Question

Larry Buhman opened an upscale cigar shop called "The Smoke Ring." Buhman became dissatisfied with his partner's performance and decided to terminate the relationship. James McGaughy, who previously had been working part-time at The Smoke Ring, accepted what he believed was Buhman's oral offer to make him the new partner, but their agreement was not reduced to writing and its terms are hotly disputed. The parties agree only that McGaughy was to manage the store and was promised a 40 percent share of the profits with a guaranteed minimum of $2,000 per month. It is also undisputed that for several years McGaughy and Buhman used business cards that identified each as "Owner" of The Smoke Ring. Buhman paid for the cards. McGaughy identified himself as an owner or a partner in the business to his friends and family, and did so in Buhman's presence without correction. The Smoke Ring was also repeatedly reorganized into various business structures for tax advantages as directed by Buhman. At one time, the business was organized as a partnership, and Buhman identified McGaughy to the Internal Revenue Service as the owner of a 1 percent partnership interest; however, Buhman claimed 100 percent of the deductions arising from the business on his personal tax return. Later, Buhman became dissatisfied with McGaughy's performance and informed him that his employment was terminated. McGaughy sued Buhman to recover his share in the partnership he believed to exist. Buhman argued that there was no partnership agreement supported by consideration and that McGaughy was a contract laborer receiving 40 percent of the profits at the time he was terminated. Was McGaughy a partner of The Smoke Ring? Why or why not?


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  • CreatedOctober 21, 2015
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