Question

Compare and contrast these three scenarios. Which ones are partnerships? Explain. Which are not partnerships? Explain.

Daniel is the owner of a chain of shoe stores. He hires Rubya to be the manager of a new store, which is to open in Grand Rapids, Michigan. Daniel, by written contract, agrees to pay Rubya a monthly salary and 20 percent of the profits. Without Daniel’s knowledge, Rubya represents himself to Classen as Daniel’s partner and shows Classen the agreement to share profits. Classen extends credit to Rubya. Rubya defaults.

Patricia Garcia and Bernardo Lucero were in a romantic relationship. While they were seeing each other, Garcia and Lucero acquired an electronics service center, paying $30,000 apiece. Two years later, they purchased an apartment complex. The property was deeded to Lucero, but neither Garcia nor Lucero made a down payment. The couple considered both properties to be owned “50/50,” and they agreed to share profits, losses, and management rights. When the couple’s romantic relationship ended, Garcia asked a court to declare that she had a partnership with Lucero. In court, Lucero argued that the couple did not have a written partnership agreement.

Karyl Paxton asked Christopher Sacco to work with her interior design business, Pierce Paxton Collections, in New Orleans. At the time, they were in a romantic relationship. Sacco was involved in every aspect of the business—bookkeeping, marketing, and design—but was not paid a salary. He was reimbursed, however, for expenses charged to his personal credit card, which Paxton also used. Sacco took no profits from the firm, saying that he wanted to “grow the business” and “build sweat equity.” When Paxton and Sacco’s personal relationship soured, she fired him. Sacco objected, claiming that they were partners.

Answer 1

1. Rubya is not a partner of Daniel since Daniel had hired him as a manager of new shoe store and as per the contract, he agreed to pay Rubya a monthly salary and 20 percent of the profits. This written contract does not make Rubya an equal partner of Daniel and is represented as an employee of the company.

2. This would be considered as a partnership agreement because even though there was no written agreement between the two parties but both of them acquired an electronics service center, paying $30,000 apiece which means they invested 50% each to acquire the service centre. This makes them equal partners even in the absence of any written contract.

3. This would not be considered as a Partnership agreement because Sacco did not invest equal amount of money in the interior design business as was invested by Paxton. Moreover there was no written Partnership contract between both the parties. In the absence of investment as well as written contract, Sacco cannot be considered as a business partner of Paxton.