Jake Santiago (Jake) And Amy Peralta (Amy) Conduct A Business As Financial Planners: Equity & Law Assignment, BU, Australia

University Bond University
Subject Equity & Law

Jake Santiago (Jake) and Amy Peralta (Amy), conduct a business as financial planners, through a partnership operating under the name Santiago, Peralta, and Associates (SPA). From early 2000 until late October 2018, Scully Raymond (Scully) was also a partner in SPA.

On 25 October 2018, Scully gave one month’s notice to Jake and Amy that he wished to leave the partnership, which he was entitled to do pursuant to a valid clause in the written partnership agreement. Scully told Jake and Amy that he wanted to take his clients with him when he left, but Jake and Amy strongly rejected this proposal. Scully’s last day was 26 November 2018. On 27 November 2018, Scully commenced his own financial planning business, Scully & Co (SC). SC is owned by Scully Pty Ltd (SPL), of which Scully is sole director and shareholder.

Jake and Amy are now aware that Scully downloaded the contact details of 50 of SPA’s clients (to who Scully had been personally providing financial advice) and details of their investments on 20 November 2018. On 21 November 2018 Scully contacted these people by email to invite them to become clients of his new financial planning business, SC, when he commenced operations on 27 November 2018.

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All 50 clients immediately responded to Scully to accept Scully’s invitation. In their replies, 25 clients stated that they had already decided to move their business away from SPA because they were outraged that Jake and Amy had posted on SPA’s website blog the day before that they thought the pandemic NYC-18 was a hoax and advised their clients not to follow public health directions or get vaccinated.

The average annual turnover relating to the 50 former SPA clients was $150,000 and it is generally accepted in the financial planning industry that a “book” of 50 clients can be readily bought and sold for 3.5 times the average annual turnover.

From 27 November 2018 to 30 June 2019, the revenue of SC was $89,000, of which $75,000 was attributable to former clients of SPA. SC’s expenses (attributable to former SPA clients only) for this period amounted to $36,000, not including payment of any salary/profit share to Scully. In the financial year ending 30 June 2020, the income of SC was $360,000, of which fees from former clients of SPA was $196,000.

Expenses (attributable to former SPA clients only) for the 2020 financial year were $54,000, not including any salary/profit share for Scully. For the financial year ending 30 June 2021, the income of SC was $450,000, of which fees from former clients of SPA was $250,000. Expenses (attributable to former SPA clients only) for the 2021 financial year were $75,000, not including any salary/profit share to Scully.

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While he was working with Jake and Amy, Scully was responsible for organizing events for networking and marketing new financial products, investment opportunities, and services to the clients of SPA. In early October 2018 SPA decided to hold its next event at a waterfront restaurant in Brisbane.

Soon after Scully met with Terry Linetti (Terry), the owner of a trendy new waterfront restaurant named Linettis. On 24 October 2018 Scully sent a text message to Terry which said, “I was really impressed by you, your restaurant and the venue when we met recently. Just between the two of us only, I’m thinking of recommending to SPA that we should hold our next event at Linettis.

Would you be prepared to pay me $5,000 upfront to do this? Personal account details are below. Please reply by text, not email.” Terry texted Scully back immediately that same day, saying, “Excellent plan, let’s do it. No one will ever know. I’ve just deposited $5,000 into your account.” On 5 November 2018 Scully booked Linettis for the SPA event, which was held on 25 November 2018, at a total cost of $20,000 to SPA for 200 guests ($100 per head, which was the standard rate).

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The event at Linettis was a great success and resulted in a significant amount of new business for SPA. Scully invested the $5,000 received from Terry in shares in CRH Ltd (CRHL), which are still registered in Scully’s name and are now worth $50,000 following the stock market boom in recent times.

Last week, Jake and Amy received an email from a client of SPA, Rossi Richter (Rossi). Jake is also a qualified lawyer with a current practicing certificate (specializing in property law) as well as a financial planner, but only currently provides legal advice to a very limited number of long-term clients. Rossi is a long-term university friend of Jake’s. Jake acted for Rossi once previously in 2000 when Rossi purchased an investment property, but since then she (Rossi) has retained another lawyer, Dan Schur, for all her legal work.

Rossi has written to Jake many times over the years and thanked him for looking after her investments, saying that she was glad she had someone to look out for her and her finances because she didn’t have time or energy to worry about this given her job as a very successful psychiatrist in private practice. In May 2019, on the recommendation of Jake, Rossi invested $50,000 in the private equity fund, Sherlock Investments Pty Ltd (SIPL).

The sole director and shareholder of SIPL is Jake’s father, Michael Santiago (Michael). In October 2018 Michael asked Jake whether any of SPA’s clients might be interested in investing in SIPL. Michael raised this again with Jake in January 2019 and said he would be really grateful for any referrals because his business was struggling. When Rossi phoned Michael and told him she wanted to invest $50,000 in SIPL on Jake’s recommendation, Michael was surprised but didn’t ask any questions as he needed all the investors he could get to save his business. SIPL was wound up in July 2021. Rossi is furious because all the money she had invested in SIPL is now lost and Rossi has also recently discovered that the sole shareholder and director of SIPL was Jake’s father, Michael.

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