Will, Nancy, Lee and Bobbie have just inherited a group of entities from their r

Question

Will, Nancy, Lee and Bobbie have just inherited a group of entities from their recently deceased parents. They are trying to decide how to structure them and who should run them. One entity called FINCO is focused on providing financial products and investments to consumers who generally use the financial products to buy services or products performed or produced by one of the other entities. Another of the entities is called PRODCO which makes products essential to every persons life which are only made available to registered distributors. The third entity, DEALCO, is a registered distributor for PRODCO and also providees essential services and maintenance for the products made by PRODCO. 100% of the ownership of all three of these entities is owned equally by the four siblings. The four siblings agree that Will should take charge of FINCO, that Lee should take charge of DEALCO, and that their cousin Richard should run PRODCO. Will succesfully runs FINCO for a number of years generating double digit returns on the capital in the entity until suddenly there is a major loss in investment made by Will without consultation with the other siblings because of a major international market correction causing all of FINCO's liquidity to evaporate. During this same time period, Lee has been doing a blockbuster business with DEALCO making lots of money and buying cars, planes, vacation homes, and other things for the exclusive use of the management of DEALCO. When FINCO suddenly no longer has the liquidity to lend to DEALCO's clientele, they can no longer afford to buy the products. Lee continues to ignore the problem and enjoys living the life of luxury on the assets of DEALCO to the exclusion of his siblings. Richard has been slaving away for his cousins all these years at PRODCO without any bonuses or salary increases and does not feel he has been adequately compensated so he decides to help himself to $5 million of PRODCO's money and flees to Paraguay where he bribes the local officials not to arrest him. Nancy nad Bobbie, who have never been actively involved in the operations of any of the entities want help from you. In identifying the legal issues presented also consider what questions you might need to ask Nancy and Bobbie.

Explanation / Answer

The legal issue here is that Will (who is managing FINCO) and Lee (who is managing DEALCO) did not act in the best interest of the entities that they were managing. Will made investments without consulting his siblings and one of the investments resulted in a major loss. Lee has been handling the matters at DEALCO in a negligent and irresponsible manner, especially after the problems of FINCO. Lee has been inappropriately using the assets of DEALCO to lead a life full of luxury. Lastly Richard (who is managing PRODCO) indulged in corporate larceny and pilferage and absconded with $5 million that belonged to PRODCO.

Will, Lee and Richard were acting as agents. Will and Lee were agents for all the siblings (including themselves) and Richard was an agent for Will, Nancy, Lee and Bobbie.

All of them did not act in the best interest of the principals, made improper use of company property and also engaged in theft and pilferage. This is the key legal issue in this case.

The questions that I will ask Nancy and Bobbie are that whether Will, Lee and Richard always acted to further their interest or did they took actions to safeguard and further the interests of all the entities concerned. I will also ask them, if at any time, there was a conflict of interest or was there any intention to earn any secret profit by Will, Lee or Richard.

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