Law 421 corporation scenario paper

This final paper for Week 5 consists of two parts, Part A and Part B. You must do both Part A and Part B to get full credit! You may include both parts in one paper.


Part A word count is a minimum of 600 words.

Part B word count is a minimum of 1400 words.

Therefore, the total word count for this paper is a minimum of 2000 words.


Part A


Resource: Article Review Format Guide located on the student website.


Locate an article specifically related to the Sarbanes-Oxley Act (SOX Act) of 2002. (I’ve attached an article that i’ve located already! Please see attached documnet!)


Write a review of the article in a minimum of 600 words. Your review should discuss how the SOX Act may affect ethical decision making in today’s business environment, and the criminal penalties for which the act provides.


·         In your references be sure to cite the name of the article with and format your paper consistent with APA guidelines.



Part B


·         Read Chapter 15; page 401 “Theory to Practice” Scenario, of The Legal Environment of Business. In a minimum of 1400 words be sure to:


·         Answer all seven question located at the end of the scenario.

·         Your answer dealing with corporations should discuss in part, fiduciary duties of directors, duty of care, capitalization, taxation, officers, shareholders and business judgment rule


Cite at least two important court cases to support your answer.


Here is the Theory to Practice Scenario that Part B talks of…






Adams and Barker were two individual scientists




engaged in research related to inventing a patentable




pharmaceutical product. Once they had gained critical




mass for the project, they convinced Barker’s old




college roommate, Cornelius, to invest $100,000 in




exchange for an ownership share in a newly formed




company called Pharma Corporation (Pharma). The




parties agreed that Adams and Barker would continue




product development until the company was ready to




apply for a patent, then Cornelius would use his contacts




to find a manufacturer to produce and market the




patented drug. Pharma was structured as follows:






Name             Stock Owned (%)              Role




Adams                         35                        President, director




Barker                         35                         Vice president/Secretary, director




Cornelius                    30                          Shareholder








The parties hired counsel to incorporate Pharma,




issue stock certificates, and draft bylaws. The corporate




records were then turned over to Barker and




she filed them in her desk drawer. No additional




formalities were followed and the records were not




maintained, nor were any directors’ or shareholders’




meetings held.




In year 2, Pharma’s application for a patent was




rejected. The rejection required Adams and Barker




to hire an additional expert to help with research




and would put the project behind by approximately




16 months. Adams hired Elliot, a well-known scientist,




to help with the project. At this point though,




Pharma’s financial resources were drying up and, trying




to keep the company afloat, Adams began to pay




certain Pharma bills with his personal credit card and




Baker would sometimes write out personal checks for




lab equipment.




1. What category of corporation is Pharma and what




are the options in terms of structure and raising








2. Would Pharma be eligible to be an S corporation?




If one of the shareholders objected, could the other




two vote to become an S corporation without the








3. Did Adams have the right to hire Elliot without the




others’ consent? Suppose that Cornelius believes




that Elliot is not a good hire for Pharma. Can he fire








In year 3, the financial condition of Pharma continued




to worsen. A representative of the dominant pharmaceutical




company in the market, Multi-Drug (MD),




approached Adams and Barker with an acquisition




offer. MD offered to pay $50,000 to buy all of Pharma’s




assets and offered a five-year employment agreement




with MD to both Adams and Barker. On the same




day as the offer, Adams and Barker send a one-page




e-mail to Cornelius informing him that they have voted




to approve the sale of assets of Pharma to MD and the




transaction would take place in one business day.




4. Suppose Cornelius is unhappy with the transaction.




Does he have any say in the matter? Does he have




the power to stop the sale?




5. Have Adams and Barker breached their fiduciary




duties to Cornelius? If so, what duties, specifically,




and how were they breached?




6. Are Adams and Barker protected by the business




judgment rule? Why or why not?




7. What type of lawsuit, derivative or direct, would be




filed by Cornelius to:




a. Force Adams and Barker to have a shareholders’




meeting and formal vote.




b. Recover against Adams and Barker for damages




Cornelius suffered as a result of an alleged breach




of duty.






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