Description

Commercial

Brian Pratt and Lucy Pratt are siblings. They intend to open a retail store which they hope to name and style “Pratt Hats” to sell fancy hats. They have entered into an agreement containing the following terms:

All management decisions will be made jointly by Brian and Lucy.

• Brian will have no liability for any aspects of the business.
• Brian will lend the business Kshs.100,000/- to be used as operating capital and he will therefore be receiving the first 15% of any profit from the business, before Lucy receives any profit distribution.
• If Brian and Lucy distribute any profit other than the first 1 5%, the additional profit will be distributed equally between the two of them.
• Additional persons may be admitted as business partners but with the consent of both Brian and Lucy.

(a) Do the terms of their agreement prevent Brian and Lucy from using any of the following business associations as the legal entity for Pratt’s Hats?

A general partnership? Analyze and discuss fully. (6 marks) (ii) A limited partnership? Analyze and discus fully. (6 marks)

(iii) A limited liability partnership? Analyze and discuss fully. (6 marks) (iv) If Brian and Lucy had decided to use the limited company form and thereby issued different classes of shares, what class of shares would be most appropriate for Brian to subscribe to and why? Give a brief explanation. (2 marks)