Task 12 3554 Firm XYZ has been wound up. The assets of the firm amounted to £100,000. Partner X
contributed capital of £20,000, Y contributed £10,000 and Z contributed £5,000. The three
partners were to share profits equally.
(a) How would the loss of capital be borne if after all outside creditors had been fully paid the
capital had been reduced from £35,000 to £20,000?
(b) What would be the position if outside creditors were owed £210,000?
5 Keith, Lorna and Mary are the only members of an LLP, which deals in antiques. Before
forming the LLP, the members had considered forming a limited company or trading as
a partnership. In what ways is their LLP similar to a limited company and in what ways is it
similar to a partnership?
6 Three years ago, Martha finished a college course in Health and Beauty Therapy. After a year
working in a salon, she spent three months in the United States. On a trip to California,
Martha was extremely impressed by some of the alternative beauty treatments available
there.
Martha now wants to market some of the Californian ideas in England, and is worried that
if she waits too long others will beat her to it.
Martha’s grandfather, Charles, has recently retired from the board of a multinational
company. He has a variety of interests but, seeing Martha as a ‘chip off the old block’, he is
prepared to invest in her proposed business and help her in the running of it.
Martha is very fond of her grandfather but thinks that he is too cautious, not realising that
in the modern age opportunities must be seized immediately before it becomes too late.
Charles is very proud of Martha but feels that, expert though she might be in the field of
beauty therapy, she has a great deal to learn as far as business goes.
Charles has agreed to invest £50,000 in the business and put in three or four hours’ work
a week. Martha is putting in her savings of £7,000 and will devote all of her time to the
business.
(a) Do you think that Charles would prefer that the business was a company or a partnership?
(b) Which do you think Martha would prefer?
(c) As an objective outsider, which type of business organisation do you think they should
become? Might an LLP be the most suitable type of business to form?(It should be pointed out that there are no absolutely right or wrong answers to questions
such as these. Both types of business organisation have considerable advantages and dis-
advantages. However, at least five of the matters considered in the chapter will have a bearing
on the decisions. Try and identify these five and then decide how important each one is.)7 Explain the circumstances in which one member of a partnership can make fellow members
liable in contract or in tort.
Task 12
A group of French students visiting your college are keen to understand the risks which a
partner assumes under English law.
Using a partnership of solicitors as an example, write a report indicating: