Scenario Analysis: Partnership Act (Profit Sharing)

Question

Harry and Hermione operated a magic shop together, sharing profits equally. They decided to expand.  Their friend Ron offered them $50,000 to help finance the expansion. Accordingly he agreed with Harry and Hermione that he would lend the money in return for $5,000 a year payable from sales less outgoings. However, he was concerned that he might lose her money.  Hence Harry and Hermione also agreed that they would consult him on any major decisions and that he could inspect the books whenever he wanted to. What is the relationship between Harry, Hermione and Ron? Would your answer be different if the $5,000 per annum was to be paid out of profits?

Summary

The question is about a partnership business run by three friends Harry, Hermione and Ron. The relationship between the three members is a partnership according to the Partnership Act. The reasons behind this are explained in the solution.

Total Word Count 347