John, a Utah plumber, and Jeff, a general contractor, met for lunch one day. During lunch, John and Jeff decided to go into business together, wherein Jeff would send plumbing referrals to John, John would perform the work and both John and Jeff would split the profits from the business evenly. Jeff has a large net worth and so he was worried about personal liability in the event John caused any damage and was sued. To reassure Jeff, John takes out a piece of paper and writes up a very simple agreement detailing how the business will be ran, and that Jeff will not have any management of the day to day operations of the business and will instead only provide upfront capital of $2,000 to help the business get off the ground. Both of them sign the document drafted by John and go their separate ways. No documents are ever filed with the State of Utah. 6 months later the plumbing business has earned $50,000. Jeff has never provided a referral or performed any of the work, so John has elected not to pay Jeff. Jeff sues John seeking 50% of the income earned by the plumbing business.
- What entity type did Jeff and John form, if any?
- Will Jeff be protected from individual (personal) liability if the plumbing business were to get sued?
- If the court determines Jeff and John formed a partnership, would Jeff be considered a limited partner, why or why not?
- What will be the most likely result of the lawsuit? Is Jeff entitled to 50% of the income earned by the plumbing business?
- If you were Jeff and John's legal counsel, what would you have advised them to do differently?