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BUS 241 – Fall, 2017
Extra Credit Paper

Jack and Jane have decided to launch a new bakery which they have named The Bake
Shoppe. The Bake Shoppe will make and sell specialty cupcakes at the Shoppe and at selected
retail locations.
Jack and Jane form a Virginia limited liability company for the Bake Shoppe and are the
only members of the LLC. The Operating Agreement for the LLC states that the LLC will be
“member managed” and that Jack and Jane will share equally in the profits and losses of the
LLC. Jack and Jane both signed the Operating Agreement.
Question 1:
What are the advantages and disadvantages of forming an LLC over a sole
proprietorship and a partnership?
In additional to the customary fiduciary obligations and responsibilities that members of
an LLC owe to each other, the Operating Agreement includes a confidentiality clause that
prohibits a member from disclosing “Confidential Information” to a third party without first
getting the consent of the other member.
“Confidential Information” is defined in the Operating Agreement as:
(A) strategic business, marketing, acquisition and other plans relating to the Bake
Shoppe;
(B) know how, trade secrets and/or other proprietary information;
(C) current and future product features, development plans, marketing plans and
strategies;
(D) employee lists, customer names, and supplier lists; and
(E) profitability, financial and related information.
The Operating Agreement further includes a non-compete clause that states:
“In the event that a member withdraws from the LLC, said member will
not operate, or be associated with the operation of a bakery company
within Northern Virginia for a period of 10 years from the date of said
member’s withdrawal from the LLC.”

1

After much research, Jack and Jane launched the Bake Shoppe. The primary selling
feature of the cupcakes is that they are made from a secret recipe using all natural ingredients
that came out of Jane’s research and a secret baking process developed by Jack. The secret recipe
and baking process gives the Bake Shoppe an advantage over other cupcake bakeries.
After a slow start, the Bake Shoppe took off and is now doing very well financially.
Recently, the Commonwealth of Virginia passed a new law making it illegal to keep, own
or transport on Virginia roads, the chemical composition PHX. PHX is a by-product of the
cleaning process used to clean the Bake Shoppe cooking ovens. The Bake Shoppe has found no
way to effectively eliminate the production of PHX during the cleaning process and is therefore
concerned about being in violation of the new law.
Question 2:
What, if any, legal action can the Bake Shoppe take regarding the new law? Explain
your answer.
An oven used in cooking cupcakes over heated and caused a portion of the Bake Shoppe
to catch fire. The fire caused a chemical locker used to store cleaning chemicals to explode. The
explosion injured several Bake Shoppe employees and also caused damage to an adjoining
building owned by another company.
During the investigation, the Fire Marshall discovered that the chemical locker was not in
compliance with applicable state and county requirements and that had it been in compliance, it
likely would not have exploded.
Questions 3:
What legal claims, if any, can be brought against the Bake Shoppe by the injured
employees and the owner of the adjoining build and what is the legal basis for the claims.
A friend of Jane is employed by another bakery shop. The friend signed an employment
agreement which included a provision that she would not disclose any of her company’s
confidential information to anyone else.
Jane has heard that the friend’s company is coming out with a new recipe for cupcakes
and Jane would like to get information from the friend about the new recipe. The friend advises
Jane that her employment agreement prohibits her from talking about the new recipe. Jane tells
the friend that the Bake Shoppe is willing to hire her full time as a consultant and not to worry
about the agreement.

2

Question 4:
If the Bake Shoppe hires the friend and the friend discloses what she knows about
the new cupcake recipe, what claims if any, can the friend’s company make against the
Bake Shoppe. Explain the basis of your answer.
Over the course of the summer, the Bake Shoppe hired a number of high school students
and some adults to serve as delivery drivers. To keep everything “legal”, the Bake Shoppe
entered into employment agreements with everyone. The Agreement specified that each worker
would be paid $15.00 an hour and that each worker would work 30 hours a week until the end of
the summer. All of the workers signed the agreements.
After the first week of work, the adults began to complain that the pay was too low and
threatened to quit if they did not get a raise. Some of the high school students also complained.
Question 5:
Can the Bake Shoppe enforce the employment agreement against the adults and
against the high school students as written? Explain the basis of your answer.
Also at the end of the summer, Jane was approached by Linda, a former business partner,
about Jane joining her in starting a new bakery using the same all natural ingredients and
cooking process as used by the Bake Shoppe. The new company would not include Jack.
A few days later, Jane gave Linda a copy of the Operating Agreement for the Bake
Shoppe and said to her that “Jack probably is not going to let me out of this.” Jane replied,
“Don’t worry about it. If you join me, I will make it worth your while.”
Question 6:
Jane and Linda come to you for advice on any claims that Jack might make against
them if Jane accepts Linda’s offer. How would you advise each of them? Explain the basis
of your advice.
Instructions
Write a 7 page paper answering any 4 of the above questions. Please explain your
answers in detail. A simple “yes” or “no” or summary statements will not be sufficient.
The paper must be typed; double spaced, and is due shortly after the final exam. I will
give you the specific date and time in class. Please use a font no larger than 12 with 1 inch
margins. Devote approximately the same amount of space to each answer.
The paper will carry the weight of one exam and will be used in place of the first or
second exam if the grade on the paper is higher than the grade on one of those exams. The paper
cannot be used to replace the grade on the final exam.
3


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