Eric Forman formed a limited partnership with his father-in-law, Bob Pinciotti, to open a fondue
restaurant in the town of Point Place. Eric was the general partner and owned 75% of the
business. Mr. Pinciotti, with 25% ownership, was the limited partner and invested $100,000.
After one year, difficulties in the restaurant’s operation caused business to drop off, and Eric
called Mr. Pinciotti for advice.
After hearing of the difficulties, Mr. Pinciotti became concerned with the security of his
investment. He took off of work and spent two days observing the restaurant operations. The
two partners then decided to launch a large and expensive television ad campaign to increase
flagging sales. Mr. Pinciotti designed the campaign with the help of Groovy Advertising, a
local ad agency.
There was an immediate increase in sales when the commercials first aired; however, volume
quickly and significantly declined once again. Finally, three months after the ad campaign was
launched, the restaurant closed its doors. The restaurant closed with debts totaling $400,000 and
assets of only $200,000. The debt included $150,000 owed to Groovy Advertising, who sought
payment directly from Mr. Pinciotti since the partnership did not have sufficient cash or other
assets to pay the debt.
Mr. Pinciotti claimed that his liability was limited to the $100,000 invested in the restaurant
and refused to pay any additional money. Groovy Advertising sued the limited partnership,
as well as Eric Forman and Bob Pinciotti individually
1. Did Mr. Pinciotti forfeit his limited partnerstatus by hiring Groovy Advertising?
2. Is Mr. Pinciotti liable for the outstanding debts of the limited partnership?
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