Unit 9 Discussion Topic: Corporate Operating Agreements

Throughout this course, many discussion opportunities come up where you need to respond to other people’s opinions and comments. Then, respond to your Discussion topic after you have completed your Reading.

Ron Cardigan, son of Camille and Ray (Camille’s first husband) has met with Camille and Candie to form a limited liability company designed to be a place where young future clothing designers can work as part of an internship before entering fashion design school. Ron contributes 40% of the capital, and Camille and Candie each contribute 30%. Because it was Ron’s idea, he assumes he will receive more of the profits than Camille and Candie. Further, his contribution was greater than each of theirs. Camille and Candie feel they should all split the profits equally, as everyone has a unique talent that is being brought forth to run the new business. A dispute over the profits arises, and ultimately a court has to decide the issue.

Determine the following:

1. What law will the court apply?

2. In most states, what will result?

3. How could this dispute have been avoided in the first place? Assess fully.

Justify your answer using information from your Reading and be sure to:

1. Assess the laws that govern the limited liability companies [Uniform Limited Liability Company Act (ULLCA)].

2. Evaluate how these laws frame our scenario and how a court would rule.

3. Conclude how Ron, Camille, and Candie could have avoided the dispute by creating an operating agreement and integrating operating procedures into a written agreement.

 

Unit 9 Discussion 2 Topic: Insider Trading

Throughout this course, many discussion opportunities come up where you need to respond to other people’s opinions and comments. Then, respond to your Discussion topic after you have completed your Reading.

CARDWARE Inc. plans to take over First Class Purses & Accessories (FCPA) in an effort to coordinate elegant CARDWARE professional attire with items from FCPA that will complement CARDWARE’s fashion designs. Darla, owner of Darla’s Dummies, a mannequin manufacturer whom CARDWARE had used on numerous occasions happened to be delivering mannequins to CARDWARE’s principal place of business in Silkadonia. As she was bringing the last of the dummies down the hall to the room where the dummies are dressed, she paused to listen to a conversation coming from one of the open doors of the hallway she was using. Realizing that a profit could be made from FCPA’s stock, Darla called her broker and indicated that she wanted to purchase 50 % of the outstanding stock that was available for FCPA. Darla bought 2,000 shares of stock at $30 a share.

CARDWARE offered $50 a share and ultimately ended up paying $65 per share for FCPA stock. Darla was no dummy, as she made a $70,000 profit on her stock purchase.

The Securities and Exchange Commission (SEC) filed a suit in a federal district court against Darla and others for alleged violations of, among other things, SEC Rule 10b-5. [SEC v. Falbo 14 F.Supp.2d 508 (S.D.N.Y. 1998)]

Discuss the following, justifying your response using information from your Reading

1. Under what theory might Darla be liable?

2. Do the circumstances of this case meet all of the requirements for liability under that theory? Explain.

3. Examine the SEC Rule 10b-5.

4. Discuss whether or not Darla was liable under the misappropriation theory.