Reference no: EM13147406

With specific reference to the facts presented below, identify and discuss all of the applicable business organization issues and related rules of law in clear, concise, and persuasive analyses (see "Exam Review" at the end of the " Corporations" chapter for a review). Limit the responses to a maximum of two hundred (200) words each. End with a word count as illustrated here. [63]

Scenario:

Part I:

Charlene, the sole proprietor of Charlie's Crunchy Cat Cakes (4C), has decided to incorporate the business and bring her sister Anna in to run the business. Charlene is willing to give Anna an ownership interest in the new corporation, but Charlene will not agree to give Anna any shareholder voting authority or strategic management power. Anna will manage the day-to-day operations only.

4C is quite successful and now has locations in all of the New England states. 4C plans to expand further starting with the Mid-Atlantic states. To do so, it will need considerable money from outside sources.

To best achieve Charlene's goals, advise her, with supporting reasons, on the following issues:

a) The proper name, state of incorporation, and form of corporation; and

b) The optimal form of stock ownership and management structure. [136]

Part II:

Anna, as the operations manager of the new corporation, determines that the money needed to expand is not available from traditional lenders such as banks. To purchase several new locations in New Jersey, Delaware and Maryland, Anna arranges with a wealthy individual to borrow $10,000,000.00 at an interest rate significantly higher than the current market rate. Anna commits the corporation to make interest payments every Friday and to repay the entire loan balance in exactly six months. A more traditional bank loan for this type of transaction would be secured by a mortgage on the properties purchased and be repaid in monthly installments of principal and interest over fifteen years. Charlene learns of this arrangement and, fearful that she may lose her investment in the corporation, is outraged by Anna's decision.

To protect Charlene's interests, advise her, with supporting reasons, of the options available and Anna's possible defense.