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

 

 

 

capital?

 

 

 

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

 

 

 

third?

 

 

 

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

 

 

 

Elliot?

 

 

 

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.