Deck 32: Partnerships

Question 1

ETHICS Arthur, John, and George formed a partnership to drill and maintain cesspools for two years. After less than two months, John and George sent a letter to Arthur, informing him that they were dissolving the partnership. Arthur sued the two other men, asking the court to declare that the partnership still existed and he had the right to continue in the business. Do John and George have the power to dissolve a term partnership before the end of the term? Aside from the legal issue, is it fair to Arthur for the court to allow his two partners to walk away from their partnership? He had counted on a two-year commitment; they gave only two months.

Answer 1

Case:
A, J, and G made a partnership to drill a cesspool for two. J and G sent a letter to A after two months to dissolve the partnership. The partner A sued that the firm still continued but A was removed from the partnership.
Relevant provision:
According to UPA (Uniform Partnership Act), partnership is the association of two or more persons to carry on as co-owners a business for profit whether or not they intend to form a partnership. In determining the partnership, the Court considers the following:
• The organization must intend to make profit.
• Agreement to sharing of profits and losses among the partners.
• Management of business.
• Oral or written agreement.
If there is any change in the partnership terms then it must be amended.
Conclusion:
In this case, the agreement showed that the partnership was made for two years. But after two months they removed A from the partnership. Hence, A can sue the other partners. The partnership was made for a fix term. It cannot be dissolved before two years unless court gives any notice. A was removed before two years but other partners continued hence he can walk to court.

Question 2

Mike Love and Brian Wilson were members of the Beach Boys. In the 1960s, they wrote songs together. The copyrights for these songs were later sold to Rondor, which paid the two men royalties when the songs were played. In 2004, Wilson re-recorded some of these songs on a CD called Good Vibrations. This CD was distributed in the United Kingdom by the newspaper The Mail on Sunday. Love sued Wilson, arguing that the two men had a partnership and Wilson had violated the partnership agreement by re-recording the songs without Love's permission. Did Mike Love and Brian Wilson have a partnership?

Answer 2

According to UPA (Uniform Partnership Act), partnership is the association of two or more persons to carry on as co-owners a business for profit whether or not they intend to form a partnership. In determining the partnership, the Court considers the following:
• The organization must intend to make profit.
• Agreement to sharing of profits and losses among the partners.
• Management of business.
• Oral or written agreement.
Unless the partnership agreement states otherwise the partners should follow the following:
• Share profits and losses equally or according to the ratio mentioned in agreement.
• Partners are not entitled to any payment beyond their share in profits, even if they work for the benefit partnership.
• Partners have no right to use or sell specific partnership property except for the benefit of partnership.
• They have equal right in the management.
In this case, W re-recorded the songs and distributed through daily newspaper. W has violated the rules:
• First of all, the property was given for the copyright and the time period of copyright has not lapsed so the partnership firm cannot resale it.
• W re-recorded the songs and sold without the consent of L. Partner has no right to use or sell specific partnership property except for the benefit of partnership. So, W has violated the rules of partnership.
• W has not sold it for the benefit of partnership but he sold it for his own benefit. Hence, W has violated partnership agreement.

Question 3

CPA QUESTION Which of the following is not necessary to create a partnership? (a) Execution of a written partnership agreement
(b) Agreement to share ownership of the partnership
(c) Intention of conducting a business for profit
(d) Intention of creating a relationship recognized as a partnership

Answer 3

According to UPA (Uniform Partnership Act), partnership is the association of two or more persons to carry on as co-owners a business for profit whether or not they intend to form a partnership. In determining the partnership, the Court considers the following:
• The organization must intend to make profit.
• Agreement to sharing of profits and losses among the partners.
• Management of business.
• Oral or written agreement.
Agreement to share ownership is the essential feature of partnership. Intention of conducting a business for profit is a must for partnership. Intention of creating a relationship recognized as a partnership is also important feature. Hence options b, c and d are wrong.
Hence, option (a) is not correct. Execution of a written partnership agreement.

Question 4

YOU BE THE JUDGE WRITING PROBLEM Herbert, an artist, entered into an agreement with Randy for the reproduction and distribution of his paintings. Herbert was to receive 50 percent of the gross sales revenues. Randy was responsible for all losses and for management of the business. Before leaving on a trip to Israel, where he feared he might be in some danger, Randy signed a partnership agreement with Herbert stating that they jointly owned the business. Shortly after Randy returned from the trip, the two men terminated their business relationship, and Herbert revoked his authorization for the sale of prints. When Randy continued selling the prints, Herbert filed suit. Randy argued that the two had formed a partnership and that he was authorized to sell assets of the partnership. Were Herbert and Randy partners? Argument for Herbert: A partnership agreement does not create a partnership. Randy alone managed the business. Herbert shared only revenues, not profits or losses. Argument for Randy: Herbert and Randy both provided services to the business: Randy paid for the printing, and Herbert did the artwork. These two men signed a partnership agreement, and they obviously intended to be partners.

Question 5

Dutch, Bill, and Heidi were equal partners in a lawn-care business. Bill and Heidi wanted to borrow money from the bank to buy more trucks and expand the business. Dutch was dead set against the idea. When the matter came to a vote, Bill and Heidi voted in favor, Dutch against. Dutch was so annoyed that he told the bank not to lend the money and, further, that he would not be responsible for repaying the loan. The bank loaned the money, the business failed, and the bank sued all three partners. Is Dutch liable on the loan?

Question 6

If a partner dissociates, he is entitled to _______. (a) force the termination of the partnership
(b) receive indemnification from liability for present partnership debt
(c) receive indemnification from damages he caused the partnership
(d) receive only his share of the value of the partnership assets when it ultimately liquidates

Question 7

Seventy-Three Land, Inc., sued Maxlar Partners for the balance due on a note made by the partnership. Max, a partner, asked the court to dismiss the claim against him personally because the plaintiff had not first tried to collect against the partnership. Does Max have a valid argument?

Question 8

Carrie and Laura started a business together to sell bridesmaid dresses online. Carrie spent months preparing the financials and meeting with potential investors while Laura designed dresses and found suppliers. Once Carrie was finished with the financials and had identified some potential investors, Laura announced that she preferred to work with Scott, and Carrie was out of the business. What rights does Carrie have?

Question 9

CPA QUESTION Cobb, Inc., a partner in TLC Partnership, assigns its partnership interest to Bean, who is not made a partner. After the assignment, Bean asserts the right to (1) participate in the management of TLC and (2) take Cobb's share of TLC's partnership profits. Bean is correct as to which of these rights? (a) 1 only
(b) 2 only
(c) 1 and 2
(d) Neither 1 nor 2

Question 10

Pedro and Juan have a business selling ties with fraternity insignia. Pedro finds out that an online shirt business is for sale. It sounds like a great idea-customers send in their measurements and get back a custom-made shirt at a price no higher than off-the-rack shirts at the local department store. Does Pedro have to let Juan in on the great opportunity?

Question 11

Lucan and Alison agreed to practice law together. Their stationery said, "The Lucan and Alison Partnership" and they told everyone they were partners. They signed a partnership agreement providing that Lucan would receive a "guaranteed annual draw of $100,000." The rest of the profits went to Alison. Are they partners?

Question 12

CPA QUESTION Ted Fein, a partner in the ABC Partnership, wishes to withdraw from the partnership and sell his interest to Gold. All of the other partners in ABC have agreed to admit Gold as a partner and to hold Fein harmless for the past, present, and future liabilities of ABC. A provision in the original partnership agreement states that the partnership will continue upon the death or withdrawal of one or more of the partners. As a result of Fein's withdrawal and Gold's admission to the partnership, Gold _______. (a) is personally liable for partnership liabilities arising before and after his admission as a partner
(b) has the right to participate in the management of ABC
(c) acquired only the right to receive Fein's share of the profits of ABC
(d) must contribute cash or property to ABC in order to be admitted with the same rights as the other partners

Question 13

Brothers Sydney and Ashley were partners in a real estate partnership in Pennsylvania. They received identical salaries. Sydney moved to Florida to establish residency so that he could obtain a divorce there. His lawyer told him not to return to Pennsylvania until he had resolved his marital problems. After Sydney had been gone almost a year, Ashley decided to increase his own salary to compensate for the additional work he was doing. Does Ashley have the right to pay himself more if he is doing more work?

Question 14

Is there any good reason to be in a partnership? If so, for what sort of business would it make sense?

Question 15

Blackriver Partnership is in the process of winding up. It has three partners: Jason, Kiera, and Lancelot. The partnership has assets of $90,000, but debts of $60,000, including $30,000 it owes to Jason. Who gets what? (a) Each partner receives $10,000.
(b) Each partner receives $30,000.
(c) Jason receives $30,000 and the other two get $10,000 each.
(d) Jason receives $40,000 and the other two get $10,000 each.