Building upon your Module 1 SLP, suppose that your brother’s lemonade stand business has grown substantially. After signing the agreement with Peter, your brother’s lemonade has become so popular it is being sold at lemonade stands all over the neighborhood. Your brother has named himself “CEO” of the lemonade business, Peter has become his business partner and “Chief Operating Officer,” and they have five of their friends working for them. While their business is booming, they sometimes argue about the share of profits. You are also concerned that, now that their business is rapidly growing, they may face problems of potential lawsuits and liability, and you wish for your brother to come up with a formal legal structure for his business. Carefully review the background materials on business organization and tort law. Then, write a 2- to 3-page paper discussing what kind of legal structure your brother’s business should adopt and potential liability risks that he faces. Specific issues to be covered in this paper include: What kind of liability might your brother’s business face? Refer to the Pearson tutorial on business torts in your answer. (Link for background materials are attached with the e-mail). What kind of legal structure should your brother adopt for his business, and why? Will this structure you recommend reduce his liability? Refer to at least one of the required or optional readings from the background materials page to support your answer. (Link for background materials are attached with the e-mail).

Legal structures and liabilities

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Legal structures and liabilities

Abstract

Liability is referred to as financial obligations which occur in the proceedings of a business operation. Liability is also commonly known as the act of being responsible for particular aspects such as money or services that belong to another party. Settlement of the liabilities is usually in form of economic benefits. In most organizations, there are current liabilities which include debts that should be paid in a short period. Long term liabilities entail liabilities debts that are payable in a long duration of time. When liable persons do not take up their obligations there is occurrence business torts.

Torts are felonies committed against another business and cause damage.  Torts are categorized in to three groups: Intentional torts that arise from injury caused by someone who had clear intentions of causing harm. Unintentional torts caused by negligence where by the person who caused injury did not take careful measures. Strict liability is also a tort that occurs even when reasonable care has been observed. The strict liability takes care of activities that are abnormally dangerous and have no provocation for them to happen. They are assumed to possess inherent risks and are settled through compensation.

Torts are solved through lawsuits where by the court of law is involved to listen and offer judgment on a felony committed. The suits are presented by the complaint who has suffered from injuries caused by a defendant’s operations. The courts then proceed to view the evidenced presented together with interviewing witness for them to get a clear background of on issue and offer the right judgement. Upon judgement of a specific lawsuit the defendant pays compensation if one is found guilty.

Lemonade business liability

The lemonade business stands to suffer front the strict liability. This is because the strict liability concerns the action its self but not the person who has caused it. The constant arguments at the lemonade business with Peter may contributes to the production of low quality lemonade. Arguments are caused by misunderstanding within the organization. Self-appointment of the CEO is a major factor that may bring conflict with the COO, Peter who is a co-partner. The misunderstandings are as a result of different opinions on how the profit should be shared as each partner has contributed to the operations.

  The argument take up a lot of time that should have been used in production leading to low volumes of productions. To counter the low production the business may opt to produce the lemonade in a hurry to counter the demand. The hurried production does not give the lemonade humble time to cool leading to fermentation once it is packed. This causes harm to the customer’s health, though all the required steps in production were followed. Arguments also disrupted cooperation within the business is and everyone will work on their own terms without consulting each other. Lack of consultations leads to production of defective lemonade that is harmful to the customers.

Customers who are affected by the lemonade are likely to sue the business and a law suit is presented. Through the lawsuit, the court is likely to order for the business to compensate for medical bills that the customers have incurred. The judgement is in consideration to breach of duty whereby the business did not uphold the right care standards required in making the lemonade. The compensations increase the business expenses and may lead to bankruptcy (Zamore, 2016)

Legal structure

A general partnership is the most suitable business structure for the lemonade business. A general partnership entails that the business will be operated by the CEO and the COO as co-partners. Partners in general partnerships have unlimited liability to the business obligations and debts. A partnership agreement helps to govern the business as it has the stipulated terms that all partners should follow hence less misunderstanding. In absence of one partners, one can perform on behalf of the other which promotes business continuity (Sahlman, 1990)

In cases the partners want to dissolve the partnership, the dissolution process is relatively easy and fast. In partnership structures the profit is shared equally in regard to each partner’s stock which will minimize arguments in the lemonade business. By forming the partnership, the liability on the CEO will be reduced because partner’s income is not taxed but is passed through to the profits and losses of the business. Also, liability is shared between the two partners, both stand to suffer from the losses and gain equally from the profits. A major advantage of partnerships is that they are easy to form and required less financial resources. With this the two partners do not incur a lot of expenses in legalizing their business.

  The five friends working at the business are likely to receive incentives of being offered partnership in the business. The incentive strategy is a competitive advantage as it attracts employees with high expertise as they aspire to become partners. Partnership are relatively good legal structures but face problems in change of ownership because a new partnership has to be established. Also, partners stand to suffer from mistakes of other partners due to the unlimited liability nature of the structure. 

References

(August). Retrieved April 19, 2017, from http://www.pearsoncustom.com/mct-comprehensive/asset.php?isbn=1269879944&id=11957

Kelley, G. S. Basic Legal Principles. Construction Law: An Introduction for Engineers, Architects, and Contractors, 15-28.

Sahlman, W. A. (1990). The structure and governance of venture-capital organizations. Journal of financial economics, 27(2), 473-521.

Zamore, J. D. (2016). Interference with Lawful Business (Vol. 2). Business Torts.