Business law -homework assignment no. 2 – spring 2014

Q. 1. True or False: A franchisor can suggest retail prices but cannot mandate them. (You only need to answer True or False by circling or highlighting your answer)(5 points).


Q. 2. What are the advantages and disadvantages associated with having a sole proprietorship?
(10 points)


Q. 3. Slav is interested in buying a franchise from Oz Inc. For Slav to make an informed decision concerning this purchase, Oz must disclose in writing or online: (Circle or highlight your answer)(5 pts.)
a. general estimates of costs and sales, but not the basis for them.
b. material facts such as the basis of projected earnings figures.
c. no information.
d. start-up requirements, but not renewal conditions.

Q. 4. Global Experts, L.P., is a limited partnership, with $100,000 in declared but unpaid profits. Global Expert’s creditors include Friendly Credit Corporation for $5,000 and Gwen, one of Global Expert’s limited partners, also for $5,000. When Harry, one of Global Expert’s general partners, decides to retire, the other general partners vote to liquidate and dissolve the firm. The limited partners, who are not asked their opinions, want Global Experts to continue in business and file a suit against the general partners to compel this result.
4(a). Can the court order Global Experts, L.P. to continue? Yes or No, Explain why in detail (10 points).
4(b). If not, what is the priority of the distribution of Global Expert’s assets on its dissolution? Explain. (5 points).

Q. 5. List the five ways in which a partner can be dissociated from a partnership under UPA 601. (5 points).


Q. 6. James, Sam, and Kristen want to form Sales-to-Infinity, LLC (limited liability company).
6(a) What information do they need to include in their articles of organization (5 points)?
6(b) What should they provide in their operating agreement (5 points)?


Q. 7. LLC’s can be managed in one of two ways. State what these two options are and explain how management of the LLC works under each option (10 points).

Q. 8. True or False: Bonds represent the purchase of ownership in a business firm. (You only need to answer True or False by circling or highlighting your answer) (5 points).


Q. 9. Linda and Rick Smith are a married couple who want to open a Pizzeria called “Smith’s Spicy Pepperoni Pizzeria” with their two kids – Matt and Leslie. Linda and Rick want all four of them to be equal shareholders. However, they do not want their children to be able to sell their shares to someone outside of the family without their approval. What type of corporation would you recommend the Smith’s form to alleviate Linda and Rick’s concerns about transfer of shares to non-family members? (5 points).

Q. 10. James is a controlling shareholder in Widgets, Inc. He often uses the Widgets, Inc. checkbook to pay not only the bills of the corporation, but also, his own personal bills such as his mortgage payment and to treat himself to spa days. In fact, James pays all of his own bills with the Widgets, Inc. checkbook even though he has substantial wealth of his own. However, James’ spending habits bankrupt Widgets, Inc. and Widgets, Inc. has to go out of business. Several contractors hired by Widgets, Inc. were not paid what they were owed and they want to sue James personally in order to receive their money since there is no money left in Widgets, Inc.

10(a) What action would the court have to take in order to hold James personally liable for Widgets, Inc.’s corporate debts and obligations? (5 points)
10(b) What are four factors that could be shown to the court in order for the court to take the action in the answer to 10(a) that would hold James personally liable for Widgets, Inc.’s corporate debts and obligations? (5 points)

Q. 11. Mitch is a director and officer of Numero Uno, Inc. Mitch makes a marketing decision for the company that results in a dramatic decrease in profits for Numero Uno and its shareholders. The shareholders accuse Mitch of breaching his fiduciary duty to the corporation.
11(a) What is Mitch’s best defense against this accusation? (5 points)
11(b) What three things would Mitch have to prove to prevail under this defense? (5 points)

Q. 12. Corporate directors will often have many different business affiliations and they may sometimes sit on the board of more than one corporation. What must a corporate director do, as required by their fiduciary duties, to avoid any possible conflict of interest or a breach of their fiduciary duties? (10 points)

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