John, Frank, and Peter are college friends. After college, they decide to go into business together running a financial consulting firm advising wealthy individuals regarding retirement and other investment plans. They name their firm JFP Consulting, Ltd. According to their partnership agreement, because John is better with people, it is decided that his sole responsibility will be bringing clients into the firm. Frank, who is more business minded, is responsible for running the day-to-day administrative operations of the business. Peter is acting as a silent investor and does not have any duties with regard to the business. The three friends decide to split the profits in the following manner, which is set forth in their partnership agreement: John and Frank each get 40%, and Peter gets 20%. One day, a salesman comes to the office of JFP Consulting, Ltd. to sell them computer software that will help keep their business and client information organized. Only John is in the office that day. He listens to what the salesman has to say and thinks that this software would be great for their business. John signs a contract on behalf of the business with the salesman agreeing to pay a monthly fee of $700 for this software for a period of 2 years. Frank later returns to the office and is furious when he finds out that John has signed this contract because he doesn’t believe this is an extra expense the business can afford to take on right now. Frank calls up the salesman and tries to get out of the contract. The salesman says that his company intends to enforce the agreement against the business. 3 years later, the three friends are still in business and decide to incorporate. They change the name to JFP Consulting, Inc., and the three of them are the only shareholders. While trying to pay some personal bills one day, Frank realizes that he doesn’t have enough money to pay the bill. To cover the expense, Frank takes money out of the business account and transfers it to his account so that the bill can get paid on time. The next month when Frank has the money, he reimburses the business for the full amount. Answer the following:
1) Discuss what type of business has been created when the three friends first go into business together, and explain how that type of business gets created.
2) Discuss what type of authority John had to act in this case to enter into the contract with the salesman (note: this question is asking about authority, not duties, rights, or responsibilities).
3) Assume that the business never sends in payment for the contract with the salesman. Explain whether or not each of the parties is liable or not, making sure to explain your reasoning. Don't forget to include the business itself.
4) Discuss whether Frank could suffer any liability for his actions after the business is incorporated. Make sure to fully explain your answer.