Hiller, Luna, and Welsh are attempting to form a partnership to operate a travel agency. They have agreed to share profits in a ratio of \(4: 3: 2\), but cannot agree on the terms of the partnership agreement relating to possible liquidation. Hiller feels that it is best not to get into any arguments about potential liquidation at this time because the partnership will be a success and it is not necessary to think negatively at this point in time. Luna feels that in the event of liquidation, any losses should be shared equally because each of the partners would have worked equally for the success, or lack thereof, of the partnership. Welsh feels that any losses during liquidation should be distributed in the ratio of capital balances at the beginning of any liquidation because then the losses will be distributed based on a capital ability to bear the losses.

You have been asked to help resolve the differences and to prepare a memo to the three individuals including the following items.

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a. Specify the procedures for allocating losses among partners that is stated in the Uniform Partnership Act of 1914 that would be used if no partnership agreement terms are agreed upon regarding liquidation. (You may wish to obtain a copy of the Uniform Partnership Act for this requirement.)

b. Critically assess each of the partner's viewpoints. discussing the pros and cons of each position.

c. Specify another option for allocating potential liquidation losses that is not included in the positions currently taken by the three individuals. Critically assess the pros and cons of your alternative.