Running head: BUSINESS ENTITIES, LAWS, AND REGULATIONS

Business Entities, Laws, and Regulations Christina OBanion BUS/415 August 1, 2011 Rachel DeAngelo

BUSINESS ENTITIES, LAWS, AND REGULATIONS

Business Entities, Laws, and Regulations

This paper will discuss the business entities for two businesses, how the individuals should take control, any liabilities, and taxation issues that should be considered. Also any laws, regulations, and risks that each business must consider protecting itself. Included in this paper is a construction scenario where a hiring manager has to choose from four different applicants who have different qualifications, experience, and educational backgrounds. Based on the advertisement the applicant must be chosen with the consideration of any laws and regulations for legal aspects. Restaurant/Bar Scenario In this scenario, Jose, and Lou plan to open a sports bar with the capital investment from Miriam. The business entity that would be best for this business is a general partnership. In a general partnership business Jose, Lou, and Miriam can all three be owners. Jose and Lou could both be managing partners, and Miriam is an investing partner. With Jose and Lou running the sports bar, Miriam will remain an outside partner and share the business profits. To form a general partnership the business has to meet certain criteria: such as have coowners of two or more people, be a for profit business. With Jose, Lou, and Miriam all being coowners of the for profit sports bar they can form a partnership easily. Taxes for a partnership business is done on each partners personal filed return. Tax liabilities do not count for partnership businesses. An information return must be filed for a partnership business that includes any profits, or losses that were acquired from the partnership (Cheeseman, 2010, p. 255). This information is needed so the government can keep tabs on the

BUSINESS ENTITIES, LAWS, AND REGULATIONS

income reported for the partnership business. The partnership business must also consider different liabilities that could arise while in business. These can be issues such as any lawsuits, contracts, or new partners. If one partners wrong-doing results in a lawsuit this will affect all business partners. Contract liability can affect each partner because of agreements made with other businesses. Partners are equally liable for any contracts and debts of that business partnership acquire (Cheeseman, 2010, p. 257). If an individual sues a partnership business, he or she must name all partners, this way the individual suing can collect any judgment made from each partner and the business. Some laws and regulations that the sports bar partnership will need to follow will be filing and receiving a liquor license, so the establishment can serve alcoholic beverages to their customers. Any health department rules and regulations must be followed to keep the sports bar open for business. The risks that a partnership business needs to take into consideration would be if they lost their capital. This is why a written contract between all partners to share liability responsibility for all losses and profits. Possessing equal responsibility allows each partner to carry the same amount of financial loss if the sports bar should 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. Extermination Business Frank is a wealthy investor who wants to start a chain of extermination businesses. First Frank must decide what type of business entity would work best for this business. Where he wants to open more than one or two businesses, he may want to think about organizing this

BUSINESS ENTITIES, LAWS, AND REGULATIONS

business into a franchise. A franchise has many benefits to offer the franchisor. With a franchise Frank can expand his business into a wide variety of markets while maintaining control over trade secrets, patents, trademarks, or copyrights he uses in his business. Frank also has the benefit of collecting royalties or a percentage of what each franchise makes in profit. Each of Franks franchises will also have the additional benefit of having Franks resources and knowledge. Another benefit for the franchises themselves is that they will be able to start up a business without having to worry about the establishment of patents, trademarks and copyrights. Another advantage of franchising is that Frank and his franchises are two separate legal entities when it comes down to the purposes of liability and taxation. This can be summarized by stating that the relationship between Frank and his franchises is one of an independent contractor. In this case neither Frank nor the franchise owner is responsible for any contracts or torts of the other (Cheeseman, 2010). By developing his business into a franchise, Frank has given himself personal control of whom he decides to license as a franchise. He also has given himself utter control over, which markets he will base his company in and any fees he may charge for a franchise contract. The organization of the company will determine the taxation of the business. If Frank decides to incorporate his extermination business, the business will be taxed as well as any dividends Frank pays to his stakeholders. If Frank decides to become an LLC the business will not be subjected to taxation as a separate entity, but all of the members will be required to report any losses or profits concerning their own individual tax returns. For Frank forming a chain of extermination businesses throughout the United States will offer him the benefit of providing a uniformed product and service to his entire customer base. Frank will also

BUSINESS ENTITIES, LAWS, AND REGULATIONS

be able to maintain control over his copyrights and trademarks and have the ability using his franchise agreements to operate in a variety of markets (Cheeseman, 2010). Construction Scenario Mel-Lin has put out an employment opportunity for a jackhammer operator with the only specification being a high school diploma. Mel-Lin has received a variety of applications and has to make a managerial decision on hiring an applicant. When Mel-Lin is choosing an applicant she must take into consideration several underlying factors. First she cannot base her decision on age, color, race, or gender. She can however discriminate between applicants who have or do not have a high school diploma because that is a requirement made by the company for that position. Felipe and Eric they are not chosen for the jackhammer job based solely upon their lack of a high school diploma. Because of this factor, Mel-Lin does not have to fear any repercussion from Eric based on his age or Felipe and his language barrier. With the exclusion of Felipe and Eric this means that Nick and Michelle are prime candidates for the position. During the hiring process Mel-Lin notices that Michelle appears to be pregnant, but Mel-Lin cannot use this as a base of her decision because of the Pregnancy Discrimination Act of 1978. During the hiring process Mel-Lin becomes aware that Nick suffers from epilepsy, but this factor cannot be used in the consideration of Nicks employment because Nick is protected under the Americans with Disabilities Act or (ADA). Mel-Lin can though look at the description of the job and base her decision on whether or not Nicks disability will keep him from meeting all that the job entails with reasonable accommodation.

BUSINESS ENTITIES, LAWS, AND REGULATIONS

In this situation it would be best if Mel-Lin were to hire Michelle because she meets the requirements of having a high school diploma and the experience handling a jack hammer, Michelles pregnancy cannot weigh in on this decision. Even though Nick does have the necessary high school diploma, he lacks any experience with a jack hammer. Should Nick file a lawsuit against Mel-Lin with the Equal Employment Opportunity Commission for discrimination under the Title I of the ADA, Mel-Lin can simply point to his lack of experience with a jack hammer and thus not fulfilling the job requirements. When deciding how best to organize a business, factors such as control, taxation, and liability are important considerations. Professionals such as doctors, lawyers, and accountants are best served by limited liability partnerships that protect members from personal liability beyond their initial capital contributions. Companies seeking to operate a chain of locations providing uniform services can set up as a franchise and license others to operate under their trade names. Employment decisions are complex and must be made in a manner that does not violate civil rights and other protections afforded under the law.

BUSINESS ENTITIES, LAWS, AND REGULATIONS

References: Cheeseman, H.R. (2010). The Legal Environment of Business and online Commerce: Business Ethics, E-Commerce, Regulatory, and International Issues. 6th ed. Prentice Hall