Final Paper on Business Scenario

Entrepreneurs should think about all the legal ramifications for their business before starting one in their sector, state, or nation. In addition to statutes, rules, and regulations, business may also be impacted by court decisions. The business owners intend to implement their business idea by using third-party manufacturers, their business and technical expertise to create one-of-a-kind furniture, and their contracts with a financing and credit card company. The legal ramifications of the business are examined in this report, including the type of business entity and the effects of administrative law, ethics and social responsibility, contract law, tort law, and the legal systems of the United States and California. The appropriate type of business entity for this business is partnership. Having known each other since fifth grade, the partners have enough trust and understanding with each other to start a joint business, legalized through partnership. This form of business ownership allows two or more people to come together and agree to share business profits or losses. The most important characteristic of partnership is that tax is not charged on profit; instead it is transferred to the partners to be declared as individual income tax. In this regard, the business does not bear the burden of tax on profits.

The new business allows the two partners to bring together their skills in engineering and business management to ensure the success and synergy of all activities in the business from manufacturing to distribution. Partnership is important for the businessmen because they are acquainted to each other, so it is very easy for them to start a business partnership. A general partnership requires the parties only to make an agreement, expressed or implied, and contribute capital and register their business.

As a start-up, the business benefits from partnership because the partners contribute capital, labor and skills. They do not need to hire a business manufacturer or a registered engineer to manage the business and engineering operations; hence saving costs. They also share losses. In case of a sole proprietorship, the sole proprietor incurs all losses alone, so it may become a burden that will be difficult to recover from. A sole proprietor also contributes capital alone, but partners can share such costs and raise the required resources needed to run the business easily (Kubasek et al, 2016).

Partnership is also more appropriate than limited liability corporations (LLCs) because it is more informal and does not require a lengthy process to form and register. There are various legal constraints that may affect LLCs which are not common in partnership. For instance, directors of limited companies are required to sign memorandum of understanding and articles of association, but no law mandates partners to sign a formal agreement (Kubasek et al, 2016). Partners also do not have to hold meetings, issue stock, prepare minutes and other legal requirements that are common in limited liability companies. Therefore, the new start-up should choose partnership as their preferred type of business entity because it is suitable for their needs, interests, and circumstances.

Business Location

One of the factors to consider when choosing a business location is legal requirements. The best location to start a furniture manufacturing partnership business is California because it has a big market and relatively few legal constraints. According to California’s laws on general partnership, business partners are liable jointly for all business obligations, unless provided otherwise by law (California Secretary of State, 2016). The profits are also taxed as personal income in account of individual partners.

The process of starting a partnership business in California is easy. It is optional to register general partnership in a state level in California. However, a Statement of Partnership Authority is provided by the state in case partners would like to file their partnership agreement at the state level.

The partners first have to choose a business name and register it with the county clerk at a fee of $26 (California Secretary of State, 2016). Other states such as Chicago charge up to $50 fees on registering the business name. The next step is to draft a business name, which is not mandatory. The long-time friends may choose to go ahead to obtain licenses, business permits and zoning clearance certificates; and start their business. Because the business will operate engineering services, it has to obtain zoning clearances and special professional license to be allowed to manufacture products in California (California Secretary of State, 2016). It will also be necessary to obtain intellectual property rights such as patents to protect the design and technology used in engineering and manufacturing the company’s products.

The State of California also requires all types of businesses to file tax and employer identification documents through various state agencies such as the Franchise Tax Board and the California Tax Service Center (California Secretary of State, 2016). The Gold Standard for Permit Assistance (n.d.) provides a list of business permits and licenses required specifically for furniture and related products manufacture: building and construction permit, business license, yearly fire inspection, zoning clearance, fictitious business name registration, and waste management program.

Concepts of Business Law

This scenario may be analyzed using various business law concepts. First, the business partnership may be affected by business ethics and social responsibility. As a manufacturing company, there are business activities that may not be regulated by law, but may have an ethical or moral impact on communities and stakeholders (Kubasek et al, 2016). For instance, ethical dilemmas may occur when the company uses cheap supply of wood for wooden furniture from a supplier who cuts trees illegally from the Amazon forest. The business may make a lot of profits by cutting production costs, but the community around the Amazonia and the rest of the world will suffer the consequences of climate change following illegal deforestation.

Administrative laws such as statutes, common law and directives from the Office of the President may affect the business. These laws determine the powers and authority of administrative agencies (Kubasek et al, 2016). They may help in regulating the process of rulemaking to ensure that the administrative bodies do not enact laws that may affect businesses and communities negatively.

Criminal and tort laws may also affect business. The criminal laws provide legal consequences for crimes that involve violence and theft. Crimes committed by employees may cause significant legal consequences. For example, an employee who commits crime at the course of their duty may be charged in court, leading to legal costs and waste of time and resources for the business (Kubasek et al, 2016). The consequences of crime according to this law include imprisonment and fines; leading to loss of human and financial resources for the business. Negligence committed by an employee in the line of duty may also cause a vicarious liability in which the company may be liable in case the employee acted negligently in line of duty; for example failing to fix furniture tightly, causing injuries to customers.

Intellectual property such as patents may also affect the business. For unique furniture production, the company may obtain patents for technology and designs to protect them from imitation. Contract law may also affect the business as it deals with third party engineering companies and financial institutions. They should have an offer, acceptance, consideration and legal capacity to contract with other entities (Kubasek et al, 2016). For instance, contract with a company that cuts trees illegally is inconsequential; and may not be enforceable in court. Third party contracts may also affect the business. A third party may benefit from the business by providing services and receiving prices. The company may be sued for damages in case it fails to fulfill its obligations in a third-party contract.

Sales law may also apply when the business sells its furniture to customers. The business may be sued if it delivers a product that does meet the conditions agreed upon during the sales contract. In this case, furniture returned by the customer may be contested under sales law to show that ownership of property has been transferred in good condition for the right value (Kubasek et al, 2016). Creditors’ rights also affect the business. In case the business fails to pay debts, creditors may sue, and the business can be declared bankrupt, and each partner will be liable personally for the debt. Agency and third parties also apply to this business because it already uses a third party engineering to conduct business. The business must consider a trustworthy company to avoid legal challenges with third party contracts.

Conclusion

The business scenario involves a startup engaging in furniture manufacturing. The partners should consider a partnership form of entity because it easy to start and gives partners to share capital contribution and losses. The partnership will have specific legal consequences. They may be contract laws, ethics and responsibility, negligence, vicarious liability, limited liability, criminal law, agency and third parties, and other legal aspects. To operate successfully in a legal environment, the business should seek the services of agencies that enforce administrative law, and conform with the laws of California including tax laws, licenses and permits. All products should also be checked before delivery to avoid problems related to contract law and sales laws in case of returned goods.

References

California Secretary of State. (2016). Starting a Business – Entity Types. [Online] Accessed from http://www.sos.ca.gov/business-programs/business-entities/starting-business/types/.

Kubasek, N.K., Browne, N. M., Herron, D. J., & Dhooge, L.J. (2016) Dynamic Business Law: The Essentials (3rd ed.) New York: McGraw-Hill Education.

The Gold Standard for Permit Assistance (n.d). Business permits and other requirements in the City of Dublin. [Online] Accessed fro http://www.calgold.ca.gov/Results.aspx?location=179&businessTypes=54&greenBusiness=False.