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Legal Questions: Shareholders and Business Owner Liability

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Q1: Jerold Murphy and three others incorporated Country House, Inc. All four shareholders worked for the company. When the company had a surplus, it gave "bonuses" to the four individuals. Murphy initially contributed one-fourth of the capital to Country House, but he owned only one-ninth of the company at the time of the payments and was offered one-ninth of the surplus as his bonus. He claimed that he did one-fourth of the work and should receive one-fourth of the surplus as his bonus. Dis­cuss the magnitude of the bonus to which Murphy is entitled.

Q2: Alan Dershowitz, a law professor famous for his wealthy clients (O. J. Simpson, Claus von Bulow, Leona Helmsley), joined with other lawyers to open a kosher delicatessen, Maven's Court. Dershowitz met with greater success at the bar than in the kitchen—the deli failed after barely a year in business. One supplier sued for overdue bills. What form of business organization would have been the best choice for Maven's Court?

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1 -- Jerold and three others entered into an agreement to incorporate Country House. All four shareholders worked for the company. Jerold's initial contribution was one-fourth but he now owns one-ninth. He was therefore offered one-ninth, based upon his ownership. He claimed he did one-fourth of the work, which is the same amount as his initial contribution. He also claims that he is entitled to one-fourth of the total bonus.

- There are a few different elements that we need to consider in this scenario, and one of the problems is that our information is limited. We are not given information involving the most ...

Solution Summary

This solution discusses each of the two business law scenarios presented. The first discussion explains the amount of the surplus (profits) that Jerold is entitled to, based on the information provided. The second discussion explains the type of entity that would have been the best choice for Alan and his colleagues, when they set up the kosher delicatessen, Maven's Court.

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Study questions for final exam

The following are study questions to prepare for my final exam. I have answered about 20 but I need help with the ones attached

ABC Company 2004 Statement of Cash Flows
January 1, 2004 - December 31, 2004
(In Millions)
Net earnings $1,152
Add (deduct) non-cash items
Depreciation $2,308
Deferred income taxes ($160)
Amortization of debt discount and issue costs $8
Gain on disposition of investments in
affiliated companies ($78)
Change in assets and liabilities, net of
effects of acquisitions and dispositions
Accounts receivable, net $101
Inventories $308
Other current assets ($69)
Accounts payable and accrued liabilities $398
Other assets $14
Other liabilities $206
Net cash provided by operations $4,188
Acquisitions and advances to affiliated companies ($346)
Dispositions of investments in affiliated companies $119
Payments for property, plant and equipment ($2,973)
Other changes to property, plant and equipment, net $242
(Increase) decrease in short-term investments $52
Net cash used for investing activities ($2,906)
Net increase (decrease) in commercial paper ($260)
Proceeds from issuance of debt $55
Repayment of debt ($37)
Issuance of common stock $7
Payment of dividends ($261)
Net cash provided by (used for) financing activities ($496)
Net increase (decrease) in cash $786

1. True/False

________ A sole proprietor is not personally liable for any legal actions against the company.

________ In a partnership both partners are both totally liable for all liabilities and legal actions against the company.

________ You might consult an investment banker to raise equity for your corporation.

________ Each 100 shares of a stock gives you only 1 vote in any corporate meetings.

________ The shareholders of a corporation are personally liable for any legal actions taken against the corporation.

________ The income statement is dated at one specific time rather than a period of time.

________ The indirect method of preparing a statement of cash flows begins with "Net Income."

________ Depreciation shown on an income statement is actual cash that the company lost.

________ The balance sheet equation is Liabilities = Assets + Owner's Equity.

________ If you own 60% of the stock in a corporation, you can usually win any vote you approve.


_____ Balance Sheet A. Ties together two different balance sheets.

_____ Statement of Cash Flows B. Where capital is raised for corporations

_____ Primary Market C. Shows income taxes paid in a period.

_____ Income Statement D. Shows the balance of net income that is reinvested in the company.

_____ Statement of retained earnings E. Is dated on one specific date.

3. What is considered the most widely accepted goal of any corporation with publicly traded shares?

4. If you own a company (a sole proprietorship or partnership) that is growing rapidly (i.e. a toaster company) what steps might you take to raise additional capital to help expand your business.

5. What are two ways that a business can use their net income?

6. Refer to the Statement of Cash Flows for this section.

Of the three main sections of ABC's Statement of Cash Flows, which section provided the largest source of cash?

Of the three main sections of ABC's Statement of Cash Flows, which section was the largest use of cash?

Within the Financing section, what were the two largest sources of cash?

Within the Investing section, what were the two largest uses of cash?

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