1995 Agency & Partnership Final Examination

AGENCY & PARTNERSHIP

Section I & II, Professor Franks

Final Examination, Fall 1995

GENERAL INSTRUCTIONS

1. Carefully analyze the facts and grasp the issues in each question before beginning to write. Spend time reading the question slowly and carefully.

2. State the issues and answers to each question concisely. Lengthy answers are not necessary.

3. Do not repeat questions in your answers. Write neatly and legibly on only one side of each page.

4. Number your answers to correspond with the question, e.g., "II-B."

5. If you feel it necessary to assume additional facts in any of the questions, give the facts that must be added and state why.

6. Do not write in the margin of the book.

7. All major questions are equally weighted unless otherwise indicated. Subparts are approximately equal but may be weighted slightly differently according to the number of issues involved in that subpart.

8. Write your pin number and the name and section number of the course on which you are being examined on the cover of each examination book.

9. If you use more than one book, indicate "Book One," "Book Two" and so forth on the cover of each book and write your fictitious name and number and the name and section number of the course on the cover of each examination book.

10. A GOOD ANSWER IS NOT NECESSARILY A LONG ANSWER.

QUESTION I

fifty-five per cent of test

Smith, Brown and Jones wish to develop a new business venture. Smith owns a parcel of undeveloped property in East Baton Rouge Parish, which the parties agree would be an ideal location for a Ramada Inn hotel. Brown, who recently inherited a fortune from a wealthy uncle, has the funds required to build the hotel. Jones is currently employed by the Hilton Hotels Corporation, and she is fully qualified to operate a hotel. The parties would like to operate the venture as follows:

Smith will own a 55% interest in the venture. In return, he will contribute the property.

Brown will own a 35% interest in the venture. In return, he will contribute the funds required to build and furnish the hotel and to start up the operation.

Jones will own a 10% interest in the venture. In return, she will manage the business, including construction of the building. All of the parties must approve the construction plans and budget. After the facilities are constructed, Jones will have complete management authority over every aspect of the day-to-day operations, except that all of the parties must approve the content of all advertising that the hotel will conduct.

Smith, Brown and Jones ask your advice regarding the following. In your answers, discuss the consequences that would result from structuring the entity as a general partnership, as a partnership in commendam, and as a limited liability company. For purposes of this examination only, ignore for the moment any conflict of interest or ethical concern that in real life might prohibit you from advising all three persons. Do not discuss tax issues unless the particular subpart specifically asks for tax consequences.

I-A. How can the structure that the parties have agreed to be implemented in each context? Consider specifically how the parties can achieve the agreed-upon management and voting requirements with respect to the construction of the hotel and the approval of advertising content. Discuss.

I-B. The parties desire that none of them shall have the right to withdraw from the venture prior to the opening of the hotel. How can this desire be achieved in the context of a general partnership, a partnership in commendam, and a limited liability company. Discuss.

I-C. Advise each of the parties separately as to his or her exposure for personal liability for business debts in the partnership, partnership in commendam, and limited liability company. Discuss.

I-D. Jones wants to keep her job with Hilton Hotels Corporation until the new Ramada Inn is open and operating. Advise her whether she should do so, and of the legal consequences that could result if she does. Discuss.

I-E. If the parties opt for a limited liability company, and if they wish it to have both limited liability and partnership tax treatment, what are their options as to other features of the organization? Discuss.

QUESTION II

forty per cent of test

What documents if any must be prepared, and where if anywhere must they be filed, in order to form:

II-A. A general partnership.

II-B. A partnership in commendam.

II-C. A limited liability company.

QUESTION III

five per cent of test

You also represent the Smalltown Bank. They are planning on lending money to Worldwide Widgets, LLC, a limited liability company with two members: Jane Doe and Robert Roe. Doe is the manager. Without any discussion, please simply draft just the signature line for the promissory note, and prepare it so as to bind all three (Worldwide Widgets, Doe, and Roe).

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