Rachel, Monica and Phoebe run a successful chain of coffeehouses called Friends. All of the Friends coffeehouses are located in Southern California.

Their business is organized as a general partnership, and Rachel, Monica and Phoebe each owns one-third of the business. They have a valid partnership agreement and filed a statement of authority with the State of California.

Rachel has a business background and makes the major decisions for Friends, including site selection, sales and vendor contracts and financing arrangements. Monica is a chef by training and oversees the coffee and other beverages and foods served at Friends. Phoebe is a musician and provides musical entertainment at Friends when she is between gigs.

Rachel, Monica and Phoebe have plans to expand their business. They also plan to hire a Chief Operating Officer to run the day-to-day operations so that Rachel can spend more time focusing on corporate strategy and expanding the business.

Rachel, Monica and Phoebe have come to you for advice because you are a loyal Friends customer and they know that you recently completed a business organizations class at a highly rated law school.

They have heard about the limited liability company structure and think it may be perfect for them. However, they have some questions, including:

1. What are the benefits to the LLC structure compared to their current general partnership? 2. How do they form an LLC, including:

(a) Do they need to file anything with the State of California? If so, what do they file and what information must they provide?

(b) Do they need an agreement to replace their partnership agreement?

(c) If they need an agreement, what information should be in it?

3. What is their personal liability for any business debts, both of the partnership and after the LLC is created, the LLC?

4. Will the LLC structure improve their ability to raise additional capital as the business grows? 5. What will happen if one of them wants to sell her interests in the LLC?

(a) Can the others prevent the sale or at least have the first chance to buy the interests? If so, how is this done?

(b) If someone else buys her interests, will the buyer automatically become a member of the LLC?

6. How do they make sure that Rachel continues to make the major business decisions for Friends as she has done in the past? (Monica and Phoebe really don't want to do any of this, but they also don't want the new Chief Operating Officer or another "stranger" to have the power to do this.)

General Instructions:

1. Please explain your answers fully, using information supporting your response from the course reading, including the text, relevant statutes and case law, and any other material you deem appropriate.

2. For statutes, please use the Revised Uniform Partnership Act (1997) and the Uniform Limited Liability Company Act (2006), in Appendices C and E in the text, respectively.

3. Some questions have more than one part. You are expected to answer all of the parts to a question. As a result, some answers may be longer than others.

4. While preparing your answers, don't forget to put your lawyer's hat on! If a client comes to you with the situations described here, what would you do to account for all the potential risks, liabilities, counter arguments or scenarios?