Question 1: Using the Partnership Act 1891 (SA) and relevant cases discuss the information above and, giving reasons for your decision, explain who is in this business partnership
A partnership can be denoted as a mutual association of two or more individuals who have sole goal of forming and running a business profitably (Partnership Act 1891, s1). Major business include the following: general partnership in which all parties are equally liable for all business activities, a limited partnership which limits the liability of partners and limited liability partnership which combines both features exhibited in general and limited organizations (Partnership Act 1891, s1).
Klever Komputer Repairs business can be termed to be a partnership with different partners based on the information provided in the case. As result, for a partnership to exist, there some factors which need to be considered among them being partnership act or deed which stipulates the rules and conditions governing the partners. The act also describes the capital contribution relation for each partner, their powers, duties, and profit sharing margins (Partnership Act 1891, s2). The mode of business relations between the three individual is marred by confusion on who is to the real partner to the two. Concisely, it is not clear whether Cheng has been approved by Bob and Ali and whether as a consequent he is entitled or possessed express authority to conduct the business on behalf of Klever Komputer Repairs. Based on the business described in the case, Klever Komputer Repairs consist of two active partners who are concerned with the business decisions who are Bob and Ali. As consequently, Cheng has only been incorporated as an investor who will be 8% percentage of profits on his investment into the business (Partnership Act 1891, s2).
A succinct analysis of the case reveals that Bob and Ali have formally formed the business as the two main partners. For instance, they have equally contributed to the start of the business in terms of capital, share business costs equally like leasing of the business premise, have formed a joint account to run the business and thus able to share the profits realized equally after taking care of all expenses and money owed to lenders or investors (Partnership Act 1891, s3). Conversely, the position of that Cheng occupies in the business in somehow technical in nature as he has not contributed to the initial set up capital, he has not also participated in raising of the money needed to lease the bunnies premise for two years and in addition he does not contribute to the management decision making although he attends the meeting.
In addition, Cheng is not a signatory to the business bank account compared to Bob and Ali who enjoy such benefits. In addition, Cheng is categorized as an external person as he is paid hourly or the work he does and thus differentiating him from Bob and Ali who are subjected to the hourly pay of receives compensation for the work done in the businesses. Nonetheless, a closer analysis of the business between Klever Komputer Repairs and Cheng reveals that he was admitted into the business as a limited partner who could only invest his money and in return receives returns at 8%. This because, despite the fact that he was regularly at the premise, did some repair of which he was paid, the other partners assumed that Cheng was not doing any business related to the business and thus paying him for service to the business. As such, he was not supposed to transact on behalf of Klever Komputer Repairs (Partnership Act 1891, s2).
Consequently, owing to the description in the case study, it is with certainty to conclude that Klever Komputer Repairs composed of two unlimited or general partners whole Cheng was not actually in the partnership but simply as an investor who would receive interest on the money invested despite the fact that he invested all his invested in it. Despite the fact he would be involved in the daily operations of the business, it was not part of their agreement initially and thus he was only doing it at his own peril. They need to form limited liability partnership (Partnership Act 1891, s3). This category comprises of both general and limited partners. It is a business organization which involves at least one of the owners being actively involved in the management of the business as well as being individually liable for all debts or legal actions associated with it. The general partners in this business are charged with the responsibilities of running and overseeing all business operation besides contributing their capital
Question 2:
Using the Partnership Act 1891 (SA) and relevant cases discuss the information above and, giving reasons for your decision, explain who is liable for the debt for the software.
Essentially, business does incur losses and it’s upon the members to decide how the losses incurred can be incurred. However, in our case, this a partnership's business with three members who are forming up Klever Komputer Repairs namely, Bob, Ali, and Cheng. Consequently, in any form of partnership, all members are required to contribute a certain amount of money to the total investment needed. Consequentially, henceforth, all business profits and losses are likely to be incurred in the ratio of contributions except under special conditions where an individual is likely to be held accountable for his or actions without fully binding other members (Partnership Act 1891, s2).
In this case, Cheng is supposed to be held accountable for his actions. Despite the fact that he was one of the partners, a resolution had been passed that no any partner was allowed to trade more than $10000 without consulting other partners for mutual consent. However, because of the sales representative convincing language and offer for a big discount, Cheng ignored consulting with other partners which is a clear breach of a fiducially duty of a partner to other members in the business (Partnership Act 1891, s3). In addition, the rules governing partnership states that no any partners are allowed to transact more than the money he or she contributed to the entity, in this case, Cheng transacted an equal amount of his investment into the business and thus he should be liable for an equal amount despite claiming to have invested his entire inheritance.
To support this position, a few case studies which have been determined in courts are going to be reviewed for emphasis. Meinhard v. Salmon is among the widely stated case where partners are held accountable for this mistake as result of neglecting their fiducially duties in which a business opportunity is likely to come by in the course of the business to consult and involve others in major business decisions.
For instance, in the above case, Meinhard who was plaintiff lamented that his former business partner, Salmon had essentially violated his fiduciary duty to renew leases secretly under his name without disclosing the benefits to him or even seeking his advice on the matter. In this case, it was before the court to determine whether the actions performed by salmon was binding Meinhard owing to the fact although all of them had the capacity to trade on behalf of the business salmon simply failed to seek consultation on lease terms from Meinhard. As a result, the court held that Salmon breached fiducially duty of communicating the intended befits of the lease to Meinhard was essentially breached as the defendant failed to inform copartners about the business opportunity which was being offered by the third party who was presumably ignorant of the partnership. In addition, the court held that Salmon violated the duty of loyalty to copartners where the partners assumed the benefits arising from the new software which could not benefit others. Consequently, since Cheng violated both fiducially duty of communicating the business opportunity to other partners as well as breaching the duty of loyalty, he is bound to be held accountable and consequently liable for the payment of the software individually.
Correspondingly, in another classic case, El Paso Pipeline GP Company, LLC v Brinckerhoff
the court was to determine whether the citation of a general partner was liable and binding all other partners in the business. In summary, the case involved one of the partners who was concerned with the daily business of the firm and one day the partners engaged in a transaction which was later termed to be overpriced by other members. As result, the court ruling did not relinquish the general partner the liability for his actions to other partners. Therefore, the partner was supposed to be liable for the decisions made of engaging in businesses transactions that were overpriced and thus affecting the normal operations of the business. Similarly, since Cheng in the case provided failed to adhere to the purchase rule that was purchase which only approved a maximum of $10,000 that a partner can transact, and however, went ahead and bought the software which was not needed in the business he should be held liable for the extra cost he incurred individually.
Question 3: Using the relevant law and cases, explain whether or not Josie is an employee AND explain the consequences for the partners if a court determines that she is an employee.
In conducting any form of business, it is important for the employer to make a distinction between an employee and an independent contractor. Generally, an individual is termed to be an independent contractor when he or she is at liberty to control all activities including determining when he or she is going to perform certain actions and also able to directly have control over the end result of the actions undertaken. Consequently, all the earning of an independent contractor is subject to Self-Employment Tax (Kalleberg, 2000, p 341). Subsequently, an individual cannot be termed as an independent contractor if he or she directly works according to the employer direction in regard to how it should be done and when the action can be best performed. This implies in all cases where a true definition for an independent contractor in sought. As result, despite the fact that the person can be given freedom relating to actions, what matters in success is the legal ability and capacity of an employee to control the detail of his actions in terms of how and when such can be achieved (Kalleberg, 2000, p 344).
Notably, in as much as the employer-employee relationship exists between the two parties concerning how services are going to be performed or when such can be achieved; a person can by no means be based on such assertion as an independent contractor legally, and your income is to subject to Self-Employment Tax (Kalleberg, 2000, p 341). Nevertheless, as an employee, all earnings are subject to FICA as well as income tax withholding. Additionally, the type of business relationship with the person determines whether a person is an employee or not. For instance, if the contracted person performs most of the core activities of the company such as repairs and maintenance, then in such case the person is not termed to be an independent contractor but rather an employee (Kalleberg, 2000, p 341).
Accordingly, Josie is not an independent constrictor as the letter proposes based on their interactions. First, just like any other employee, he is directly under the control of the employer instructions, moreover, he has a close relationship with the business dictates what to be done and when which does not define the relationship that an independent contractor has with an employee. Furthermore, the business has not even classified him as an independent contractor and thus withholding his salary is against the labor laws; which has serious repercussions in the business (Kalleberg, 2000, p 342).
In a business scenario, misclassification of the employee has got serious impacts on the business performance. First, in case the firm has carelessly classified Josie as an independent contractor, then the court will have to impose some financial penalties on the business which can heavily reduce their profit margins. In addition, its public image as a result of laws suits is likely to be tinted (Kalleberg, 2000, p 345).
El Paso Pipeline GP Company, LLC v Brinckerhoff, No. 103, 2016 [Del. Sup. Ct. Dec. 20, 2016
Meinhard v. Salmon, 249 N.Y. 458, 164 N.E. 545 (N.Y. 1928) is available from CourtListener New York Courts
Partnership Act 1891. [online] Available at: https://www.legislation.sa.gov.au/LZ/C/A/PARTNERSHIP%20ACT%201891/2006.02.01/1891.506.PDF [Accessed 14 Feb. 2018].
Kalleberg, A.L., 2000. Nonstandard employment relations: Part-time, temporary and contract work. Annual review of sociology, 26(1), pp.341-365.
