Business scenarios and case study applications

Business Scenarios

In business, one of the major challenges facing most organizations is: determining the kind of entity that will be established. The different cases that we are examining (the bar / restaurant, the extermination business and the construction company) are highlighting how there are variety of laws and regulations for each entity. To fully understand the most relevant aspect of the law that applies to each one requires: conducting an analysis of the various organizations. Once this takes place, it will provide the greatest insights as to what specific factors could be affecting each of the various businesses.

Restaurant / Bar

The restaurant / bar will benefit from: establishing a private placement offering. This is when you are selling an investment opportunity to a limited number of investors, without taking the company public through the traditional avenues (such as: IPOs). The reason this was selected, is because it can provide a number of different benefits. Under the Securities and Exchange Act of 1933 Section D, it states that private placements can be established to: provide the majority owners with operational control of the business. The various taxation issues are deferred, until the time that investor begins to start receiving some kind of an income from their investment. Once they begin accepting the money, is the point that they will have to pay income tax on the amount (as ordinary income). Liability issues are reduced dramatically, as investors in the private placement will have limited amounts of authority (as far as of: operational control or decision making). As these kinds of agreements are designed to provide businesses, with a partner who can give them additional working capital. The helps the entity to protect itself against possible liability issues, by giving private placement investors no operational role. Instead, they are only interested in the long-term profit potentials of the business. ("Astarita," 2009) (Eadie, 2011)

The Extermination Business

In the case of the extermination business, the best legal structure to establish would be: a franchise. The reason why is because, this will allow the wealthy investor to open a chain of exterminating business across the country. While at the same time, they can be able to receive a fee for the services they are providing. As far as control is concerned, management will be able to influence the franchisees to varying degrees. Under FTC regulations titled the Franchise Rule, investors are given greater amounts of operational control. As this will depend upon the wording in the franchise agreement, where it will affect what policies and procedures will be implemented at the different locations. In the case of taxation, the business owner is responsible for reporting their portion of the profits that they are receiving, as ordinary income under form 1099. This is when self-employed individuals will report their profits from all activities they are providing to customers. The liabilities are limited, as the franchise agreement will spell out the responsibilities of both parties. The possible risks that this kind of business must protect itself against are: lawsuits from the actions of franchise owners. (Schied, 2009)

Construction Scenario

In this case, the best option is to establish a limited liability company. This is when the overall amounts of responsibilities are limited to: the percentage of ownership of the different shareholders. As a far as control is concerned, this means that management must carefully monitor who they are hiring to work as the jackhammer operator. The reason why, is because of the possibility of the on the job injuries that are work related. Taxation issues are limited mainly to the percentage of ownership of the various shareholders. As all income from the business will be divided and reported on the individual tax returns of the business owners. The possible liability issues include: workplace injuries, negligence and the loss of income that an employee can claim (in the event they are injured). To protect itself against the different risks, the business needs to have policies in place that will monitor the activities of managers, to ensure that they are following all regulations. This will help to prevent any kind of frivolous lawsuits from being filed against by the company. At the same time, this corporate structure will limit the amounts of protection for the business owners to: their percentage of the company. ("What is a Limited Liability Company," 2011)