Partnership formation

Partnership formation

Partnership formation is an easy way to get a business up and running because of the shared vision, complementing skills, and the capital source. However, in many cases, partnerships fail mostly because of not planning for preventable mistakes. As in the case of Sarah Schroder and Scott Schroder, they did not have clauses to protect their agreement. They should have had specific clauses that delineate duties, capital contributions, and the shares of profits and losses. This paper is a legal assessment on whether Sarah is entitled to the business funds and whether she is liable to the agency’s creditors.

Sarah is entitled to the shares and the funds of the agency’s business. In the case, Scott did carry out some business under the partnership name of Schroder & Schroder. Scott might have run his business under his name, but the fact that he used a partnership name means that Sarah should be accounted for in the agency’s returns. Furthermore, Sarah did pay off some of the creditors with her personal funds. This proves that she actively participated in the partnership in terms of providing capital investments.

Sarah is liable to the company’s credit if the partnership was a general partnership and not a limited partnership. In a limited partnership, the limited partner is protected from both business risk and involvement. The creditors are also able to collect their funds from Sarah because there was not any breach of contract when Scott disappeared. Scott did not have any contractual obligations to Sarah. As it is, the partnership is liable for the credits that they owe. The lack of formal planning will entitle her the lawsuit as this was her moral obligations (Bayern, 2016). The importance of having an attorney oversee the formation of the partnership and the consequential clauses cannot be overstated.