A group of friends, Adam, Patrick, Danica, Rodney and Stacy graduate from college together. After graduation, they are together at a party celebrating. Adam tells the group about his neighbor's house that is for sale and how it needs a lot of work and he was thinking about fixing it up and flipping it. After a few rounds of booze and talk about how horrible the group's business law professor was, they get back to talking about Adam's neighbor's house. Stacy talks about her dreams of fashion design and interior decorating. She tells Adam, she could help in the project. Rodney recalls his days in high school shop classes and how he worked on a framing crew one summer. He wants in too. Danica, a finance major, talks about how they could do more than one house if they leveraged money through investors and loans. And Patrick, the class president and resident prankster, talks about his marketing classes and ideas he has for selling the homes. The group raises another shot glass, Stacy spills hers and screams, "I'm so drunk," then Danica says, "that business law guy wasn't so bad, maybe we should get him to help us with our business," and after a brief silence, the group breaks out in laughter. "No way, that guy was an idiot, the team can do this ourselves and save money." After one more toast, Adam asks, "who's in?" they all are speechless, but each raises their glass for a toast. Stacy gets her glass halfway up and drops it. She giggles and then falls to the floor. The group later leaves one by one.

The next week, Adam makes an offer on the neighbor's home. He offers him $100,00.00 payable at closing. The neighbor says, "that sounds good." They agree that closing will take place after the remodel is complete. They shake hands and the neighbor gives Adam the front door key and says, "keep me posted. I hope it doesn't take more than a year or two, I really need the money next Christmas."

Thinking they have a deal, Adam talks to Danica about getting the funds to close. Danica goes to several banks and cannot obtain a loan. So, she goes to her uncle Buck (who is quit wealthy) and begs him for a loan. Uncle Buck has a soft spot in his heart for Danica, so he agrees to invest $100,000.00 in the project provided the group forms a business and then the business forms a partnership with uncle Buck. He doesn't want any liability for the project, but wants protection for his investment. Uncle Buck takes out a napkin and writes, "I agree to invest $100,000.00 in Danica's project provided they form a business entity and the entity creates a partnership with me that limits my liability for the project. I want the loan paid back within 3 years with 25% interest and I want first right on future projects. But, you cannot tell my wife." The two sign the napkin.

After a group meeting, Adam goes to the old business law professor and gets him to draft a corporation for the group, called "Houses2Homes, Inc." Adam couldn't remember what the professor had said about partnerships, so he simply asks him to build a partnership with H2H, Inc. and uncle Buck. The professor creates the corporation naming Adam as president, Patrick as vice president,Danica as treasurer, and Stacy as secretary. He then creates a general partnership between H2H and uncle Buck but doesn't specify who owns what interest.

1. What are some of the legal issues that the different parties may be facing thus far in the story?

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Several legal issues arise in the scenario described Formation of a Business Entity The group decides to form a corporation named Houses2Homes Inc How... View the full answer