Tory, Becky, Hal, and Jere form TBHJ Partnership as equal owners. TBJH Partnersh
ID: 2450480 • Letter: T
Question
Tory, Becky, Hal, and Jere form TBHJ Partnership as equal owners. TBJH Partnership
rents heavy tools and equipment. Becky and Hal are married to each other
while Tory and Jere are brothers but are not related to Becky or Hal. Because
Becky and Hal have other jobs, Tory and Jere are to be the full-time managers of
the business. Although Tory and Jere will run the business full-time, Becky will
help in the store on weekends and some evenings. Hal will lend his financial expertise
to the firm by doing the bookkeeping and preparing the tax returns. Even
though the four have equal ownership interests, it is not clear how each owner is
to be compensated so that there is equity among the partners yet rewards for those
engaged in specific tasks. Hal has told the others that they cannot receive deductible
salaries. However, he suggests that guaranteed payments be made to each partner/
employee for an agreed-upon amount based on the value of the services each
provides and/or the time spent at the store. Discuss the ramifications of employing
this plan and whether this is an equitable way to allocate compensation among the
partners. What are the implications of this arrangement for the partners and the
partnership?
Tory, Becky, Hal, and Jere form TBHJ Partnership as equal owners. TBJH Partnership
rents heavy tools and equipment. Becky and Hal are married to each other
while Tory and Jere are brothers but are not related to Becky or Hal. Because
Becky and Hal have other jobs, Tory and Jere are to be the full-time managers of
the business. Although Tory and Jere will run the business full-time, Becky will
help in the store on weekends and some evenings. Hal will lend his financial expertise
to the firm by doing the bookkeeping and preparing the tax returns. Even
though the four have equal ownership interests, it is not clear how each owner is
to be compensated so that there is equity among the partners yet rewards for those
engaged in specific tasks. Hal has told the others that they cannot receive deductible
salaries. However, he suggests that guaranteed payments be made to each partner/
employee for an agreed-upon amount based on the value of the services each
provides and/or the time spent at the store. Discuss the ramifications of employing
this plan and whether this is an equitable way to allocate compensation among the
partners. What are the implications of this arrangement for the partners and the
partnership?
Explanation / Answer
Answers:-
Guaranteed payments means whether the partnership firm make profit or not we have to pay the partners.
As per my opinion this plan ahs both good and bad sides. Lets first discuss the good part of this:-
Guranteed payments are made to ensure that each partner is being paid for their specific contributions. Like in this case Becky and Hal works part time so their contribution should not go unnoticed
This eliminates the risk of their making personal contributions of time or property for which they are never paid if the partnership is not successful.
Now lets discuss it bad side:-
Since , Tory and Jere are working full time so they are entitled for the salaries beyond profits. Now since they have proposed a guaranteed payment plan, this will impact the earning of Tory and Jere as they are getting paid same what other sleeping partners getting(Becky and Hal). This will create a feeling of disinterest among them in long run as Becky and Hal are having two sources of income whereas Tony and Jere has only on esource of income. This will impact their partnership firm in long run.