Craig Fraser and Michelle Mason set up a partnership to run a small retail business. Craig con­tributed $60 000 to begin the business and Michelle’s contribution was $50 000. Craig is confident with numbers and accounting whereas Michelle prefers to deal with people and to ignore anything requiring numbers. Michelle has put her trust in Craig to set up the financial side of the business. Craig has decided that all profits should be distributed according to the initial capital contribution by each of the partners.

During the second year of operation Craig bought a new house and to finance the deposit he withdrew $20 000 from his capital investment in the partnership. Michelle accepted that this was reasonable and did not even think about the implications for profit distribution. The following year Craig withdrew another $20 000 from his capital investment in the partnership to reduce his house mortgage. Michelle accepted that as Craig had put the money into the partnership it was only fair that he could take it out again. 

Craig and Michelle both worked actively in the business, and generally worked well together as business partners. They both were entitled to a salary of $30 000 on the assumption that they would contribute equally to the management of the business.

Required

A.    Who are the stakeholders in this situation?

B.    Does Craig appear to be doing anything wrong? Explain your response.

C.    Are there any ethical issues involved here? If so, identify them.