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Midterm Review Questions and Answers_StudyGuide

Midterm Review Questions and Answers_StudyGuide - Copied...

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Copied Notes on Midterm Review PARTNERSHIPS I. Bob, and Barb [who are brother and sister] and Dave were partners in a retail liquor business. The partnership leased all tangible assets and maintained minimal inventory. The only valuable asset in the business was the liquor license. Dave died in June, 1997. Craig has an outstanding judgment against Bob and Barb [not the partnership] and he wants to have his judgment satisfied from their partnership interests. When Bob and Barb do not agree to have this judgement satisfied from their partnership interests, the court orders their partnership interests sold at public auction. Their partnership interests are purchased by Paul in December. Craig is paid off with this cash settlement. The liquor license is about to expire. Claiming he owns 2/3 of the partnership, Paul has filed an application to renew the license. Bob has filed an application to renew on behalf of himself, Barb and Dave’s estate [with their consent]. Who has the right to the liquor license? Who has a right to operate the business? Please explain why you reach the conclusions that you do. I . All of the information regarding how/why the partnership interests came to be auctioned off is irrelevant. When Dave died, B & B as surviving partners got the right to control partnership property to effect a reasonable termination of the partnership. Dave’s executor has no right to participate in this process . It was not intended that B & B appear negligent in how they wound up the business but some students did reach that conclusion. While Paul purchased B & B’s interests at auction, this doesn’t give him the right to participate in decision-making like a partner or give him an interest in any specific piece of partnership property [like the liquor license]. He only gets B & B’s share of the profits . This is a difficult distinction to make but one which is crucial to a correct answer.
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Since the facts say that the only valuable asset in the business is the license, it would seem legitimate as part of the winding up process for Bob to renew the license so that the business as a going concern can be sold for a decent price. When the business is sold, Paul gets 2/3 of the sale price and Dave’s estate gets 1/3. II. On June 1, 1994, Olson invested $30,000 and became a limited partner in a partnership in which Smith and Jones were the general partners. The partnership was formed to develop and market a computer game based on Olson's CAD program. Olson became frustrated with the way Smith and Jones were running the business and he wanted to take an active part in management. As a result, in January, 1995, he agreed to be a general partner. At this point, an agreement was signed identifying Olson as a general partner. The agreement was backdated to June 1, 1994.
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