Business Law Today Study Set 1

Business

Quiz 26 :

Partnerships

Quiz 26 :

Partnerships

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Partnership Status. Charlie Waugh owned and operated an auto parts junkyard in Georgia. Charlie's son, Mack, started working in the business part-time as a child and full-time when he left school at age sixteen. Mack oversaw the business's finances, depositing the profit in a hank. Charlie gave Mack a one-half interest in the business, telling him that if "something happened" to Charlie, the entire business would be his. In 1994, Charlie and his wife, Alene, transferred to Mack the land on which the junkyard was located. Two years later, however, Alene and her daughters, Gail and Jewel, falsely convinced Charlie, whose mental competence had deteriorated, that Mack had cheated him. Mack was ordered off the land. Shortly thereafter, Charlie died. Mack filed a suit in a Georgia state court against the rest of the family, asserting, among other things, that he and Charlie had been partners and that he was entitled to Charlie's share of the business. Was the relationship between Charlie and Mack a partnership? Is Mack entitled to Charlie's "share"? Explain. [Waugh v. Waugh, 265 Ga.App. 799, 595 S.E.2d 647 (2004)]
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Yes , the relationship between Mr C and Mr M was that of partnership.
Both of them had an oral agreement that the firm will one day be given to Mr M after death of Mr C. Mr C also used to share a part of the profit for the services of Mr M. Even the land where the junkyard existed was written over to Mr M. All these factors constitute a partnership relation between them.
Yes , Mr M is entitled to a part of Mr C's share as he was one of the heirs to the property of Mr C. Also as a partner he was promised part of the property and hence after paying of the fiduciary duty to other heirs of Mr C, Mr M can have his share from Mr M's part.

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Distribution of Partnership Assets. Shawna and David formed a partnership. At the time of the partnership's formation, Shawna's capital contribution was $10,000, and David's was $15,000. Later, Shawna made a $10,000 loan to the partnership when it needed working capital. The partnership agreement provided that profits were to be shared with 40 percent for Shawna and 60 percent for David. The partnership was dissolved after David's death. At the end of the dissolution and the winding up of the partnership, the partnership's assets were $50,000, and the partnership's debts were $8,000. Discuss fully how the assets should be distributed.
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The assets will be distributed as per the partnership contract. Ms S will receive 40 percentage of the asset and the heir of Mr D will receive the remaining 60 percentage, after the business first pays off the debt of $8,000. The loan provided by Ms S will be taken as a debt taken in the normal course of action and not as a partner's contribution to business.
Thus the loan provided by Ms S will not affect the percentage of assets to be received by her from the business.

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Liability of Partners. Frank Kolk was the manager of Triples American Grill, a sports bar and restaurant. Kolk and John Baines opened bank accounts in the name of the bar, each signing the account signature cards as "owner." Baines was often at the bar and had free access to its office. Baines told others that he was "an owner" and "a partner." Kolk told Steve Mager, the president of Cheesecake Factory, Inc., that Baines was a member of a partnership that owned Triples. On this basis, Cheesecake delivered its goods to Triples on credit. In fact, the bar was owned by a corporation. When the unpaid account totaled more than $20,000, Cheesecake filed a suit in a New Mexico state court against Baines to collect. On what basis might Baines be liable to Cheesecake? What does Cheesecake have to show to win its case? [Cheesecake Factory, Inc. v. Baines, 125 N.M. 622, 964 P.2d 183 (App. 1998)]
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Mr B will be liable to the firm on the basis that he cheated the Company C by claiming to be partner of the the sports bar Company A. He had no relationship with the bar and yet he presented himself as a partner which made the Company C feel comfortable to provide loan to the sports bar.
Company C has to prove that it was duped into providing loan as it felt comfortable with Mr B and was under the impression that he was one of the partners. Mr B also was not an employee or member of the bar. Thus his representation as lawyer was a fraud which makes him liable for the payment.

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Answers to the even-numbered questions in this For Review section can be found in Appendix F at the end of this text. What advantages do limited liability partnerships offer to businesspersons that are not offered by general partnerships?
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Partnership Formation. Daniel is the owner of a chain of shoe stores. He hires Rubya to be the manager of a new store, which is to open in Grand Rapids, Michigan. Daniel, by written contract, agrees to pay Rubya a monthly salary and 20 percent of the profits. Without Daniel's knowledge, Rubya represents himself to Classen as Daniel's partner, showing Classen the agreement to share profits. Classen extends credit to Rubya. Rubya defaults. Discuss whether Classen can hold Daniel liable as a partner.
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Case Problem with Sample Answer. At least six months before the 1996 Summer Olympic Games in Atlanta, Georgia, Stafford Fontenot, Steve 'furrier, Mike Montelaro, Joe Sokol, and Doug Brinsmade agreed to sell Cajun food at the games and began making preparations. Calling themselves "Prairie Cajun Seafood Catering of Louisiana," on May 19 the group applied for a license with the Fulton County, Georgia, Department of Public Health-Environmental Health Services. Later, Ted Norris sold a mobile kitchen for an $8,000 check drawn on the "Prairie Cajun Seafood Catering of Louisiana" account and two promissory notes, one for $12,000 and the other for 520,000. The notes, which were dated June 12, listed only Fontenot "d/b/a Prairie Cajun Seafood" as the maker (d/b/a is an abbreviation for "doing business as"). On July 31, Fontenot and his friends signed a partnership agreement, which listed specific percentages of profits and losses. They drove the mobile kitchen to Atlanta, but business was "disastrous." When the notes were not paid, Norris filed a suit in a Louisiana state court against Fontenot, seeking payment: What are the element of a partnership? Was there a partnership among Fontenot and the others? Who is liable on the notes? Explain. [Norris v. Fontenot, 867 Sold 179 (La.App. 3 Cir. 2004)
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Question with Sample Answer-Limited Partnership. Dorinda, Luis, and Elizabeth form a limited partnership. Dorinda is a general partner, and Luis and Elizabeth are limited partners. Discuss fully whether each of the separate events below constitutes a dissolution of the limited partnership. 1. Luis assigns his partnership interest to Ashley. 2. Elizabeth is petitioned into involuntary bankruptcy. 3. Dorinda dies
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A Question of Ethics. In 1991, Hassan Mardanlou and All Ghaffarian signed a lease for 3960 South State Street in Salt Lake City, Utah. Ghaffarian paid $6,000 for the first and last months' rent, and said to Mardanlou, "We are in this together, partner." Mardanlou bought business cards for "Access Auto" with his and Chaffarian's names on the cards. Both men were listed on Access Auto's insurance policy. Mardanlou bought the firm's furniture. Chaffarian did the bookkeeping and bought the inventory. Mardanlou did not have access to the books but wrote checks on the firm's account, sold its inventory, and managed the sales staff. In March 1993, Ghaffarian gave Mardanlou d check for $10,000. Otherwise, Mardanlou was paid a fixed amount each month. Later that year, without telling Mardanlou, Ghaffarian bought the leased property with the firm's funds but titled it in his name. In 1995, Mardanlou learned of this deal and confronted Ghaffarian, who said, "Don't worry, we're partners." Ghaffatian filed the firm's tax returns in his name only, despite Mardanlou's repeated objections. Finally, in 1997, Mardanlou quit the firm and filed a suit in a Utah state court against Ghaffarian to dissolve the partnership and obtain a share of the profits. [Mardanlou v. Ghaffarian, 2006 UT App 165, 135 P.3d 904 (200611 1. What factors indicate that Mardanlou and Ghaffarian were partners? What factors indicate that. they were not partners? If you were the judge, how would you resolve this dispute? 2. Is Mardanlou entitled to a share of the value of the real property that Ghaffarian bought in his own name? If so,how much? From an ethical point of view, what solution appears to be the fairest? Discuss. 3. Is Mardanlou entitled to a share of Access Auto's profits? Why or why not?
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Fiduciary Duties. Charles Chaney and Lawrence Burdett were equal partners in a partnership in Georgia known as BMW Partners. Their agreement was silent as to the effect of a partner's death on the firm. The partnership's sole asset was real property, which the firm leased in 1987 to a corporation that the partners co-owned. Under the lease, the corporation was to pay the partnership $8,000 per month, but after a few years, the corporation began paying S9,000 per month. Chaney died on April 15, 1998. Burdett wanted to continue the partnership business and offered to buy Chaney's estates interest in it. Meanwhile, claiming that the real property's fair rental value was $4,500 (not $9,000) and that the corporation had overpaid the rent by $80,000, Burdett adjusted the rental payments to recoup this amount. Bonnie Chaney, Charles's widow and his estate's legal representative, filed a suit in a Georgia state court against Burdett, alleging in part that lie had breached his fiduciary duty by adjusting the amount of the rent. Did Burdett's fiduciary duty expire on Chaney's death? Explain. [Chaney v. Burdett, 274 Ga. 805, 560 S.E.2d 21 (2002)]
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Answers to the even-numbered questions in this For Review section can be found in Appendix F at the end of this text. What are the key differences between the rights and liabilities of general partners and those of limited partners?
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Partnerships Grace Tarnaysky and her sons, Manny and Jason, bought a ranch known as the Cowboy Palace in March 2002, and the three verbally agreed to share the business for five years. Grace contributed 50 percent of the investment, and each son contributed 25 percent. Manny agreed to handle the livestock, and Jason agreed to handle the bookkeeping. The Tarnayskys took out joint loans and opened a joint bank account into which they deposited the ranch's proceeds, and from which they made payments toward property, cattle, equipment, and supplies. In September 2007, Manny severely injured his back While baling hay and became permanently unable to handle livestock. Manny therefore hired additional laborers to tend the livestock, causing the Cowboy Palace to incur significant debt. In September 2008, Al's Feed Barn filed a lawsuit against Jason to collect $12,400 in unpaid debts. Using the information presented in the chapter, answer the following questions. 1. Was this relationship a partnership for a term or a partnership at will? 2. Did Manny have the authority to hire additional laborers to work at the ranch after his injury? Why or why not? 3. Under the UPA, can Al's Feed Barn bring an action against Jason individually for Cowboy Palace's debt? Why or why not? 4. Suppose that after his back injury in 2007, Manny sent his mother and brother a notice indicating his intent to withdraw from the partnership. Can he still be held liable for the debt to Al's Feed Barn? Why or why not?
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Indications of Partnership. In August 2003, Tammy Duncan began working as a waitress at Bynum's Diner, which was owned by her mother, Hazel Bynum, and her stepfather, Eddie Bynum, in Valdosta, Georgia. Less than a month later, the three signed an agreement under which Eddie was to relinquish his management responsibilities, allowing Tammy to be co-manager. At the end of this six-month period, Eddie would revisit this agreement and could then extend it for another six-month period. The diner's bank account was to remain in Eddie's name. There was no pro-vision with regard to the diner's profit, if any, and the parties did not change the business's tax information. Tammy began doing the bookkeeping, as well as waiting tableland performing other duties. On October 30, the slipped off a ladder and injured her knees. At the end of the six-month term, Tammy quit working at the diner. The Georgia State Board of Workers' Compensation determined that she had been the diner's employee and awarded her benefits under the diner's workers' compensation policy with Cypress Insurance Co. Cypress filed a suit in a Georgia state court against Tammy, arguing that she was not an employee, but a co-owner. What are the essential elements of a partnership? Was Tammy a partner in the business of the diner? Explain. [Cypress Insurance Co. v. Duncan, 281 Ga. App. 469, 636 S.E.2d 159 (2006)]
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Answers to the even-numbered questions in this For Review section can be found in Appendix F at the end of this text. What is meant by joint and several liability? Why is this often considered to be a disadvantage of the partnership form of business?
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Answers to the even-numbered questions in this For Review section can be found in Appendix F at the end of this text. What are the three essential elements of a partnership?
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The following multiple-choice question is representative of the types of questions available in one of the four sections of ThomsonNOW for Business Law Today. ThomsonNOW also provides feedback for each response option, whether correct or incorrect, and refers to the location within the chapter where the correct answer can be found. Generally speaking, a limited partnership will he dissolved if
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Answers to the even-numbered questions in this For Review section can be found in Appendix F at the end of this text. What are the rights and duties of partners in an ordinary partnership?
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Business Law Writing. Sandra Lerner and Patricia Holmes were friends. One evening, while applying nail polish to Lerner, Holmes layered a raspberry color over black to produce a new color, which Lerner liked. Later, the two created other colors with names like "Bruise," "Smog," and "Oil Slick," and titled their concept "Urban Decay." Lerner and Holmes started a firm to produce and market the polishes but never discussed the sharing of profits and losses. They agreed to build the business and then sell it. Together, they did market research, worked on a logo and advertising, obtained capital, and hired employees. Then Lerner began scheming to edge Holmes out of the firm. 1. Lerner claimed that there was no partnership agreement because there was no agreement on how to divide profits. Was Lerner right? Why or why not? 2. Suppose that Lerner, but not Holmes, had contributed a significant amount of personal funds to developing and marketing the new nail polish. Would this entitle Lerner to receive more of the profit? Explain. 3. Did Lerner violate her fiduciary duty? Why or why not?
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Indications of Partnership. In August 1998, Jea Yu contacted Cameron Eppler, president of Design88, Ltd., to discuss developing a Web site that would cater to investors and pro-vide services to its members for a fee. Yu and Patrick Connelly invited Eppler and Ha Tran, another member of Design88, to a meeting to discuss the site. The parties agreed that Design88 would perform certain Web design, implementation, and maintenance functions for 10 percent of the profits from the site, which would be called "The Underground Trader." They signed a "-Master Partnership Agreement," which was later amended to include Power Uptik Productions, LLC (PUP). The parties often referred to themselves as partners. From its offices in Virginia, Design88 designed and hosted the site, solicited members through Internet and national print campaigns, processed member applications, provided technical support, monitored access to the site, and negotiated and formed business alliances on the site's behalf. When relations among the par-ties soured, PUP withdrew. Design88 filed a suit against PUP and the others in a Virginia state court. Did a partner-ship exist among these parties? Explain. [Design88, Ltd. v. Power Uptik Productions, LLC, 133 F.Supp.2d 873 (W.I).Va. 2001)
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Critical Legal Thinking. Given the extensive liability of partners, why would any entrepreneur choose to do business with another, or others, as a general partnership?
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