Smith, Brown and Jones wish to develop a new business. Smith owns undeveloped property in East Baton Rouge Parish, on which the parties agree to build a Ramada Inn. Brown, who recently inherited a fortune, has the funds. Jones is employed by Hilton and is qualified to operate a hotel. The parties would like to operate the venture as follows:
*Smith will own a 55% interest in the venture. In return, he will contribute the property.
* Brown will own a 35% interest in the venture. In return, he will contribute the funds required to build and furnish the hotel and to start up the operation.
* Jones will own a 10% interest in the venture. In return, she will manage the business, including construction of the building. All of the parties must approve the construction plans and budget. After the facilities are constructed, Jones will have complete management authority over every aspect of the day-to-day operations, except that all of the parties must approve the content of all advertising that the hotel will conduct.
Smith, Brown and Jones ask your advice. Discuss the consequences that would result from structuring the entity as a general partnership, as a partnership in commendam, and as a limited liability company. Ignore any conflict of interest. Do not discuss tax issues unless the particular subpart specifically asks for tax consequences.
I-A. How can the structure that the parties have agreed to be implemented in each context? Consider specifically how the parties can achieve the agreed management and voting requirements with respect to the construction of the hotel and approval of advertising content. Discuss.
| All general partners have management rights | 7 points _______ |
| But the partnership may give a partner a power of attorney | 7 points _______ |
| Partnership agreement may recognize Jones's authority | 7 points _______ |
| Limited commendam partnership easy: make Jones general partner | 7 points _______ |
| Commendam partners may approve constructions plans and budget | 7 points _______ |
| "Consultation" with commendam partners may be required | 7 points _______ |
| Any other creative solution to permit commendam partners to approve | 7 points _______ |
| Limited Liability Company operating agreement may spell out powers | 7 points _______ |
I-B. The parties desire that none of them shall have the right to withdraw from the venture prior to the opening of the hotel. How can this desire be achieved in the context of a general partnership, a partnership in commendam, and a limited liability company. Discuss.
| In partnership, by constituting it for a term | 7 points _______ |
| Or by an express provision against withdrawal prior to opening | 7 points _______ |
| A commendam partner is in any case liable for agreed contribution | 7 points _______ |
| The LLC operating agreement could specify a term | 7 points _______ |
| Or prohibit withdrawal prior to opening of the hotel | 7 points _______ |
I-C. Advise each of teh parties separately as to his or her exposure for personal liability for business debts in the partnership, partnership in commendam, and limited liability company. Discuss.
| General partner liable for virile share of business debts | 7 points _______ |
| And solidarily liable for tort debts | 7 points _______ |
| Limited partner liable for stated contribution only | 7 points _______ |
| Unless he permits name to be used in the business | 7 points _______ |
| Or participates in management or deals with the public | 7 points _______ |
| Articles must be properly filed with secretary of state | 7 points _______ |
| Exception where name the same as that of a general partner | 7 points _______ |
| Or where firm is successor to a prior firm | 7 points _______ |
| In LLC properly drafted, there is no personal liability | 7 points _______ |
| All of above limitations ineffective against sophisticated creditor | 7 points _______ |
I-D. Jones wants to keep her job with Hilton Hotels Corporation until the new Ramada Inn is open and operating. Advise her whether she should do so, and of the legal consequences that could result if she does. Discuss.
| Does she have covenant not to compete? | 7 points _______ |
| If so, is it reasonable as to geographic area | 7 points _______ |
| And scope | 7 points _______ |
| And duration | 7 points _______ |
| And limited in Louisiana to two years? | 7 points _______ |
| If no convenant, she still has duty not to compete while employed | 7 points _______ |
| She may lay groundwork | 7 points _______ |
| But building a hotel appears to go beyond just laying groundwork | 7 points _______ |
| She should resign before actually supervising building of hotel | 7 points _______ |
I-E. If the parties opt for a limited liability company, and if they wish it to have both limited liability and partnership tax treatment, what are their options as to other features of the organization? Discuss.
| Must choose not more than two of four | 7 points _______ |
| Limited liability | 7 points _______ |
| Continuity of existence | 7 points _______ |
| Free transferability of interests | 7 points _______ |
| Centralized management | 7 points _______ |
| A Louisiana default LLC satisfies non-continuity requirement | 7 points _______ |
What documents if any must be prepared, and where if anywhere must they be filed, in order to form:
II-A. A general partnership.
| Articles of Partnership | 9 points _______ |
| Need not be in writing unless immovable property involved | 9 points _______ |
| Record with secretary of state | 9 points _______ |
| And parish clerk | 9 points _______ |
| Trade name affidavit | 9 points _______ |
| With parish clerk | 9 points _______ |
II-B. A partnership in commendam..
| Articles of limited partnership | 9 points _______ |
| Stating who is limited partner and who is general partner | 9 points _______ |
| And stating the contribution of each | 9 points _______ |
| Which may be money, things or nonmanagerial services | 9 points _______ |
| Must have "limited partnership" or "in commendam" in name | 9 points _______ |
| File articles with secretary of state | 9 points _______ |
| And also with parish clerk | 9 points _______ |
| Failure to file with secretary of state is fatal | 9 points _______ |
II-C. A limited liability company.
| Articles of organization | 9 points _______ |
| Filed with secretary of state | 9 points _______ |
| Stating limitation on ability of members to bind the LLC | 9 points _______ |
| Whether and to what extent LLC will be managed by managers | 9 points _______ |
| Date LLC is to dissolve | 9 points _______ |
| Initial report | 9 points _______ |
| Address of registered office | 9 points _______ |
| Designation of registered agent | 9 points _______ |
| Operating agreement | 9 points _______ |
You represent the bank. They are lending money to Worldwide Widgets, LLC, a limited liability company with two members: Jane Doe and Robert Roe. Doe is manager. Without discussion, simply draft just the signature line for the promissory note, and prepare it so as to bind all three (Worldwide Widgets, Doe, and Roe).
|
WORLDWIDE WIDGETS, LLC |
5 points _______ |
| by:
__________________________________________
Jane Doe, Manager |
5 points _______ |
| and by:
_______________________________________
Robert Roe, Member |
5 points _______ |
| and
__________________________________________
Jane Doe, Individually |
5 points _______ |
| and
__________________________________________
Robert Roe, Individually |
5 points _______ |
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