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Marty And Sally Are Not Partners Case Study

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A general partnership is defined as “a form of business organization that comes into existence when two or more persons carry on business together with a view to profit” (McInnes et al. 537). Additionally, a partnership involves every partner taking responsibility for losses. When deciding whether or not a partnership exists, there are many factors that a court would look at to determine if this definition applied to Marty and Sally. The criteria for a partnership involves: sharing profits sharing responsibility for losses, including guaranteeing partnership debts jointly owning property participating in management, including having signing authority for contracts and bank accounts, and enjoying access to information regarding the business …show more content…

First, there is no information saying that Marty is personally responsible for losses. Although his pay is partly based on profits, it appears he does not pay for losses and would only not receive a bonus. Furthermore, nowhere is it mentioned that Marty jointly owns any of the property, and it can be assumed that Sally solely owns it. There is no indication that Marty holds himself out as a partner or that he allows others to do so. Finally, although Marty does participate in some management roles including making payments to suppliers, the information presented indicates that only Sally is responsible for the financial side of the business which includes payroll, accounting, budgeting, and marketing. Therefore, it is likely Marty does not have full access to financial records; something he would have access to if he was a …show more content…

First, “a partner cannot be employed by the partnership” (McInnes et al 538). This is an important point as Marty is paid a salary of $1000 per month plus 1% of revenue; a partner would not receive a salary and would not receive income from revenue (they would receive income from profit). Second, it is debatable whether or not profit sharing is occurring as Marty only receives profit sharing if a certain amount of profit, $200,000, is reached. It is not guaranteed that he will receive profit-sharing every year, or just because the business makes a profit (as would be the case if the business made under $200,000 in profit). Regardless of whether or not he is receiving income from profits, a partnership does not exist simply because profit-sharing is occurring. More importantly, Marty's profit sharing would fall under this exception “People may share profits without carrying on business together...(when) an employee's remuneration varies with the employer's profits, such as in a profit-sharing arrangement” (McInnes et al. 539). Since the profit-sharing arrangement is part of Marty's contract and not guaranteed each year, profit-sharing is likely not a sign that Marty and Sally are in partnership. Additionally, this is also a sign that Marty and Sally are not carrying on business together as profit-sharing is only a part of his remuneration as an

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