Question

The Facts: Ann and Bill decided to start a coffee shop. They agreed Bill would provide his specialty coffee-making equipment and that Ann would fund the initial operating costs up to $10,000. They agreed to split the profits equally. They also agreed that Ann is in charge of managing the shop on a day-to-day basis, but both Ann and Bill must agree on all major decisions. Bill receives no specific payment for the use of the coffee-making equipment. Ann receives no specific payment as interest on any funds she advances or for her management efforts. There are no other written or oral agreements between them.

They have not filed any documents with any governmental authority concerning the formation of any type of business organization.

The shop operates from premises leased from an unrelated third party. The business operates under the name Ann & Bill’s Expresso. After losing a total of $2000 over the first five (5) months of operations (which was covered by Ann), in month six (6) the coffee shop earned its first net profit ($200 for the month).

At the beginning of month seven (7) Bill happens to be at the coffee shop and receives a call that an order of coffee beans for the shop has arrived at the supplier’s warehouse. Without telling Ann, Bill takes his car and goes to pick up the coffee beans.

He is distracted from paying full attention to his driving by his personal financial problems. In particular, his bank is threatening to start legal action to collect his overdue $5000 personal loan. His lack of attention causes him not to see Carol, a pedestrian in a clearly labeled crosswalk. Bill hits and injures Carol. Bill is clearly entirely at fault under applicable law.

The Questions: Based on the above facts and limiting consideration to business organization and agency law, please discuss the following five issues. When discussing each issue please explain concisely how you arrived at your conclusions through application of the relevant law to the facts presented.

(1) Has a general partnership has been formed between Ann and Bill? Why, explain fully. (Worth 10 points)

Assume there is a general partnership between Ann and Bill.

Please discuss:

(2) Discuss whether Carol may have claims against Ann & Bill’s Expresso, and Ann and Bill as individuals. (Worth 30 points – 10 points for Expresso answer, 10 for Ann’s answer and 10 for Bill’s answer)

(3) Discuss whether Ann will have a claim against Bill if it turns out that Carol gets a $50,000 judgment that the coffee shop cannot pay and Ann ends up paying all of it? (Worth 10 points)

Answer 1

Answer 1- Yes, there is a general partnership between Ann and Bill as they both agree to start a coffee shop. In which Bill would provide his specialty coffee-making equipment and that Ann would fund the initial operating costs up to $10,000 and the profit distribution will be done equally. Ann is in charge of managing the shop on a day-to-day basis, but both Ann and Bill must agree on all major decisions. So this is clear that they have formed a partnership in which both the individuals are ready to participate in the management activities, as per the terms agreed, and share the profit as agreed.

Answer 2= As it is a general partnership, both the individuals that are Ann and Bill will be having the unlimited liability towards any sort of lawsuit against the company. Therefore, when it comes to Anne, she will also be responsible for the claims and damages given to Carol as Anne is a general partner and she is not protected from the limited liability clause.

The same case is true for Bill as being the general partner he is also not covered against any sort of liability resulting from the damages to be paid by the partnership firm.

When it comes to the coffee shop, as Bill was going for the coffee shop related activities so the lawsuit and damages have to be paid from the account of the coffee shop and it has to be divided equally among Bill and Ann in case the damages cannot be fully recovered from the funds of coffee shop

Answer 3=No, being the general partnership, every partner will be having unlimited liability towards the partnership. If there is any liability against the partnership firm, then if the partnership cannot pay the damage then it has to be paid by the partners and no claims can be made among the partners.