Answer1 Part A
The café is running by two partners and it’s not a separate legal entity. Equal profit sharing among partners on the basis of their investment. Both partners are subjected to unlimited liability for any debts, the café incur during their normal course of business. Whatever profit generate during normal course of business will directly to go income account (personal accounts) of the partners and it’s taxable under ATO.
Answer1 Part B
Partnership is the current business structure between Rachel and Stacey but this business structure is not most suitable for the café because of the following inherent disadvantages of partnership.
1. Unlimited Personal Liability: if any of partner has committed something wrong or has taken a wrong business decision, then other partner must be fill liable for end consequences and debt. Partners are the agent for each other with respect to the conduct of the business which means an individual partner can incur an obligation for which all the other partners are also responsible;
2.
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Transfer of partnership interest may not be easy: In partnership, the identity changes at any time either by partner members coming out of the partnership or by joining of new partners. But in both cases, we need to dissolve the old partnership first and to create a new partnership. Any single partner can dissolve the partnership any point of time and the process of this dissolution and final assets and obligations transfer can be quite tedious. The right to be a partner cannot be assigned or transferred to another person without the unanimous consent of the other partners; the profits and losses generated by the partnership business are taxable in the hands of the individual partners.
In light of these two most common disadvantages of partnership, the café must use business structure which offers limited liability and where entry and exit is easy without disrupting normal course of business