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In: Finance

Chip goes into business with two friends (named A and B) from the Honors program after...

  1. Chip goes into business with two friends (named A and B) from the Honors program after graduation. Unfortunately, B is very negligent (e.g. could be harassment, professional malpractice, etc.)  and injuries someone in the course of business. Chip was in no way negligent himself.  Nonetheless, the injured party can prove $1,000,000 in damages and is now seeking to recover.

    1. If Chip, A, and B are operating as a general partnership, how much (a) is Chip liable for (b) is A liable for, (c) is B liable for, and (d) is the general partnership liable for?

    2. If Chip, A, and B, are operating as an LLC, how much is (a) is Chip liable for (b) is A liable for, (c) is B liable for, and (d) is the LLC liable for?

Solutions

Expert Solution

To answer this question we need to know the Agreement between Chip, A and B. As stated above in the question these three peoples are in "General Partnership" with each other.

What is General Partnership?

It is a type of agreement between people who want to run a business together. It is the most basic type of partnership. In this type of business agreement all partners must involve in the business and they are responsible for any unlimited liability for business debt.

Conditions :

  • If a partner does something without involving others all the partners in the business will be responsible for his action, it can be business agreement or any loan agreement or other action which impact business.
  • Any partners negligence will also be under this action.
  • They are also unprotected from any lawsuit or seizure of their personal asset in case of non-payment of debt obligations.

After reading the conditions mentioned above it is clear that in case of general partnership all the partners will be responsible for any partners action takenin due course of business operation.

Hence, (a). Chip will be liable for the damages.

(b). A is also laible for the damages made by "B'.

(c). B is also liable for the damages made by him.

(d). yes the partnership is also liable for the loss due to the injuries made by "B".

Here, the amount of liability on any partner is unlimited.

(2). Limited Laibility Partnership or Company: In case of LLC there is no general partnership which means liability of partners are limilted to the amount they put into business. Each partners are liable for the negligence or misconduct made only by him not others.

Hence, (a). No, chip is not liable in this case because the partnership is limited liability and it does not cover negligence of other partners.

(b). No, A will not be liable for the injuries made by "B" as it is a limited liability partnership.

(c). Yes, "B" will be liable for the whole loss made by him.

(d). Business(LLC) will be liable for the amount which "B" has invested not more than that, because everyone's liability is limited to trhe amount they have invested in the partnership business.

jeff jeffy answered 1 year ago
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