ASSIGNMENT | 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:

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.

SAMPLE SOLUTION

Corporate Operating Agreements
In resolving the conflict between Camille, Candie, and Ron, the court will invoke certain provisions of the Companies Act. The Companies Act contains clauses that operationalize limited liability companies including how partners should share profits, how decisions are made and by whom, and how conflicts can be resolved.
The law provides for a profit-sharing formula that considers the amount of capital contributions by members, whereby members should draw profits proportional to individual capital contribution in the event there was no prior agreed-upon formula for profit sharing (Ferran, 2016).
In most states, the case would result in each member getting profits relative to his capital contribution to the company (Ferran, 2016). The majority of states’ laws…