Question

Alexandra and Kellie operate a beauty salon as partners who share profits and losses equally. The success of their business has exceeded their expectations; the salon is operating quite profitably. Kellie is anxious to maximize profits and schedules appointments from 8 a.m. to 6 p.m. daily, even sacrificing some lunch hours to accommodate regular customers. Alexandra schedules her appointments from 9 a.m. to 5 p.m. and takes long lunch hours. Alexandra regularly makes significantly larger withdrawals of cash than Kellie does, but, she says, “Kellie, you needn't worry, I never make a withdrawal without you knowing about it, so it is properly recorded in my drawing account and charged against my capital at the end of the year.” Alexandra's withdrawals to date are double Kellie's.

1. Who are the stakeholders in this situation?
2. Identify the problems with Alexandra’s actions and discuss the ethical considerations involved.
3. How might the partnership agreement be revised to accommodate the differences in Alexandra’s and Kellie’s work and withdrawal habits?

Answer 1

Answer:

1) Who are the stakeholders in this situation?

In general, a stakeholder is someone who has a certain interest or concern in a business or similar. So, here in this case,

- Alexandra and Kellie are the stakeholders.

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2) Identify the problems with Alexandra’s actions and discuss the ethical considerations involved.

- The major problems in this case with Alexandra is Less work time when compared to Kellie and excess withdrawl of cash which might lead to a problem of shortage in working capital requirement.

So, to be explained in detail, Alexandra work hours are from 9 a.m. to 5 p.m, whereas kellie's work hours are from 8 a.m. to 6 p.m, However, the profits & losses are still shared equally despite working hours,So there is a problem with the action (In a ethical way in Work Environment) of alexandra in this particular matter as she is earning that share of profit even without working more than Kellie,

And Although Alexandra is withdrawing more than Kellie, Ultimately the same shall not affect the profits and losses which are to be shared as it was said in the question that every withdrawl made by alexandra is rooted through her capital account, However, Excess cash withdrawls than required might lead to a shortage in the working capital requirement which is required for day to day business activities, So the same shall not be encouraged in the long run.

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3) How might the partnership agreement be revised to accommodate the differences in Alexandra’s and Kellie’s work and withdrawal habits?

- They can start revising the partnership agreement by changing profit & loss sharing clause which is to be shared equally (In Old partnership agreement) to Profit & loss sharing basing on the Hours work per week or per month as per their convenience to settle out the difference in their work,

and coming to the withdrawl habits, A clause containing limit on the amount which can be withdrawn by either parties can be added (For Example: Any partner cannot withdraw more than 30% of the salon's previous year profit or 20% of their capital invested in a year, etc.,) These clauses help reduction of working capital requirement by putting a cap on the outflow of withdrawls.

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