Module 3-1 Case Study

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Apr 3, 2024

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1 BUS 307 CASE STUDY 1 Kierra Hemphill Southern New Hampshire University BUS 307 James Jenkins 2/2/24

2 To: Javier and Elena From: Kierra Hemphill, Paralegal This email is intended as a follow-up to our earlier discussion on the establishment of your new company. To summarize our meeting, you want to promote your Javiers Extremely Hot sauce to local and national businesses. You want to use your farm to produce your goods, and you'll pay your son Antonio to distribute orders to nearby retailers. The best corporate entity type to choose, management problems, lawsuits resulting from interaction with drugs, and estate planning for your family as well as your company were a couple of the topics brought up. I will tackle all of these issues in this email. There are several forms of business entities, the most common being corporations, partnerships, and sole proprietorships. Everyone has advantages and disadvantages. An owner can establish a firm on their own and maintain total control over the operations and earnings of the enterprise by operating as a lone proprietor (Kubasek & Brown, p771). This corporate entity is easily created, requiring just a few legal procedures. A sole proprietorship has the disadvantage of having only personal cash or whatever loans its proprietor can secure as an investment, and the owner is solely accountable for all losses. Since the start-up expenditures are frequently more than the first earnings, this may provide some challenges. The benefits of a sole proprietorship are retained by a partnership, but the financial disadvantage is eliminated. A mutually beneficial partnership of two or more individuals who have chosen to jointly manage a firm is this type of business entity (Kubasek & Brown, p772). Similar to a sole proprietorship, collaborations may be made quite quickly. A formalized signed contract between shareholders is not necessary, and the company is not regarded as a distinct

3 legal entity. This implies that losses can be subtracted from the taxable earnings and that revenue is taxed like personal earnings for partners. On the other hand, partners are individually responsible for company debt. Different kinds of collaborations may be formed since firms are not one-size-fits-all. These consist of cooperatives, franchises, joint ventures, business trusts, limited partnerships, general partnerships, and limited liability partnerships. The corporation is the third type of corporate entity. When shares are offered to investors, who subsequently turn into shareholders as well as proprietors of the business, this entity is created legally. The ease with which money may be obtained through the selling of shares and the shareholders' restricted responsibility are two benefits of corporations. The simultaneous taxation of corporate income and shareholder dividends, as well as the legal requirements for corporation formation, are drawbacks (Kubasek & Brown, p775). A corporation might avoid double taxation by forming an S corporation, as the earnings are taxed as individual revenue and distributed to shareholders. The issue of liability comes up in every type of company entity. According to the Legal Information Institute (2017), "any or every participant along the chain of production of any goods for loss brought about by that product" is liable for damages resulting from the product. A manufacturer may be held accountable for a product in one of three ways: through poor manufacturing quality, poor design, or insufficient cautionary notes about possible risks. A product's maker runs the risk of being sued if it has built-in flaws that might endanger customers. The three main theories of recovery used in product liability cases strict product responsibility, mistakes, and breach of warranty serve as the foundation for lawsuits (Kubasek & Brown, p235). To proceed with a lawsuit based on any theory, the plaintiff must prove two things in common.

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4 These two requirements are that the good or service is faulty and that the flaw was there when it was produced and shipped. The product's name might provide the corporation with a second problem. The Equal Labeling and Label Act is in force at the federal level. According to this law, businesses must define products precisely (Gibbs, 2017). One may claim that Javier's Hot Sause accurately describes the product; the problem, however, might arise from the label that refers to it as "Very Hot Sause." While it might not be an issue for small-town retailers, selling the goods to large national chains might provide challenges. The high court in California decided in 2011 that even in cases when a product was not faulty, customers might still file a lawsuit for a deceptive label (Dolan, 2011). Due to Antonio's engagement in the company, agency ties were brought up as another issue during the discussion. Javier is eager to fulfill orders and has a vehicle, so his interactions inside the organization can be quite beneficial. It is not necessary for you to have a formal written agreement. It might be prudent, therefore, to file a document authorizing Antonio to act as your representative. We would classify this as an agency connection. Agreements between both parties create agency connections. They have to be made between parties with the legal competence to enter contracts. Antonio can establish an agency connection with the organization because he is older than 18. You and Antonio do not presently have an agency relationship. An agency connection is not always established by Antonio's engagement before the firm was formed or by his projected position in it. Although Antonio will eventually become a shareholder in the company, he will work as an employee for the time being and transport orders in his car. Since Javier is Antonio's employer in this agency affair, he has the authority to manage Antonio's behavior in business-

5 related matters (Kubsek & Brown, p734). The nature of the relationship would shift to that of an employer and independent contractor if you decided to give up direct control over Antonio's behavior while he was employed by you. When it comes to using his car and moving products for sale, Antonio would be in charge of making sure all rules are followed. Nonetheless, FedEx was judged to have engaged in unfair labor practices when they declined to engage in union negotiations, citing their drivers' status as self-employed vendors instead of staff (Kubasek & Brown, p727). Before converting a relationship between employers and employees to an employer-independent agency relationship, I would advise you to carefully analyze such circumstances. This gets us to the point about your property. Since you and your kids are still living in houses on the Antonio property, you plan to produce Javier's Very Hot Sause on your family farm. Personal property and real estate are the two legal classifications into which personal assets can be separated. To put it simply, real property includes all structures, land, and permanent fixtures. Furniture and other movable items are regarded as personal property. Due to liability concerns, your children's homes might be in jeopardy if a case is successfully brought against your organization. Keeping personal and corporate things apart would be a prudent move. This might entail locating more property to support the enterprise. Another option is to split the land into smaller portions and give your kids a deed to the areas where their residences are located. If the corporation was sued, this would shield their residences. Zoning and the rules about it are another real estate concern that must be considered. The kinds of home-based enterprises that can operate in residential areas are restricted by zoning restrictions. As a result of the family residing there, the farm may qualify as a residential homestead. Restrictive agreements of any kind also need to be considered. Formal agreements

6 for the use of the asset may be included in deeds (Kubasek & Brown, p1094). Make sure there are no restrictive agreements on the property that prevent the operation of a home company. The choice about real estate ownership rights should also be decided. A shared estate or a fee-based interest are your options. The most prevalent type of interest is fee simple, which gives the property owner the only authority to dispose of the asset (Antonacci & Dashoff, 2011). If the property is registered just in Javier's name, family members will not be able to influence his decisions on its use. The family will inherit the property if he dies without leaving any instructions. Real estate can be jointly owned by two or more people at the same time through joint estates. It is necessary to create policies for the usage of vehicles. If an accident leads to a lawsuit, policies like limiting the use of the vehicle for commercial purposes, clearly outlining rules regarding the illegal use of the automobile and the use of drugs and alcohol and allowing for flexibility in the wording by utilizing phrases like "including, nonetheless, limited to" will go a long way in safeguarding the company (Biz Filings, 2012). Not to be overlooked are taxes. When it comes to any business costs involving the utilization of his car, Antonio has to be sure to maintain thorough documentation and invoices. There are restrictions on employee business expense deductions, but generally speaking, costs that are not paid for by the employer can be deducted from taxes. The company may be held liable for respondent superior and other liability concerns if Antonio's car is used for business travel. Negligence can manifest itself in several ways, including careless hiring. It is strongly advised that before Antonio drives for the firm on deliveries, Javier thoroughly investigates his driving history. If records reveal that Antonio has a history of reckless driving and he is found to be to blame in an accident, the corporation may

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7 face legal action for wrongful hiring if it neglects to take these steps. A vehicle lent carelessly might likewise be considered negligent. One of the main issues brought up during our conversation was estate planning. The property is inhabited not only by you and your spouse but also by your kids and their families. Even though nobody likes to think about the potential that they won't live to support their family, it is a reality that needs to be acknowledged and a strategy for estates created. Updated in 1991, the Uniform Succession Code serves as a better model for legislation about the transfer of property following the death of its proprietor (ULC, 2017). I strongly advise crafting wills that specify exactly how the family's assets and company will be divided. Whether this entails assigning everything to a particular individual or sharing it all around. Considerable ground has been covered, and my aim is that it will help you make the decisions that need to be made concerning your personal and professional matters. In light of our conversation and your present objectives, I would advise incorporating your company as a restricted-liability Partnership. This type of company combines the tax benefits and administrative flexibility of an association with the restricted liability of a legal entity (Kubasek & Brown, p776). LLCs prevent double taxation by providing flexibility in the ownership structure and are regarded by the IRS as either a partnership or an independent contractor. You may convert Antonio from a hired worker to a shareholder without having to restructure the company by operating it as an LLC. References

8 Antonacci, John and Dashoff, Brad. Understanding Real Property Interests and Deeds. American Bar. Website. Retrieved January 22, 2017 from http://www.americanbar.org/newsletter/publications/law_trends_news_practice_area_e_n ewsletter_home/2011_summer/real_property_interests_deeds.html Biz Filings (May 24, 2012). Possible Liabilities When Employees Use Vehicles in Your Business. Bizz Filings. Website. Retrieved August 18, 2016 from http://www.bizfilings.com/toolkit/sbg/office-hr/vehicles-equipment/liabilities-when- employees-use-vehicles.aspx Dolan, Maura. (2011, January 8). Court rules that consumers can sue manufacturers over misleading claims. Retrieved on January 22, 2017 from http://articles.latimes.com/2011/jan/28/local/la-me-consumer-protect-20110128 Gibbs, Girard. (2017). Fair Packaging and Label Act. Retrieved on January 22, 2017 from http://www.girardgibbs.com/fpla-lawyers/ Kubasek, N. K., & Browne, M. N. (2012). Dynamic business law (2nd ed.). New York: McGraw-Hill/Irwin. Legal Information Institute. (2017). Products liability. Retrieved on January 21, 2017 from Mayo Clinic. (2014, November 11). Living wills and advance directives for medical decisions. Retrieved on January 22, 2017, from http://www.mayoclinic.org/healthy- lifestyle/consumer-health/in-depth/living-wills/art-20046303

9 NIH. (2017). Homeopathy. Retrieved on January 21, 2017 from https://nccih.nih.gov/health/homeopathy Trusted Choice. (2017). Commercial Vehicle Insurance FAQ Retrieved on January 22, 2017, from https://www.trustedchoice.com/commercial-vehicle-insurance/coverage-faq/ ULC. (2017). Probate court summary. Retrieved on January 22, 2017 from http://www.uniformlaws.org/ActSummary.aspx?title=Probate%20Code

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Module 3-1 Case Study

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