Question

Julius, Kayla, and Larry are each college students majoring in Business. As they prepare for graduation, they begin to talk about starting their own business. Julius and Larry both worked for some time at a local deli, and are familiar with the responsibility involved in running a sandwich shop. All three get together and decide that they want to start their own sub shop and delivery business. Julius and Kayla agree to be limited partners in a limited partnership, each contributing $10,000 to open the restaurant and owning one fifth each. Larry, the general partner, agrees to contribute $30,000 to the limited partnership, and he will own three fifths of it. In addition, Larry will be the one responsible for the day-to-day operations and management of the sub shop.

1. In this scenario, what amount of liability does each of the partners face?

2. Suppose that Julius is a control freak. He senses the sub shop is facing some setbacks, and he decides to put his business degree to good use to make sure the limited partnership prospers. As a result, he participates in the management and control of the business. What could happen to Julius as a result? Why?

3. Suppose that after five successful years in business, all three partners vote to dissolve the partnership because they wish to sell the shop and make a hefty profit. In terms of debt, they have none. There are no longer any creditors the partnership owes. After the partners are paid according to their investments in the partnership, there is $345,000 in profits left to be divided. How much would each partner get?

Answer 1

1- The question is clear about the Liability of each partner. Limited Partnership means where the liability of the partners is limited to their capital contribution. Partners are not personally liable for losses or debts.

2- As per the partnership agreement, Larry is the one who is responsible for the day-to-day operations and management of the sub shop. Julius acts or any agreement he made on behalf of the business isn’t valid since he has no authority to act as such

Personal behaviour or the experience Julius has with a sandwich shop does not qualify him to run the place, unless Larry (General partner) approves it by the power majority he has.

3- Profit share of each partner.
Julius (1/5) = $69000
Kayla (1/5) = $69000
Larry (3/5) = $207000  
Kindly get back if more clarification is needed.

Happy Learning.