Deck 29: Introduction to Business Organizations

Question 1

Since a sole proprietorship is owned and run by one individual, does this mean only one person can participate in the business? Explain.

Answer 1

Sole proprietorship is a type of business owned, controlled, and run by one individual called the proprietor.
In sole proprietorship, all the business assets are owned by proprietor, and he is the one who has complete control over running the business and making decisions. However, this does not imply that no person other than him can participate in the business. As a matter of fact, he can employ a number of employees and agents to assist him in business.

Question 2

Jackie Lora was the member of WDJ Realty V, LLC, a company that owned and managed apartment buildings. Lora later transferred her membership in the company to Nicole Pignone. Lora and Pignone did not own or manage the apartment building in an individual capacity, and the company affairs were maintained separately. Letitia Palmer and her infant son, Andrew Matias, were residents in one of the buildings owned by WDJ Realty. Palmer sued WDJ Realty, Lora, and Pignone on her son's behalf, alleging that the child had sustained injuries from exposure to lead paint and dust in the building. Should the court pierce the corporate veil and find Lora and Pignone personally liable?

Answer 2

Piercing the LLC Veil:
If a court determines that it must pierce the veil of an LLC to avoid injustice, it will hold member(s) personally liable for a judgment against an LLC. The occasions where a court will impose that liability include:
1. The corporation was created to circumvent the law.
2. The corporation is used for illegal or fraudulent purposes.
3. The corporation loses its separate identity because of commingling his/her own interests with the LLC - failure to maintain arm's length relationship with related entities.
4. Under capitalizing the LLc.5. Failure in the creation and operation of the corporation as ascribed in state statutes.
Joint and Several Liability in a Partnership and LLC:
Joint and several liabilities in a partnership and LLC means that all of the partners may be sued individually (several) or together (jointly) by a wronged party in tort or criminal cases. Judgment against the partnership is satisfied out of partnership assets. Retired partners may also be liable.
A new partner who joins the firm is liable for both existing and new debts of the business. However, creditors with claims that arose before the new partner joined the firm are limited to the new partner's share of the partnership property. The new partner's personal property cannot be attached for recovery.
The partner that has been sued may sue the other partners for their shares of the debt according to the partner's interest in the partnership.
This is not to be confused with losses. A partnership's losses are spread across the partners according to their interest percentage.Legal Reasoning:
In Matias v. Mondo Props. LLC , 43 A.D.3d 367 (N.Y. App. Div. 2007), the Supreme Court of New York determined that Lora and Pignone were officers and owners of the property.
The appellate court reversed stating that a member of an LLC cannot be held liable for the LLC's obligations because s/he is a member. Instead, the members must dominate the company and through domination wrongful consequences occurred.Therefore, Lora and Pignone WERE NOT personally liable.

Question 3

Can a limited partnership be formed just as easily as a sole proprietorship or ordinary partnership?

Answer 3

No , it is not easy to form limited partnership.
Sole proprietorship is governed by simple common law, while Uniform Partnership Act governs ordinary partnership. Limited partnership, however, cannot operate under either common law or Uniform Partnership Act.
The formation of limited partnership requires specific state statute that prescribes the condition under which it can operate. Any failure to comply with the statute would turn it into ordinary partnership with unlimited liabilities on the partners.

Question 4

G G Cement Contractors was a general partnership owned by two brothers, Dagoberto and Jose Gonzales. William Andrews was injured in a car accident with an employee of G G Cement. Andrews sued G G Cement, the employee, Dagoberto Gonzalez, and the estate of Jose Gonzales, who had died after the accident. Dagoberto was sued based on the theory of respondeat superior , which holds employers liable for the conduct of their employees in specific circumstances. A jury found that the employee and G G Cement were liable for Andrews's injuries and awarded damages to the plaintiff. After Andrews was unable to collect on the judgment against G G Cement, he filed a second action against Dagoberto Gonzalez as a general partner of the company. Dagoberto responded that the matter had already been litigated and he was not liable, because a judgment had been issued in his favor. Was Dagoberto correct?

Question 5

Explain the difference between a general partner and a limited partner.

Question 6

Susan Breen was a bookkeeper for Patriot Truck Equipment, LLC. Breen obtained a judgment against Patriot to recover money that she had personally loaned Patriot to keep the company in business. Craig Judge was the managing member of Patriot and owned 50 percent of the company. Breen sued Judge to hold him personally liable for the judgment against Patriot. Patriot followed corporate formalities, such as maintaining separate books, filing separate tax returns, and maintaining proper registration to do business in the state. When Patriot was dissolved, the company filed appropriate articles of dissolution with the state. Should Judge be liable for the judgment against Patriot?

Question 7

For what purposes may a partnership be formed?

Question 8

What is a limited liability partnership?

Question 9

How might a limited liability company be classified for income tax purposes?

Question 10

What is the difference between a member and a manager of a limited liability company?

Question 11

When will a court pierce the corporate veil of a limited liability company?

Question 12

Greene County entered into an agreement with United Consulting Engineers Inc. and DLZ Indiana, LLC, jointly and in collaboration, collectively referred to as "the Firm," to provide professional architectural services for the design, renovation and remodeling of the county courthouse. DLZ was to provide certain design and engineering services, but United would act as the principal and have full responsibility and liability for all services provided. DLZ would be liable to the county, as a third-party beneficiary, for the services it provided. DLZ and United entered into a subcontract that labeled United as "the Architect" and DLZ as "the Consultant" on the project. It provided that DLZ was an independent contractor and would not be responsible for United's acts or omissions. United was to compensate DLZ by hourly rates established in a schedule of the contract. DLZ's fees were "not to exceed" $527,763. DLZ received payments directly from United. The county filed a complaint against DLZ and United for breach of contract, breach of warranty, and negligence, alleging DLZ and United were liable as joint venturers. Were they?

Question 13

What is the purpose of fictitious name registration statutes?

Question 14

Ernest Burns, Orlando Summemour, and Randy Hatcher formed SWI Partners, a general partnership. J. T. Turner Construction Company obtained a judgment against SWI Partners and Burns for breach of contract and negligent construction. As a judgment creditor, J. T. Turner then filed a lawsuit against Summemour and Hatcher, alleging that they were jointly and severally liable for the judgment against SWI Partners. Summemour and Hatcher responded that they could not be held liable for the judgment against SWI Partners until they "had their day in court." Were Summemour and Hatcher liable?

Question 15

What are the advantages and the most serious disadvantage of a sole proprietorship?

Question 16

Stanley Goessl was a plumber doing business as a sole proprietor under the fictitious name S K Plumbing. Goessl entered into a long-term business relationship with AP Daino and Plumbing Inc. as a subcontractor. Goessl established his own hourly rate for projects and invoiced AP Daino on behalf of S K Plumbing. Goessl also carried his own liability insurance, as requested by AP Daino. During one project, while Goessl was doing plumbing work for AP Daino, a fire broke out and damaged the premises. AP Daino's insurer refused coverage, stating that Goessl was not an employee of AP Daino. Whereas Goessl's insurer argued that it was not liable, because Goessl was working the project as an employee of AP Daino. Was Goessl an employee of AP Daino?