Assignment+One+with+Grading+Notes - Management C31 Summer...

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Management – C31 Summer Term, 2010 Assignment One The Case Allan and Bella run a large store selling art and high-end home furnishings. Their store is called The Good Life. They have no formal agreement in place but they routinely refer to one another as “partner.” When the business was first started Allan did the majority of work in getting it established while Bella contributed a greater share in the capital. Since then, however, they have both shared equally in the profits of the business and have worked similar numbers of hours each week. There is no realistic doubt that there is a partnership between Allan and Bella. It might be wise for students to quickly gloss the fact that with no formal arrangement between them whatever “default” assumptions regarding partnerships presumptively apply. There’s no real requirement for this in any case, but it would also be a mistake to spent too much time proving the obvious as that only limits space for more substantial issues. Bella has two young children and for some time her husband was staying home with them. Last year, however, he returned to work and so Bella needed to spend more time at home with her kids. As a result, she began working fewer hours. Allan was not able to keep up the store alone and so he and Bella agreed to hire his nephew, Verne, to work some hours in the shop. Paying Verne was a bit of a problem because the store wasn’t doing very well. At first they agreed that Verne would receive a straight 20% commission on everything he sold. In practice, however, it became difficult to separate his sales from the rest. So instead they did a rough calculation to determine the break- even point for the store and Verne now receives 20% of all profit beyond this point. Some months Verne receives nothing but other months he does quite well. This works for him because the store is just a part-time job. Paying an employee in a way that ties compensation to profitability does not inherently create the presumption of a partnership. However, going to a compensation scheme that’s 100% tied to profitability is a little extreme. It may also be significant that the partners have done this not as an incentive to productivity but because they can’t actually guarantee cashflow for compensation. Verne’s role has apparently become one where he either earns or doesn’t earn along with the store. This is definitely moving in the direction of him becoming a partner, whatever the intention may have been. Weighing against this, of course, are the ways in which the store’s financial position is not obviously his own. He’s never invested. He hasn’t been asked to cover any loses or shortfall. But the fact that he’s never been liable in this way previously doesn’t mean he couldn’t be, if the store ever failed completely.
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Mainly Verne does home renovations.
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This note was uploaded on 05/05/2011 for the course MGT C31 taught by Professor Rybak during the Winter '11 term at University of Toronto- Toronto.

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Assignment+One+with+Grading+Notes - Management C31 Summer...

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