For each scenario, answer the questions and make sure to support each answer with, at least, one reference to one of the readings in the background materials: Forms of business organization. (2014). Pearson Learning Solutions. New York, NY: http://www.pearsoncustom.com/mct-comprehensive/asset.php?isbn=1269879944&id=12238 Business torts. (2014). Pearson Learning Solutions. New York, NY. http://www.pearsoncustom.com/mct-comprehensive/asset.php?isbn=1269879944&id=11957 Be clear about how your reading supports your answer. Your paper should be 4-pages total in length: You are the sole proprietor of a small business that is rapidly growing, but you need to raise additional money to fund your expansion. You talk to several friends and family members about making them partners in your business in exchange for investing in your business. However, they tell you that even though they have confidence in your business, they are too busy to be your business partners. They also don’t want to be liable for your debts if you go bankrupt or for any lawsuit that you face. What kind of legal structure do you think you should switch to in order to help persuade your friends and family members to invest in your business? The CEO of a major company gets into an argument with his neighbor for playing music too loud. The CEO gets very angry and ends up punching his neighbor. The neighbor considers a lawsuit, but finds out that the CEO’s company is a corporation and that corporations have limited liability. The neighbor also finds out that this corporation is close to bankruptcy, with zero net assets. Is there anything the neighbor can do? Or is the CEO of a corporation with zero net assets protected from a lawsuit for his act against his neighbor? You and your friend each own 10% of a corporation, but the main founder and CEO of the company owns 80% of the company. You and your friend are each serving on the board of directors of this corporation. But the CEO has appointed eight other board members, including his parents, his grandparents, his wife, and his brother-in-law. You and your friend think this is unfair because most of the board always takes the CEO’s side whenever you have a disagreement. Is the CEO within his rights to appoint a board that consists of his close family members that always outvotes you and your friend? You own a bicycle rental service and you provide a bicycle helmet to each renter. One of your renters returns with their bike after two hours and points out that the helmet that you gave him was defective and, if he had gotten in an accident, he would have been severely injured. This renter threatens to file a lawsuit. After some investigation, you find out that the helmet was a little bit older than some of the other helmets and, perhaps, should no longer be giving this one to customers. Did you commit an intentional tort, an unintentional tort, or neither? Are you liable for any money to this customer? You have are a co-owner of a limited liability company that manufacturers clothes. One of your main products are shirts that are labelled as being made of 100% polyester. However, you are now facing lawsuits because it is later found out that, due to some errors at the factory, the shirts are actually 5% cotton and 95% polyester, and some customers have had allergic reactions to cotton. Furthermore, if the lawsuit is successful, the company will likely go bankrupt with a $300,000 debt to the bank. Did the company commit an intentional tort, an unintentional tort, or neither? If the lawsuit is successful, will you be personally liable for either the claims of the people suing the company or the debts to the bank?

 

Business organizations

 

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Abstract

Business organization is a collaboration of people who have a similar aim of achieving a particular goal. Organizations are formed to earn owners and income while others are non-profitable organization meant for public purposes. Business organization forms are affected by legal abilities and the level of treatment on income tax. These forms include sole proprietorship which is a business organization owned and operated by a single person. The owner has all the rights to profits and his liability to debts in the firm is unlimited. These entails that there are no legal documents required in sharing the profits as all the profit belongs to him. The sole proprietor takes up sole responsibility of all the business transactions and risks. The owners engage in businesses that are not associated to high risks as they put personal assets at risk (Butterfield, 2000)

Limited Liability Company is a business that protects the personal assets of the owner. The assets are protected from financial and personal liability. Limited Liability Companies are set up under the state law which varies in accordance to the business location. LLCs are taxed the same as partnerships and additional fee is required to start up the business. Corporation are structured in a way that distinguishes the business entity from the owner and reduces the responsibilities of the owner. There are two types of corporation the C corporation that have a separate entity in paying tax and the S corporation that tax is paid through various entities. Partnership business involves more than one owner who contribute resources to run the business and share profits. Cooperatives are organizations operated by a group of people known as the members who operate it to gain mutual benefits

 

Business torts

Business torts are referred to as the felonies committed against an organization entity. These torts are assumed to be intentional but in some cases, occur due to negligence and lead to financial losses. Business torts are as a result of unfair practices that interfere with the interest of other businesses.  Torts do damage business relationships, cause other businesses to lose clients or future losses. 

Legal structure

In sole proprietor business, the owner is liable for all the business operations. In convincing friends to joined in the business changing the business to a limited partnership will promote members to invest. Limited partnership will entail that the sole proprietor will bear the unlimited liability in case the business is bankrupt and he will pay for the debts. In case of a law suits the sole proprietor will be fully responsible for said allegations. The friends will become new partners whose liability will be limited to the amount one will invest. In limited partnership, the partners have no voting power and the business operation are controlled by the general partner.

In limited partnership, there is protection on personal asset due to limited liability. The income of partners is not taxed but the profits of the business pass through the taxation process. The sole proprietor will become the general partners who will have full oversight over the business and the friends are silent partners. The partners can agree on adding limited partners to generate more income on capital investment. To engage the partners a partnership agreement will help convince the others to join as they are governed by the agreement.

 

Corporation

A corporation is defined as a legal entity which helps in separating a business entity from its owners. In corporations, the liability is limited and the owners do not stand to suffer. The CEO slapping the neighbor is an act that was committed on behalf of the company. There is nothing the neighbor can do as the company cannot pay for the law suit due to its bankruptcy.  Zero assets on the company does not affect the CEO because he enjoys limited liability. The CEO’s personal assets are protected and cannot be used to pay for the law suit because the CEO’s assets are only liable for his own investment stock. 

Appointment

The CEO employing his family members is illegal as it is a show of nepotism. The corporation is managed by the board of directors without consideration of the number shares a director has. The CEO appointment is not in good faith and is not reasonable. This is because his family members tend to support him even on matters that are not appropriate. His actions of appointment are based on person interest and not those of the corporation. With the support from the family the CEO stands to gain personally as his suggestions are accepted by majority which leads to poor decision making. The relationship ties with the other board of directors are strained because of lack of involvement in making decisions as they are overpowered by the CEO’s family. The board of directors lacks a balance due to nine directors belonging to one family.

Tort

Renting out a defective helmet to the customer is considered an unintentional tort. Unintentional tort happens because of negligence. In this case, the negligence is informing of the defective helmet. The helmet was not accessed before renting it out to the customers. The bicycles have not undergone the monthly maintenance leading to the unkempt nature of the helmet. This is not intentional as there was no deliberate motive behind renting a defective helmet. The customers returned the helmet before suffering from any injury. This entailed that the defective nature of the helmet did not affect him or lead to any injury. Present of no injury or damage shows that there is no liability to pay any compensation. Compensation would have been offered if the customer is injured (Hans, 1992)

Limited Liability Company

Manufacturing of a product involves various processes for a final product to be made. The tort of manufacturing shirts that are 95% polyester and 5% cotton is consider to be intentional.  This is because involvement of cotton in manufacturing is a factor that management has to decide over. There are various actions that have been taken to ensure that there is availability of cotton which shows that there was awareness of the cotton addition. Samples are presented to management for verification before manufacturing begins which shows the management approved involvement of cotton.

Through the manufacturing process cotton properties are discovered but the process continues indicating that the inclusion was intention. The lawsuit for intentional tort entails that the company should pay. The co-owner is not liable for any debt that the company owns. He is also not liable to the lawsuit that the company is being sued for. This is because Limited Liability Company is a separate entity from the owner this indicates that the owner is not affected by the company losses. The co-owner is not liable to the debts of the company.  The personal assets belonging to the co-owner are provide with security and cannot be used to facilitate the company’s debt (Ireland, 2010) 

References

Butterfield, K. D., Trevin, L. K., & Weaver, G. R. (2000). Moral awareness in business organizations: Influences of issue-related and social context factors. Human relations, 53(7), 981-1018.

Hans, V. P., & Lofquist, W. S. (1992). Jurors’ judgments of business liability in tort cases: Implications for the litigation explosion debate. Law and Society Review, 85-115.

Ireland, P. (2010). Limited liability, shareholder rights and the problem of corporate irresponsibility. Cambridge Journal of Economics, 34(5), 837-856.

Lazonick, W. (1993). Business organization and the myth of the market economy. Cambridge University Press.

Simon, H. A. (1979). Rational decision making in business organizations. The American economic review, 493-513.