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. (Ive attached an article that ive 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 todays business environment, and the criminal penalties for which the act provides. ú In your references be sure to cite the name of the article with and format your paper consistent with APA guidelines. Part B ú Read Chapter 15; page 401 Theory to Practice Scenario, of The Legal Environment of Business. In a minimum of 1400 words be sure to: ú Answer all seven question located at the end of the scenario. ú 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 Barkers 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, Pharmas 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, Pharmas 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 Pharmas 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.
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