Exhibitors Herald and Moving Picture World (Oct-Dec 1928)

December 22. 1928 EXHIBITORS HERALD and MOVING PICTURE WORLD 33 Shock Absorbers and the Theatre The going value of a theatre property vs. its liquid value at administration as seen from an underwriter s vieupoint. By RAYMOND Q. DALTON Former director of theatre construction and operation /"~\F THEATRE ownerships there are four distinct classes, that of Individual ownership— Partnership ownership — C lose Corporation ownership and Corporate ownership. In dealing with these four principal and separate forms of ownership, an insurance underwriter must take into consideration all the laws, both State and Federal, pertaining to each individual case — for what may apply to the needs of one would be of no value whatsoever in determining the requirements of the other. To illustrate, take the case of a partnership ownership, and to simplify, a two man partnership. While there is some advantage in a partnership over a corporate ownership, the same may be said to the contrary, all things considered. For instance, regarding a partnership, the law specifically states: J. That upon the death of one partner, the partnership is ended and its affairs must be liquidated. II. The surviving partner has the following duties and responsibilities : (a) To convert the firm's assets into cash (b) To settle with the estate of the deceased partner (c) To pay all outstanding debts (d) To settle all joint business, including notes (e) To settle all joint business including notes jointly endorsed and which immediately become due. III. He is limited in the following ways: (a) He can only sell items of value except at his own risk (b) He cannot buy new items or stock except at his own risk (c) Firm ratings are discounted by credit agencies (d) He cannot require administrator or executor of deceased partner to sign renewal notes. (e) He must take into account personal creditors of deceased as well as firm creditors (f) He may be hampered by widow, executor or administrator of deceased. IV. The estate of deceased partner is affected as follows: (a) It is entitled to no salary or drawing account after death of the deceased (b) It cannot force any settlement until all firm obligations are met. * * * In view of the above, it necessarily follows that the legal and physical structure of a part nership is one which requires consideration to overcome some of the difficulties attendant upon the death of one of the partners. The partnership, being an association between two or more individuals for the carrying on of an enterprise for profit, the association is created by contract, either oral or written, and a partnership as such, is not a separate entity as is a corporation, and accordingly, the rights and liabilities of that association are attached to the individuals comprising the partnership. Therefore, the natural death of one partner means the legal death of the partnership, because the law requires the dissolution of the partnership when one partner dies. This condition, however, can be overcome by the partners themselves during their lives, by providing for the continuance of the busi Corner of lounge KEXMORE THEATRE Radio-Keith-Orpheum house Brooklyn, N. Y. ness in a legal manner, but with extreme care and thorough knowledge of the undertaking, in order that the purpose through apparently a minor detail may not be entirely defeated, and, as is the case of many a partnership going along with a feeling of security on account of having entered into such specific written agreement to cover the above hazards, only to find when it is all too late, tliat the intentions were good, btit the result was disastrous. By written agreement, I mean bona fide documents — with seals, witnesses and whereas and wherefore and all that — but — unless "cash in real American dollars" can be had immediately— for cash and cash only, will do what the articles over the signatures agree to do and want to accomplish, the agreement is worse than useless, for it is only an admission of liability without the one provision necessary to its fulfillment. Here is where the underwriter steps in with the shock absorber — the cost of which is moderate. If he is skilled in handling this particular and individual problem, he immediately prepares a program directly suited to the conditions^— provides specifically for the maintenance of control of the business by the surviving partner or partners and also provides the substitution of a liquid asset, for a non-liquid one in the estate of the deceased. This is followed by direct and assured relief for the survivors of the burden and loss, occasioned by discontinuing the business when it may be most profitable, and innumerable other advantages. Among the items entering into this condition may include the following: 1. Is there a written partnership agreement — if so, does it provide for the continuation of the partnership; 2. Number of Partners — names, — interests of each; 3. Number of years the business has existed; 4. Balance sheet: Net assets, capital account of each partner; 5. Statement of profit and loss — show average net earnings, without deduction of salaries — for partners; 6. Salaries — are amounts drawn regarded as — (a) Excessive (b) Adequate (c) Inadequate (d) Amount per year regularly drawn by each partner and regarded as adequate. 7. Family situation of partners — wife — children — anyone likely to become active in partnership; 8. Whether any of the partners have substantial estate aside from the partnership interest; 9. Whether cash has been provided to retire any partner's full interest without loss to himself or others. Following is an illustration of the actual method employed by the Surrogate Court in valuing a partnership having a capital of $110,000.00. One of the partners died, and the (Continued on page 72)