Question

Hurwitz and Padden formed a two-person law firm as a partnership without a written agreement. They shared all proceeds on a fifty-fifty basis and reported all income as partnership income. A year later, Hurwitz filed articles of organization with the state of Minnesota to establish the firm as an LLC. When they formed the LLC, they did not create an operating agreement. Three years after they formed the LLC, Padden told Hurwitz that he wanted to dissolve their professional relationship. They resolved all issues between them except for a division of fees from several of the firm's cases. Hurwitz sued seeking distribution of the profits on the basis of partnership law which would result in a fifty-fifty split. Padden argued that he was entitled to a greater share of the profits because they had formed an LLC in which he was allowed to receive a greater share of the profits than 50 percent. The court most likely held that Padden was

Answer 1

Options:

a. not entitled to more than 50 percent of the profits, because the parties historically had divided the profits fifty-fifty.

b. not entitled to more than 50 percent of the profits, because it was appropriate to apply partnership principles to an LLC when there was no operating agreement.

c. entitled to more than 50 percent of the profits, because Hurwitz would be unjustly enriched if he received 50 percent of the profits.

d. entitled to more than 50 percent of the profits, because it was the parties' intent to compensate Padden to a greater extent than Hurwitz

Answer:

B

Explanation:

Since neither the partnership nor the limited liability company had any partnership agreement that stated how Hurwitz and Padden would share the profits generated by the business, then the general rule of partnerships should apply, i.e. profits and losses must be divided equally among all the partners.