Business Essay Example: Limited Liability Companies

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Middlebury College
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SUMMARY OF APPLICABLE FACTS: We, Little Mendelson Law Firm, have been contracted by Alphamex to conduct a business entity analysis and suggest amendments as we see fit. As a result, this memo intends to familiarize you with the client and the nature of the business activities that the institution conducts. Since its inception in June 2015, Alphamex has operated as a partnership business entity, specializing in production and sale of human drugs. However, due to the recent economic recession, the heavy taxation, the increased financial risks, and the high competition from other institutions the business entity has recorded decreased returns on investment. Owing to these challenges, and after a careful analysis of the clients status, Littler Mendelson law firm recommends the institution to change into a limited liability company (LLC).

An LLC is a hybrid form of business entity which bears both the features of a corporation and a partnership (Balouziyeh, 2013). The entity exploits the pass-through taxation feature of the partnership form of business along with the increased flexibility in management and operation. In its current capacity, Alphamex boasts of a well-established marketing infrastructure, experienced sales representatives, valuable assets, and a recognized brand name in the pharmaceutical industry. Alphamex should change into an LLC due to the following factors;

Tax flexibility: According to Internal Revenue Code (IRC) regulations, LLCs are not considered as distinctive entities during taxation (Bainbridge, 2001). Instead, members of LLC are given the freedom to choose how they would wish to be taxed. In this method, they can choose single member LLC, Partners LLC, or even file to pay tax as a corporation (The European Company). Such choices reduce the taxation burden by distributing it equally among the individual members.

Less paperwork. LLCs require less paperwork as compared to other forms of business entities. Due to less stringent requirements that need to be adhered to, LLCs are easier to form and maintain in a proper legal standing, thus reducing the unnecessary lawsuits (Eaton, 2007).

Protection from firms liabilities. Finally, members of LLCs are protected from the firms liabilities. As a result, members cannot be answerable for the organizations debts or court convictions. Moreover, creditors are barred from seeking personal assets of LLCs members should the firm become bankrupt. Such a shield is not provided in the partnership form of business organization.

To change the form of business ownership from partnership to LLC, Alphamex should adopt the following steps

Review the business name and adjust if need be

File the articles of incorporation

Prepare the operating agreement

Obtain an Employer Identification Number or a Federal Tax Identification Number.

Obtain the necessary business licenses

Publish a notice to the public informing them of the intent to form an LLC.

INDEPENDENT CONTRACTOR AGREEMENT: To reduce the overhead costs, the CEO of Alphamex reported that the firm hires contractors after every two months to conduct general overhaul and maintenance of the production unit computers and machinery. As a result, Littler Mendelson law firm would wish to advise the client, (Alphamex) to adopt an independent contractors agreement. To ensure that the contract is enforceable under the IRS regulations, the following elements should be included in the agreement,

The agreement should define the relationship between the contractor and the hiring institution (Espinasse, 2014). The terms of the agreement should dictate that the two parties are not entering into an employer-employee relationship but rather in a short-time contract that will automatically be terminated after the period agreed by the two stakeholders.

Define the duties and contract terms. The terms of services and the duties assigned to the independent contractor should be documented. Essentially, the date of commencement and of ending the contract should be stated.

Mode of payment. The contract should agree to the terms of paying the independent contractor. The rate can be measured hourly or by a flat rate depending on the agreement between the concerned parties.

Protection and Confidentiality. The independent contractor agreement should be able to prevent a conflict of interest by ensuring that the contractor remains loyal and confidential to the hiring firm (Espinasse, 2014). It should prohibit the contracted firm from leaking the firms sensitive business information. The manufacturing firms face a liability once their product leaves the production chain

ETHICAL ISSUES: Similar to other organizations engaged in drugs production, Alphamex faces numerous ethical concerns. The firm should ensure a safe and conducive working environment. Remarkably, the presence of hazardous chemicals and raw materials pose a safety peril and thus it is legally and ethically mandatory to abide by the established regulations to avoid litigations (Eaton, 2007). Secondly, the manufacturing process emits waste products. The firm should abide by the established legal restrictions that govern the production process while limiting the level of environmental pollution (Eaton, 2007). Alphamex should ensure the safety of the products once they leave the factory. Moreover, the firm should abide by taxation policies, rules and regulations to avoid unnecessary lawsuits. Finally, the products should meet the quality standards, and they should have been tested to ensure they are safe for human consumption.



Bainbridge, S. M. (2001). Limited liability companies: A primer on value creation through choice of form. SSRN Electronic Journal. Doi:10.2139/ssrn.250164.

Balouziyeh, J. M. (2013). Limited liability companies. A Legal Guide to United States Business Organizations, 99-102. Doi: 10.1007/978-3-642-37907-9_11

Eaton, M. (2007). Ethical issues and challenges facing the pharmaceutical industry. Comprehensive Medicinal Chemistry II, 709-723. Doi:10.1016/b0-08-045044-x/00026-2

Espinasse, P. (2014). Using an independent adviser or consultant. IPO Banks, 7-10. Doi: 10.1057/9781137412942_2

Public and private limited-liability companies referred to on Article 2(2) of the Regulation. (n.d.). The European Company, 530-532. Doi:10.1017/cbo9780511495090.022



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