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.
