Each question is hypothetical and needs to be in the IRAC method. There is no other data or graphic link and is not an "incomplete question"

1. Alice and Bob both have recently been laid off from their state government jobs. They decide that they should pool their skills and start a business together. Alice is a highly-trained information systems specialist and Bob is an experienced marketing manager. The idea for the immediate future is for Bob to function as the rainmaker for Alice's services. They believe that there will be a very strong opportunity for information system providers once the economy begins to recover, and at that time they can grow the business by adding more information specialists to meet the demand that Bob will identify and cultivate. It is also envisioned that Bob would manage any larger business operation that evolved, while Alice would concentrate on training and supervising any addition information system specialists, as well as provide services directly. At this point in time Alice has little money to invest in the business, but Bob has around $30,000 he inherited from the recent death of distant relative. A local bank has indicated a willingness to give personal loans of $10,000 each to Alice and Bob to help the business get off the ground.

Alice and Bob come to you for advice regarding the legal structure that might best fit their situation. As part of that advice, you have already explained to Alice and Bob the various types of legal structures from partnership to corporation that are possible.

During that discussion, you have been specifically asked by Alice and Bob to explain the following:

A.What are the three advantages and disadvantages to them of the partnership form of business?

B.What are the three advantages and disadvantages to them of the limited partnership form of business?

1. Sam is the Chief Operating Officer for Xanadu Corp. ("Xanadu"). Xanadu develops and distributes educational software for young children. Recently, Cool Games Inc. ("CGI") approached Sam and asked him if we would be interested in acquiring a 30% stake in their company. CGI develops and distributes "mature" and "adults-only" video games. As COO, Sam is well aware of Xanadu's business plans for the future and he knows that Xanadu would not be interested in the CGI opportunity. Note that, First, Xanadu is struggling financially and does not want to take on any new ventures. Second, Xanadu's products are very family friendly while CGI's are not. Xanadu has always had an internal policy that it will not consider any new ventures unless they are family friendly. Sam would like to pursue the CGI opportunity, but also does not want to breach his fiduciary duties to Xanadu.

Sam is an officer of Xanadu, but not a director.

A.Does Sam owe fiduciary duties to Xanadu? Please explain.

B.If he does have fiduciary duties, what can Sam do before pursuing this opportunity to avoid getting sued later by shareholders, etc.? Why?

[Hint: fiduciary duties; safe harbor rule]