard of usage the party is increasing the chances of losses for the other parties involved (Re City Equitable Fire Insurance Co Ltd [1925]). It can be defined as the standard code of conduct expected form individual under defined industry norms, legal evidence and activities included. The duty of care is desired so as to provide adequate protection to others (Anns v Merton London Borough Council (1977)).
b) Breach of the Duty of care
Breach of duty of care would happen only if there was a duty to exercise and care on part of the defendant and the activities of the defendant amounted to a breach which caused the harm or loss to the plaintiffs involved.
However, the duty of care to be expected of a particular person depends upon the given situation and the duty that is expected of a reasonable person in that given situation. A reasonable person canbe someone who remains careful despite the situation and is prudent in day to day activities. The judge would make a judgment based on how a reasonable person might have acted under a certain situation given the facts of the particular situation(Mahon v Osborne (1939).
c) Factual cause
It is not sufficient that the defendant's breach of the duty of care happened but also it must also be proved that the breach of duty by the defendant caused lossesanddamage to the plaintiff personally or to their property andother assets. If the breach of care happened but it was difficultto apprehend the same actually caused losses to the plaintiff then the same can't be said to have triggered the tort of negligence. So the cause of the loss suffered by the plaintiff must be have been caused by the apparent breach of duty (Barnett v Chelsea and Kensington HMC (1969)).
d) Harm caused
The harm that has been born by the plaintiff must have been a direct result of the breach of care and it must be a type of harm which is protected by the operation of the law. If the breach of duty is one and the loss suffered is another and there is no link between the tow, then the tort of negligence would not apply (The Wagon Mound (1961)).
e) Scope of the actual liability ( proximate cause)
This is one of the cardinal rules of negligence known as the proximate cause. If there is no connection between the duty breach and the loss suffered then there is no negligence.However, it must be remembered that all harms caused does not put the liability on the defendants as only harms caused by the defendants asa result of risks arising out of the defendant's acts are tortious. However, it must be remembered that the risk wouldhavetobe foreseeable by the defendants for making their acts amounting to negligent (Hale v. Ostrow, 2005). If the activities are such that the defendants could not foresee the risk arising to the eventual plaintiffs and then it can be concluded that the losses would not have been foreseen and prevented by any reasonable person. Also in some circumstances, the plaintiffs can also be liable for the losses as their standard actions could have prevented from the losses and harms being inflicted.
Extraordinary situations which could not be foreseen by undertaking reasonable care can be a very effective defense against negligence in tort ( McClenahan v. Cooley, 1991).
As discussed above the partnership of jane and Julia appears to be responsible for the lossesand harm suffered by Clarissa and must be liable for paying damages to Clarissa for their negligence. The negligence o the past of Jane and Julia's partnership is mainly caused by the followings:
a) First of all Jane and Julia are responsible for the making of the product they sell and hence the contents were needed to be checked by them if the same is fit for use or not. As the manufacturer of the product used banned substances, jane and Julia can sue the Nyon Lipsticks for fraud and negligence. This the duty of care is present forJane and Julia towards all buyers.
b) There is a clear case of a breach in duty as jane and Julia failed to see if the product is fit for use and how they are manufactured. Reasonable care on their pat would have saved Clarissa and others from loss and physical harm.
c) There exists a direct cause between the apparent breach and the damage caused.
d) If care was taken by Jane and Julia then the risk wouldhave been foreseeable by the defendants.The activities are not such that the defendants could not foresee the risk arising to the eventual activities undertaken and it can be concluded that the losses would have been prevented had Jane and Julia acted in a required sequence and shownjudgment which was needed for the kind of business they were undertaking (Wood v. Newman, Hayes & Dixon Ins. Agency, 1995).
3) Whether Mahit can ask for his money back
It was quite an apparent from the above discussion that the business enterprise was started by Jane and Julia as a result of their foreseeing the profitable opportunity. Jane and Juliadiscussed the startup of the operations and they contributed their own money for the operations to begin. However, for placing the initial order, they did not have the required capital and hence jane decided to take a loan form Mahit. Mahit was in the know of the desired operations of the new business and hence he loaned the amount to Jane. However, it was also quite clear thathe never showed any interest in being a partner not taking part in the business. Mahit was just happy to lend the money to jane as he was aware of the business model and apparently the success of the business (Dinesh Kotak v Jagdish Kotak and others, 2017).
Thus Mahit can recover the lent capital from Jane as he was never intended to become a partner and there was never any discussion between Jane and Julia regarding the admission of Mahit as a partner.
Further, there was a general lack of evidence to prove Mahit a partner because of the followings:
a) A partner acts as one of the agentsof the partnership and carries out the business in good faith. However,Mahit has never acted on behalfofthe partnership as an agent.
b) Mahit never intended to benefit from the partnership and there was no agreement or even a talk regarding the profits to beshared.
Thus Mahit cant is taken as a partner as hew never consented to carry out business with Jane and Julia for carrying out the said business.
c) Usually, the partners have equal rights to undertake the management of the business and indulge in business operations with others.
Mahit never acted, showed the intention to participate in the business and thus never enjoyed the rights of the partner as far as managing the business is concerned.
Thus it can be inferred from the facts that as Mahit did not fulfill any rights of being a partner he can't be taken as a partner as whished by Jane and thus he has all the rights to recover the loans he has given to Jane and the partnership.
- How they can make their responsibilities clearer
It is strongly recommended that the partnership of jane and Julia must be undertaken under a detailed and written partnership agreement (deed) ( Tobias Frere Jones vs Jonathan Hoefler,2014 ) which shall include the followings to make sure each partner is given the right kind of right and responsibilities:
a) Capital contributions must be clearly mentioned.
b) It must also be written in detail as to how the profits of the business and the losses would be distributed among partners.
c) Scenarios like how the partnership would deal with new partnerscoming in would have to be detailed.
d) Who would runthe business (one partner running on behalfof all) orall partnersrunning the business shall be clearly detailed?
e) In the event of confusion in decision making how the decisions for running the business would be taken. For example, both the partners must agree for a decision
f) Under which circumstances the firm would be dissolved must also be cleared out.
g) If a partner is sick, then how the business operations would be run.
The above provisions must be included in the written agreement and the same must be registered for a smooth running business and clearly laid down rules(Gregory Wild vs Malcolm, Abigail and jean wild, 2018) and to avoid fierce court battles in the future.
- Whether they have to change their business structure.
Jane a Juliadoes not need to change their business structure as the partnership business is the best structure for them as it is flexible for them. Its easier to begin and get started and less paperwork is needed. As lesser startup costs are needed the most part of the capital can be spent on businessoperations. Limited external regulations apply to the partnership business and it is also a nontaxable entity. Tax matters can be sorted by individual partners. The legal structure of the business can be changed afterward when needed. This is why Jane and Julia need not change their business structure and continue doing business under the partnership firm.
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