Reference no: EM131975282

Case - Derek Brown and Kate Wilson set up a partnership to run a small retail business. Derek con- tributed $60 000 to begin the business and Kate's contribution was $50 000. Derek is confident with numbers and accounting whereas Kate prefers to deal with people and to ignore anything requiring numbers. Kate has put her trust in Derek to set up the financial side of the business. Derek has decided that all profits should be distributed according to the initial capital contribution by each of the partners.

During the second year of operation, Derek bought a new house and to finance the deposit he withdrew $20 000 from his capital investment in the partnership. Kate accepted that this was reasonable and did not even think about the implications for profit distribution. The following year Derek withdrew another $20 000 from his capital investment in the partnership to reduce his house mortgage. Kate accepted that as Derek had put the money into the partnership, it was only fair that he could take it out again.

Derek and Kate both worked actively in the business and generally worked well together as business partners. They both were entitled to a salary of $30 000 on the assumption that they would contribute equally to the management of the business.

Required -

1. Who are the stakeholders in this situation?

2. Does Derek appear to be doing anything wrong? Explain your response.

3. Are there any ethical issues involved here? If so, identify them.