Running Head: Business Entities, Laws, and Regulations Paper Business Entities, Laws, and Regulations Paper Abstract The following paper includes the consideration of control, taxation, and liability issues for two hypothetical businesses as well as legal, regulatory, and risk issues each of the two businesses may face. Also included in this paper is a hypothetical hiring manager scenario in which the hiring manager must choose from numerous applicants who possess various levels of qualification, experience, and education.
An applicant must be chosen from the pool of applicants based on the advertisement placed for a jackhammer operator and any legal or regulatory issues to be considered for each applicant. Restaurant/Bar Scenario According to the scenario, Jose and Lou plan to open a sports bar with the capital investment from Miriam. In this scenario, the three individuals can form a general partnership with all three owning the business. Miriam would be the investing partner with Jose and Lou being the managing partners. Miriam will allow Jose and Lou to control the business and Miriam shares in the business profits.
The formation of a general partnership is achieved by meeting four criteria. The criteria are it must be an association of two or more people; those people must be carrying on a business; they must be co-owners; and the business must be for profit. Miriam, Jose, and Lou would be co-owners of a for profit business, a restaurant/bar, thus meeting the four criteria and can form a general partnership. Taxation of general partners is accomplished on each individual partner’s personal tax return because partnerships do not have a tax liability.
A partnership must file an information return with the government explaining the income, or losses, incurred by the partnership (Cheeseman, 2010, p. 255, pp. 2). The reason for an information return is for the government to trace the partners’ income tax returns for correct reporting of income from the partnership. Liability issues the partners must consider when forming a partnership are tort liability, contract liability, and liability of incoming partner(s). Tort liability affects all partners if the lawsuit is the result of actions performed by one of the partners.
The partnership is liable for any negligence, breach of trust, breach of fiduciary duty, defamation, fraud, or any other intentional tort (Cheeseman, 2010, p. 256, pp. 2). Contract liability affects all partners because of agency agreement. Partners are agents of the partnership and therefore any agreement entered into by one partner is also entered into by the other partners through the general partnership. Partners are jointly liable for contracts and debts of the partnership (Cheeseman, 2010, p. 257, pp. 2).
A third party suing the partnership must name all partners in the suit or all partners, and the partnership, are free from collection of a judgment. Therefore, by naming all partners, and the partnership, in the lawsuit, a third party may collect a judgment from any or all of the partners or the partnership. Liability of incoming partners is limited to the investment of the incoming partner for existing debts and obligations. Liability for debts and obligations incurred after becoming partner is equal to that of the other partners.
Laws and regulations the partnership must follow would be the application for, and receiving of, a liquor license to serve alcoholic beverages and liquor by the drink. Also necessary would be the adherence to all health regulations and codes required for a restaurant. As a partnership, the business would also need to have in writing who is responsible for certain activities. Risks the partnership must prepare for would be the loss of investment capital by Miriam, who should have a written contract with Jose and Lou that all partners are equally liable for losses and profits.
Equal liability covers all partners from carrying the bulk of the financial loss should the business fail. Miriam being the investing partner has the most to lose during the initial stages of the business, which is the riskiest time for a new business. Professional Practice Scenario According to the scenario, Akiva and Tara want to open a birthing clinic and take out large loans to finance the business, which is a medical practice. The business would be a partnership of two medical professionals that would allow Akiva and Tara to form a limited liability partnership or LLP.
An LLP is beneficial for the partners because each partner is only liable for debts or obligations up to the capital contribution or investments in the partnership (Cheeseman, 2010, p. 274, pp. 1). Forming an LLP begins with filing articles of partnership with the secretary of state of the state in which the LLP is organized. The LLP laws of the state where the LLP performs business govern the partnership. The partnership must follow the state laws and regulations to continue performing business in that state.
Many states require an LLP to carry a minimum of $1,000,000 in liability insurance covering negligence, wrongful acts, or misconduct by partners or employees. Taxation of the LLP is the same as in a general partnership. Each partner is required to file their profits or losses on their personal income tax return. As with a general partnership, an LLP is required to file an information return with the government so the income or losses are traceable to the individual partners. Because Akiva and Tara want to open a birthing clinic, they must prepare for liability issues.
Liability issues such as malpractice and human resources must be addressed. Carrying malpractice insurance, and paying the premiums, is an important step in a high risk profession such as an obstetrician. Hiring a competent and experienced office manager to run the daily operations of the practice can be an effective tool to reduce, if not eliminate, the chances of human resources related liability issues. Laws and regulations to address would be the licensing requirements for a birthing clinic.
Also necessary would be the state requirements for ongoing training and certifications. Privacy issues and confidentiality of patient information are issues addressed by hiring a manager with experience and education in government laws and regulations. Risks the partnership must prepare for would be the loss of capital investment by both partners should the birthing clinic fail. Both partners would only be liable for losses up to each individual partner’s investment, but would be personally liable for the loans taken out by each to start the business.
Each individual investor is liable to losses up to capital contribution in the case of a lawsuit; however, if one partner is negligent that partner is personally responsible for amounts over their capital contribution (Cheeseman, 2010, p. 274, pp. 2). Construction Scenario According to the scenario, Surebuild, Inc. is a corporation. Control of the corporation is the Chief Executive Officer or CEO. The CEO extends the power of control to department managers or supervisors who control his or her individual areas. According to the construction scenario, Mei-Lin is the hiring manager for Surebuild, Inc. nd therefore controls the hiring department. The corporation paying taxes on profits and individual investors paying taxes on their dividends achieves taxation of the corporation. The corporation is taxed twice unless it elects to be taxed as an S corporation. S corporation status allows the corporation to be taxed as a general partnership would with the individual shareholders claiming income or loss on individual tax returns. In the scenario, Surebuild, Inc. is a corporation that affords investors limited liability. Individual investors, or shareholders, are only liable up to their investment.
If the business were to become bankrupt, the investors would only lose the investment. The debts and obligations of the corporation are owed by the business, not the investors. According to the scenario, Mei-Lin must choose candidates that fit the advertised job opening. The description of the advertised jackhammer operator position states the candidate must have a high school diploma. Four people are applicants for the jackhammer operator opening. The first applicant is Michelle, 35, who appears to be pregnant, is a high school graduate and was formerly employed as a jackhammer operator.
The second applicant is Eric, 55, who is experienced with a jackhammer but is not a high school graduate. The third applicant is Felipe, 38, is experienced with a jackhammer but is not a high school graduate and does not speak English. The fourth applicant is Nick, 23, a college graduate who is epileptic but has no experience with a jackhammer. The minimum qualification for the open position is a high school diploma. The position is for a jackhammer operator so experience as a jackhammer operator should be a beneficial quality to consider in a qualified applicant.
Eric and Felipe both are not graduates of high school and are therefore not qualified applicants according to the job description. Nick has graduated from high school and has a college degree but has no jackhammer operating experience. That Nick is an epileptic is of no significance when comparing Nick to Michelle, who is a high school graduate and has jackhammer experience. That Michelle appears to be pregnant does not mean Michelle is pregnant so this should not be a consideration either. Mei-Lin should choose Michelle as the best candidate because Michelle has a high school diploma and has jackhammer experience.
Legally, Mei-Lin cannot consider Michelle being pregnant or Nick being epileptic as a reason to exclude them from the open position. The choice between Michelle and Nick is clear; Michelle should be hired for the jackhammer operator position due to meeting the high school education requirement and the possession of jackhammer operating skills. Conclusion In the scenarios shown the businesses and individuals are required to follow various laws and regulations in the activities they have chosen. By following the laws and regulations, an investor has some protection.
Partners in a business are required to be mindful of their activities to prevent their partners from liability in a lawsuit. A corporation protects individual investors from liability over their investment. A hiring manager can protect his or her organization by following the laws and regulations that protect job applicants from discrimination. Failing to follow laws and regulations can result in a lawsuit that has the potential to ruin a business. References Cheeseman, H. R. (2010). The Legal Environment of Business and Online Commerce (6th ed. ). New York, NY: Prentice Hall.