Explain the process they would go through and the impact on their finances if they were to file a Chapter 7 bankruptcy.

Explain the process they would go through and the impact on their finances if they were to file a Chapter 7 bankruptcy.

John Albert and Matthew Baker have been friends for many years. They have decided to go into business together in Phoenix, Arizona. Each of them has worked as a loan officer for a mortgage lending bank in the past. They believe a new lending company would be prosperous. They decide to open a company and call it the “Lending Store”. They have never owned a business before so need some help getting their business venture started. They know you have recently taken a course about business law and come to you for some business advice.

Albert and Baker are considering the merits of forming the company as a general partnership. Explain what their respective rights would be as to (a) any profits of the company and (b) participating in the management decisions of the company.

If Albert and Baker actually formed a general partnership, explain how this type of business entity would impact each partner on a personal basis with regard to any liabilities owed by the new company.

Another possible approach would be for Albert and Baker to form a corporation for their new business. Explain the steps these individuals would be required to take in order to get the corporation legally formed and ready to open the doors for business.

If Albert and Baker actually formed a corporation, explain what their personal obligation would be for any liabilities owed by the new company.

Albert and Baker are not aware of any other choices for the structure of their new business. Provide them with one more idea for a form of business (other than a general partnership or corporation). Explain some of the advantages and disadvantages of this third form of business entity.


Albert and Baker form a corporation and start their business as the Lending Store, Inc. They begin making mortgage loans. They lease a large office building and eventually hire twenty employees. After several months it becomes obvious that one of their more experienced employees, Mary Smith, has some personal problems. Ms. Smith is 60 years old and has a permanent disability that requires her to work from a wheelchair. She is often late for work because of health issues and has some absences each month. She shows up ten minutes late for work one morning and Albert fires her on the spot without explanation. The company then promotes from within and allows John Jones to take Ms. Smith’s position. John Jones is 25 years old. He has no mortgage lending experience but is on time for work every day.

Mary Smith is unhappy about being fired. She is unable to find another comparable job so decides to sue the company to either get her job back or to recover past and future wages. Explain the possible legal claims that Ms. Smith could pursue against the company.

Albert and Baker come to you for advice again. Explain the best defenses the company would have against any legal claims made by Ms. Smith. Include in your explanation what you believe would be the most likely outcome of this lawsuit known as Smith v. Lending Store, Inc.

The other employees of the company are concerned that Mary Smith was terminated unfairly. Some of them are considering joining the White Collar Workers of America Union to protect themselves from a similar fate. Explain the steps these employees would have to take in order to allow a union to represent them in their relationship with the Lending Store, Inc.

Albert and Baker do not prefer to deal with a union and are most concerned that their employees would go on strike and financially damage the company. While a strike may be possible with any union, explain to Albert and Baker some of the circumstances under which the union could not legally go on strike against the company.


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