ACC 291 Week 3 Discussion Questions and Responses
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Week 3:
DQ1: The following are characteristics of a corporation: (a) separate legal existence, (b) limited liability of stockholders, and (c) transferable ownership rights. Explain these characteristics.
The R&D division of Healy Chemical Corp. has just developed a chemical for sterilizing the vicious Brazilian “killer bees” which are invading Mexico and the southern states of the United States. The president of Healy is anxious to get the chemical on the market to boost Healy’s profits. He believes his job is in jeopardy because of decreasing sales and profits. Healy has an opportunity to sell this chemical in Central American countries, where the laws are much more relaxed than in the United States.
The director of Healy’s R&D division strongly recommends further testing in the laboratory for side-effects of this chemical on other insects, birds, animals, plants, and even humans.
He cautions the president, “We could be sued from all sides if the chemical has tragic side effects that we didn’t even test for in the labs.” The president answers, “We can’t wait an additional year for your lab tests. We can avoid losses from such lawsuits by establishing a separate wholly owned corporation to shield Healy Corp. from such lawsuits. We can’t lose any more than our investment in the new corporation, and we’ll invest just the patent covering this chemical. We’ll reap the benefits if the chemical works and is safe, and avoid the losses from lawsuits if it’s a disaster.” The following week Healy creates a new wholly owned corporation called Dryden Inc., sells the chemical patent to it for $10, and watches the spraying begin.
(a) Are the president’s motives and
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DESCRIPTION FOR THIS STUDY GUIDE:
Week 3:
DQ1: The following are characteristics of a corporation: (a) separate legal existence, (b) limited liability of stockholders, and (c) transferable ownership rights. Explain these characteristics.
The R&D division of Healy Chemical Corp. has just developed a chemical for sterilizing the vicious Brazilian “killer bees” which are invading Mexico and the southern states of the United States. The president of Healy is anxious to get the chemical on the market to boost Healy’s profits. He believes his job is in jeopardy because of decreasing sales and profits. Healy has an opportunity to sell this chemical in Central American countries, where the laws are much more relaxed than in the United States.
The director of Healy’s R&D division strongly recommends further testing in the laboratory for side-effects of this chemical on other insects, birds, animals, plants, and even humans.
He cautions the president, “We could be sued from all sides if the chemical has tragic side effects that we didn’t even test for in the labs.” The president answers, “We can’t wait an additional year for your lab tests. We can avoid losses from such lawsuits by establishing a separate wholly owned corporation to shield Healy Corp. from such lawsuits. We can’t lose any more than our investment in the new corporation, and we’ll invest just the patent covering this chemical. We’ll reap the benefits if the chemical works and is safe, and avoid the losses from lawsuits if it’s a disaster.” The following week Healy creates a new wholly owned corporation called Dryden Inc., sells the chemical patent to it for $10, and watches the spraying begin.
(a) Are the president’s motives and