01 Jul Corporate Operating Agreements
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:
What law will the court apply?
In most states, what will result?
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:
Assess the laws that govern the limited liability companies [Uniform Limited Liability Company Act (ULLCA)].
Evaluate how these laws frame our scenario and how a court would rule.
Conclude how Ron, Camille, and Candie could have avoided the dispute by creating an operating agreement and integrating operating procedures into a written agreement.
Just do response each posted # 1 to 3 down below only
I believe that the courts would apply the Uniform Partnership Act to this situation. This is because they have entered into a business as partners each contributing a part. In most states the ruling would be that the profits are split according to what each partner contributes to the business, In this case it would be 40/30/30. This could have been avoided if they wanted to split the profits equally across the board by all going in at 33.33%. This way all would be contributing the same get back the same in profits. They also could have created a written agreement when starting the business to state how everything would be split and signed. They could have given Ron more to start to payback the percentage he contributed to start while Camille and Candie put more in to create and even split of the company and from that point on all profits would be split even.
The court will most likely apply the Uniform Partnership Act (UPA), which governs the operation of partnerships in the absence of express agreement and has done much to reduce controversies in the law relating to partnerships (Miller, 2013). In most states, the judge will say that all of the partners have an equal share in the company regardless if Ron invested more money than Camille and Candie. In a partnership, two or more persons agree to contribute some or all of their funds or other assets, labor, and skills to a business with the understanding that profits and losses will be shared (Miller, 2013). The dispute between Ron, Camille, and Candie could have been avoided by creating an operating agreement and integrating operating procedures into a written agreement because if they would have stated in writing who is getting what for the investment they put in then no one would have been confused or argued about someone getting more or less than another partner. Ron could have had more of an investment with more rights if it was in writing in the first place, though I am not sure if Camille and Candie would have gone into business with him knowing this from the beginning.
Miller, R. L. (2016). Fundamentals of business law today: Summarized cases(9th ed.). Australia: Cengage Learning.
In this case, the law that will be applied by the court is the Uniform Partnership Act (UPA) (Miller, 2013). Since they are an LLC, and there are partners involved this will be important for the courts. When they joined together Ron put in more money then the others contributed. They did not set up an agreement regarding the distribution of profit and losses even though Ron invested more, without an understanding the UPA will give all the partners equal management rights along with financial rights (Miller, 2013). Each state has different interpretations of the law or has none at all. If there is not a clear precedent, they may have to look at other states precedent if they have not adopted this practice (Miller, 2013). In the future they should be clear on the details of the partnership, including how financials are divided, decisions are made, and how to remove a partner from the firm if the need arises (Miller, 2013). By having an explicit partnership agreement and operating procedures laid out, they can set the path for success.
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