Discussion 2

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Coastal Carolina University *

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621

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Law

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Feb 20, 2024

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docx

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PROBLEM 1: THE BEAUTY SHOP Roger is the sole owner and operator of a beauty shop. He hires Helen as a receptionist. They work together as employer/employee for a couple of years. At that point, Helen asks for a substantial raise. She’s very valuable, but times are tough, and Roger explains that he can’t afford to increase her salary. Instead, the two enter into a new agreement, which provides: 1. That the parties both consent to associate themselves into a partnership to commence January 1st. 2. That the business shall be the operation of the beauty shop, called the United Beauty Shoppe. 3. That Helen will make no capital investment. 4. That the control and management of the business shall be vested in Roger. 5. That Helen will act as cashier and reception clerk at a salary of $900 per week and a bonus at the end of the year of 20% of the net profits, if net profits exist. 6. That as between the partners, Roger alone is to be liable for debts of the partnership. 7. That both parties shall devote all their time to the shop. 8. That the books are to be open for the inspection of each party. 9. That the salary of Roger is to be $2,500 per week and at the end of the year he is to receive 80% of the profits. 10.That the partnership shall continue until either party gives ten days’ notice of termination. Both sign the agreement. The two carry on this business for two years, each year filing a partnership income tax return with the U.S. and state governments. At this point the state Unemployment Commission sues the shop, claiming that Helen is not really a partner, but is in reality still an employee, and that therefore the shop has failed to pay workers’ compensation fees for her. If Helen is in fact a partner, then the shop is not required to pay workers’ compensation fees for her. Is Helen a partner or just an employee? Note that in the readings, you will see numerous factors used in determining whether or not two people are partners. Make sure you work your way through the various factors in your analysis.

PROBLEM 2: THE WEB PORTAL CONTRACT Summers and Dooley are partners in a small business, “Summers & Dooley Co.” The two partners disagree about whether or not to expand the business; Dooley wants to expand and is willing to take the risk, Summers wants to avoid the risk and keep doing what they’re already doing. When Dooley proposes hiring a firm to build a new website for the partnership, Summers refuses. Nevertheless, Dooley signs a $10,000 contract with Developer, ostensibly on behalf of “Summers & Dooley Co.,” to design and build a new e-commerce portal. Developer completes the work and submits her bill. Summers refuses to allow the bill to be paid out of the partnership account, arguing that he never agreed to it. (a) If Developer sues Summers personally for the unpaid amount of the bill, will Summers be personally liable? (b) If Dooley pays the money to Developer, can he recover half the amount from his partner, Summers? Note that on this problem there are multiple steps to the analysis. You will have to determine whether Dooley had the "power" to bind Summers to the contract and whether he had the "right" to enter into the contract, before you can determine who must pay what. Problem 1: Helen is a partner in this business. In breaking down Helen and Roger’s agreement that they both signed, Clause 1 and 2 states that both parties consent to be in a partnership and what their business name will be which supports the partnership factor of expression of intent to be partners. Clause 5 and 9 outline salary and how the profits will be divided between the two which supports the partnership factor of receipt or right to receive a share of profits. Clause 7 outlines that they both should contribute all their time to the shop and Clause 8 outlines that the books should be open for inspection by both parties which supports the partnership factor of participation or right to participate in control or the business. Although the agreement appears to have Roger having more of a stake in the business than Helen, with them both signing and agreeing to the terms, the partnership does not have to be 50/50 between the two. The agreement has satisfied three partnership factors which would be enough to call Helen a partner since factors are considerations and not all of them have to be necessarily present. Additionally, the fact that both of them have been filing partnership tax returns (one of the benefits of partnership is tax advantages) for two years indicates that they have been operating as a partnership for some time.

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