This paper examines the appropriate business entity structures and applicable employment laws for two distinct business scenarios. For a birth clinic co-founded by two obstetricians, the paper argues that a limited liability partnership (LLP) best addresses concerns of liability, taxation, and professional control. For an established construction corporation, the paper reviews how corporate structure affects taxation, shareholder liability, and management control. The paper then analyzes how several federal employment laws — including Title VII of the Civil Rights Act, the Age Discrimination in Employment Act, the Americans with Disabilities Act, and the Pregnancy Discrimination Act — apply to a hiring scenario involving four job applicants with varying qualifications and protected characteristics.
This paper focuses on the challenges faced by a start-up business and an established company dealing with labor issues. For the start-up — a birth clinic — a case will be made for the most appropriate type of business entity. The established company is a construction corporation whose business structure will be identified and whose employment law obligations will be discussed. For each business, the best business entity for the given situation must first be determined. That determination will take into account control, taxation, and liability considerations. The paper also reviews the laws and regulations each ownership group must consider, identifies risks the businesses should guard against, and examines how employment law affects the construction company's current hiring scenario.
In examining the birth clinic, identifying the ownership structure and control issues will determine which business entity is most appropriate. The scenario is as follows: Akiva and Tara have just completed all educational and experiential requirements to be licensed as obstetricians. They want to open a birth clinic together and will take out a large loan to finance start-up costs.
The proper business entity for Akiva and Tara is a limited liability partnership (LLP). An LLP provides limited liability to each partner for negligence committed by the other partner, up to the extent of their capital contribution. However, the partner who commits an act of negligence can still be held personally liable for that act. The LLP is specifically designed for professionals — such as lawyers and doctors — who wish to go into business together. Many states require LLPs to carry liability insurance of at least $1 million to cover potential malpractice suits and to insulate the partners from personal liability.
Like a limited partnership, the LLP is taxed using the "flow-through" method, meaning profits and losses pass directly to the individual partners rather than being taxed at the entity level. To form the LLP, Akiva and Tara must sign and execute a document called the articles of partnership, which must be filed with the office of the secretary of state. The articles must state the name of the partnership, the duration of the partnership, and any other information required by the state (Cheeseman, 2010).
The scenario for the construction business requires a review of its business entity — a corporation. This review covers taxation, control, and liability as they apply to corporate structure. The scenario is as follows: Mei-Lin is the hiring manager for Surebuild, Inc., a new construction company. She has advertised a position as a jackhammer operator requiring a high school diploma. The following individuals apply: Michelle, 35, who appears to be pregnant, is a high school graduate, and was formerly employed as a jackhammer operator; Eric, 55, who is experienced with a jackhammer but has no high school diploma; Felipe, 38, who speaks no English, has no high school diploma, but is experienced with a jackhammer; and Nick, 23, a college graduate who is epileptic and has no jackhammer experience.
As noted above, Surebuild, Inc. is a corporation that is recognized by law as a legal person — an entity unto itself in the eyes of the law. A corporation's management is the responsibility of a board of directors, elected by the shareholders who own the corporation. The board of directors sets policy for the corporation and appoints officers to manage day-to-day operations. Together, the elected board members and appointed officers constitute the corporate management team (Cheeseman, 2010).
Most shareholders have little or no say in daily operations and therefore have liability limited to the amount of their investment. The corporation itself is liable for its debts and contracts. However, employees can still be held personally liable — alongside the corporation — for torts committed while performing company business (Cheeseman, 2010).
The corporation files its own tax returns with federal and state governments and with any other taxing authority. Owners are liable for taxes only on dividends received and realized capital gains. Dividends are payments to owners based on a percentage of the share price or a percentage of profits, while capital gains represent any monetary gain an owner receives upon selling shares in the corporation.
Several labor laws may be relevant to the hiring portion of this scenario, though a case could also be made that none of them apply. Surebuild is not legally or ethically obligated to hire any of these candidates; advertising an open position does not legally require a company to fill it at that time or at any point in the future. Nevertheless, the laws that may apply include Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act (ADEA), the Americans with Disabilities Act (ADA), and the Pregnancy Discrimination Act.
These laws protect workers from discriminatory practices in the workplace, including during hiring. Title VII prohibits businesses with more than 15 employees from discriminating based on race, color, national origin, religion, or sex. The ADEA protects employees aged 40 and older from being excluded solely on the basis of age. The ADA prohibits discrimination against applicants on the basis of a disability; if a person with a disability is the best-qualified applicant and reasonable accommodations can be made, that candidate must be hired. The Pregnancy Discrimination Act protects women who are pregnant or have children from discrimination in the workplace (Cheeseman, 2010).
When deciding which type of business entity to use, owners must understand how the various entities differ and how they are similar. It is not always clear-cut as to which entity is the correct choice for a given situation. All business leaders need to be aware of the various employment laws for their own protection against lawsuits from employees and prospective employees. Laws prohibiting discrimination in the workplace are in place to protect workers, but those same laws also provide guidance and protection for employers.
Cheeseman, H. R. (2010). The legal environment of business and online commerce: Business ethics, e-commerce, regulatory, and international issues (6th ed.). Pearson Prentice Hall.
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