Business Case Study (Essay Sample)

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Case Studies
PART ONE
Introduction
The business structure one selects influences everything, including the daily operations, taxes, and the personal assets at risk. The idea is that one should select a business structure that offers the appropriate balance of legal benefits and protections. Mary and Gina have chosen to establish a business, and each one of them has reservations. Due to Mary's concerns over Gina's history of unpaid debts, and given their wishes to gain full control and equity in the business, the following business structures will suffice: Partnerships. In this case, we will compare the Limited Liability Company (LLCs) to a Corporation.
Analysis
* Partnerships
Partnerships are the best structure for two individuals owning businesses together. There are two common types of partnerships: limited liability partnerships (LLP) and limited partnerships (LP). The limited partnerships have a general partner with unlimited liability, while other partners are limited. Partners with limited liability have restricted control over the organizations, shown from the partnership agreement. These profits are passed to the personal tax returns. Limited liability partnerships are the same as limited partnerships. LLP safeguards every partner from debts against the partnerships.
* Limited Liability Company (LLCs)
The members of an LCC manage the organization themselves and fully participate in the daily operations while having limited liability.
Advantages
The law considered the incomes from the LCCs as the members’ income. Therefore, members of an LCC avoid double taxes on business income (Plank 993). For instance, if Mary and Gin have started profits of $100,000, the LCC does not have to pay corporate tax on the income. Instead, both Mary and Gin will pay a tax of $50,000 as the personal income tax. Another advantage of the LCC option is its flexible distribution of income. Earnings from the business are not distributed equally or based on the capital contributions of every partner.
Under the LCCs, Mary and Gin can freely divide the business profits in the rations they agree upon. However, the ratio must comply with the rules on income distribution in partnerships under the Internal Revenue Service. LCCs are also simple in structure. In addition, LCCs are easy to form and operate. The law demands that when forming an LCC, the company must file the Articles of Association and draft an Operating Agreement that defines the organization's procedures and policies, including the members' rights and duties and the accounting methods used (Reiser 921). Finally, establishing the company as an LCC helps Mary and Gin direct control the business. Every member is allowed to directly manage the organization and take the company in the direction they deem best.
Disadvantages
Raising capital to establish an LCC is difficult, mainly because it has two sources to raise funds like a corporation: debt and equity. When raising money through equity, Mary and Gin will sell ownership stakes for the business and add an extra member, which means there is another member with which the two will share with profits. Mary and Gin must share the decision-making authority with the additional member. If Mary and Gin avoid this route altogether, they must search for investors, which is daunting. LCCs are unpopular, and persuading potential investors to invest in the business is equally challenging (Nugraha et al., 173). An alternative option is debt financing through bank loans, but they also have caps on the amount the partners can take. In addition, debt financing makes the business commit to paying regular interest rates from the profits. There is also the disadvantage of no perpetual existence. Many States demand that business owners establish a limit for the organization’s existence. If this clause is absent, an LCC does not exist after a member dies or withdraws from the organization. A way out is to transfer ownership stakes, but it has enormous restrictions.
* Corporation
The business is separate from the owners in a corporation, where ownership is readily transferred through purchasing and selling stock. It protects owners from personal liability whenever there is legal action (Akhmetshin et al., 1528). Through the corporation, Mary and Gin will own the company but give the ruling authority to the board of directors. The board of directors will undertake the company's daily operations. Mary and Gin will each own a percentage in the company, depending on their shares.
Advantages
Corporations protect from personal liability better than any other business type. When the company is sued, Mary and Gin are not personally accountable for the company debts. Corporations also offer business perpetuity and security. Ownership of corporations depends on the stock ownership, which gives more flexibility, unlike other business types, to transfer ownership and ensure the business survives in the long term (Akhmetshin et al., 1528). There is also access to capital and tax benefits. Corporations are done through publicly traded stock, which means funds are easily raised from selling stock. Depending on the distribution of income, corporations provide tax benefits.
Disadvantages
Before Mary and Gin choose a corporation, they must understand some disadvantages, including the lengthy and challenging application process. There is a lot of paperwork for properly deterring and documenting the organizational details and information about the membership. These include drafting and maintaining corporate bylaws, appointing the board of directors, creating shareholders' ownership change agreements, and issuing stock certificates. Corporations are also subjected to rigid protocols, structure, and formalities (Akhmetshin et al., 1530). Mary and Gin will follow heavy regulations and many formalities to maintain their corporate status. There is also the case of double taxation, where the business income is taxed twice both at the shareholder and entity levels. Finally, Corporations are expensive to create and run. While it is easy for established organizations to raise finances through selling shares, creating and maintaining corporations is costly. Much startup capital is required, alongside payments for filing charges, more significant taxes, and ongoing fees.
* Recommendations
Based on the Corporations and the LCCs analysis, Mary and Gin should opt for a Corporation business structure. Both partners want to retain control of the business. Because Mary is concerned about Gin's debt default history, it is best to go for a Corporation that protects both members from personal liability. Mary will be protected if Gin does not pay debts, and Gin will be protected if Mary conducts activities that attract legal actions. Therefore, the Corporations are the best method for Mary and Gin to establish and run their business. While there are some disadvantages and risks, the benefits of Corporations are better, unlike the LCCs. Mary and Gin need protection from legal actions, and they need to directly take control of the business, which they can do by buying shares. To this end, the corporation is the best business structure for Mary and Gin.
PART TWO
Introduction
A legally binding contract is an agreement reached between two or more parties, often enforceable in a court of law and valid based on State and Federal contract laws. Since the contract is deemed legally binding, every party to the contract must comply with the terms and conditions of the contract. A contract is valid if it meets all the elements of a contract in offer, acceptance, and consideration.
Analysis
Offer and Acceptance
A contract is created whenever another party accepts an offer by a party. For a contract to be enforceable, it must be differentiated from an individual’s mere readiness to negotiate more deals with the other party (Beale et al. 19). An offer must not be made to a specific individual. An offer is promise-bound, given that the terms in the offer are accepted. It implies that what has been offered must be accepted. In Carlill v. Carbolic Smoke Ball Company, the plaintiff believed in the words of the advertising company that the product would help her against contracting influenza. The plaintiff purchased the smoke ball and used it until she contracted the flu. The defendant, the Carbolic Smoke Ball Company, advertised in various newspapers and would reward anyone who used the product and contracted influenza. In this case, there was an offer, and Carlill accepted the offer's terms (Obu 389). An offer is always made if the other party to the contract is justified to believe that he can bargain and will complete it. It is only then that the individual has the power to accept.
Usually, price lists or price quotes are not enough to amount to an offer. Instead, legally binding and enforceable contracts only occur after an order is provided based on the proposed terms and conditions. This means that the order is seen as the offer. The transaction is incomplete up to when the order is accepted. In one case, the language used to respond to a potential buyer is essential. In Kentucky, a buyer sent a letter of inquiry to the seller and asked about the prices of the jars. In response, the seller listed the prices for specific sizes, including the language for “immediate acceptance.” The buyer responded and tried to buy the ten mason jars. Regardless, the seller failed to fulfill this order since she had already sold the mason jars to another party, upon which he ...