Partnerships in a Business - Assignment Example

Number Subject Name Lecturer’s Name Law Due date Date Submitted Business Law Question 1 Partnerships refer to a business that is carried out in common between two or more person and not exceeding twenty with the aim of making a profit. Partnerships are a form of business association. Other forms of business associations include sole enterprises, companies, and cooperatives. Partnerships come with both disadvantages and advantages. A summary of the advantages of a partnership as a form of the business association will be discussed here below. A partnership enables the partners to raise more money than a sole proprietorship would allow. That fact is because the partners come together and pool their resources. A partnership is, therefore, able to raise more money (Seitanidi 2011). A partnership allows for a spread of the risks involved in starting and running a business. It means that the risk does not fall on one person. If it so happens that the new business fails or makes a loss, the loss will be spread on several people and not one person. The process of forming a partnership is relatively easy with very few legal requirements. The formation process is simple, and the startup expenses are very low. A partnership can utilize the various skills that different partners are endowed with. One partner may be an excellent marketer and the other partner a good financial manager. The skills can be applied towards the achievement of common goals. The law on partnerships has few operational requirements. A partnership is not required by law to make public its statements of operations. It enables partners to be more private, and they can protect their business secrets. A partnership has more and better access to loans and credit facility as opposed to a sole proprietorship (Jentz, Miller 2007). The partners in the partnership can reduce the amounts the partnership forward to the company as taxation. Partnerships provide for income splitting that effectively reduce tax payments. Partnerships provide high motivation and morale for its employees; this is because the top talent of working for the partnership can be promoted to partner. The prospects of this happening ensure that the employees give their best to the partnership (Miller 2011). Just with its advantages, the disadvantages of partnerships are also many and varied. The most important disadvantage of partnerships has to do with the liability of partners. The liability of the partners is unlimited. It means that the personal property of partners can be auctioned if and when the property of the partnership is not enough to cover its liabilities. The partnership is hurdled with long decision-making procedures. The partners have to consult and consider the many available options. It leads to delays in the decision-making process (Miller, Cross 2008). There is the possibility of disagreements among the partners in the running and management of the partnership. The friction caused by frequent disagreements among the partners is likely to cause business failure or losses. The partnership exists in an agency relationship with the different partners. As a result, the partnership can be held liable for the actions or activities of the different partnership. This is not the case with other business associations like companies (Stone 2005). Another disadvantage of partnerships is observed in the termination of the partnership. The partnership does not have perpetual succession as in companies. It makes the partnership vulnerable to frequent terminations and formations. The termination process is involving and costly. It is likely to affect the productivity of the partnership negatively. Taxation poses another disadvantage to the business in common. The law requires the partners to file individual tax returns as in the case of a sole proprietorship. The partners many there end up paying more tax separately than they would have paid together. The partnership allows for profit and loss sharing among the many partners. It can lead to complexities in calculations on the profit and loss sharing ratio. As observed from the illustrations, partnerships have both advantages and disadvantages. Individuals have to weigh between these two to decide whether a partnership is the best business association to suit their business needs (Gillies 2004). Question 2 Inter – Share Company has rights against the partnership and the partners in the partnership. The order made by George for the purchase of the shares amounts to a contract. The order was made by George on behalf of the partnership. Inter – Share Company has the right to seek the enforcement of that contract. The company has the right to seek the recovery of the purchasing price from the partnership. Partnerships exist in an agency relationship with the partners. It means that the actions of the partners create legal obligations between the partnership and third parties. The Inter – Share Company is therefore expected to recover the value of the purchasing price from the assets of the partnership. The agency relationship makes the partnership liable to third parties (Ashcroft, Ashcroft 2007). The only requirement is that the activities of the partners in question were done in the course of business for the partnership. In some cases, the assets of the partnership are not sufficient to cover the purchasing price. The third party, in this case, Inter – Share Company should go for the personal property of the partners. The reasoning behind this is that the liability of the partners in the partnership is unlimited. Kelvin leasehold Company has entered into a contractual relationship with George for the accommodation of the workshop. The lease agreement was made on behalf of the partnership; in fact it is for the benefit of the business. George, in this case, is acting as an agent of the partnership. The partnership enters into legal relations with Kelvin leasehold company through its agency relationship with George. Kelvin Lease Company has the right to seek the enforcement of the lease agreement as against the partnership. In a general partnership as in the given case, partners are jointly and severally liable. It means that partners are held liable individuals and as a group. In such a case, a partner is held liable individually for his or her actions. The other partners in the partnership are also held liable as a group for the actions of that one partner. George would be held individually liable for the agreement he entered into with Kelvin Lease Company. Harold would also be held liable for the actions of George even if he did not participate in them. Kelvin Lease Company can, therefore, seek the enforcement of the lease agreement as against both the partnership and Harold, who is a partner. The extent of George’s liability in respect of injuries caused to Leslie will be determined by the interpretation of the words ’mucking around’ in the workshop. It is said that the injuries were caused on Leslie when Harold was fooling around in the workshop. ‘Mucking around’ means one fooling around without any serious thoughts. The question to be determined is whether the mucking around would fall under the ambit of work-related activities. Two situations would arise after that. If it is determined that the mucking around does not fall within the ambit of work-related activities, then George would not be liable. Harold would be personally liable for the negligence, and the unlimited limited liability would apply to him only (Levinson 2002). The other situation will be if it is determined the mucking around does amount to a work related activity. In that case, George would be liable for the negligence by Harold. His unlimited liability would also extend to this case. It is my considered opinion that mucking around does not form part of the work or partnership activities (Schrage, 2001). Therefore, Harold is the only partner liable as the negligence did not take place in the performance of duty. George would not be held liable for Harold’s negligence. The above-stated discussions provide considerable insight into the liability of partners in a partnership agreement and the rights of third parties in their relationship with the partnership. Question 3 Sarah selected a pillow from the shelf herself and took it to the cashier. However, the pillow turns out to cause an allergic reaction and a severe rash on her. Sarah has rights as against the seller David Jones. David Jones could be held liable for negligence. The law requires David Jones to exercise care for his neighbor as according to the case of (Donoghue v Stevenson (1932) UKHL 100). Lord Atkins, in this case, provides that we all owe a legal duty of care to persons who are likely to be affected by our actions. He called such people neighbors. In this case, David Jones owes a duty of care to Sarah as she may be affected by the pillow be purchased. The same laws apply in the case of Sarah and the son’s game. In this case, it is paramount to identify the various elements of negligence. The first element is the existence of a legal duty of care as illustrated in Donoghue v Stevenson (Cartwright 2002). The second element is the breach of that duty of care. David Jones allowed the sale of a game that is likely to cause damage to its user breaching the legal duty of care owed to his customers. The third element is the occurrence of damage as illustrated in the (Overseas Tank ship (UK) Ltd. v Mort’s Dock & Engineering (The Wagon Mound, No. 1) (1961) AC 388) case. Sarah’s son is injured in the eye; this is enough damage or loss. The third matter is on the ‘gel – filled sale’. Sarah can hold David Jones responsible for the tort of negligent misrepresentation (Cartwright, 2012). It occurs whereby a person makes a false representation to another person and that other person acts on that representation and suffers loss or damage. Misrepresentation is illustrated in the case of (Gordon v Selico (1986) 18 HLR 219). It is also contrary to the (Law Reform (Misrepresentation) Act 1977). In this case, David Jones makes a false statement to Sarah that the pair of training shoes are ‘gel – filled’. For this reason, Sarah makes the purchase as they are suitable for use on a treadmill. However, the pair of shoes disappoints her on her first gym session. She also realizes that the statement ‘gel – filled’ was a false one. She suffers loss due to the amount paid for the purchase of the ‘gel – filled' training shoes. David Jones would also have several grounds on which he would seek liability as against Sarah and her son. One of the grounds is contributory negligence (Beever 2008). It would arise in the case of the luxury pillow. It is true that Sarah selected the pillow herself from the shelves and took it to the counter. Sarah there for contributed heavily in her allergic reaction and severe rash. Sarah is therefore as much to blame for her loss. The issue of unforeseen circumstances can also come to the aid of David Jones. Some situations are too remote and unforeseeable for the defendant to have a legal duty of care. The allergic reaction by Sarah to the luxury pillow is unforeseeable. As a result, David Jones does not have a legal duty of care on that aspect. It was illustrated in the case of (Bourhill V Young (1943) AC 92). In this case, a pregnant mother suffered shock by the reason of a loud scream and the sight of blood in an accident. The accident had been caused by a motorist on a motorcycle. The courts held that her loss could not have been reasonably foreseen by the motorist. It was also evident in the case of (Kings V Philips [1952] 2 All E.R 459). Here, a pregnant woman suffered shock by virtue of hearing her son scream from 70 yards away. The son screamed due to an accident caused by the driver of a vehicle. The court held that the woman’s loss could not have been reasonably foreseen by the driver. The driver therefore owed her no legal duty of care. Question 4 The hardware has the right to refuse payment of the bill delivered to the hardware by Cane Crafts. The reason is that the agreement between Cane Craft and Paul was against the express provisions of the partnership agreement. It matters not that the agreement was made orally. The partner Paul was therefore not acting on behalf of the partnership. If it does honor the bill for any reason, the partnership has the right to recover the amount from Paul. The partnership has the right to report Paul and Can Craft for fraud as the agreement was made by fraudulent means. The partnership may be liable to pay the bill forwarded to it by Cane Craft. The reasoning behind this is that Cane Craft were not aware of the oral agreement among the partners and was acting in good faith. Paul by getting into the contracting was acting in an agency relationship with the partnership. The partners would have unlimited liabilities in respect of these liabilities. It means that the personal properties of the partners would be auctioned when the assets of the partnership are not sufficient to cover the liabilities of the partnership. Paul is liable for fraud. The rationale for this is because he entered into a contract with a third party under fraudulent means (Diog 2013). The third party promised him sidekicks amounting to $750. He is also liable to being terminated from the partnership. One of the grounds for the termination of the contract would be the breach of the terms of the partnership agreement. The second reason would be the lack of full disclosure by Paul on the full details of an agreement entered on behalf of the partnership. Paul is liable for the payment of the bill presented to the hardware by Cane Craft Pty Ltd. The partnership may refuse to make the payment by denouncing the agency relationship. The agency relationship would have been terminated as Paul did not have the authority of the principal to make such a contract. If the partnership decided to make the payment, Paul would be liable to make the payment to the partnership for breach of its agreements. Paul would have unlimited liability in his liabilities. It means that his personal property would be auctioned if his stake in the partnership is not enough to cover the liability. The Cane Crafts Pty Ltd has the right to seek the full payment of the $7500 from the partnership hardware. The company is however all together liable to lose the payment as the agreement was acquired through illegal channels (Riley, Rezaee 2009). The company decided to bribe one of the partners to get the deal done. This is a serious action, one that may even lead to criminal prosecution of the company and its management. The company may decide to recover the money personally from Paul upon the dissolution of the existing partnership. It is because Paul misled the company into believing that he had the authority to enter into such an agreement. The company is liable to fraud proceedings. The company acknowledges in writing by including a note at the bottom of the bill inquiring on the status of the new laptop. The company also has the right to recover the ‘personal commission’ from Paul if and when the partnership does not make the full payment of the bill. However, it may be argued that such an agreement, on the personal commission is an illegal one and not enforceable in a court of law (Rakoff 2011). The liability of the shareholders of Cane Craft would be limited as it is a company and not a partnership. Reference Ashcroft, J, Ashcroft, J 2007, Cengage Advantage Books: Law for Business, Cengage Learning Beever, A 2007, Rediscovering the Law of Negligence, Hart Publishers Bourhill V Young (1943) AC 92 Cartwright, J 2002, Misrepresentation, Sweet and Maxwell Cartwright,J 2012, Misrepresentation: Mistake and Non - disclosure, Sweet and Maxwell Doig, A 2013, Fraud, Routledge Donoghue v Stevenson (1932) UKHL 100 Gillies, P 2004, Business Law, Federation Press Gordon v Selico (1986) 18 HLR 219 Jentz, G, Miller, R 2007, Cengage Advantage Books: Business Law Today: The Essentials, Cengage Learning King v. Phillips (1952) 2 All E.R 459 Law Reform (Misrepresentation) Act 1977 Levinson, J 2002, Contributory Negligence, EMS Professional Publishing Miller, R 2012, Cengage Advantage Books: Business Law Today, The Essentials: Text and Summarized Cases, Cengage Learning Miller, R, Cross, F 2008, The Legal Environment of Business: Text and Cases -- Ethical, Regulatory, Global, and E-Commerce Issues, Cengage Learning Overseas Tankship (UK) Ltd. v Mort’s Dock & Engineering (The Wagon Mound, No. 1) (1961) AC 388 Rakoff, D 2011, Fraud, Doubleday, Canada Riley, R, Rezaee, Z 2009, Financial Statement Fraud: Prevention and Detection, John Wiley & Sons Schrage, E 2001, Negligence: The Comparative Legal History, Duncker & Humblot Publishers Seitanidi, M, 2011, The Politics of Partnerships: A Critical Examination of Nonprofit-Business Partnerships, Springer Science & Business Media Stone, R 2005, The Modern Law of Contract, Psychology Press Read More