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Business Associations
Professor Bradford
December 7, 2012
8:30 a.m.
Part I: 1 Hour and 15 Minutes
(Closed Book)
GENERAL INSTRUCTIONS
1. The exam has two parts. This is Part I. Part I is closed book. You
may not consult any sources. You may not use or possess a cell
phone or any other electronic device other than the computer on
which you are taking the exam. You may not consult with or
communicate with any other person during the exam. If you have any
books, notes, briefcases, book bags, cell phones, electronic devices, or
other items, you must bring them to the front of the room now. You
may not keep these items by your side or take any of them to another
designated exam room.
2. Part I of the exam has seven (7) pages, including the instructions.
The page numbers appear on the top right-hand corner of each page.
Please check to be sure that this copy has all the pages.
3. You have one hour and 15 minutes (1:15) to complete Part I. You
must turn in your answers in the designated room, even if you are
taking the exam somewhere else. If you finish more than five minutes
early, you may turn in your answers in the Dean’s Office.
4. Part I of the exam consists of four (4) questions. The
recommended time for each question is as follows:
Question
Question
Question
Question
1……..…...25
2…..…..….15
3 ………….10
4……….....25
Minutes
Minutes
Minutes
Minutes
Each question will be weighted in accordance with its recommended
time.
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5. Do not spend all of your time writing. Think about the issues and
organize your answers before writing. Be concise. Be organized.
Long, disorganized, rambling answers will be penalized, as will
merely “dumping” everything you know into your answers rather than
answering the question posed.
6. For each question, if the facts of the question do not indicate
otherwise, assume that the Revised Uniform Partnership Act, the
Revised Uniform Limited Partnership Act, the Revised Uniform
Limited Liability Company Act, and the Revised Model Business
Corporation Act apply.
7. If you believe that additional facts are needed to answer a
question, state exactly what those facts are and how they would affect
your answer. If you believe that a question is ambiguous or unclear,
note the ambiguity or lack of clarity and indicate how it affects your
answer.
8. The Honor Code is in effect.
EXAM 4 INSTRUCTIONS
9. You must take the exam on a computer that has the latest version
of the Exam 4 software installed. If you have not previously installed
the Exam 4 software, please notify the exam administrator
immediately. You must take Part I of the exam in the CLOSED
MODE.
10. Be sure to enter your exam number in the Exam ID field . (Do not
use your NU Card ID number or your social security number.) You
will be required to enter your exam number twice. Select the course
name from the drop-down box. Be sure you find the folder for this
course, because that is where your exam will be stored . Verify that the
information is correct just before you select “Begin Exam.”
11. Do not worry about headers, footers, page numbers, or double spacing your exam; the software does all that for you when the exam
is printed.
12. When you are finished, please submit your exam electronically. A
pop-up box will show the status of your exam. It should show a black
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bar with 100% in it and a message that says, “Your file has been
successfully stored.” If you do not get this message, please see Vicki
Lill in the Dean’s office immediately. After successfully submitting
your exam, exit Exam 4 before leaving the classroom.
13. If you have any technical problems during the exam, please
report them immediately to the Dean’s office; we will assume you had
no technical problems until you reported them. Be prepared to finish
your exam by writing it. (Regular notebook paper is O.K.)
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Question 1
(25 Minutes)
Your friend Frieda Friend has been asked to join the board of
directors of a large public corporation. Frieda has never been on a
board of directors before. She has heard many horror stories about
plaintiffs’ lawyers and is concerned about possible liability for breach
of duty.
Frieda is not worried about liability for any conflicts of interest; she
is certain she can steer clear of any such problems. But she has heard
that corporate directors can be liable even when they have no
personal conflicts of interest. She has asked you to advise her about
the legal rules.
Prepare a brief summary for Frieda of the circumstances in which
directors can be liable for breach of the duty of care and the
standards courts apply to such cases. Frieda is not a lawyer, so be sure
to phrase the discussion in terms a layperson can under stand.
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Question 2
(15 Minutes)
Discuss why a general partnership might want a provision in its
partnership agreement allowing it to expel a partner, and the dangers
such a provision poses to a general partner of the partnership.
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Question 3
(10 Minutes)
Both Delaware section 144(a)(1) and RMBCA section 8.61(b)( 1)
provide that a director will not be held liable for breaching his duty
of loyalty in a self-dealing transaction if the transaction is approved
by disinterested directors after full disclosure of all material facts.
Briefly explain the theory underlying this exception to what would
otherwise be a breach of duty.
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Question 4
(25 Minutes)
Smith and Jones are organizing a corporation in which Smith will
own 55% of the stock and Jones will own the remaining 45%. The
corporation will have five directors.
A. Discuss how many of the five directors Jones, the minority
shareholder, will be able to elect under the default rules of
Delaware corporate law and the MBCA.
B. Discuss possible ways to change this default outcome to
guarantee greater board representation for Jones. (Discuss as
many different ways as you can think of and explain how they
would work. Assume that changing the 55-45% ownership
split is not an option.)
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Business Associations
Professor Bradford
December 7, 2012
8:30 a.m.
Part II: 2 Hours and 5 Minutes
(Partially Open Book)
GENERAL INSTRUCTIONS
1. The exam has two parts. This is Part II. Part II is partially open
book. You may use the casebook, the required statutory supplement,
any handouts provided by the professor, and any materials, such as
notes or outlines, prepared exclusively by you. You may not use any
other materials, written, digital, or recorded. You may not use or
possess a cell phone or any other electronic device other than the
computer on which you are taking the exam. You may not consult
with or communicate with any other person during this exam . If you
have any other books, notes, briefcases, book bags, cell phones, PDAs,
or other items, you must bring them to the front of the room now.
You may not keep these items by your side or take any of them to
another designated exam room.
2. Part II of the exam has nine (9) pages, including the instructions.
The page numbers appear on the top right-hand corner of each page.
Please check to be sure that this copy has all the pages.
3. You have two hours and five minutes (2:05) to complete Part II of
the exam. You must turn in your answers in the designated room,
even if you are taking the exam somewhere else. If you finish more
than five minutes early, you may turn in your answers in the Dean’s
Office.
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4. Part II of the exam consists of five (5) questions. The
recommended time for each question is as follows:
Question 1……...30 Minutes
Question 2……...20 Minutes
Question 3……...20 Minutes
Question 4……....30 Minutes
Question 5……....25 Minutes
Each question will be weighted in accordance with its recommended
time.
5. Do not spend all of your time writing. Think about the issues and
organize your answers before writing. Be concise. Be organized.
Long, disorganized, rambling answers will be penalized , as will
merely “dumping” everything you know into your answers rather than
answering the question posed.
6. For each question, if the facts of the question do not indicate
otherwise, assume that the Revised Uniform Partnership Act, the
Revised Uniform Limited Partnership Act, the Revised Uniform
Limited Liability Company Act, and the Revised Model Business
Corporation Act apply.
7. If one of the statutes or regulations we have studied applies, cite
the relevant sections and subsections and explain how those
provisions apply to the facts of the problem. An answer that doesn’t
cite and analyze relevant statutes or regulations is incomplete and
will not receive full credit.
8. If you believe that additional facts are needed to answer a
question, state exactly what those facts are and how they would affect
your answer. If you believe that a question is ambiguous or unclear,
note the ambiguity or lack of clarity and indicate how it affects your
answer.
9. The Honor Code is in effect.
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EXAM 4 INSTRUCTIONS
10. You must take the exam on a computer that has the latest version
of the Exam 4 software installed. If you have not previously installed
the Exam 4 software, please notify the exam administrator
immediately. You must take Part II of the exam in the OPEN MODE.
11. Be sure to enter your exam number in the Exam ID field . (Do not
use your NU Card ID number or your social security number.) You
will be required to enter your exam number twice. Select the course
name from the drop-down box. Be sure you find the folder for this
course, because that is where your exam will be stored . Verify that the
information is correct just before you select “Begin Exam.”
12. Do not worry about headers, footers, page numbers, or double spacing your exam; the software does all that for you when the exam
is printed.
13. When you are finished, please submit your exam electronically. A
pop-up box will show the status of your exam. It should show a black
bar with 100% in it and a message that says, “Your file has been
successfully stored.” If you do not get this message, please see Vicki
Lill in the Dean’s office immediately. After successfully submitting
your exam, exit Exam 4 before leaving the classroom.
14. If you have any technical problems during the exam, please
report them immediately to the Dean’s office; we will assume you had
no technical problems until you reported them. Be prepared to finish
your exam by writing it. (Regular notebook paper is O.K.)
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Question 1
(30 Minutes)
Arnie, Bettie, and Cookie are the only partners in a general
partnership that operates an Italian restaurant, Leonardo ’s. Under the
terms of their partnership agreement, Arnie and Bettie have “the
exclusive authority to manage the partnership and make all business
decisions for the partnership.” Cookie, the restaurant’s cook, is
authorized to “make ordinary decisions related to cooking,” but
otherwise “has no management or agency authority.”
Emeril, a famous chef, heard about Leonardo’s and arranged to tour
the restaurant. Emeril arrived at the restaurant on November 1, 2012,
just as Arnie and Bettie were leaving. Arnie told Emeril, “Cookie is
our partner. She can take care of you on our behalf.” Bettie nodded
her agreement.
Leonardo’s uses a special pizza oven hand-made by Cookie and
contributed to the business as part of her capital contribution when
the three partners formed Leonardo’s. When Emeril saw the oven, he
offered to buy it for $120,000. Cookie decided that was too good a
deal to pass up, so she quickly agreed to the sale. She drew up a short
contract selling the oven to Emeril and signed it, “Leonardo’s, By:
Cookie.”
Later that night, when Arnie and Bettie found out what Cookie had
done, they notified Emeril that they would not honor the contract.
Discuss whether Arnie, Bettie, or Cookie are liable for damages
resulting from breach of the contract. (Do not discuss any procedural
issues related to the enforcement of any liability.)
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Question 2
(20 Minutes)
You are a legislative aide for a U.S. Senator. He believes the law of
insider trading under Rule 10b-5 should be codified so it is clear to
defendants exactly what is and is not prohibited. He does not want to
change the existing law, just to put it into statutory form. He tells you
not to worry about codifying any special rules the SEC has adopted,
such as Rules 10b-5-1 and 10b-5-2, as those will remain in place. He’s
only interested in codifying the case law.
Draft the statute. Be as precise, clear, and succinct as possible, but
also be thorough. Try to leave as little ambiguity and uncertainty as
possible. Do not change the existing law.
(Obviously, there is a lot of case law we haven’t looked at. Limit your
codification to the major federal cases we cov ered.)
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Question 3
(20 Minutes)
Arnie is a member of a member-managed limited liability company,
Magna, LLC, that is organized under the Revised Uniform Limited
Liability Company Act (2006). Magna has three other members:
Barney, Conan, and Delilah.
Arnie has been unhappy with the business for some time. He has been
outvoted on several questions of business strategy and has had an
ongoing personality conflict with Conan, who Arnie thinks is a real
barbarian.
On November 1, 2012, at a meeting of the members, Arnie’s
dissatisfaction finally boiled over. “That’s it,” he said. “I don’t want
to be part of this business anymore. I quit.”
Discuss the consequences of Arnie’s action. Assume there is nothing
in Magna’s certificate of organization or operating agreeme nt that
deals with the withdrawal of a member or the termination of the
business.
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Question 4
(30 Minutes)
Alpha Corporation is a Delaware corporation. Alpha is a reporting
company under the Exchange Act; its common stock is traded on the
New York Stock Exchange and is registered pursuant to section 12 of
the Exchange Act.
Jones owns 10,000 shares of Alpha common stock. On March 20,
thirty days before Alpha’s upcoming annual meeting, Smith mailed a
letter to each of Alpha’s common shareholders. He did not file a
proxy statement or include a proxy statement with the letter.
In the letter, Jones criticized the leadership of the current Alpha
directors and urged Alpha shareholders not to vote for the incumbent
directors at the upcoming meeting. Jones did not include a proxy
form with the letter and did not ask shareholders to give Jones their
proxies.
Jones also stated in the letter that one of the directors, Doe, was not
trustworthy because he was convicted of an honor code violation
while in business school. In fact, this was untrue. Doe was accused of
an honor code violation, but the honor court acquitted him.
Discuss whether Jones has violated the federal proxy rules.
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Question 5
(25 Minutes)
Beta Corporation is a Delaware corporation. It has ten shareholders,
one of whom, Manny Major, owns a majority of the stock . Its
balance sheet as of December 1, 2012 appears on the following page.
A. What is the maximum amount of dividends Beta may distribute
to its shareholders as of December 1? Explain. (Assume that: (1)
the fair market values of the items listed on the balance sheet are the
same as their balance sheet values; (2) the directors make no changes
to the terms of the common stock before Beta pays the dividend .)
B. On December 2, Beta sold 1,000 shares of common stock to
Smith for $15,000 cash. Explain how this transaction will
change Beta’s balance sheet.
C. Assume that Beta’s board decides not to pay any dividends.
One of Beta’s minority shareholders sues, claiming that the
failure to pay dividends is a breach of fiduciary duty. The
shareholder-plaintiff argues that Beta has no legitimate need
for the cash it is holding and that the failure to pay dividends
unfairly deprives the shareholders of a return on their
investments. Discuss how the court will evaluate this claim and
its likely response.
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Beta Corporation
Balance Sheet
As of December 1, 2012
Assets
Cash
Accounts Receivable
Inventory
Equipment
Land
$ 2,594,000
23,000
249,000
143,000
157,000
TOTAL ASSETS
$ 3,166,000
Liabilities and Shareholders'
Equity
Liabilities
Accounts Payable
Notes Payable
Total Liabilities
$
Shareholders' Equity
Common Stock
Additional Paid-In Capital
Retained Earnings
Total Shareholders' Equity
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY
$
134,000
217,000
351,000
$
200,000
650,000
1,965,000
$ 2,815,000
$ 3,166,000
NOTES Re: Common Stock
1. Four million shares authorized. 200,000 shares issued and
outstanding.
2. Par value is $1 per share.