Read the text below and answer the questions. Leonard founded Xnel, a small life
ID: 2423066 • Letter: R
Question
Read the text below and answer the questions.
Leonard founded Xnel, a small life sciences research company, five years ago. His friend, Allan, has both medical research and business expertise. Last year Leonard was assured by a private equity investor that an influx of cash would be forthcoming, so he began conversations to hire his friend Allan to become CEO of Xnel. Instead, employment arrangements are generally discussed. In this instance, Leonard and Allan discussed a salary of $450,000 and a 10% ownership stake in Xnel. During their negotiations Leonard sent Allan an email saying, "Let's talk seriously about all of these details before you make a decision regarding other offers." Allan eventually took the job as CEO of Xnel, but soon thereafter the private equity investor backed-out, and Xnel's cash flow could not sustain Allan's salary. Allan left Xnel after six months, and he went to work elsewhere. Two months ago Leonard sold Xnel for $1,000,000, and now Allan is demanding 10% of those proceeds.
(1) If you were Allan, how would you argue that legally you are entitled to $100,000 from the sale of Xnel?
(2) If you were Leonard, how would you argue that legally you do not owe Allan any of the proceeds from the sale of Xnel?
Explanation / Answer
Generally private equity investors are back out therir reason just because of following reasons-:
In the present problem, Allan is demanding 10 % of proceeds ( $1,000,000 @ 10%) i.e $ 100,000 is legally right because Allan is holding 10 % ownership stake.As we see in above reasons that private equity is back when we have to distribute cash to its shareholders.Allan is shareholder of 10 %.So when we proceed at that time we have to pay to company shareholders.
Part 2
Simply when Allan starts working somewhere else , he can't raise 10 % of proceeds from them.Because at the time of his appointment he can ask for money only when he is working.So Leonard is legally right.
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