PROBLEM 1: THE BEAUTY SHOPPE
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, and Roger is well aware of that. 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 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 $800 per week and a bonus at the end of the year of 20% of the net profits, if the business warrants it.
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 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 she is, in fact a partner, then the shop is not required to pay the assessments.
Is Helen a partner, or is she simply an employee with an expected bonus?
Note that in the readings, you will see a number of 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.