Li, Shu and Lin have an idea for a computer export business. They employ six (6) people. Li doesn’t draw a salary but works 50 hours a week for the business. Li tells Shu and Lin that she will prepare and file articles of organization and other corporate documents necessary to register their business name and incorporate in Massachusetts. Their business makes a profit of $8,000,000.00 in the first 12 months of operation. Shu is busy with other activities and spends no time working for the business. Lin wants to leave the business and cash out. Li who has been working 50 hours a week for the business says no to both of them — she wants to continue with the business venture and bring in a new owner Zhu.
Li goes ahead and starts working with Zhu. A year later annual profits are up to $10,000,000.00
Shu and Lin hire a lawyer and sue Li.
Shu’s lawyer discovers that Li has received but has not yet paid for a $100,000.00 computer delivery she has ordered and received without Shu or Lin’s knowledge. Li still has in her handbag, but has never filed, any legal documents for the business.
What form of business if any do they have together? What are Li’s rights? Shu’s rights? Lin’s rights? Zhu’s rights? What are each of their potential liabilities? What other legal issues and applicable cases, statues or rules of law we have studied are applicable?