Partnership the Nature of the Law Governing

Partnership

The nature of the law governing limited liability corporation (LLC) allows owners to dictate the percentage of ownership in any fashion they deem appropriate (Internal Revenue Service). Because LLCs are a hybrid form of business operation that enjoys benefits of both a partnership and a corporation, Stratum and Brown can handle the capitalization of their business, the distribution of profits and losses, compensation for services, and the proportionate responsibilities in the operation of the business in any manner that they prefer. Although a written agreement documenting these various issues is not required, prudent management would dictate that this is done (Horvath). Stratum and Brown had the foresight to document their agreement but failed to clearly set forth how Brown's services would be valued and how they would be treated. Obviously, her services have value but unless the parties can agree as to how such services are to be treated, a potentially large problem exists. Absent a provision in the operating agreement to the contrary, Stratum and Brown are considered as equal members and share equal authority in the management of the company but he would lack the authority to appoint his son as a manager absent Brown's consent. Brown's withdrawal presents some interesting problems. What effect it has on the operation of the business depends on the jurisdiction, its LLC statutory language, and the terms of the operating agreement relative to such situation. Depending on these factors the business may be able to continue operation or the business may have to be dissolved in accordance with traditional partnership laws (Miller). As to what Brown may be entitled to upon her withdrawal from the business, is dependent upon how her services have treated by the company's accountant. Such information is missing from the facts provided so a clear determination is not possible. Finally, absent a provision in the operating agreement prohibiting her from doing so Brown is free to purchase and compete against her old company.

2. Securities

CGC's involvement in the sale of Amenity places CGC in a very vulnerable and dangerous position. The sale of any form of securities exposes a business or individual to a wide range of scrutiny at both the state and federal level. Since the period immediately following the Great Depression, extensive statutory control has been placed over the entire field of securities. The majority of these statutes are directed at ensuring that all security transactions are done with the fullest and fairest disclosure possible so that investors are provided with sufficient information to make a qualified decision regarding the value of their investment. Although what constitutes a security is subject to some interpretation, there is no doubt that the actions taken by CGC would clearly qualify (Lowenfels). Using the three-prong test established by the U.S. Supreme Court, it must be assumed that the acquiring company solicited by CGC was making an investment in a common enterprise with an expectation of profits (SEC v W.J. Howey Co.). Unfortunately, however, the acquiring company was acquiring a security from a business that had no potential for making any profits. Amenity was a corporation on paper only with no value. CGC is likely not to be involved formally in the sale or transfer of Amenity stock, the law in the State of Utah states that anyone acting as an intermediary in the sale of a security is deemed to be an agent for said sale and the fact that CGC facilitated the sale of the worthless Amenity stock would qualify CGC as an agent (Utah Code Ann.§61-1-13). Under the circumstances set forth, CGC would clearly qualify as a seller of securities and be subject to the jurisdiction of both the federal and state security laws. Although it is not stated in the available facts it must be assumed that CGC was not properly registered to sell securities under the laws of either the United States or the State of Utah and, therefore, the actions of the Utah Securities Division ceasing the sale of Amenity stock was lawful.