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Homework answers / question archive / Chris and Denis are lawyers working under the name “King & Associates”
Chris and Denis are lawyers working under the name “King & Associates”. Although they have gone into business together, they work independently on files, they do not review each other’s work or advice, nor is there any obligation or duty upon them to do so under the applicable laws and regulations governing their legal practice. They do manage the general affairs of the business together and all major business decisions require the input of both Chris and Denis. Denis has practically no assets other than his interest in “King & Associates”. Chris on the other hand is independently wealthy with other assets and sources of income. One of Denis’s legal opinions results in a significant loss for one of their clients. Once this was discovered, the client, ABC Company had to pay an additional $150,000 to settle the claim. ABC Company sued and was successful in obtaining a judgment against Denis and “King & Associates” for professional negligence. At the time that ABC Company enforced its judgment, “King & Associates” had assets totalling $35,000. Answer all questions below.
a) What are the implications for ABC Company receiving compensation if “King & Associates” is a partnership. Explain and provide your analysis
b) If “King & Associates” was set up as a Limited Partnership with Denis being the General Partner and Chris the Limited Partner, would the result in question (a) above be the same. Explain and provide your analysis
c) If “King & Associates” was set up as a Limited Liability Partnership (“LLP”) would the result in question (a) above be the same. Explain. Please presume this is the type of profession that is allowed to register as an LLP. Explain and provide your analysis
d) What are the implications for ABC Company receiving compensation if “King & Associates” is a corporation. Explain and provide your analysis.
Answer no. (a): In a General Partnership firm, the Partners have Joint and severe legal liability. I:e; All partners would be made liable for the actions of one partner. If one of the partner does not have sufficient funds to payoff the damages then the other Partners would be liable to payoff the remaining damages as well.
Hence, in this case as one of Denis’s legal opinions results in a significant loss of $150,000 for one of their clients and as Danish does not have any other assets other than the Present Partnership firm having asset value $35,000 would not be able to payoff the all damages but Chris being wealthy with other assets would be liable to payoff and settle the remaining amount of compensation.
Answer no. (b): Indeed, the answer(a) would change, if “King & Associates” is a limited partnership.
As the Chris being the limited partner will only be liable for investment is worth in the business because he would have limited partnership in the Firm.
On the Other side, Danis being the General Partner would be liable for more than the investment is worth in the business as he would be jointly and severally liable for the actions of the other Partners as well. Hence, Danis would be liable more than his investment is worth in the business, for his faulty advice to the client and paying damages for the same.
Answer no. (c): Indeed the Answer (a) would be changed, If “King & Associates” was set up as a Limited Liability Partnership (“LLP”).
In LLP, the partners are individually liable for their wrongs in the firm. Other partners can be made liable for the same.
Hence, in Present case, Chris would not be made liable for the wrongs of the Danis. Danis would be solely liable for his faulty advice to the client and paying off the damages for the losses suffered by the client.
Answer no. (d): if “King & Associates” is a corporation then, Danis and Chris would not be made Personally liable for the suit filed against the Company. The company would be liable to payoff the damages for the loss suffered by the client by selling its assets.
