LAW704 - Group Simulation Assignment - Part 1 - Week 3 - 2

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Queens University *

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Feb 20, 2024

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LAW 204/704 – Corporate Law AZIM, Ghodsia HAGERMAN, Dylan KEEPING, Eric LAM, Calvin PELOSI, Christina Week 3 Group Assignment: Business Simulation Part 1 a. What one question would you like to ask your client? Why? (4 marks) Our primary inquiry directed towards our client, Joe, centers on assessing the potential extent of liability. Our rationale stems from the objective to decide the most suitable business structure that aligns with the interests of both Joe and Nancy. Based on the provided information, there is a relatively low-risk of liability associated with the skate sharpening business. Consequently, we can exclude the option of recommending a corporate business structure. Given that this venture involves both Joe and Nancy, the sole proprietorship structure can also be ruled out. We are left with the option of a partnership structure. To provide a comprehensive recommendation regarding the ideal partnership type for Joe and Nancy’s new venture, it is essential to determine the specific liabilities involved. b. What business structure would you suggest for your client? Cite three reasons to support your recommendation. (When answering, be sure to refer to the specifics of Joe and Nancy’s situation.) (15 marks) The business structure we would propose for Joe would be a Limited Partnership ( LP ). In delineating the essential components of a partnership, we identify a relationship among individuals engaged in a joint business endeavour with the intention of achieving profit. In the case of Joe and Nancy, who are friends seeking to collectively operate a business involving skate sharpening and merchandise sales with a profit-oriented objective; the ‘partnership’ structure aligns. Considering Nancy’s impending retirement, which is anticipated in a few years due to her age, opting for a Limited Liability Partnership (LLP) may not be the most suitable choice. In an LLP, active involvement in the business is typically required, which may not align with a 57 year old woman’s day- to-day capabilities. Instead, we would recommend structuring their partnership as a Limited Partnership, designating Nancy as a ‘silent’ partner akin to an investor. Our recommendation is motivated by the following considerations:

1. A Limited Partnership (LP) structure offers a distinctive feature of limited liability for select partners within the partnership. In this arrangement, two distinct partner roles come into play: the General Partner , assumed by Joe, bears full personal liability for the business operation and conduct. Given Joe’s active role in running and operating the enterprise, the predominant share of liability falls upon him. The counterpart is the Limited Partner, represented by Nancy in this context. Limited partners benefit from restricted liability and typically assume a passive role, refraining from active involvement. It is noteworthy that Nancy intends to inject a more substantial capital contribution than Joe, with savings totalling $40,000 compared to Joe’s $5,000. This allows for Joe to secure capital for the venture from the limited partner, without the need for external borrowing. As a limited partner, Nancy’s liability is confined to the extent of her capital investment. This implies that her financial exposure is limited to the amount she has contributed, safeguarding her from any obligation to provide further contributions towards the enterprise debts or liabilities. 2. Secondly, this structural choice emerges as the most prudent due to the cost efficiency associated with Limited Partnerships. Considering their need for an inventory investment of $135,000 and startup expenses totalling $30,000, a cost effective framework proves highly advantageous. Moreover, this structural approach is characterized by its relative simplicity in the establishment process. In the event that additional stipulations become necessary, Joe and Nancy have the option to formalize a Partnership Agreement. Such an agreement can encompass supplementary terms and conditions, thereby affording them flexibility in shaping an accord that aligns with their mutual consent and needs. 3. Lastly, given Joe will operate the store, he would be considered an employee. However, within the context of a General Partnership, partners are typically precluded from receiving compensation as employees. In contrast, under a limited partnership agreement, Joe has the opportunity to formally appoint himself as an employee of the establishment while concurrently maintaining his status as a partner within the LP. This distinction carries substantial significance given Joe’s highly sought-after skills in skate sharpening, which constitutes the primary service of the business. c. Briefly describe what the ownership and management of this structure would look like. (6 marks) In the recommended Limited Partnership structure for Joe and Nancy’s business venture, governance primarily rests with Joe as the General Partner, responsible for

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