Fact Scenario Ivan is a wealthy art collector, and particularly interested in modern oil paintings. He started
Question:
Fact Scenario
Ivan is a wealthy art collector, and particularly interested in modern oil paintings. He started to run his own art gallery business by renting a premises in Central, exhibiting and selling paintings, sculpture and crafts from leading artists. He also purchased furniture, fittings and equipment to conduct the business. However, Ivan is neither a great oil painter nor a marking expert, and it is difficult for him to boost revenues from the existing client base. He then invited his wife Jezebel and his friend Katrina to join his own art gallery business as partners. Ivan's wife, Jezebel specializes in marketing while Katrina is a well-known oil painter. It was agreed that there was a partnership among the partners from 1 February 2019, until its dissolution on 31 March 2022. However, no terms were ever settled about the property arrangements between the partners in the partnership agreement except that the parties should share the profits equally. The business had been very successful. Both Ivan and Jezebel were keen to expend their business. However, Katrina wished to dissolve the partnership as she planned to settle to Canada with her family. She was uncertain the proceeds of sale upon dissolution given that she contributed a large quality of drawing tools in the course of partnership.
On 1 April 2022, Ivan and Jezebel had decided to incorporate a private company limited by shares in Hong Kong. They planned to call the company "IvCat Arts Gallery Ltd", but they were aware of another business nearby called "IvKat Arts Gallery Ltd" which offers photography and videography service. On 1 June 2022, Jezebel entered into a sales contract with Mona Lisa Studio Ltd for a supply of valuable paintings for her art gallery business. Jezebel signed the contract 'Jezebel, director, "IvCat Arts Gallery Ltd"'. Unfortunately, Ivan suffered serious injuries in a car crash prior to the company's incorporation. The company is never formed.
Required:
(a) Advise Katerina on what must be deemed partnership assets upon dissolution under the law? Considerations should be given on which items would be deemed partnership property while others would be treated as property belonging to a partner individually.
(b) Advise Ivan and Jezebel on the legal requirements to incorporate a private company limited by shares in Hong Kong.
(c) Advise whether Jezebel is liable for the contract with Mona Lisa Studio Ltd, and if so, how could she avoid the liability.
Cornerstones of Managerial Accounting
ISBN: 978-0176530884
2nd Canadian edition
Authors: Maryanne M. Mowen, Don Hanson, Dan L. Heitger, David McConomy, Jeffrey Pittman