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Exam 36: Partnerships: Nature, Formation, and Operation

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Question 51

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[Health Food] Josh and Merida are partners and owners of J&M Health Food Store. Carson, who is a registered dietician, works for J&M on and off as a consultant, as he is very knowledgeable about the health benefits of natural herbs. Carson travels to conventions around the country and tests new products and often relays information about the new products to J&M. At a convention last month, Carson met Monte, a vitamin producer, who stated that he was glad to meet one of J&M's partners. Carson replied that the new Fresh product line was exactly what J&M needed and placed a significant order for J&M. When the Fresh product was delivered, J&M had closed the store for remodeling, and the product spoiled. -Assume Carson pays the damages suffered by Monte. Carson then asks J&M for a share of J&M's profits, which J&M refuses. Is J&M justified in denying Carson any share of the profits?

A) Yes, even though Carson paid the debt, Carson is not a partner of J&M and is not entitled to profits.
B) Yes, even though Carson is considered a partner, he is not entitled to a share of the profits because he failed to seek approval of his partners for the deal.
C) No, Carson is now considered a partner of J&M and is entitled to a share of the profits.
D) No, even though Carson is not considered a partner of J&M, he is entitled to a share of the profits up to the amount of damages paid to Monte.
E) No, even though Carson is not considered a partner of J&M, he is entitled to a share of the profits up to the amount of damages paid to Monte and any reasonable expenses.

F) None of the above
G) B) and E)

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Question 52

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Nadine and Lawrence are partners in a real estate business. Nadine notices that several listings that were in their inventory are no longer in their inventory. When she asks Lawrence about these listings he indicated the by sellers had changed their mind. She is suspicious that Lawrence sold the properties and kept the commissions to the property. Lawrence refuses to let Nadine see the books. Nadine could ________

A) ask for a profit analysis to be completed.
B) demand an accounting.
C) seek an indemnity agreement.
D) ask a forensic auditor to audit the books.
E) create her own set of books and keep them from Lawrence.

F) All of the above
G) A) and E)

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Question 53

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Under the Uniform Partnership Act regarding personal liability of partners, if the partnership itself is liable, how is the allocation of personal liability distributed among the partners?

Unless otherwise stated in the partnership agreement, each partner will have one vote in determining how the partnership is managed, even if one partner has an unusually large proportion of management duties.

[Partnership Agreement] Rufus, Sven, and Igor are partners in a Health Club. They executed a partnership agreement ten years ago. Rufus and Sven want to grow the company and approach Igor with their ideas. First, they want to add two partners into the partnership who have extensive capital. Second, they want to move the club into a new direction, by adding a restaurant and a casino. Third, they want to purchase new exercise equipment from SportsCo. Igor doesn't want to add new partners and despises the idea of adding the restaurant and casino. Igor agrees that new equipment is needed, but insists they continue to purchase equipment from HealthCo. Rufus and Sven tell Igor, that he's outvoted and also tell him they want to revise the partnership agreement's provision regarding mandatory retirement. -Can the two potential new partners be added to the partnership without Igor's vote in favor of doing so?

Tomlin is a partner in the accounting firm of TSY. He embezzles client funds. Shay and Yalinda are his partners. Since Tomlin committed the tort within the scope of his partnership duties, are Shay and Yalinda liable?

[Car Repair] Gordon and Leo are partners in SafeT Car, a full service automotive repair company. Leo does nearly all of the day-to-day work as Gordon is thinking about retiring. When Leo was moving a customer's car last week, he accidentally collided with the garage door, and the door had to be replaced at a cost of $6,000. Leo recently met with BigBox stores about a potential deal by which BigBox would set up a SafeT Car shop in every BigBox store nationwide. Leo signed an agreement to open a "test" store in one BigBox store. Leo hasn't told Gordon yet, because Gordon hasn't been in the office in a month. Gordon opens The Oil Place, an express oil change company, which he plans to have his sons operate in his retirement. When Leo learns about The Oil Place, he threatens to sue Gordon for breach of duty because Leo is sick of doing all the work at SafeT Car while Gordon was apparently opening a competing business. Gordon tells Leo that he hasn't breached any duty and they don't have a written agreement that restricts Gordon from opening his own store with his sons. Gordon also tells Leo that the $6,000 for the damaged door is coming out of Leo's pocket. Leo, who's thinking about the potential deal about BigBox, tells Gordon he wants to split up the partnership. -Does Leo have any obligation to tell Gordon about the BigBox deal?

[Grooming Grievances] Andrew, Marie, and Cruz formed a partnership to groom dogs. Because they were good friends and anticipated making a profit sufficient to compensate all partners well, the articles of partnership did not allocate profit or losses. Marie was appointed managing partner. Unfortunately, the business did not go as well as expected and the partnership incurred some losses. Cruz claimed that he should not have to share in losses because he had groomed more dogs than anyone. Cruz also claimed that although the partnership did not reference compensation for additional duties, he was entitled to compensation because of his extensive work. Marie claimed that she should not have to share in losses because she contributed more capital than did either of the others. Andrew claimed that he should not have to cover the losses because both Marie and Cruz had been hiding the books from him. He demanded to inspect the books and also to review a listing of all partnership assets and profit statements listing distributions to partners. Marie and Cruz denied that they had been hiding the books and claimed complete innocence of any wrongdoing. -Which of the following statements is correct regarding how the partnership losses would be allocated?

In their partnership agreement, Tulum is responsible for the books. The principal office of the partnership is in Denver but Tulum works from home most of the time in Colorado Springs. Unless otherwise agreed, the records of a partnership ________

[Partnership Agreement] Rufus, Sven, and Igor are partners in a Health Club. They executed a partnership agreement ten years ago. Rufus and Sven want to grow the company and approach Igor with their ideas. First, they want to add two partners into the partnership who have extensive capital. Second, they want to move the club into a new direction, by adding a restaurant and a casino. Third, they want to purchase new exercise equipment from SportsCo. Igor doesn't want to add new partners and despises the idea of adding the restaurant and casino. Igor agrees that new equipment is needed, but insists they continue to purchase equipment from HealthCo. Rufus and Sven tell Igor, that he's outvoted and also tell him they want to revise the partnership agreement's provision regarding mandatory retirement. -Can Rufus and Sven move forward with adding a restaurant and casino to the club over Igor's rejection?