Roberto and Maria are general partners in a general partnership. They have entered into a partnership agreement which provides as follows: 

1). Roberto is to contribute $100,000 to the partnership. 

2). Maria is to contribute $200,000 to the partnership. 

3). Roberto is to have a 1/3 ownership interest; and Maria is to have a 2/3 ownership interest. 

4).. Roberto is to receive 40% of all profits earned by the partnership, and Maria is to receive 60% of all profits. 

5). Roberto and Maria are to each be responsible for 50% of all losses or other obligations of the partnership. Roberto has a net worth of about $400,000, all in bank accounts. Maria has a net worth of about $4 Million, all in a stock-brokerage account.

In Year 1 of operations, the company has a disastrous year financially! They lose $500,000. Roberto and Maria each contribute another $250,000, to make up for the loss, reducing Roberto’s net worth down to $150,000, and Maria’s net worth down to $3.75 Million. In Year 2, they lose another $400,000! Roberto pays into the business all that he can - $150,000. Maria pays in the other $250,000, so the company can keep going. In Year 3, the company finally breaks even, but a customer sues for $2 Million in physical harm when the product they sell explodes and results in the customer losing both of his legs. The customer wins in court, and gets a judgment against the partnership for the full $2 Million. The company has virtually no assets left.

1). The customer can take his judgment and:
a.   claim $2 Million of Maria’s stocks. Maria will have to seek reimbursement from Roberto for his 50% responsibility.

b.   claim $1 Million of Maria’s stocks. The customer will have to get the rest from Roberto when (and if) Roberto ever gets any more net worth.

c.   claim $1 Million of Maria’s stocks. The customer will have a claim on any assets that Roberto gets in the future, until his $1 Million is paid off. In the meantime, the customer can get a portion of Roberto’s monthly paychecks by turning in a “garnishment” order to his payroll office.

2). If Maria and Roberto had set up a corporation or LLC, instead of a general partnership, they could have limited their individual liability for debts of the company, to just what they had invested.                 True or False     

Answer rating: 100% (QA)

1 Since it is a partnership firm each partner is acting as a Pricipal and Agent for one an... View the full answer