Question

Unit 9 Discussion Topic: 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 Candle 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 1. What law will the court apply? 2. In most states, what will result? 3. 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 1. Assess the laws that govern the limited liability companies [Uniform Limited Liability Company Act (ULLCA)] 2. Evaluate how these laws frame our scenario and how a court would rule 3. Conclude how Ron, Camille, and Candie could have avoided the dispute by creating an operating agreement and integrating operating procedures into a written agreement.

Answer 1

Answer: 1

The court will apply the law of Limited Liability Company Act for the given issue raised by the three partners for the profit sharing among them.

As per the Limited Liability Company Act, the profits are allocated among the ownerships partners based on their capital investments in the company. Thus the profit will be allocated as 40% to Rob, 30% to Camille and 30% to Candie based on their capital investment as per the ownership firm.

Answer 2:

In most of the states, the result is as per the limited liability company act and the profit is allocated among the partners as per their capital investment in the company. Thus people generally follow the profit allocation to partners based on their contribution shares and this is based on the written agreements mentioned in the LLC firm.

The profit allocations are generally mentioned in the limited liability company firm registration and this being aware to the partners that partners will be having the profit allocation based on their contribution in the LLC.

Answer 3:

This dispute can be have been avoided in the first place of LLC formation, where the profit allocation can be mentioned and it will be agreed by all the three parties that the profit allocation will be based on the contribution percentage in the LLC firm. The written agreement in the LLC firm will avoid the dispute in the first step itself only. Rob, Camille and Candie can prepare the written working agreement and procedure in the LLC firm so that this would have created a better guiding document for them and help in resolving such disputes in future among them.