- 20 Marks
BCL – L1 – Q64 – Partnership formation
Question
KOFI
Kofi was employed as a senior wholesale manager by AB Limited, a limited liability company owned 100% by Mr. Adu. Kofi’s monthly salary is $30,000 and has been so for the last five years. To prevent Kofi from leaving the company, Mr. Adu went into agreement with him whereby AB Limited, Kofi and twenty family members of Mr. Adu formed a partnership. Kofi will get $40,000 as monthly salary and 10% of gross profit as bonus as and when Mr. Adu deem it fit. Kofi must give six months’ notice for resignation but could be fired without notice by Mr. Adu. Kofi has no role in management, control or in carrying out the partnership business. Kofi is happy with his new salary but thinks all is not right.
(a) What is not right?
(b) State five other items Kofi must verify in a partnership agreement.
Answer
(a)
- Partnership-association of two or more individuals carrying on business jointly for the purpose of profit. (Sec 3 of Act 152) AB Limited, a company, cannot be a partner.
- Number of partners limited to Twenty -Kofi and twenty family members exceed the number (even if we exclude the company).
- Partners are not generally paid (monthly) salary-they share in the net profit.
- Sharing of net profits of a business shall prima facie be evidence of Partnership-Kofi’s 10% is from gross profit and subject to the discretion of Mr. Adu.
- Remuneration of a servant or agent by share of profit shall not of itself make the servant or agent a partner.
- Partners are equals and one could not fire the other without notice.
- Partners share/participate in management and control- partners carry on business jointly-Kofi’s exclusion makes him no partner.
(b) Items Kofi must verify in a partnership agreement are:
- Contribution to capital.
- Sharing of profit and loss.
- Dispute resolution agreement.
- Acceptance of new partners and exit of old partners.
- Distribution of partnership assets/property upon winding up/dissolution.
- The firm name of partnership.
- General nature of the partnership business.
- Contribution/advance beyond capital and interest payment, etc.
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