Smithers, Browning and Jonsetti wish to develop a new business. Jonsetti is employed by Domino's and is qualified to operate a pizzeria. The parties agree as follows:
* Smithers will own a 50% interest in the venture. In return, he will contribute the property.
* Browning will own a 35% interest in the venture. In return, he will contribute the funds required to build and furnish the restaurant and to start up the operation.
* Jonsetti will own a 15% 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 construction, Jonsetti 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.
Smithers, Browning and Jonsetti ask your advice. 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. Ignore any conflict of interest. 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 management and voting requirements with respect to the construction of the restaurant and the approval of advertising content. Discuss.
| All general partners have management rights | 5 points _______ |
| But the partnership may give a partner a power of attorney | 5 points _______ |
| Partnership agreement may recognize Jonsetti's authority | 5 points _______ |
| Limited (commendam) easy: make Jonsetti general partner | 5 points _______ |
| Commendam partners may approve construction plans and budget | 5 points _______ |
| Approval of advertising by commendam partner presents a problem | 5 points _______ |
| "Consultation" with commendam partners may be required | 5 points _______ |
| Any other creative solution to permit limited partners to approve | 5 points _______ |
| Limited Liability Company operating agreement may set out powers | 5 points _______ |
I-B. The parties desire that none of them shall have the right to withdraw from the venture prior to the opening of the restaurant. How can this desire be achieved in the context of a general partnership, a partnership in commendam, and a limited liability company. Discuss.
| In partnership, by constituting it for a term | 5 points _______ |
| Or by an express provision against withdrawal prior to opening | 5 points _______ |
| A commendam partner is in any case liable for agreed contribution | 5 points _______ |
| The LLC operating agreement could specify a term | 5 points _______ |
| Or prohibit withdrawal prior to opening of the restaurant | 5 points _______ |
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.
| General partner liable for virile share of business debts | 5 points _______ |
| And solidarily liable for tort debts | 5 points _______ |
| Limited partner liable for stated contribution only | 5 points _______ |
| Unless he permits name to be used in the business | 5 points _______ |
| Or participates in management or deals with the public | 5 points _______ |
| Articles must be properly filed with secretary of state | 5 points _______ |
| Exception where name the same as that of a general partner | 5 points _______ |
| Or where firm is successor to a prior firm | 5 points _______ |
| In LLC properly drafted, there is no personal liability | 5 points _______ |
| Above limitations ineffective against sophisticated creditor | 5 points _______ |
I-D. Jonsetti wants to keep her job with Domino's until the new Pizza Shack is open and operating. Advise her whether she should do so, and of the legal consequences that could result if she does. Discuss.
| Does she have convenant not to compete? | 5 points _______ |
If so, is it reasonable as to geographic area? |
5 points _______ |
And scope? |
5 points _______ |
And duration? |
5 points _______ |
And limited in Louisiana to two years? |
5 points _______ |
| If no covenant, she still has duty not to compete while employed | 5 points _______ |
| She may lay groundwork | 5 points _______ |
| But building restaurant appears to go beyond just groundwork | 5 points _______ |
| She should resign before actually supervising construction |
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.
| Must choose not more than two of four: | 5 points _______ |
Limited liability |
5 points _______ |
Continuity of existence |
5 points _______ |
Free transferability of interests |
5 points _______ |
Centralized management |
5 points _______ |
| A Louisiana default LLC satisfies non-continuity requirement | 5 points _______ |
II-A. Discuss Baton Rouge Pizza Shack's defenses to Ms. Simpson's compensation claim.
| Defense that Ms. Simpson is not an employee | 6 points _______ |
Control of physical conduct is principal test |
6 points _______ |
Employer will be unsuccessful |
6 points _______ |
| Is Pizza Shack a statutory employer? | 6 points _______ |
Delivering pizzas is business of employer |
6 points _______ |
| Defense Ms. Simpson was not injured in course of employment | 6 points _______ |
Going-and-coming rule |
6 points _______ |
| Being shot at is not a risk of employment | 6 points _______ |
Late-night deliveries are a part of the job |
6 points _______ |
| Articulate expression of an unequivocal opinion | 6 points _______ |
II-B. Discuss Baton Rouge Pizza Shack's rights, if any, in the tort matter.
| Subrogation if compensation is paid | 8 points _______ |
| Suit for loss of employee's services | 8 points _______ |
Correct statement of the Louisiana rule |
8 points _______ |
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