Analysis of Business Law - Case Study Example

Business Law Case Study According to Mallor (933), a limited Liability Partnership is a partnership whose partners have applied and qualified for limited liability status. The best business entity for Aric, Jorge, Virginia, and Jackie’s partnership is the Limited Liability Company. LLCs have a number of advantages which will guarantee the success of the firm. The most important is the fact that the LLCs are regarded as a different legal entity and thus its liabilities are separated from the liabilities of the owners. When partners start an LLC, they can agree on how the business is going to be run. However, even without doing so, there are some default legal provisions which help in making sure that every partner benefits the most according to his or her contribution. For Aric, Jorge, Virginia, and Jackie, the importance of this is the fact that they can all agree how to operate the firm and they could delegate the daily managerial functions to employees. This will help them to continue with their businesses elsewhere, only contributing their executive guidance and leaving the employees to manage the business. In the partnership agreement they will sign, they will agree on who does what and how the responsibilities are shared. Those willing to work full time can receive a salary as an employee and then get their share of the returns based on their equity share. The firm can also have an employment policy in order to take care of Jorge’s concern that his money and that of his clients would be abused in paying out hefty salaries. In the agreement that the LLC will sign, all the issues with regard to the concerns of the four partners and the other nine investors that Jorge is brining will be taken care of. Article I: Organization This will provide the various matters of the organisation such as the title of the business, the location of the business and the main enterprise of the business. This is important because these factors affect the way a business will be operated and how it will be operated. Article II: Financial Matters This will consider all the financial matters with regard the following; Contributions This will outline how much financial contribution each and every member will contribute. This will be defined in terms of how many pounds they contribute. Any contribution of non cash capital will be defined and its value assessed and agreed upon buy all members. It will also outline the issues regarding what should happen if the members are unable to contribute their sum as listed above. This will help in guaranteeing that there are no loopholes in the financial structure of the businesses. Article III: Tax Issues As Willis (78) points put, one of the advantages of a limited liability firm is that it gives the owners the kind of taxing scheme they want for the incomes they get form the business. The members can, for instance, chose to be taxed at the individual level or at the LLC level. If Aric, Jorge, Virginia, and Jackie chose to be taxed as individuals, this will outline the ways in which they will be taxed. Choosing to be taxed at the individual level will help them to avoid double taxation. This article will also outline the capital shares and how much (in terms of percentage) each of the members has in the firm. It will also outline the dividend policy which will determine how the profits will be shared, such as how much of the profit should be paid out to the investors and how much should be reinvested into the business. It will also address the issues of any members who may want to withdraw their membership and in effect their Capital contribution and other types of contributions. In this regard, the members this will also determine if members will be allowed to withdraw and if so, how they are allowed to sell the shares. It will also look at the various issues regarding the growth of the firm’s capital and how the shares of the firm will grow. It will also determine if the members can sell part of the shares or all of their shares in the firm and who they can sell it to. This will take care of the ownership structure issues. If the owners feel that they want to retain a closed ownership, they may determine that members wishing to sell their shares can only sell the shares to the existing members. In such a case, the dynamics and modalities of this will have to be looked upon. Article IV: Employment This article will outline the employment requirements of the firm. It will also outline the various executive staff and their roles as well as their remuneration packages. It will outline the HR strategy the firm will want to use. By setting the standards of the employment policy in the firm, this will take care of Jorge’s concern about his investment (which is the biggest in terms of cash contribution) being used in paying off salaries to employees who are not effective. The employment policy should, therefore, take care of the employee performance issues. Article V: Management This article will look at management issues and how the business will be managed. The managers of the business will be as outlines in article IV. The article will also outline the responsibilities of the employed managers, the owners of capital and how each of them is required to contribute in the decision making. The decision making power among the members may be divided according to the capital ownership shares (Constance 14). This would mean that every share will have one vote. Alternatively, the decision making power can be shared in accordance to expertise. Those who have expertise in specific areas can be given the biggest decision power in their area. If the decision making is shared according to the share ownership (one share one vote) this will take care of Aric’s concern because he has the largest share of the firm which would give him the most decision making power. However, since his share is still below the 51 % threshold, he still would have to depend on at least another member in the partnership to pass a decision. By outlining the responsibilities of each of the members, this will take care of Virginia whose concern is that she might be tied up working for the business and not be able to work for her other projects. Article VI: Transfer of shares in case of death of any of the members People don’t live forever, yet the firms they start live forever, or indefinitely. In case of death of a member, there are many issues which will come up. These will be as follows; Deciding whether the firm will continue; the members can divide to discontinue the business of a major member of the partnership dies or is no longer available for the business. Transfer of the deceased’s estate: this article will look at the issue of transferring the shares of the diseased person. Whether the remaining members agree to continue the business or not, they have to determine the value of the firm in order to determine the part value of each member. In case the remaining members want to buy off the shares of the diseased individual, they will require to know the value of the shares of the firm in order to know how much to give to the diseased person’s beneficiary. This article will, therefore, outline the methods that will be used to value the firm, not only during the event of a dead member, but also at any time when such a need arises. This will also consider the fact that a firm grows in value as time goes and that this growth in value is in most cases subjective rather than depending on the physical assets of the firm. The value of intellectual properties gained by the firm is one that is very subjective and this article will have to outline how to measure it. Article VII: Dissolution As Mallor (48) says, although all businesses are started to stay in operation indefinitely, some situation may arise where the business has to be dissolved. This article with regard to such a business will outline the situations under which the business may be dissolved. It will also outline the cause of action upon such dissolution. This article will outline the various situations which may warrant dissolution of the firm. It also outlines the rights and benefits, as well as responsibilities of each individual in the event of dissolution. Article VIII: Miscellaneous This will take care of any miscellaneous issue that may not have been tackled in the above articles. It will also outline how each of the above provisions will be taken care of in terms often implementation. It will also look at any loopholes and provide a remedy in case any issue arises in the course of managing the business which is not taken care of in the articles. Works Cited: Constance, Bagley. Managers and the Legal Environment: Strategies for the 21st Century, 7th Ed. London, UK: Cengage Learning, 2012. Print. Mallor, Jane. Business law and the regulatory environment: concepts and cases. Boston, MA: McGraw-Hill, 2011. Print. Mallor, Jane, et al. Business Law: The Ethical, Global, and E-Commerce Environment, 4th ed. Boston, MA: McGrawHill , 2010. Print. Willis, David. Business Basics for Dentists. Hoboken, NJ: John Wiley & Sons, 2013. Print. Read More