Michael Ross formed a limited partnership with his father-in-law, Robert Zane, to open a seafood restaurant in a mid-western town. Mr. Ross was the general partner and Mr. Zane was a limited partner and invested $100,000. After one year, difficulties in the restaurant’s operation caused business to drop off, and Mr. Ross called Mr. Zane for advice. After hearing of the difficulties and concerned with the security of his investment, Mr. Zane traveled to visit the operation. After observing the operation for two days, the two partners jointly decided to launch a large and expensive television ad campaign to increase lagging sales. Mr. Zane designed the campaign with the help of Brandon Advertising and Video, a local advertising agency specializing in television commercials. Despite an immediate increase in sales, volume continued to decline, and finally, three months after the ad campaign launched, the restaurant closed its doors. Total debts at the time the restaurant closed equaled $400,000 (which included the advertising bill,) and the assets of the partnership were $200,000. The advertising agency sought the entire payment directly from Mr. Zane. Mr. Zane claimed that his liability was limited to the $100,000 he had previously invested in the business and refused to pay any additional money. The Brandon Advertising Agency sued the partnership, as well as Michael Ross and Robert Zane individually. 1. What are Mr. X-Zane’s responsibilities as a limited partner? 2. By advising Mr. Ross and hiring the advertising agency, did Mr. Zane forfeit his limited partner status? Why or Why not? 3. Is Mr. Zane liable for the outstanding debts of the partnership? Why or why not? If so, how much and under what concept?
Michael Ross formed a limited partnership with his father-in-law, Robert Zane, to open a seafood restaurant in a mid-western town. Mr. Ross was the general partner and Mr. Zane was a limited partner and invested $100,000. After one year, difficulties in the restaurant’s operation caused business to drop off, and Mr. Ross called Mr. Zane for advice.
After hearing of the difficulties and concerned with the security of his investment, Mr. Zane traveled to visit the operation. After observing the operation for two days, the two partners jointly decided to launch a large and expensive television ad campaign to increase lagging sales. Mr. Zane designed the campaign with the help of Brandon Advertising and Video, a local advertising agency specializing in television commercials.
Despite an immediate increase in sales, volume continued to decline, and finally, three months after the ad campaign launched, the restaurant closed its doors. Total debts at the time the restaurant closed equaled $400,000 (which included the advertising bill,) and the assets of the partnership were $200,000. The advertising agency sought the entire payment directly from Mr. Zane.
Mr. Zane claimed that his liability was limited to the $100,000 he had previously invested in the business and refused to pay any additional money. The Brandon Advertising Agency sued the partnership, as well as Michael Ross and Robert Zane individually.
1. What are Mr. X-Zane’s responsibilities as a limited partner?
2. By advising Mr. Ross and hiring the advertising agency, did Mr. Zane forfeit his limited partner status? Why or Why not?
3. Is Mr. Zane liable for the outstanding debts of the partnership? Why or why not? If so, how much and under what concept?
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