Running head: BUSINESS ENTITIES, LAWS, AND REGULATIONS

Business Entities, Laws, and Regulations BUS415 May 28, 2012 Audrey Myer

Running head: ONE SAMPLE HYPOTHESIS TESTING

Business Entities, Laws, and Regulations Starting a new business is an exciting but challenging adventure that requires alot of legal considerations before taking the plunge. This paper examines three different types of business scenarios, which addresses legal implications of starting a successful business. More specifically, the first two scenarios provide discussions about the proper business entity, taking control, taxation, and potential liability issues arising from the prospective business. The third scenario addresses the employment laws and regulations with which the business must comply in making a decision. Restaurant/Bar Scenario Lou and Jose have a strong desire to own a sports bar/restaurant but like many entrepreneurs, they lack start-up capital. Fortunately, a wealthy investor named Miriam is willing to provide the capital in exchange for a percentage ownership but will not actively participate in the entitys management. The appropriate business entity for this scenario is a Manager-Managed Limited Liability Company (LLC), which designates Lou and Jose to act as managers and has the legal authority of the LLC. Meanwhile, Mariam remains the silent partner who does not actively manage or otherwise operate the business of the LLC, but reap the rewards of his investment. In large part, an LLC structure is most appropriate for the type of services and products the business intends to provide to the public. Because a food and beverage establishment typically engages in risky activities, Jose, Lou, and Mariam would want a business entity that provides personal liability protection. An LLC entity shields personal assets from business debts and claims, such as costly lawsuits arising from injuries on the premises, food poisoning or serving excessive alcohol that resulted in a fatal car accident.

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The best tax structure for this business is partnership with flow-through taxation as this method provides the greatest tax relief for all of the members. When taxed as partnership, each partner is separately and individually liable for the gains, losses, credits, and deductions of the LLC. The flow-through taxation avoids double taxation, and losses may offset income that a member may have from other income sources (Cheeseman, 2010). To minimize legal liabilities and partnership conflict from occurring it is important in a manager-managed LLC to have an LLC Operating Agreement. An Operating Agreement should specify member roles, distribution guidelines, and operational and taxation rules. Managers should maintain their duty to act in the best interest of the LLC. Before Lou and Jose can open the doors to their new sports bar/restaurant they must follow stringent laws and regulations and obtain the appropriate licenses and permits to avoid fines and other legal troubles. For example, they must familiarize themselves with the state liquor laws regarding what type of liquor can be sold, the selling/serving hours, and other limitations. Additionally, they must establish proper guidelines that meet the standards of Health Department laws and regulations in food handling to ensure food safety. Professional Practice Scenario Two recent Obstetrician graduates, Akiva and Tara, have high hopes of opening a birth clinic together. They plan to borrow money from a creditor to cover the start-up costs. The appropriate business entity for this scenario is Limited Liability Partnerships (LLP) because it provides all of the owners with limited personal liability and is well suited for businesses involved in professional practice. There are no general partners in a limited liability partnership; therefore, Akiva and Tara are not personally liable for the other partners malpractice or other legal issues.

BUSINESS ENTITIES, LAWS, AND REGULATIONS

Generally speaking, they both have equal control in managing the business but are not responsible for the debts and liabilities of the other partner. Similar to the first scenario, Akiva and Tara may choose the flow-through taxation method by filing as partnership and dividing the loss and profits. Additionally, before hand, they should establish a Partnership Agreement to avoid future conflicts in which it should address the terms of the partnership, capital contribution, profit and loss distribution, management duties and restrictions, and termination and arbitration rules. There are numerous complex issues to consider when opening a medical practice, such as health care laws and regulations. Akiva and Tara must recognize these issues with the goal of making the transition run more smoothly and limit potential exposure associated to opening a medical practice. For example, as health care providers Akiva and Tara are expected to comply with HIPAA rules as well as other safeguards to ensure against other lawsuits. They should develop a compliance plan with regards to the many laws and regulations that govern their medical activities. Construction Scenario Surebuild, Inc. has recently advertised a position for a jackhammer operator with one requirement in which the applicant must have attained a high school diploma. Four applicants apply for the position, but before making a decision, Mei Lin, the hiring manager, must take into consideration the employment laws and regulations to avoid any legal risks. The United States Equal Employment Opportunity Commission enforces federal laws to prohibit job discrimination against race and color, sex, age, disability, religion, sex orientation, etc (EEOC, 2012). Michelle, the first applicant, is clearly the most qualified as she has a high school diploma and jackhammer operator experience. However because Michelle appears to be pregnant,

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Mei-Lin forsees potential risks with hiring Michelle. Mei-Lin must remember that Michelle is protected under the Pregnancy Discrimination Act. This law makes it illegal to discriminate against someone who is pregnat (EEOC, 2012). Unless Mei-Lin has other valid and legal reasons to deny Michelle, Michelle should be considered for the position. The second applicant, Eric, 55, is an experienced jackhammer operator but has not attained a high school diploma. Eric is protected under the Age Discrimination in Employment Act of 1967 (ADEA), which prohibits employers from discriminatig against applicants who are 40 years old or older (EEOC, 2012). However, Eric is unqualified for the position as he does not meet the education requirement. The third applicant, Felipe, 33 is an experienced jackhammer operator, but does not speak English and has not attained a high school diploma. Although Felipe is protected under the Title VII of the Civil Rights Act for his language challenges, Felipe is unaqualifed as well because he does not meet the education requirement. Nick, the final applicant, is a 23 year old college graduate. He does not have any experience with operating a jackhammer and has a medical condition. Nick is protected under Title I of the Americans with Disabilities Act, which prohibits employers from discriminating against a qualified person with a disability (EEOC, 2012, para. 4). Nick is indeed a qualified person as he meets the one and only requirement education. Although Nick does not have the experience as Michelle does, Mei-Lin must consider him equally because she did not list jackhammer operator experience as a requirement in the job advertisement. At this point, it would be wise to conduct a first and second interview with both Michelle and Nick to decide who is best qualified for the position. Conclusion

BUSINESS ENTITIES, LAWS, AND REGULATIONS

Starting a new business is exhilirating but requires alot of determination and familiarazation of the legal aspects. Deciding on the legal structure of the business should not be taken lightly. Some things to consider when choosing the right entity is the number of owners and control, liability risks arising from the business, how much protection from personal liability they will need, and how they would like the business to be taxed. Additionally, every business owner should familiarize themselves with employment laws to avoid legal risks as well as obtaining the proper licensing and permits before conducting any business.

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Reference Cheeseman, H.R. (2010). The legal environment of business and online commerce: Business ethics, e-commerce, regulatory, and international issues. (6th ed.). Upper Saddle River, NJ: Pearson Prentice Hall. EEOC. (2012). Retrieved May 27, 2012 from http://www.eeoc.gov/laws/statutes/index.cfm