A&B Designs — Agency, Partnership, and Corporate Duties

Alice and Ben formed a general partnership, A&B Designs, to create and sell custom furniture. They hired Carol as a sales manager and explicitly told her she could approve custom orders only up to $5,000. However, last month, they allowed a $5,500 contract she signed to proceed without comment. Last week, Carol signed a $7,000 contract with a new client, Dave, on behalf of A&B Designs.

Shortly thereafter, Ben, without consulting Alice, signed a one-year lease for a large new showroom with Landlord Corp. The showroom was in a prime location but was much larger and more expensive than their business needed at the time. Alice was furious when she found out and told Ben the partnership could not afford it.

To protect their personal assets from business debts, Alice and Ben properly incorporated the business as A&B Designs, Inc., with both serving as the only directors and shareholders. The new corporation needed a delivery van. Ben is the sole owner of a separate business, “Ben’s Best Vans.” At a board meeting, Ben proposed that the corporation buy a van for $30,000 from his dealership. Ben disclosed his ownership of the dealership and presented reliable data showing that $30,000 was a fair market price for that type of van. Alice, the only other director, reviewed the data and voted to approve the purchase.