ASSIGNMENT: "Partnership Troubles"
UNIT 2: Sole Proprietorships and Partnerships
These forms of doing business come into existence on a "default" basis, meaning that if you do not form and then conduct your business through a specific entity (e.g. a corporation or LLC), they apply ("pop into existence") automatically. Why? Is there always a need to organize a business as a separate business entity, or is it sometimes okay to operate your business by yourself (as a sole proprietor) or in combination with others (a partnership) with no real formalities? What are the liability, tax and other implications of the choices? What "default" (automatic) rules kick in?
Preparation:
- Re-read pages 10-19 (top of page) of The Law of Corporations.
- Read pages 40-46; 62-68; 110-114; 231-233; 318-321; and 368-374 of Business Associations.
- View PowerPoint Presentation on Sole Proprietorships and Partnerships.
Scroll down and read ORS 67.005(7); 67.015(1); 67.025 Governing law. (1) and (2); 67.050 and 67.055; 67.100(1); 67.105(1); and 67.140 (entire section). Skim remainder of ORS 67.
Facts
Three persons decided to develop property (e.g. plan, build and sell houses on the property) under an arrangement where one person (the "Capital Person") would contribute the land (capital), the second person would provide planning and development advice (the "Knowledge Person"), and the third would list the houses for sale in his real estate agency (the "Sales Person").
All three had been great friends for years, and each felt that it would not be necessary to hire accountants and lawyers and others to assist in the venture or to put anything in writing. The three agreed to name their venture "Blue Sky Ventures" and shook hands.
The Capital Person immediately transferred his land to "Blue Sky Ventures."
The land was worth one million dollars. The Knowledge Person had no money, but had considerable experience developing property. Similarly, the Sales Person had no money, but had considerable experience selling property.
About a year passed, but no one did anything because each was busy with other things.
Unfortunately, a severe economic downturn (i.e. recession) occurred, making the project much less profitable. To make matters even worse, it became clear that the local government would make it very difficult to build houses on the land due to a new emphasis on growth control, land use, and aesthetics.
Research
This question can be answered based on basic partnership principles, which are described in the texts, the PowerPoint presentation, and ORS Chapter 67.
Response
Please respond to the following questions. Describe your rational, assumptions, supporting facts, and conclusions for all responses.
Is this a binding agreement given the fact that it was not in writing? If it is, what is the probable status of the relationship between the Capital Person and the two others? Why?
Who owns the property? What is each person's ownership interest?
Who has control over the venture?
What should have been done differently and why?
A typical, concisely-written response should take two to four double-spaced, typewritten pages.