Forms of Business Organizations and Int'l Law - Case Study Example

Running head: Law Forms of Business Organizations and Intl Law Insert Insert Grade Insert 28 March Issue Forms of Business Organizations: The case of Raylan’s and Boyd’s “Justified BBQ” partnership (a)Amount of profit entitlement for Boyd Raylan and Boyd are entitled to 50:50 shares of the business profits. Where there is no written partnership agreement, the state partnership laws provide that partners shall share the profits and losses of the business equally and none of the partners may withdraw their capital input in the partnership outside the agreement of the other partners unless the partnership is brought to an end. Further, the death of either of the partners is enough reason to cause dissolution of the partnership regardless of whether the remaining partners resolve to continue or not. The fact that Raylan and Boyd had agreed orally to set up a partnership and share profits and expenses equally does not amount to an agreement in law because in absence of a written document containing provisions and guidelines about the partnership, the courts will apply the state law on partnerships (Bagley and Savage, 2010 chapter 20). (b)Party to be sued by Sassy Sauces if Justified BBQ refuses to pay at the time Raylan and Boyd are winding down the business The partnership will be the one to be sued by Sassy Sauces and bears full liability to pay for the supply of the BBQ sauce. A partnership is created expressly or implied by two or more people with a common understanding about capital input, sharing of profits and losses, efforts and labor as well as skills. Even with the implied agreement, decisions on third party transactions made by some partners without consent from the rest are binding on the partnership and not on the individual partners involved. In this case, Boyd entered into a third party transaction for the supply of BBQ sauce without the knowledge of Raylan. In spite of the contract price being overstated, the transaction was binding to the partnership and is viewed in the eyes of the law as though it was a consequence of a shared decision. Partners owe each other duty of care in regards to entering into irresponsible business transactions as Boyd did in order to get the attention of the receptionist in Sassy Sauces and they should hold in trust the property and profits of the partnership business. These fiduciary duties towards each other continue until the business is wound up completely (Bagley and Savage, 2010 chapter 20). (c)Responsibility for payment for the BBQ sauce if Justified BBQ was a corporation and went bankrupt The corporation would be the one to pay for the BBQ sauce. In law, a corporation is a legal entity different from its owners and the liability of the shareholders is limited to the amount of investment in the corporation therefore the corporation carries the responsibility arising from actions of the shareholders and/or directors although the veil of incorporation may be pierced to determine the real owners and hold them personally liable. In the worst case scenario, Boyd as a shareholder would lose the amount of capital investment equivalent to the payment required by Sassy Sauces. Because ‘Justified BBQ’ has two owners only then it would most probably be a close or closely held corporation. If it as a close corporation in which case shareholders have an option in written agreement to run the day to day operations and not appoint directors, the actions of a shareholder (like Boyd in this case) would translate to personal liability because the veil of incorporation would ordinarily be lifted or pierced to establish who are the real owners of the corporation involved in swindling the corporation of its resources and apportion the loss accordingly. In the case of a closely held corporation which is identifiable with lack of a market for its stock, greater responsibility is placed on the majority shareholders and the directors, in this case Ralyan. Boyd will still be held accountable for his actions because Ralyan did not a party in the transaction between the corporation and the client Sassy Sauces (Bagley and Savage, 2010 chapter 20). Issue 2 - Forms of Business Organizations Discussing the sole proprietorship, C Corporation and S Corporation in terms of liability and taxation aspects and requirements for forming the latter For Zoe to know how to structure her business, she needs to first understand the different business formations in terms of advantages and disadvantages, extent of attachment of business liabilities to personal assets of owners, level of appeal to stakeholders such as lenders, investors and employees, costs of running the business, and tax considerations. It is important to consider all these forms of business structure to avoid costs and processes involved in changing the same later. In a sole proprietorship business, one individual owns all the assets as well as solely liable for liabilities and obligations of the business. State law does not have a lot of requirements for registration of this type of business except that if the name of the individual running the business is not the same as that of the business, the latter name must be registered with the state as a fictitious business name. It is easier and cheaper to start and run a sole proprietorship relative to other types of business formations because there are no formal state registration requirements. The owner of the business enjoys full control and management of the business and all profits made but is solely liable for all liabilities and must bear all losses from the business. A sole proprietorship pays one form of tax only where the owner compiles an annual personal tax return from income made during the year. A corporation on the other hand is a legal entity different from the people who formed it (owners). The liability of the shareholders is limited to the amount of investment in the corporation by each one of them therefore the corporation carries the responsibility arising from actions of the shareholders and/or directors unless in circumstances where the veil of incorporation may be pierced to determine the real owners and apportion personal liability. In the case of a C corporation, there is double taxation where the corporation’s profits are subject to corporate tax and the dividends shared by the owner’s are also taxed as personal income. A corporation may however avoid double taxation by registering and maintaining status as an S corporation where only the shareholders pay tax on income made from the business but the corporation does not pay tax. The requirements for an S corporation include that a corporation must have a maximum of 100 shareholders who must meet the stipulated citizenship criteria, only own a maximum of 80% of another corporation, have only one stock class and must file timely election for S corporation treatment by the state. Zoe business case would fit the sole proprietorship form of business because she is a sole individual who is not faced with capital challenges because her business is already on course and running successfully. Sole business start ups present a challenge because the owner has to raise capital alone (Bagley and Savage, 2010 chapter 20). Issue 3 Question 3: Optomagic Inc. and Varoom a. Usefulness of an in-house legal counsel with experience in international projects in design of a business plan for the proposed joint venture and issues of particular importance to be considered in the preliminary report Optomagic Inc. planning to invest in Varoom which is outside its jurisdiction will generally be expected to assess its goals of investment, undertake an evaluation of the economic, market, regulatory, geographical, labor and political environment in the target country and also consider financial issues relating to taxation and currency fluctuations. Economic considerations include assessment of the country’s per capita income, potential supply capacity for gizmos raw material, and availability of labor and cost of hiring the same, size of consumer market, efficiency of the monetary system to determine nature of the forex market and repatriation issues and the inflation trends in the country. The legal counsel will help assess the stability and reliability of the local legal environment in Varoom in terms of the integrity of the judiciary and legislative system to determine the effectiveness and enforcement levels for laws relating to business contracts, taxation, customs, employment, ownership of property and the likes. Political situation in the host country is an important consideration because it may translate to more or no business confidence. Assumptions and expectations of the parties in this contract will generally be different thus introducing the more uncertainties and risks, which must be evaluated too. These considerations are vital to guiding the construction of a business plan. In drafting the preliminary report, it is important to also consider issues relating to bottlenecks to penetration including assessment of the legal environment on international business in Varoom (Bagley and Savage, 2010 chapter 25). For this case, Varoon’s law on international investments in the country is not liberalized but there are indications that the law might soon be amended to allow international investors in the country. This might come with conditionalities which the Optomagic Inc. needs to consider. b. Types of terms or conditions to be included in the joint venture contract to protect against unexpected changes with the uncertainty in the timing of liberalization law on international business in Varoom. Evaluation about other forms of protection The joint venture contract may include binding agreements in line with local commercial law provisions and from the international legal principles of sovereign immunity and act of state doctrine. Including a dispute resolution mechanism would also be useful as a way to settle matters out of the judicial process (Bagley and Savage, 2010 chapter 20). c. Legal problems with including Dr. Ayantuga as an investor in the project and as a paid consultant If Dr. Ayantuga becomes an investor in the proposed project and given that he is the minister of health and welfare in Varoom, there will definitely be legal concerns in terms of conflict of interest and in light of the provisions of the public officer law which we do not have details about. In as far as this project is concerned, Dr. Ayantuga is a state official earning a salary from the government for the performance of ministerial duties including this particular project and should not earn additional remuneration as a consultant in this project partly because of conflict of interest as well as to enhance transparency and accountability. The manner in which Dr. Ayantuga handles this particular project is suspect and a clear indication of misuse of office to achieve certain personal gains in disguise. The contract should be publicly advertised through a tendering process guided by procurement law (Bagley and Savage 2010, chapter 25). Issue 3 Question 5: Optomagic Inc. and Varoom a. Assessment of the legal and economic advantages and disadvantages of local employees in the venture The host country stands to gain from employment of both skilled and unskilled citizens in the proposed project as well as from transfer of technical and business management skills from experts of Optomagic Inc. who come from a more advanced market. The suggestion by Dr. Ayantuga to have local employees trained at the Optomagic Inc. USA facility is valuable because the country will benefit as its citizens gain exposure and learn from a different set up and environment. There will be improvement of household incomes and lifestyles of the Varoomian citizens as a result of employment creation. The mining of gizmonium, a raw material for production of optomagic gizmos particularly with majority of the labor force sourced locally will have tremendous benefits to the economy by attracting foreign direct investment into the country through the venture project and other business arrangements that may arise, increasing foreign exchange earnings through exports of the product for processing at Optomagic Inc., improve public health care and medical services as revenues from the project are invested in this sector thus enhancing the country’s GDP. In the absence of stringent enforcement of labor laws that already exist in Varoom, local labor force may be exploited through low wage rates and noncompliance to provisions of the laid out compensation and benefit schemes. Liberalization of international trade will allow more economic activity, trade and employment but may introduce skills drain as citizens seek better opportunities outside the country. The employees will enjoy a legal immunity through job security because local labor law prohibits termination of employment without a justifiable cause, unjustifiable discrimination, and promotes equal treatment of employees (Bagley and Savage, 2010 chapter 25). b. Alternative structuring of the workforce Although a combination of resident expatriates and local technicians would be good workforce structuring model, the use of experienced subcontractors or agents would be desirable compared to expatriates in the interest of managing costs and standards of project outcome. The project manager must however be cognizant of the duties and responsibilities of both the principle and the agent (Bagley and Savage, 2010 chapter 5) c. US laws on Training of foreign technicians at the Optomagic Inc. US facilities There exit laws that govern the employment association between an employer and the employee ranging from employee training, security, rights, and powers. The immigration and Reform Act of 1986 establishes that the employers may hire only persons who may legally work in the United States. In this case, foreigners should acquire a visa so that they may be authorized to work in the United States. In training technicians at optomagic incorporation, consideration should be accorded to women, minorities and other marginalized groups. They should be subject to fair treatment, safe training environment and good working conditions. There are regulations guiding discharge of employees which state that an employee should not be discharged without a just cause. Worker Adjustment and Retraining Notification Act indicates that an employer who wishes to reduce his workforce permanently should give a well-timed notice to his employees of his plan to bring his plant to an end (Bagley and Savage, 2010 chapter 20). d. Recommendation of Resident Expatriate Personnel and Qualities of an Expatriate Employee I would recommend that resident expatriate management personnel be assigned to the prospective project with local technicians trained at the US facility deployed as the operational team. This workforce structure would benefit the residents by improving their household incomes and lifestyles from employment as well as equipping the people with new skills acquired from a developed economy. Further, the resident management personnel already have vast knowledge of issues on international trade laws and regulations, taxation, social responsibility expectations and a good understanding of the citizenry and culture in varoom. Resident expatriates will bring new technical and non-technical skills needed to design and implement successful project strategy including vision and mission formulation, setting goals and objectives, leading people and corporate culture among others. Expatriates will be good ambassadors of proper tax compliance for the betterment of the country and its people. They must embrace professionalism, good communication and interpersonal relations to enhance good coexistence, teamwork, project ownership by staff, minimize conflict as well as promote effective problem solving, initiative, creativity and innovation to achieve organizational goals and for project success end (Bagley and Savage, 2010 chapter 25). Reference Bagley E. and Savage, D. (2010). Managers and the Legal Environment: Strategies for the 21st Century, 6th ed. New York: South-Western/Cengage Learning Read More