Question

Adam who lives in NH, contacts his friend Bill who lives in MA and his friend Charlie who lives in RI. As a result of their conversations, Adam invites Bill and Charlie to dinner.

Two week later, the 3 meet for dinner. During dinner, Adam proposes that they all go into business with one another. Adam lays out his plan. He wants to set up an advertising agency and he has already has clients lined up, but needs partners with expertise and resources.

Bill is open to the idea, however he demands that if a business is formed, that 10% of the profits must be donated to charity. Charlie is also open to the idea, however he is concerned about Adam who has played fast and loose with the truth in his previous businesses. In fact, Charlie is aware that Adam is currently be sued for liable.

The 3 continue to have conversations and to exchange emails over the next few weeks.

Based on these conversations and emails, Adam looks at and contracts for office rental space. Bill contacts habitat for humanity and makes arrangements for ABC (Adam, Bill and Charlie) Advertising to donate 10% of its profits to charity. Bill also agrees with the charity that if ABC advertising fails to provide at least $1,000 dollars in donations in the first year, then each member of ABC Advertising agrees to be responsible for making up the difference in the contribution either in whole or in part.

Meanwhile Charlie is meeting with his attorney and financial advisor to determine if the venture would be a good idea or not? Charlie shows them the emails and documents and informs them of the conversations that he has had with Adam and Bill. Charlie's attorney and financial advisor are both concerned by what they have read and heard and advise Charlie to immediately inform Adam and Bill that he does not want to participate in the venture.

Upon receiving the notice from Charlie that he does not want to be part of this venture, Adam and Bill become upset and proceed to hire attorneys to sue Charlie.

Based on this scenario, again, identify as many concerns, issues, questions as you can from the prospective of Adam, Bill and Charlie (i.e. legal, liability, contractual, jurisdiction, etc.), in addition to whether either should enter into the agreement.  

Answer 1

Answer:

Adam, Bill and Charlie meet up together where Adam proposes his idea of setting up an advertising agency wherein Adam is having the clients for the same however, the business require partners who can contribute their expertise and resources for the business.

Bill and Charlie accepted the offer of Adam. Bill accepted the offer on the terms that the business will donate 10% to the charity. Charlie was little bit confused as he remembered the past records of Adam where he is liable for his previous business.

Adam, on the basis of conversation has contracted an office space for the business on rent and Bill made a contact with the habitat for humanity for donations.

Charlie consulted the attorney and financial advisor who has advised Charlie that he should not enter into the business. Charlie sent a notice to Adam and Bill informing that he will not be a part of business anymore.

Upon getting the notice from Charlie, Adam and Bill planned to sue him and for doing this they started searching an attorney.

The main issue with the business proposal is that one of the partner of the business i.e. Adam is not a trustworthy and truthful person which can be seen from his liability for the previous business.

Moreover, the condition of bill of donating 10% of the profit of the business may get fulfilled if the company makes profit, however, if the business runs into losses or on break even then the 10% of donation will be required to be paid by the personal share of the three partners which will be burdensome on all the three partners. Bill also agreed with the charity that if ABC advertising failed to provide at least $1,000 in donations in the first year of business, then each partner of ABC Advertising agency will be responsible for paying the difference in the contribution either in whole or in part. This further added to the burden on all the three partners of the business.

Since, Charlie has consulted the attorney and financial advisor for their advice, they have made the analysis of the future possibility of the success of the business. When they found that the business would not be suitable and successful for Charlie, they advised him to not to enter into the venture.

Till now, the venture is just an idea where all the three partners has just made the conversation about the business and all three of them have not entered into the contract of partnership legally. Under such circumstances, if any of the partners of the business wants to exit from the business, he can opt for the same by taking his percentage share from the business provided he clear from all kinds of liabilities of the business as a partner. Charlie was not having any kind of liability since the business was yet to start. Hence, he can easily exit from the business and the idea of Adam and Bill of suing Charlie by appointing an attorney will be of no use and the case against Charlie will not stand in the court of law

As far as partnership between the three is concerned, by looking into the past record of Adam which was not appropriate and bill’s condition of donation to charity for entering into the partnership and Charlie’s attorney and financial advisor advice to Charlie for not entering into the business, Adam, Bill and Charlie should not form the partnership and should not enter into the business. Moreover, Adam and Bill has not made any analysis of the viability of the business and Adam is just having an idea and some clients on the basis of which the success of the business can not be confirmed. Hence, forming a venture and entering into the business may cost the losses to all the three of the partners.