1. Kate and Paul are best friends who have decided to open a bakery together. They are both experienced bakers who specialize in artisanal cheesecake, and they feel the world is in need of their creamy and decadent desserts. They are concerned about protecting their assets in case the business fails, about being able to pay the taxes for a business that is just starting out, and about the difficulty of setting up and maintaining the business.

What are the pros and cons of the different business entities they could form? Which type of business entity do you think would be their best option and why?

2. Kate and Paul open their business and find a cream cheese supplier, Samuelson Dairy, Inc. Their relationship with Samuelson Dairy, Inc. is great at first; the cream cheese is of good quality and is delivered according to their contract. However, after a few months, Samuelson Dairy, Inc. starts providing deliveries later and later and is eventually unable to deliver any cream cheese at all. Unfortunately, Kate and Paul have already paid Samuelson Dairy, Inc. for the cream cheese that has not been delivered.

Samuelson Dairy, Inc. is incorporated as a C corporation with Sam Samuelson and his wife as the sole shareholders and the directors and officers of the corporation. Sam and his wife have held two annual meetings over the last eight years and do not keep current minutes for the corporation. Samuelson Dairy, Inc.'s bank account rarely has a positive balance, most of the corporation's expenses are paid from Sam and his wife's personal bank account, and the corporation owns no assets because all assets are held in Sam and his wife's names. Kate and Paul file a lawsuit for breach of contract against Samuelson Dairy, Inc., and against Sam Samuelson and his wife as individuals.

Do you think Kate and Paul will be successful holding Sam Samuelson and his wife personally liable? Why or why not?

3. While they have been able to find another dairy to supply their cream cheese, Kate and Paul seem to have no end of back luck. Reginald's Berry Bonanza is Kate and Paul's berry supplier. Kate and Paul have a contract with Reginald's Berry Bonanza to provide a weekly delivery of plump, juicy berries that they use to make the tantalizing sauces that complement their cheesecakes. Reginald is the only owner of Reginald's Berry Bonanza and Reginald has not filed any business formation paperwork with the Secretary of State. Unfortunately, over the last six months, Reginald's Berry Bonanza has not been able to consistently deliver berries as contracted. Some weeks the berries are delivered as promised, some weeks the berries are late and/or rotten, and some weeks the berries are just nowhere to be found. Kate and Paul sue Reginald for breach of contract, but Reginald claims he is not personally liable and they can only sue the business because the contract is with Reginald's Berry Bonanza.

Is Reginald correct? Why or why not?

4. Because Kate and Paul have not been receiving a reliable berry allotment, they have been unable to provide Aidanito's Gourmet Delicatessen with a consistent source of sauces to accompany their cheesecakes. Aidanito's Gourmet Delicatessen is their biggest client, or rather, was their biggest client. Aidanito's Gourmet Delicatessen cancelled the cheesecake contract with Kate and Paul because without the sauces, while still delicious, the cheesecakes are just not the same. The contract was worth $8,000 to Kate and Paul.

In their lawsuit against Reginald's Berry Bonanza, Kate and Paul are seeking damages for the $8,000 from the lost contract with Aidanito's Gourmet Delicatessen. Reginald was not aware ofKate and Paul's contract with Aidanito's Gourmet Delicatessen.

Do you think Kate and Paul will be successful in getting damages from Reginald for the lost contract? Why or why not?