Legal Ethical and Regulatory Issues in Business - Case Study Example

? Legal, Ethical, and Regulatory Issues in Business Scenario 1. General partnership is an unincorporated business organization setup by general partners who share profits and losses as per their partnership agreement (Cross & LeRoy 410). The general partners are often engaged in the day-to-day operation of the entity unlike in corporation whereby ownership is separate from management. Additionally each general partner is often personally liable for the liability of other partners. Profits of the company are often shared equally however, this only happens when the partnership deed does not specify the ratio of profit sharing. In most case profit of the company is always shared with respect to the ratio of capital contributed by the partners into the business and the same case applies to sharing of loses. All partners in general partnership have equal right towards decision-making considering that each partner equally participates in management and control of the organization affairs. 2. It is noteworthy that the general partnership has unlimited liability and as such failure of the company to clear its debt obligations the personal property of the partners will be confiscated by the creditors (Cheeseman & McDonald 86). John Albert and Matthew Baker will be directly liable for all the liabilities of Lending Store. Failure of the general partners to clear the claims of the creditors will certainly make them lose their personal property to settle the debt. This means that the liability of general partners is a direct responsibility of the partners and as such, the partners must stand up for the responsibilities once they occur. 3. Forming a corporation involves many paper work and legal requirements unlike partnership and sole proprietorship. The first step in forming a corporation in Arizona starts with searching for a business name. The chosen name must be checked with the registry to ensure that it is not used by another company or does not infringe another company’s name or trademark. The second step involves registering the business name. The third step involves choosing of directors who can make vital policies and financial decisions such as authorizing stock issues. The fourth step involves filing the corporation’s “articles of incorporation” with the Arizona state corporate filing office. The fifth step involves writing the corporate by-laws. The corporate by-laws are the guiding principles of the daily affairs of the organization. The sixth step involves creating a “shareholders’ agreement” which helps the owners address various corporate issues such as voting rights, and intellectual property rights. The next step involves convening the first meeting of the board of directors. The seventh step involves issue of certificates to the equity owners. This stage is important because a corporate is required not to commence business before officially dividing owners’ interest in the organization. The next step involves obtaining business licenses and permits for the corporation from the relevant authorities that is federal government, state of Arizona and the local government. Then afterwards a business can begin operations. 4. Once Albert and Baker have formed a corporation, the company will be personally liable for its own liability. This means that Albert and Baker will not be personally liable for the debt of the organization. This is because corporate bodies normally have a separate life from its owners and as such, it can operate everything that a human being does on its own. In other words, corporate bodies are artificial persons and as such, they can sue or be sued for failure to honor their obligations. The liability of the corporate owners is limited to the amount of money they have contributed towards acquisition of company assets and other investments (Cheeseman & McDonald 112). Albert and Baker are cushioned from the loss of personal property whenever the company fails to honor its debt obligation by the amount contributed they have to the company investments. 5. Albert and Baker still have choice of forming an S corporation. S corporation is corporation that elects to be taxed under Subchapter S of the Internal Revenue Code. Once Albert and Baker have formed a corporation they can agree to form an S Corporation by making valid election shortly after incorporation. Just like any other business corporate S corporate must acquire a license to operate in the state of Arizona. Unlike C Corporations, the income of the S corporation is normally passed to the individual shareholders for taxation purposes rather than taxing it on the company itself. This means that the income of the company will taxed as personal income of the shareholders (Cross & LeRoy 421). Notable advantages of S corporation include avoiding double taxation; separate legal and tax entity from the owners; and limited liability. S Corporation has disadvantages such as shareholders restricted number to 100; cannot own more 80% of the subsidiary; one class of stock; and limited to US citizens only. Scenario 11 1. Ms. Smith could sue Lending Store, Inc her employer on the basis of employment discrimination. This is because her employers could not withstand her personal disability which made her to arrive late for work. Ms Smith can use the provision of Titles I and V of the Americans with Disabilities Act which prohibit employment discrimination based on an individual’s physical state. The American with Disabilities Act prohibits any form of employment discrimination in all employment practice based on personal disability. Even though Ms Smith is one of the organization’s highly experienced employees however she has a permanent disability that requires her to work from a wheelchair. To make matters worse she has to come late for work and also absent herself occasionally owing to her health issues. She can use such claim of her disability as the motive behind losing her job and therefore she can claim that her employer could not withstand her disability, which later leads to her firing. 2. In Smith v. Lending Store, Inc possible defenses include undue hardship. Albert and Baker could claim that allowing Ms. Smith to continue with absenting herself as well as reporting late to the organization was causing undue hardship to the organization in terms of financial resources as the organization had to spend large sum of money to cover time wasted through absenteeism and persistent lateness. The most likely outcome in the case Smith v. Lending Store, Inc is that Ms. Smith employers will be found guilty for violating the American with disabilities Act. This is because Titles I and V of the Americans with Disabilities Act calls for all employers to create “Reasonable Accommodation” for their employees. For instance, employers of Ms. Smith ought to have made some modification on the work schedule to accommodate for the challenges faced by Ms. Smith owing to her disability. 3. Labor Unions are legally recognized bodies and the employees should not fear joining any union in case they feel that the employer is likely to trample on their labor rights. In fact, an employee will not be penalized for joining or not joining a labor union in the United States. Trade unions play an important role in ensuring that their members are not discriminated against or underpaid; work under good conditions; receive training and get financial advice. In order to gain representation of White Collar Workers of America Union in Lending Store, Inc the employees would need to solicit for voluntary recognition of the union by their employer. If this move fails then the employees of Lending Store, Inc should conduct a bargaining unit vote to gain representation of the trade union. 5. The type of relationship between Lending Store, Inc and the independent contractor lies in the amount of control that the company will have over the independent contractor. It is likely that Lending Store, Inc will have limited control and direction over the affairs of the independent contractor such as the means and method of achieving the assigned task (Cross & LeRoy 737). The company will only be interested in knowing whether the assigned task is completed or not as per the terms of the contract which may include the guidelines to be used in accomplishing the task. Control over the finances will also be important in understanding the relationship between the independent contractor and the company. For instance, a worker who directly receives his/her remuneration from the employer will be restricted from working to another individual whose contribution does not form part of the organization profits. Once the organization has paid the independent contractor his commission the company will not prevent him from working to another party. Scenario III 1. Vicarious liability would allow the third party injured in the auto accident to make a claim against the Lending Store, Inc. for damages. According to Cross & LeRoy (752) vicarious liability is common law doctrine that shifts liability from the offender to a third party owing to the special relationship between the offender and the third party. For instance an employer would be vicariously liable for damages caused by his employee in the event of discharging his regular employment errands if the employer owed the injured party duty of care. The duties conducted by the employee during the occurrence of the damages must have been authorized by the employer before an employer is considered vicariously liable. In this case some can consider Lending Store, Inc vicariously liable for the accident caused by the employee-John Jones incase the employee was in the event of discharging his employment tasks. 2. The first defense Lending Store, Inc could use against the legal claim of the third party is the fact that John Jones was not operating his general scope of employment when he caused the accident. In fact the John Jones was on his way home during the occurrence of the accident. This means that Lending Store, Inc did not owe the road users duty of care when the negligence occurred and thus John Jones should be personally liable for the damages. The second defense involves the fact that John Jones was driving under the influence of alcohol considering that he had taken alcoholic beverages. The fact that John Jones purposely hit the other car is a weighty defense to justify that Lending Store, Inc should be held responsible for the negligent driving by her employee. 3. The company- Lending Store, Inc will not be held vicariously liable for negligent driving by John Jones because the employee was not performing his employment tasks when the accident occurred. The employee-John Jones will be held liable for the damages under the tort law of negligence. It is obvious that Jones owed other road users duty of care and that duty was breached which consequently caused the injuries. It was also unethical and illegal for Jones to drive while drunk. The law is against drinking and driving and as such Jones is directly liable for the damages. 4. The first step for filling bankruptcy involves receiving credit counseling six month period before filling the paperwork for chapter 7 bankruptcy. The next for Albert and Baker is to file the bankruptcy petition and other forms with the court. The court will then appoint a trustee who will handle the petition. The fourth step involves meeting of the creditors to attest to your financial situation. The next stage involves whether to accept or dismiss your bankruptcy petition considering that at this stage the trustee has all the information necessary for chapter 7 bankruptcy (Cross & LeRoy 345). The sixth step involves disposal of all the nonexempt assets to offset the unsecured creditors’ claims. Next the secured creditors’ claims are dealt with and finally an individual will be required to undertake a financial management course. Once the chapter 7 bankruptcy petition is over Albert and Baker will be given a fresh start that is they will have no claim over their finances. 5. Chapter 11 bankruptcy filing is highly important for solvent companies that would wish to continue operating by reducing their debt load and reorganizing its business activities. Chapter 11 will certainly be vital for Lending Store, Inc in the sense that it allows a bankrupt company to file a reorganization plan with the court which if approved by the court will allow the company to pay his creditors concurrently. The debtor will have an option of paying portion of the debt and discharge some if the reorganization plan is approved by the court. The debtor must ensure that the creditors have gone through the reorganization plan and properly evaluated the disclosure statement. Works cited Cheeseman, Henry & McDonald, Robert. The Legal Environment of Business and Online Commerce. New Jersey: Pearson Education, Limited, 2009. Print. Cross, Frank & LeRoy Miller, Roger. The Legal Environment of Business: Text and Cases: Ethical, Regulatory, Global, and Corporate Issues. California; Cengage Learning, 2011. Print. Read More