Form of Business: ABC Hardware
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Art, Bill and Chris agreed to start a for-profit hardware store in San Angelo, Texas called ABC Hardware Ltd. They did not file any documents with the Texas Secretary of State, but they did sign a written agreement that states, in its entirety, as follows:
"We hereby agree to jointly own and operate ABC Hardware Ltd. We will share profits equally, but only after our initial investments have been paid back. We will not be personally liable for any obligation of the business."
After signing the agreement, Art and Bill each deposit $25,000 into ABC's bank account at Frost Bank. As his investment, which was valued by the parties at $25,000, Chris conveyed to ABC full title to a warehouse he owned. The warehouse was to be used in ABC's business. Art worked in the store and was principally responsible for the day to day operations of running the business, but he consulted with Bill and Chris on any major decisions. A mere eight months later, while driving an ABC deliver truck to deliver an order to a customer, an ABC employee ran a red light and collided with Mary Motorist. Mary sued ABC, Art, Bill and Chris for personal injury and property damage.
(1) What form of business organization is ABC? Explain fully.
(2) To what extent, if any, are Art, Bill and Chris personally liable to Mary Motorist?
600 words total (not including the above)
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Solution Summary
The response provides you a structured explanation of form of business of ABC and the liability of its members . It also gives you the relevant references.
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1
ABC is a general partnership form of business organization. In Texas the firm must apply in Form 701. The relevant law is title 4, chapter 152, subchapter J of the Texas Business Organizations Code (BOC). There is legal requirement to register with the secretary of state for the formation of "limited liability partnership"
The point is that the agreement among Art, Bill and Chris "We will not be personally liable for any obligation of the business" is invalid unless it is registered as a Limited Liability Partnership under the Texas Law. For the partnership to become a limited liability partnership it must comply with the state law and must be registered with the state office. To get the protection of limited liability, Art, Bill and Chris must register with the Texas Secretary of State and paying the required filing fee. The registration is completed if the partners provide the official name of the new LLP, the Federal employer identification number if obtained, the number of general partners at the time of registration, ...
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