Tom, Linda, and Zach are casual acquaintances. Each of them has a different set of business skills that they believed would be complimentary in forming a new business. Tom excels at creating visions, business development, marketing, and leadership. Linda is a shrewd investor and has access to capital through her own investment company. Zach is a technological wizard and can readily develop software solutions. Tom had an idea for a new social media app, which he presented to Linda and Zach one day during a lunch meeting. Zach felt that he would be able to create the software and agreed to do so for a percentage of the profits. Linda stated that she would be willing to finance the project, also for a percentage of the profits. Before the end of the meal, the three toast “to new adventures” and agree to meet up again soon to work out the details. Excited about the project, Tom immediately returned home and started to develop a business plan. Over the course of the following week, he contacted several public relations firms to get pricing for their help marketing the app and, after meeting with each one, decided that he would go with the firm which he felt would provide the best service at a reasonable cost. He executed a contract with the firm in the amount of $20,000 and then notified Linda that he would need the capital to cover the contract. Linda wrote a check for the full amount from her investment company’s checking account. During this time, Zach started developing his ideas and, within two months, had an app that was operational and ready to launch. In an email to Linda and Tom, Zach said, “Hey guys, just wanted to let you know that the app is ready to go. I can have it uploaded this evening. Tom, are we ready with the PR?” Tom responded, “Yes, I have spoken with them, and they have prepared the press releases. I just need to let them know when to send them out. I’ll email the firm right now and tell them that we are launching tonight.” Within the next three months, profits from the app totaled over $150,000, which was sitting in an online account held by the app distributor. Eager for a paycheck, Zach emails Linda and Tom and states, “Hey guys, I see that our online account has reached over $150k! This should be a great payday for all of us. I would like to go ahead and have my share of $50,000 transferred out so I can pay some bills. Do each of you want your share now? Should we open a business checking account and dump the money into that before distributing it?” Linda responds, “I don’t mind holding off on my share of the profits, but I would like to have my initial loan to the company back because I have some other investment opportunities for which I would like to have that money. And Zach, I don’t see how you would be entitled to $50,000…. After I get paid back my $20,000, then we all should get $43,333. Besides that, I think we need to reinvest some of that money in the business.” Zach became angry and sent a response back. “Linda, I did all of the development, and it’s not like we even agreed that everyone should share equally. You paying the $20,000 to the PR firm was your contribution to the business, which you can have back out of your share of the profits just like my contribution of time and skill. Besides, I don’t see how you should be entitled to anything above the $20k plus 4%. I mean, that would be a reasonable rate of interest on a loan anyone makes to the company and that’s really all you did.” ETHICS QUESTION: Answering the following in 5–10 sentences: After the last email exchange with Linda, Zach became increasingly angry and decided to develop a competing next-generation version of the app on his own. Does Zach still owe any legal or ethical duty to Tom and Linda, or is he free to enter the marketplace on his own?
Tom, Linda, and Zach are casual acquaintances. Each of them has a different set of business skills that they believed would be complimentary in forming a new business. Tom excels at creating visions, business development, marketing, and leadership. Linda is a shrewd investor and has access to capital through her own investment company. Zach is a technological wizard and can readily develop software solutions.
Tom had an idea for a new social media app, which he presented to Linda and Zach one day during a lunch meeting. Zach felt that he would be able to create the software and agreed to do so for a percentage of the profits. Linda stated that she would be willing to finance the project, also for a percentage of the profits. Before the end of the meal, the three toast “to new adventures” and agree to meet up again soon to work out the details.
Excited about the project, Tom immediately returned home and started to develop a business plan. Over the course of the following week, he contacted several public relations firms to get pricing for their help marketing the app and, after meeting with each one, decided that he would go with the firm which he felt would provide the best service at a reasonable cost. He executed a contract with the firm in the amount of $20,000 and then notified Linda that he would need the capital to cover the contract. Linda wrote a check for the full amount from her investment company’s checking account.
During this time, Zach started developing his ideas and, within two months, had an app that was operational and ready to launch. In an email to Linda and Tom, Zach said, “Hey guys, just wanted to let you know that the app is ready to go. I can have it uploaded this evening. Tom, are we ready with the PR?”
Tom responded, “Yes, I have spoken with them, and they have prepared the press releases. I just need to let them know when to send them out. I’ll email the firm right now and tell them that we are launching tonight.”
Within the next three months, profits from the app totaled over $150,000, which was sitting in an online account held by the app distributor. Eager for a paycheck, Zach emails Linda and Tom and states, “Hey guys, I see that our online account has reached over $150k! This should be a great payday for all of us. I would like to go ahead and have my share of $50,000 transferred out so I can pay some bills. Do each of you want your share now? Should we open a business checking account and dump the money into that before distributing it?”
Linda responds, “I don’t mind holding off on my share of the profits, but I would like to have my initial loan to the company back because I have some other investment opportunities for which I would like to have that money. And Zach, I don’t see how you would be entitled to $50,000…. After I get paid back my $20,000, then we all should get $43,333. Besides that, I think we need to reinvest some of that money in the business.”
Zach became angry and sent a response back. “Linda, I did all of the development, and it’s not like we even agreed that everyone should share equally. You paying the $20,000 to the PR firm was your contribution to the business, which you can have back out of your share of the profits just like my contribution of time and skill. Besides, I don’t see how you should be entitled to anything above the $20k plus 4%. I mean, that would be a reasonable rate of interest on a loan anyone makes to the company and that’s really all you did.”
ETHICS QUESTION:
Answering the following in 5–10 sentences: After the last email exchange with Linda, Zach became increasingly angry and decided to develop a competing next-generation version of the app on his own. Does Zach still owe any legal or ethical duty to Tom and Linda, or is he free to enter the marketplace on his own?
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