Smith and Roberson’s Business Law
17th Edition
ISBN: 9781337094757
Author: Richard A. Mann, Barry S. Roberts
Publisher: Cengage Learning
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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…
Little Switzerland Brewing Company was incorporated on January 28. On February 18, Ellison and Oxley were made directors of the company after they purchased some stock. Then on September 25, Ellison and Oxley signed stock subscription agreements to purchase five thousand shares each. Under the agreement, they both issued a note that indicated that they would pay for the stock “at their discretion.” Two years later in March, the board of directors passed a resolution canceling the stock subscription agreements of Ellison and Oxley. The creditors of Little Switzerland brought suit against Ellison and Oxley to recover the money owed under the subscription agreements. Are Ellison and Oxley liable? Why or why not?
Charles and L. W. Clement were brothers who had formed a partnership that lasted forty years until Charles discovered that his brother, who kept the partnership’s books, had made several substantial personal investments with funds improperly withdrawn from the partnership. He then brought an action in equity seeking dissolution of the partnership, appointment of a receiver, and an accounting. Should Charles succeed? Explain.
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- Anthony and Karen were partners doing business as the Petite Garment Company. Leroy owned a dye plant that did much of the processing for the company. Anthony and Karen decided to offer Leroy an interest in their company, in consideration for which Leroy would contribute his dye plant to the partnership. Leroy accepted the offer and was duly admitted as a partner. At the time he was admitted as a partner, Leroy did not know that the partnership was on the verge of insolvency. About three months after Leroy was admitted to the partnership, a textile firm obtained a judgment against the partnership in the amount of $50,000. This debt represented an unpaid balance that had existed before Leroy was admitted as a partner.The textile firm brought an action to subject the partnership property, including the dye plant, to the satisfaction of its judgment. The complaint also requested that, in the event the judgment was unsatisfied by sale of the partnership property, Leroy’s home be sold and…arrow_forwardMadison and Tilson agree to form a limited partnership with Madison as general partner and Tilson as the limited partner, each to contribute $12,500 as capital. No papers are ever filed, and after ten months the enterprise fails, its liabilities exceeding its assets by $30,000. Creditors of the partnership seek to hold Madison and Tilson personally liable for the $30,000. Explain whether the creditors will prevail.arrow_forwardTheo, a member of TGI partnership, withdrew from the partnership and duly notified the other members. The firm was an at-will partnership and the parties parted amicably, posting a notice in the local newspaper of the dissolution of their firm. Cosmo, a customer who had conducted business with Theo several times, did not see the newspaper notice and was not informed of the dissolution. Later, Theo approached Cosmo concerning a transaction similar to those Cosmo had engaged in before with Theo acting on behalf of TGI. Cosmo placed an order, gave a substantial down payment to Theo, and received a receipt on TGI stationery from him. Theo thereafter absconded with the down payment, and TGI failed to honor the contract. Cosmo sued the other members of TGI partnership. Discuss their potential liability.arrow_forward
- The Cutler Company was duly merged into the Stone Company. Yetta, a shareholder of the former Cutler Company, having paid only one-half of her subscription, is now sued by the Stone Company for the balance of the subscription. Yetta, who took no part in the merger proceedings, denies liability on the ground that, inasmuch as the Cutler Company no longer exists, all her rights and obligations in connection with the Cutler Company have been terminated. Explain whether she is correct.arrow_forward. Mr. John Bedward was a sole proprietor dealing in the manufacture and supply of concrete blocks. He owned a block factory with machinery and equipment which he financed from his personal savings as well as money which he inherited from his late father. After years of operating as a sole proprietor he was encouraged by a business colleague to form a company so that he could get the benefits of limited liability. Mr. Bedward therefore incorporated “Bedward Blocks Ltd” and all the business assets including the machinery and equipment became the property of the newly incorporated business. Another business colleague advised Mr. Bedward that it would be prudent to insure the coonpany’s assets. Mr. Bedward decided to insure the assets but figured that since he was the one who had acquired these assets before the incorporation of the business that it would be best that he insured t in his name, so that he could be paid personally if the assets were damaged. Mr. Bedward, had by now retired…arrow_forwardChris and Maurice formed a new limited liability company and invested $1,000,000 of equity in an apartment building in Santa Ana, California with Chris investing $950,000 and Maurice $50,000. Their LLC operating agreement provided that: (A) the annual cash distributions would be split 90% to Chris and 10% to Maurice, and (B) the net cash proceeds from the sale of the property would be distributed first to each of them until they have received an amount equal to their original cash investments less any cash distributions they had previously received, then the balance of the net sale proceeds would be split 60%/40% between Chris and Maurice. How much would Maurice receive upon the sale of the property if the sale generates net cash proceeds of $3,250,000 after paying off the mortgage loan, the brokerage commission, and other closing costs, and if the LLC had previously distributed $400,000 collectively to Chris and Maurice? a. $1,110,000 b. $2,180,000 c.$1,060,000 d. $1,070,000arrow_forward
- The stock in Hotel Management, Inc., a hotel management corporation, was divided equally between two families. For several years, the two families had been unable to agree on or cooperate in the management of the corporation. As a result, no meeting of shareholders or directors had been held for five years. There had been no withdrawal of profits for five years, and last year the hotel operated at a loss. Although the corporation was not insolvent, such a state was imminent because the business was poorly managed and its properties were in need of repair. As a result, the owners of half the stock brought an action in equity for dissolution of the corporation. Will they succeed? Explain.arrow_forwardState the mutual rights of partners of a Limited Liability Partnership Firm in the absence of any agreement between the partners.arrow_forwardSayre learned that Adams, Boone, and Chase were planning to form a corporation for the purpose of manufacturing and marketing a line of novelties to wholesale outlets. Sayre had patented a self-locking gas tank cap but lacked the financial backing to market it profitably. He negotiated with Adams, Boone, and Chase, who agreed to purchase the patent rights for $5,000 in cash and two hundred shares of $100 par value preferred stock in a corporation to be formed. The corporation was formed and Sayre’s stock issued to him, but the corporation has refused to make the cash payment. It has also refused to declare dividends, although the business has been very profitable because of Sayre’s patent and has a substantial earned surplus with a large cash balance on hand. It is selling the remainder of the originally authorized issue of preferred shares, ignoring Sayre’s demand to purchase a proportionate number of these shares. What are Sayre’s rights, if any?arrow_forward
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