Section III, Professor Franks
Final Examination, Fall 1999
1. Carefully analyze the facts and grasp the issues in each question before beginning to write. Spend time reading the question slowly and carefully.
2. State the issues and answers to each question concisely. Lengthy answers are not necessary.
3. Do not repeat questions in your answers. Write neatly and legibly on only one side of each page.
4. Number your answers to correspond with the question, e.g., "II-B."
5. If you feel it necessary to assume additional facts in any of the questions, give the facts that must be added and state why.
6. Do not write in the margin of the book.
7. All major questions are equally weighted unless otherwise indicated. Subparts are approximately equal but may be weighted slightly differently according to the number of issues involved in that subpart.
8. Write your personal identification number and the name and section number of the course on which you are being examined on the cover of each examination book.
9. If you use more than one book, indicate "Book One," "Book Two" and so forth on the cover of each book and write your PIN and the name and section number of the course on the cover of each examination book.
10. A GOOD ANSWER IS NOT NECESSARILY A LONG ANSWER.
Keisha Washington makes an appointment to visit your law office. When she arrives, she tells you that she has been self-employed for ten years as an independent sales rep for Mary Kay Cosmetics, selling the company's products door to door through a local sales team she organized.
Ms. Washington tells you she has been dissatisfied with the Mary Kay line of cosmetics. She explains: "Mary Kay is a great brand, and they do have some cosmetics for African Americans, but the selection of shades of, for example, face powders, is in my opinion too limited. The same is true of Avon. And there's really not much else of quality for the direct-sales market. Other companies have only 'token integration' in their catalogs, with dozens of shades for whites to choose from, and only a handful for blacks."
She continues, "Sure, there are fine product lines for the black community -- products like Fashion Fair -- but they sell only through department stores and not through 'direct marketing,' which as you know means door-to-door sales. There's room in the market for a direct-sales company specializing in cosmetics for women of color."
Your would-be client goes on to explain: "I'd thought about starting my own company, but I know absolutely nothing about cosmetics manufacture or chemistry, and I haven't the foggiest idea how to get FDA (Food and Drug Administration) approval on new cosmetics. My skill is in sales and advertising. I could easily see myself as the African-American answer to Mary Kay."
Ms. Washington then tells you that while flying home from a recent sales meeting in Dallas, she sat next to a man in the 'Business Class' section of the plane, and he introduced himself as Vincent Joseph Ruggerio. She had never met him before; only chance brought them together on the flight. "He told me he is tired of working as a chemist for Exxon, since petroleum chemistry is not his specialty field. Then he told me that he really would like to form a cosmetics company -- he has a master's degree in chemical engineering with a specialty in cosmetics manufacture! -- but he said he knows nothing about cosmetics sales. He said he knows all about making the stuff and getting federal approval, but he hasn't a clue how to sell it, and that's all that has kept him from going into the business!"
"We've met quite a few times, and we've decided we want to go into partnership. We'll be equal partners, but the company obviously needs a black female image, and we both agree that the products will be called 'Keisha Gold.'"
Please explain to your client in detail the formation and operation of each of the following four types of business organization and the relative advantages and disadvantages of each, making a recommendation and explaining the reasons for your recommendation:
I-A: General Partnership
I-B: Limited partnership
I-C: Limited liability partnership
I-D: Limited liability company
II-A. Your client, Keisha Washington, learns that Vincent Ruggerio has an employment contract with Exxon that provides: "After termination of employment, Mr. Ruggerio will not engage in any business requiring or utilizing his skills as a chemist or chemical engineer for a period of ten years." Exxon has heard rumors that Mr. Ruggerio is thinking of forming a new company, and threatens to sue if he leaves Exxon's employ. Advise your client, Ms. Washington, as to the effect of the covenant not to compete.
II-B. With regard to starting up the new company, advise your client what she and Mr. Ruggerio may and may not do while still employed by Exxon and while still selling Mary Kay products, respectively.
Now, actually form the company for Ms. Washington, structuring it as you recommend it be structured. Do not actually draft any documents. Instead, tell what documents you must prepare, discussing generally what they should contain and where they should be filed, to enable the company to begin marketing Keisha Gold and to protect the company as best you can. Do not discuss tax filings or FDA cosmetics approvals.
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