Description Gunson Street Games, Corp. Corporate Dissonance Longtime friends Joe Martin, Olivia Nomikos, and Nathan Diaz shared a mutual interest in creating and playing board games and decided to form a business that they dubbed Gunson Street Games. Each member of the trio contributed to the business in his or her own way. Joe contributed his business acumen, which is founded upon dual degrees in business administration and accounting. Olivia was the creative force behind GSG. She conceptualized GSG’s one-of-a-kind products, created prototypes, and oversaw game testing and production. Nathan oversaw marketing and contracting with retailers to carry GSG products. Nathan contributed $600,000 to cover GSG’s start-up expenses. The three incorporators completed the process of incorporating Gunson Street Games., Corp. (“GSG”) by filing the appropriate documents with the State of Michigan and drafting bylaws. The first organizational meeting took place on July 17th, 2020. At that time, Joe, Olivia, and Nathan were the incorporators and sole shareholders of the corporation. Joe, Olivia, and Nathan voted unanimously to appoint themselves to the Board of Directors. Additionally, Joe, Olivia, and Nathan agreed to vote two additional members onto the Board: You (a legally astute colleague of Joe’s) and Fransted (one of Nathan’s former college professors). Fransted is given 2,000 shares of stock in GSG for her efforts. You are appointed Chairperson of the Board and are also awarded 5,000 shares of stock. Gunson Street Games, Corp. began its corporate life with 60,000 shares of common stock divided as follows: Initial Shareholder Number of Shares Joe Martin 15,000 Olivia Nomikos 15,000 Nathan Diaz 20,000 You 5,000 Fransted 2,000 GSG, Corp. retained 3,000 shares for future distribution. Per the bylaws, all holders of stock were entitled to vote at shareholder meetings You, Joe, Nathan, Olivia, and Fransted, acting as the Board of Directors, appoint executive officers to run the corporation. The Board appointed Joe as the Treasurer, Olivia as the President, and Nathan as the Secretary. The Board ratified and signed the bylaws previously drafted by Joe, Olivia, and Nathan. Please find the GSG, Corp. bylaws attached to this assignment. Year One: The business operated successfully during its first fiscal year, from July 17, 2020 to June 30, 2021. After expenses, the business netted $250,000 in profits. At the annual meeting held in July 2021, the Board unanimously voted not to declare dividends for its shareholders, but rather to reinvest its profits into growing the business. The quintet, in their capacity as shareholders, re-elected themselves to serve on the Board of Directors for the next business year. Year Two: During its second year and with the introduction of an incredibly popular game, Big Sky or Bust, GSG was twice as successful and generated a net profit of $400,000. At the annual meeting held in July 2022, the Board unanimously voted not to declare dividends for its shareholders. In their capacity as shareholders, GSG, Corp. participants re-elected themselves to serve on the Board of Directors for the next business year. Several months after the Board Meeting and without any special permission or consent, Joe signed a lease agreement with Laker Properties, Inc., for a large industrial space in Big Rapids, Michigan. GSG moved to its new location and commenced its third year of business. Year Three: At the conclusion of year three, the board game industry was booming. After expenses, GSG netted $570,000 in profits. At the annual meeting in July 2023, the decision to declare dividends was hotly contested. Nathan and Fransted believed GSG should reinvest its profits into further product development and voted accordingly. You, Joe and Olivia believed it was time to declare dividends and pay investors and voted consistently with your feelings. Additionally, the Board voted unanimously to authorize compensation for GSG Officers at $10,000 each. In their capacity as shareholders, GSG, Corp. participants re-elected themselves to serve on the Board of Directors for the next business year. Year Four: Time flew. At the conclusion of year four, business remained steady but competitors entering the board game market caused profits to plateau. Additionally, GSG began to experience problems with the quality of materials provided by one of its suppliers. Specifically, the quality of resin components shipped by GSG’s then-supplier diminished over the course of the last fiscal year and the supplier has been unresponsive to Olivia’s expressions of concern. At the annual meeting held in July of 2024, Board members discussed and unanimously agreed that once the contract with the resin components supplier expired, GSG would contract for the services of another supplier. Joe proposed the possibility of purchasing an existing company outright and bringing it in-house. Although no vote on the issue took place, the Board discussed the idea and agreed to explore opportunities to establish a contractual relationship with a new resin components supplier. The Board voted unanimously to declare cash dividends. In their capacity as shareholders, GSG, Corp. participants re-elected themselves to serve on the Board of Directors for the next business year. Year Five: On October 26, 2024, the week before the expiration of the contract with the resin components supplier, Nathan called a special meeting of the GSG Board of Directors. The meeting was held October 27, 2024 and four of the five members of the Board attended – Olivia was absent. At the meeting, Nathan proposed entering into a contract with Wilmington Widgets, LLC, a small but promising start-up supplier of the type of resin components needed by GSG, for provision of materials. Nathan presented information regarding Wilmington Widgets, LLC prices and terms but was unable, when asked by Joe, to produce information about the prices and terms of other competitors in the resin components market. Nathan called for a vote. Joe and Fransted deferred to Nathan’s expertise and voted in favor of the agreement with Wilmington Widgets, LLC. Nathan voted in favor of the agreement. You were concerned by the lack of additional information and alternatives. You expressed reluctance to enter into an agreement with Wilmington Widgets, LLC. You voted against Nathan’s proposal and articulated your dissent to Nathan. Subsequently, GSG entered into a contract by which Wilmington Widgets, LLC became the exclusive supplier of resin components to GSG for three years. Business remained steady through December of 2024. In early January of 2025, GSG received a complaint indicating that a customer sustained severe rashes following her purchase and handling of the resin components included in GSG’s most popular game, Big Sky or Bust. The customer provided a report from her physician indicating her injuries were caused by the toxic chemicals used in the resin component manufacturing process. Joe immediately commenced an internal investigation. The customer's name is Harley Patterson. You received an alarming email from Joe in early mid-January of 2025. Not only did Joe discover that more than 10,000 games sold by GSG may include toxic resin components traced to Wilmington Widgets, LLC, but that there is much more to the story. Joe informed you that Nathan, during August of 2024, invested a substantial amount of his personal funds into Wilmington Widgets, becoming an owner with an 85% membership interest in the company. Because of his ownership interest in Wilmington Widgets, Nathan profited significantly from Wilmington Widgets’ three-year deal with GSG. At no time prior to Joe’s discovery was Nathan’s ownership in Wilmington Widgets disclosed by Nathan nor any other Wilmington Widgets representative. Joe believes Nathan became aware of Wilmington Widgets’ products while attending a National Board Game Association convention on behalf of GSG in the early spring of 2024. Joe believes Nathan has capitalized on an opportunity for himself rather than furthering the interests of GSG. Because of your experience with legal dilemmas, Joe seeks your input on some concerns he has regarding the operation of Gunson Street Games, Corp. Joe asks that you summarize, from your position, answers to the following inquiries in the form of a memo to Joe. After its first fiscal year, including corporate compensation and dividends, how much money did Nathan make? How much did You make? As part of your answer, include a page number(s) reference to related content covered in MLE and/or section and subsection citations to the Corporate Bylaws. After its third fiscal year, including corporate compensation and dividends, how much money did Nathan make? How much did You make? As part of your answer, include a page number(s) reference to related content covered in MLE and/or section and subsection citations to the Corporate Bylaws. Did Joe have authority to enter into the lease agreement for the larger facility on behalf of GSG? What is/are the source(s) of this authority? As part of your answer, include a page number(s) reference to related content covered in MLE and/or section and subsection citations to the Corporate Bylaws. Had Nathan, instead of Joe, entered into the lease agreement for the larger facility on behalf of GSG, would he have had authority to do so? As part of your answer, include a page number(s) reference to related content covered in MLE and/or section and subsection citations to the Corporate Bylaws. If at the end of year four, GSG netted another $570,000 in profits, how much would each shareholder receive? As part of your answer, include a page number(s) reference to related content covered in MLE and/or section and subsection citations to the Corporate Bylaws. In proposing the deal with Wilmington Widgets, did Nathan violate any of his obligations to GSG? What is/are the source(s) of the obligation(s)? In approving the deal with Wilmington Widgets, did Joe violate his obligations to GSG? What is/are the source(s) of the obligation(s)? As part of your answer, include a page number(s) reference to related content covered in MLE and/or section and subsection citations to the Corporate Bylaws. Joe wishes to convene a shareholder meeting for the removal of Nathan from the Board of Directors. What type of notice provisions are required? Indicate the specific shareholders who must attend in order to vote Nathan off the Board? Indicate the specific shareholders must Joe persuade to successfully vote Nathan off the Board? As part of your answer, include a page number(s) reference to related content covered in MLE and/or section and subsection citations to the Corporate Bylaws. Joe has reason to believe that since August of 2023, Nathan has failed to operate and manage Wilmington Widgets Specifically, Joe believes Nathan used Wilmington’s corporate funds to pay for a lavish personal vacation and a brand-new BMW M2 he gave to his mother. If the injured customer files a lawsuit against Wilmington Widgets, is Nathan shielded from personal liability? Why or why not? As part of your answer, include a page number(s) reference to related content covered in MLE and/or section and subsection citations to the Corporate Bylaws. Joe is concerned that once Nathan hears about Joe’s allegations, Nathan will sell all his stock to the highest bidder leaving the remaining shareholders stuck in business with someone unknown. Are there any protections against this happening? As part of your answer, include a page number(s) reference to related content covered in MLE and/or section and subsection citations to the Corporate Bylaws. How do you think Joe should proceed with this matter? As part of your response, be sure to consult the facts outlined above, MLE’s Chapters 5, 19 and 20 and the attached Gunson Street Games, Corp. bylaws. For formatting purposes, please use a ‘memo’ template recommended by your word processing program. Your memorandum should be directed to Joe and include approximately 1,500 words which equates to roughly three pages, single-spaced, twelve-point font. Your memorandum, like any documents directed to professional colleagues, should be professionally written, and be free of spelling, grammatical, and typographical errors.
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