1. Question: Alan Dershowitz, a law professor famous for his wealthy clients (O. J. Simpson, among others), joined with other lawyers to open a kosher delicatessen, Maven's Court. Dershowitz met with greater success at the bar than in the kitchen-the deli failed after barely a year in business. One supplier sued for overdue bills. What form of organization would have been the best choice for Maven's Court? Strategy: A sole proprietorship would not have worked because there was more than one owner. A partnership would have been a disaster because of unlimited liability. They could have met all the requirements of an S corporation or an LLC. (See the "Result" at the end of this section.)
2. YOU BE THE JUDGE WRITING PROBLEM Cellwave was a limited partnership that applied to the Federal Communications Commission (FCC) for a license to operate cellular telephone systems. After the FCC awarded the license, it discovered that, although all the limited partners had signed the limited partnership agreement, Cellwave had never filed its limited partnership certificate with the Secretary of State in Delaware. The FCC dismissed Cellwave's application on the grounds that the partnership did not exist when the application was filed. Did the FCC have the right to dismiss Cellwave's application? Argument for Cellwave: The limited partnership was effectively in existence as soon as the limited partners signed the agreement. The Secretary of State could not refuse to accept the certificate for filing; that was a mere formality. Argument for the FCC: When Cellwave applied for a license, it did not exist legally. Formalities matter.
3. Kristine bought a Rocky Mountain Chocolate Factory franchise. Her franchise agreement required her to purchase a cash register that cost $3,000, with an annual maintenance fee of $773. The agreement also provided that Rocky Mountain could change to a more expensive system. Within a few months after signing the agreement, Kristine learned that she would have to buy a new cash register that cost $20,000, with annual maintenance fees of $2,000. Does Kristine have to buy this new cash register? Did Rocky Mountain act in bad faith?
4. What is the difference between close corporations and S corporations?
5. Michael incorporated Erin Homes, Inc., to manufacture mobile homes. He issued himself a stock certificate for 100 shares for which he made no payment. He and his wife served as officers and directors of the organization, but, during the eight years of its existence, the corporation held only one meeting. Erin always had its own checking account, and all proceeds from the sales of mobile homes were deposited there. It filed federal income tax returns each year, using its own federal identification number. John and Thelma paid $17,500to purchase a mobile home from Erin, but the company never delivered it to them. John and Thelma sued Erin Homes and Michael, individually. Should the court "pierce the corporate veil" and hold Michael personally liable?
6.Angelica is planning to start a home security business in McGehee, Arkansas. She plans to start modestly but hopes to expand her business within 5 years to neighboring towns and, perhaps, within 10 years to neighboring states. Her inclination is to incorporate her business in Delaware. Is her inclination correct?
7.Eve bought defective ball bearings from Saginaw Corp. Alfred was the sole shareholder of the company and also its landlord. After Alfred sold all of Saginaw's assets, he withheld enough money to cover the rent that Saginaw owed him. As a result, Saginaw had no money to pay Eve. Does Eve have a claim against Alfred?
8. Congressional Airlines was highly profitable operating flights between Washington, D.C., and New York City. The directors approved a plan to offer flights from Washington to Boston. This decision turned out to be a major mistake, and the airline ultimately went bankrupt. Under what circumstances would shareholders be successful in bringing suit against the directors.