Asked by Jenifer Lalnunkimi on May 26, 2024
Verified
Nancy, aged 17 years, and Jean, 19, planned to earn money in the summer by sewing children's clothing and placing it on consignment at a local clothing store. Each of the girls owned their own sewing machine and worked from their own home. The girls decided to pool their funds for the purchase of necessary supplies. The proceeds of any sales would be deposited in the pool. Nancy, with Jean's consent, placed an order with a fabric store for 100 metres of fabric, which she planned to use for a line of dresses she had designed. After the fabric was delivered and she had completed several dresses, Nancy informed Jean that she was going to spend the remainder of the summer travelling with her family. She then gave the remaining fabric to Jean and asked for her share of the profits to date. The fabric had not yet been paid for. Discuss the nature of this relationship, and the duties and liabilities of the parties, if any.
Mutual Funds
Investment programs funded by shareholders that trade in diversified holdings and are professionally managed.
Fabric Store
A retail establishment that sells cloth and materials for sewing, clothing creation, and other textile crafts.
Consignment
An arrangement in which goods are left with a third party to sell, but the consignor retains ownership until the items are sold.
- Identify the duties and obligations of collaborators in a partnership, along with the distribution of authority and liability.
- Identify the conditions under which a new partner assumes liability for pre-existing partnership debts.
- Understand the significance of mutual trust within a partnership and its impact on partnership formation and operation.
Verified Answer
Nancy, the infant, may become a legitimate partner, although the regular contract principles regarding infants will apply. Nancy may repudiate the partnership agreement before reaching the age of majority. If she does so, she erases her responsibility for partnership debts or liabilities, in particular, payment for the fabric. As an infant, however, Nancy is not entitled to her share of profits until all the partnership liabilities have been paid.
Nancy's departure potentially triggers a dissolution of the partnership to which the standard rules and procedure of dissolution would apply. The assets must be liquidated, debts satisfied, capital advances returned and then profits, if anything remains, are distributed on the agreed proportional basis.
Learning Objectives
- Identify the duties and obligations of collaborators in a partnership, along with the distribution of authority and liability.
- Identify the conditions under which a new partner assumes liability for pre-existing partnership debts.
- Understand the significance of mutual trust within a partnership and its impact on partnership formation and operation.
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