Running head: BUSINESS ENTITIES, LAWS, AND REGULATIONS

Business Entities, Laws, and Regulations BUS/415

Business Entities, Laws, and Regulations Starting a new business is an exciting process filled with hope and dreams. That is, until the realization sets in regarding how much work is involved. There are many decisions that must be made such as the scope of the services that will be provided, the organizational makeup, what legal documents must be filed and with whom, how much and what type of insurance should be purchased, and how will the business be staffed. If the new business entity is a single owner business these questions may be fairly simple to answer; however, when there are more than one person with principle interest the decision- making process becomes a little more difficult. The more owners or principle partners who have a say in legal and other important matters in a business, the more difficult it becomes to come to a consensus. In this paper we will identify some of the issues a business entity may encounter in day to day operations and the laws that apply to these issues. There are three scenarios that I will analyze and discuss. Scenario One Jose and Lou want to open a restaurant and sports bar that has televisions hanging in various locations around the premises. The idea is to create a social environment where customers can hang out, watch a sporting event with friends, and spend copious amounts of money on drinks and food. They have plenty of time and vision for this project but the one thing they are short on is cash. Luckily, they have the interest of Miriam, a wealthy investor who wants to invest in their endeavor, and have no other responsibility except for collecting a portion of the proceeds as a percentage owner. The best course of action for this scenario would be for Jose, Lou, and Miriam to create an LLC or a partnership giving each of the three a one-third ownership interest in the business.

In exchange for this ownership interest Miriam agrees to provide the funding necessary to cover the startup costs of the sports bar/restaurant. In exchange for their interest in the business, Lou and Jose agree to provide the personal effort required to install the fixtures needed such as the televisions, bar equipment, tables, and everything else that will be needed including licensure and health dept. inspection. One of the most important items that Jose and Lou will need to purchase is liability insurance for the business. In todays society lawsuits can be filed for anything and everything with the least problem. If someone burns his or her mouth on hot coffee or other food he or she immediately call an attorney. Other liability issues include serving someone alcohol if he or she is already intoxicated and that customer then injures someone. By forming an LLC or S Corporation, the business can be run indefinitely and Lou and Jose will not have to worry about losing personal assets if someone sues the company. This setup will also allow the issuance of stock that can then be issued to the three partners.

Scenario Two Tarta and Akiva have completed medical school and their residency requirements to become licensed obstetricians. They want to start a birth clinic and plan to take out a substantial loan to do this. Adding to the expense of licensure, building mortgage and equipment costs, medical malpractice insurance in probably one of their most expensive yet most necessary costs and must be maintained throughout the life cycle of the business. If Tara and Akiva form a partnership they may fund these costs through the use of personal loans, or they may gain funding through using the equipment they will purchase as collateral for a small business loan. A legal requirement for a professional business practice is that all principle owners must possess

the appropriate licensure required to perform the practice. For instance if Akiva has yet to pass the medical board testing Akiva will not be a legal candidate as a partner in the business.

Construction Scenario The construction hiring manager for Surebuild Inc., Mei-Lin must decide on which candidate to hire from a pool of applicants consisting of: Michelle, a 35-year-old female high school graduate with jackhammer operation experience but who appears to be pregnant; Eric, a 55-year-old who also has experience operating a jackhammer but has no high school diploma; Felipe, a 38-year-old with jackhammer experience but no high school diploma and cannot speak English; And Nick, a 23-year-old college graduate with no jackhammer experience and has epilepsy. The ad place for this position describes the requirement for a successful applicant to be a high school graduate. Mei-Lin must consider these applicants carefully and must also take into account the current labor laws and acts that pertain to these applicants. The Civil Rights Act of 1964 states that it is unlawful for an employer to fail or refuse to hire or to discharge any individual, or otherwise to discriminate against any individual with respect to his compensation, terms,

conditions or privileges or employment, because of such individual's race, color, religion, sex, or national origin, unless an employer would suffer undue hardship as a direct consequence and no accommodation is possible for the employee (National Archives). The Age Discrimination in Employment Act of 1967 prohibits discrimination on the basis of age against employees or job applicants over the age of 40 years (EEOC). The Americans with Disabilities Act of 1990 prohibits discrimination against persons with disabilities in private employment, public accommodations, transportation, state, and local government services, and telecommunications. It covers employers in industries affecting commerce that have 15 or more employees for each working day in each of 20 or more calendar weeks in the preceding calendar year (EEOC). With this in mind Michelle, because she is pregnant, clearly presents and identifiable and undue hardship for the company. She is a potential risk because of the nature of the dangers of operating a jackhammer and the potential for injury to the unborn fetus. She would be a high risk for potential workers compensation claim. Surebuild can overlook Michelle without regard to discrimination and incur no liability from labor laws. Eric may be excluded from consideration because he does not have the required high school diploma. If this is the only reason he is eliminated from consideration solely on this basis however the company could be found guilty of age discrimination according to the Age Discrimination Act listed above. Many older citizens do not hold high school diplomas because of the hardships in place at the time they would have been in school.

Felipe is another potential victim of discrimination from another arena. As a minority who does not speak English, he may not have had the opportunity to obtain the requisite high school education. Since speaking English was not a listed requirement for the position the company could be guilty of race/nationality discrimination if the lack of a high school diploma is the only reason Felipe is eliminated from consideration. Nick appears to be the perfect choice for this position with the only worry being that he is epileptic. Epilepsy however can be dangerous both for Nick and those who work with or around him were he to have a seizure. Nick has much more than the required education level but has no experience operating a jackhammer. Because this experience was not listed as a requirement it cannot be held against him for employment purposes. Surebuild is entitled to require Nick to submit to a pre-employment physical and place the requirement that Nick follow doctor care including taking epilepsy controlling medications to qualify for the position without being guilty of discrimination. As one can see it is developing a business is not an easy or quick process. Many aspects of business ownership must be considered when making the decision to go into business to protect that business from any risks whenever possible. Adhering to the laws and regulations will help a business go a long way toward success.

References

National Archives. (n.d.). http://www.archives.gov/education/lessons/civil-rights-act U.S. Equal Employment Opportunity Commission (EEOC). (n.d.). http://www.eeoc.gov/policy/adea.html