Legality of Business Forms
Instructions
Ted Brown and Jim Green have been discussing going into business together for several months, and they are anxious to start that business before the end of this month. However, both Ted Brown and Jim Green each have to be out of town for several weeks on other business, so Ted Brown has told his son, Theodore, who is 16, about the discussions with Jim Green and has appointed Theodore to complete negotiation of the final details of the business. Jim Green has told his son James, who is 18 years old, about the discussions with Ted Brown and appointed James to complete the negotiations.
The business that Ted Brown and Jim Green want to create will develop an app for cell phones that will identify family-oriented attractions along major highways so families can download the app to help in planning family vacations. The development of the app will take 4 months, and then it will take approximately another 4 months to fully deploy the app. As the app becomes popular, the business will solicit family-oriented businesses to advertise on the app. Ted Brown and Jim Green have very little capital to use in the development and deployment of the app and will probably need to raise the capital necessary to develop and deploy a quality app.
In your case study, address the questions below.
- Can Theodore Brown and James Green legally create the business that Ted Brown and Jim Green have been discussing? Why, or why not?
- If Theodore and James do create the business, what duties do they each owe their father? Describe what those duties mean in this case.
- What factors do Ted Brown and Jim Green (or their sons on their behalf) need to consider in selecting a form for this business?
- What form of business will provide the most advantage for their venture?
- What are the disadvantages of the form of business that they selected?
Your case study should be at least four pages in length and include at least two outside sources. Be sure to use APA formatting for all citations and references.
Introduction
Ted Brown and Jim Green have been discussing a business venture, which involves creating an app that helps families plan vacations by identifying family-oriented attractions along major highways. As they both have to be out of town for several weeks on other business, they have appointed their sons, Theodore Brown and James Green, to complete negotiations and establish the business. This case study will address the legality of Theodore and James creating the business, their duties to their fathers, factors to consider in selecting a business form, the advantages and disadvantages of the form they choose.
Legality of Creating the Business
Theodore Brown and James Green can legally create the business that their fathers have been discussing. However, as they are minors, they cannot enter into a legally binding contract. Therefore, the final contract will need to be signed by their fathers once they return from their business trips. Until then, Theodore and James can only make negotiations and sign a provisional agreement, which will be subject to their fathers’ final approval.
Duties to Fathers
Theodore and James owe their fathers the duty of loyalty, good faith, and fair dealing in all their dealings with the business. As their fathers have entrusted them with the responsibility of negotiating the final details, they must act in the best interest of the business and their fathers. They should not disclose confidential information or engage in any conduct that would harm the business or their fathers’ reputation.
Factors to Consider in Selecting a Form for the Business
Ted Brown and Jim Green (or their sons on their behalf) need to consider several factors when selecting a form for their business. These include liability, taxation, management, and ownership. They can choose from various forms of business such as sole proprietorship, partnership, limited liability company (LLC), or corporation.
Advantages and Disadvantages of Business Forms
The sole proprietorship is the simplest and least expensive form of business to establish. However, the owner assumes unlimited liability for all the business’s debts and obligations. A partnership has the advantage of shared management and ownership. However, partners are jointly and severally liable for all the partnership’s debts and obligations. The LLC is a hybrid form of business that combines the advantages of a corporation and a partnership. It provides limited liability for the owners and pass-through taxation. The corporation provides limited liability for the owners and is a separate legal entity from its shareholders. However, it is subject to double taxation and is more expensive to establish and maintain than other forms of business.
