1. Bruce and Robin were crime-fighting private investigators. They executed a partnership agreement to conduct their private investigation business. In its year of operations, the partnership had losses. The partnership agreement is silent with respect to the sharing of losses and profits. However, Robin claimed that he was responsible for 30% of the losses and Bruce was responsible for 70% because Bruce was the manager and main investigator. Bruce insists that Robin is responsible for 70% of the losses because the reason the partnership didn’t do well was because Robin was lazy and was only available to work part-time. Who is correct, Bruce or Robin? Why? (5 pts)
Now suppose that in the following year, the partnership is profitable. Robin maintains that even though the partnership agreement is silent with respect to profits because he provided 60% of the capital contributions when the partnership was started, he deserves 60% of the profits. Is Robin correct? Why? (5 pts)
Suppose the partnership agreement did provide that the partners would share losses 60% Bruce and 40% Robin but the partnership agreement is silent with respect to profits, and in the following year the business does very well, and the partnership reports profits at the end of the third fiscal year. How do the parties share in the profits for year 3? (5 pts)
2. Sansa is an entrepreneur and is looking to start her own business. Her sister is interested in investing in the business with Sansa, but Sansa’s sister is concerned about being personally liable if the business does not do well. Sansa also would like to limit her sister’s personal liability. Which business forms should Sansa and her sister consider to limit their personal liability (for both of them!)? Discuss one disadvantage of each of the business forms you are suggesting for Sansa and her sister. (5 pts each)
3. Rafael is a partner in ABC Company. There are three other partners in ABC Company, Donatello, Michelangelo, and Leonardo. Rafael shares the management responsibilities with the other three (i.e. none of the partners are limited partners). Rafael just became in charge of the manufacturing processes of the products that ABC Company sells. Although ABC Company has purchased two of its important inputs for the manufacturing of these products from D Company for many years, when Rafael took over the manufacturing processes, he realized that these inputs are produced by F Company. It turns out that Rafael is also a limited partner in F Company (so although he doesn’t manage F Company, he shares in the profits). Rafael decides to have ABC Company purchase these inputs from F Company, and approaches the other partners at ABC Company about his plans and asks them to approve. He explains that although it may seem like he is being biased because he is part owner of F Company, he believes that F Company can provide the best quality at the lowest price. Can Donatello, Michelangelo and Leonardo bring a claim against Rafael for making this decision? Why not? (10 pts)
If Rafael has signed an agreement with F Company prior to meeting with the others about his plans, would that change your analysis? (5 pts)
4. Roxie, the owner of Simply Sushi, is a sole proprietor. Roxie wants to obtain additional capital to expand Simply Sushi, but she is having difficulty getting approved for a loan from the bank to do so. She is concerned about having to pay too many taxes on earnings. Roxie is contemplating converting Simply Sushi into another business form. What is Roxie’s best option to attain all of her goals of more access to capital while minimizing taxes?