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Topic: Personal Liability of Principals13-52
Chapter 13 - Choice of Business Entity, Sole Proprietorships, and Partnerships80.(p. 344)Bud and Lou own and operate a bakery. They each perform all of the functions in the bakery from baking to cleaning up. They make decisions jointly and hold themselves out to the public as business equals. When starting the business, Bud contributed $60,000 and Lou$40,000 to capitalize the business. They have a written agreement stating that they will share profits equally, however; responsibility for losses will be allocated at 60% to Lou and 40% to Bud. If Helen slips and falls in the shop and gets a judgment for $100,000, how may Helen proceed? Bud and Lou are general partners in a general partnership due to the shared management. Helen must first exhaust the assets of the partnership when collecting her judgment. If the business assets are insufficient to satisfy the judgment, Helen may sue either or both for the full balance owed. Under RUPA provisions, regardless of what may be written into a partnership agreement, all general partners are jointly and severally liable for debts and liabilities of the partnership without regard to capital contributions or agreements to the contrary.AACSB: Reflective ThinkingBloom's: ApplyBloom's: EvaluateDifficulty: HardLearning Objective: 13-03 Recognize the effect and role of the RUPA for general partnerships and the RULPA for limited partnerships.Learning Objective: 13-05 Distinguish between personal liability for general partners and limited partners.Topic: Liability of Principals13-53