Procedure - Students may do the assignment individually or by group with no more than 4 persons in a group, unless otherwise approved. If done by a group, all group member names must be on the assignment and each group member will receive the same mark and be responsible for the assignment.

Answer both parts of the assignment. Answers may be in point form or paragraph form but must be typewritten and must not exceed 2 pages in total. Marking will be based on neatness, structure, content and analysis. Check to make sure all questions are answered and that answers correspond to the question numbers. Read the questions and the information in the parts carefully.

Part 1 - Business Risk Management

Flora Macdonald is a great cook but has no experience in running a business. Her good friend Kim Campbell has some experience with marketing and running a travel business. Flora and Kim are pretty well known in their neighborhood so they decide to open a local restaurant under the name 'The Macdonald Burger Emporium'.

Flora does all the hiring - she enters into written contracts with a number of students between the ages of 14 and 17 to do part-time shift work. Each contract includes a clause that, if the student quits or leaves, they agree to not work in a restaurant anywhere within a kilometer of the neighborhood for 3 months because Kim and Flora believe a departing student will pass on information about their operations to their competitors, will attract their customers away and will hurt their business.

Kim's uncle has a perfect location for the restaurant so she convinces her uncle that he should let them use the location. They agree orally to an initial 4 year term for the restaurant for rental of $400 per month. They agree, because of their relationship, that a formal written lease is not really required - that they will take good care of the premises and sort stuff out as they go.

The business is quite successful. About 8 months later, one of the student employees spills a tray of food and soft drinks on the floor in the main walkway in the restaurant area. Before they can clean up, Stephen Harper, who is quite late for a political dinner date, comes running into the restaurant and through the area of the spill and slips and falls, landing on his head and incurring a concussion and a broken 2 shoulder. A few weeks later, Flora and Kim receive a letter from Stephen's lawyers informing them that he plans to sue them for the injuries incurred. Meanwhile, they have also received a letter from McDonald's Restaurants telling them to stop using a name similar to the name of their nearby restaurant.

The student employee who caused the spill then tells Kim and Flora that he is quitting and going down the block to work at another restaurant - Kim reminds him that his employment agreement has the clause restraining him from doing that. A month later Kim decides to take a 6 month trip travelling through Asia. Flora can't manage and decides to close the restaurant but immediately is reminded by Kim's uncle that she is bound by the verbal lease arrangement and can't close or he will sue for the balance of the rent.

1. Identify the structure of the business arrangement between Flora and Kim.

2. *Comment on the 2 contract situations - the employment agreements and the arrangement for the restaurant property. Are the employment agreements valid and enforceable? Can they stop the student from taking the other job? Is the property arrangement a valid and enforceable contract and is Flora bound to keep the business open and paying rent?

3. *Comment on the 2 tort situations - identify the nature of the torts - can Stephen sue for the full extent of his injuries? To what extent might he be responsible through his own actions? Can McDonald's stop them from using the name?

4. If Flora and Kim had come to you before they opened the business, what advice would you have given them? How would you have advised them about business risk and risk management?

*(Note - in questions 2 and 3 the purpose is to identify and comment on the facts, issues and law and make your conclusions as to the likely outcome. There is not necessarily a right or wrong answer.)

Part 2 - Business Structures - Underlying Agreements

You are asked by 4 friends planning to buy a toy manufacturing/distribution franchise to advise them whether they should do so as a partnership or as a corporation. Pick one or the other (Note - it doesn't matter which structure you pick

- there is no right or wrong structure here) and discuss at least 5 aspects of the partnership agreement or the shareholder agreement which they should have. Don't focus on the structure  itself 

- choose the structure and focus on the agreement that they should have to  manage their relationship and the key items they shouldaddress inthatagreement.