Sole Proprietorship, Limited Partnership, and S-Corporation - Paper Example

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Wesleyan University
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Dear Fred and Sally,

Im pleased to assist in answering the questions. I did some research, and Ive come up with few ideas for you.

Business Entities

In your situation, you have three options to expand your business: sole proprietorship, limited partnership, and S- Corporation. First, the sole proprietorship is the most popular among small business owner because it is easy to set up or take apart. This business entity is beneficial as you can be able to start a sole proprietorship immediately. Moreover, a sole proprietorship is inexpensive and easy to start you can flexibly blend some business ideas as well as personal assets. Nevertheless, as a result of the ability to mix business ideas and personal assets, you are at a risk of unlimited personal liabilities like debts and losses. The second entity is the partnership which is also a great option because it will make Sam become a partner of the business and can access to the income and expense of the company. There are few advantages of having LP, creation is easy, the income of the business is personal income, and business losses can be deducted from taxes. Nevertheless, one of its main shortcomings is that you will be held responsible for any loss as well as that of your son in most of the times.

The third option that can be good in your situation is S-Corporation. This entity is more attractive to small- business owner because it helps you have some appealing tax benefit and provide you with the liability protection of a corporation. The advantage of this entity is that it creates pass-through taxation for you and elimination of double taxation of income.

Product Liability

The industry selected in the case study utilizes product liability law which is important in addressing issues regarding product riskiness and defectiveness. The product produced is Freds Miracle Cough Syrup which should be handled with care since any defect will be noted by the consumers very quickly. In this law, they focus on the responsibility of the product which means the law requires the owner or manufacturer need to be responding to the product. Therefore, your products need to meet the expectation of the consumer. As you mentioned, your cough syrup can cause a severe reaction if taken in conjunction with aspirin so, you need to make sure to print in big letters warning and the description use on those bottles to protect yourself from lawsuits. Different instances of product liability laws have emerged with the most notable ones being General Motors Co. (GM) IN 2014. During February 2014, it was noted that the car models manufactured had faulty ignition switches. The faulty switches had negative effects since it could cause the car engine to be shut off as well as deter the airbags from inflating. Also, the faulty switches disabled the brakes and power steering. Consequently, the faulty ignition switches have caused 31 car accidents and at least 13 deaths although there are other causes that could have been linked to the case. As a result, GM has recalled more than 26 million automobiles as well as allocating $400 million for compensation for injuries and deaths that might been caused by the faulty ignition switches.

Therefore, I cannot stress enough how important it is to warn your clients of the reaction and any side effects of the syrup. Therefore, I want give some advice to protect your business from product liability law. First, you need to design a proper packaging and disclosures, discuss limited consumer warranties (these disclaimers may not prevent all product liability claims, but they can help mitigate the damage when something goes wrong. Second, you should choose insurance (all members of the distribution chain should maintain adequate insurance coverage to protect them from a substantial product liability claim. Final, you should have well-kept records of works that examines the product flow from process of manufacturing and quality control steps. The frameworks set have enabled customers to give customer feedback. Following these step, can you help you to minimize the potential to get the lawsuit.

Agency Relationship

According to your information, Sam will be involved in the business, so we need to discussion the agency relationship and some elements and characteristics of an agency relationship to Sams actions in the business. This relationship can be called Principal-Agent Relationship, this relationship is defined as the arrangement between the owners whereby one entity legally appoints another entity to represent it and act on its behalf. Usually, the principle-Agency relationship is founded by trust whereby the two parties have to trust each other and comply with the contract law principle. In this situation, you are the main owner and producer of the cough syrup in the market and your son Sam is in charge of the course of distribution and selling of products in various market centers (Beale, Tallon & Rutgers, 2010). In this situation, your product is under the product liability, and you are directly liable for the actions, and any informational provision relating to the commodity while Sam is the agent, therefore, the agency relation is created. For that reason, I recommend that you and Sam should develop excellent communication and act professionally to avoid the breach of the product liability.

Real Property

Real property includes land and everything that is permanently within it. The land comprises of properties that cannot be moved and include houses, trees, buildings, minerals and bushes which are fixed to the land that it comprises. Also, the real property comprises of rights, benefits, and buildings that are considered legally to be attached to the real property. However, it should be noted that the real property consists of particular rights to the air above land, to exploration and mining in the ground, to buy real property, to live within the real property within the period, and more. In my knowledge, you are planning to manufacture and bottle the syrup on your farm, so we have to look at some issues that can rise with real property. According to the laws governing the real property land, the real estate is one of the real property hence the land, the houses and the plant make up the immovable property (August, Mayer & Bixby, 2009). The permanent structures are hence part of the real property which belongs to you and your family. Simply put, we need to establish the extent of your ownership of your family farm to determine the rights for youre to use it for your business.

Also, the registration of the business should be located in the environment where it is safe and secure and can be accessed by the public. Home-businesses can be tricky in such situations since one cannot differentiate the buildings used for business and that for personal use. Therefore, the details regarding registration can be problematic especially and the business will face legal issues.


We ought to be able to find out whether the production of the syrup would need any transfer of property. No individual can use land without any restriction as the creed of wastage forbids land abuse. If you are the only property owner, then it will be much easier. If anyone else in the family has rights to this property, we have to make sure it will not cause any issues. As you mention, you family stay and do business in this property, and you remain to have the patent rights of production despite increasing the level of production (Beale, Tallon & Rutgers, 2010). Therefore the manufacture of the cough syrup should not be transferred from the family land. Because of the law of real property use gives a legal right to own use which is consistent production reasonable production and use of land can be give you a legal right to continue with production and use of the land. Setting up of the structures ensures that there is protection for continued production and land use. I would recommend rights of possession of buildings for suggesting possessory right for your business on the building for making the syrup. Should you transfer ownership, you will not be personally responsible for taxes and other liabilities, but the tenants would be liable. Mostly, a piece of your land will be rented to your business. Zoning regulations mentioned under Real Property also applies.

Personal Property

The use of your vehicles for the distribution of the medicinal commodities can bring some issues of personal property. Since your vehicle is one of the parts of the movable property in the course of its utilization, any awful accident that can include Sam's van when conducting deliveries can result in a serious problem. According to personal property, the vehicles are not fixed property like land which real property hence the concept of personal property arises. There are several implications which should be put in place in the course of the use of the personal property. To protect you from it, you should ensure that there is the good cover of the vehicles to be in working conditions, eliminate any potential dangers and promote good working contract of assured productivity. It is important that Sam takes measures when conducting deliveries while driving since the even minor problem can cost you both a large amount of money. However, I don't see anything amiss with Sam utilizing his auto for business. He simply should keep an exact log of mileage for each delivery. The vast majority of people utilize the standard mileage rate since they would prefer not to waste time with record keeping. However, the standard mileage has some cons- you get a lower deduction utilizing the standard mileage rate than you would with the real expense technique which in this case you deduct the actual costs incurred during the year plus depreciation of the repairs and gas (as per a tax code plan). Sam's deductible expenses can include gas and oil, maintenance and repairs, license charges, tolls, insurance, and even auto washing. When he utilizes the auto for individual use, he should multiply the real expenses incurred by the percentage of use for business purposes (Nolo, 2016).

Liability Issues

As I mentioned early, the use of Sams car in the business can bring some issue of property liability even the car only use for distribution of your product. In this case, the liability arises from the fact that the vehicles are part of the personal property. Personal property should be operated with due care and avoid cases of negligence, causes of accidents or breach of social contract. You will be hence liable for any case of shortcoming and cases of the accident which can cause by the vehicle. Also, this will increase you're expensive for your business.

The employers are held liable under the doctrine of respondent superior due to the negligent acts of employees in the area of work. Notably, the employees negligent actions should be during employment and must be approved by the employer. In essence, there are differences between employees causing a job-related accident in the course of employment and one that causes a problem that is not related to work.

Estate Planning

The next problem is very important and sensitive because the business is growing and expanding, there is need to have a written and legal plan of action in relation identification of goals and objectives of the business (Beale, Tallon & Rutgers, 2010). This will help you to have a clear legal framework for the transfer of the estate to the children in case of death or change of ownership also you need to prepare the list of assets and liabilities attached the beneficiaries and management. Another thing, you need to consider is the taxation and fees the estates as well as the testamentary trust and insurance schemes about th...

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