Question

Case Analysis:

Susan and Sally decide to mow lawns during the summer for some extra money. In preparation, they sit down and talk to each other, but they do not create a contract, and they do not file any paperwork with any state or city department. Susan and Sally paint a sign with the following words: “Susan & Sally’s lawn-mowing service. Give us a summer contract, and the first service is free!” They are very successful in their endeavor, booking 45 yards during the first month. Unfortunately, as Sally was mowing Mr. Howard’s lawn, she accidentally ran over his foot while he slept in his lawn chair. As a result, Mr. Howard had to receive extensive medical care.

1. Which form of business have Susan and Sally created? How do you know?
2. Besides regular concern about another person, why else should Susan be concerned about the unfortunate incident with Mr. Howard?
3. If Susan and Sally had come to you for guidance on the type of business organizational form they should have started, what would you have advised? Why?

Answer 1

1.Susan and Sally have created partnership form of business. We get to know about this from the sign board "Susan & Sally's lawn-mowing service" that they had created which had names of both of them. That means the business belongs to both of them. But though they have not created any contract so it was partnership with informal agreement.

2.Susan should be concerned about the unfortunate incident with Mr.Howard because it was not her mistake but Sally's mistake alone. However, she too have to bear the loss of bad publicity and feedbacks because she is a partner of Sally and will be held equally responsible for the things whether it is good or bad.

3.If Susan and Sally had come to me then I would suggest them to carry on with partnership type of business only but with a written formal contract wherein all the terms and conditions like profit and loss sharing ratios,liabilities etc would be decided in advance and with written proofs so that there are no confusions in future.