Jason, Ellen and Frank are business partners. Each of them handles a separate area of the partnership’s business. They periodically have partners’ meeting where they report to each other on the financial status of their areas and discuss potential new business. Jason’s area of business has recently become extremely profitable, and Ellen and Frank are so happy with the new financials that they have not closely questioned Jason about the details especially since the partners continue to receive an equal share of the business profits each of them brings in. Ellen and Frank are shocked when the FBI comes to the office one Friday afternoon and arrest Jason. The FBI also informs Ellen and Frank that the office equipment is being seized and the partnership bank accounts have been frozen. Which of the following is a correct statement of the law?
Ellen and Frank should immediately file a Notice of Dissociation so that they will not be liable for Jason’s conduct.
Both Ellen and Frank can face criminal prosecution because the business was operated as a partnership.
By not closely questioning Jason about his area of the business, Ellen and Frank will be seen to have ratified Jason’s partnership operations.
Ellen and Frank will not be liable for Frank’s conduct because Frank independently operated his area of the business.