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Bus 307 Case Study 1
Southern New Hampshire University
March 19, 2022
To: Fred and Sally
From: Freddy Arguello
Date: March 15, 2022
Subject: Fred’s Miracle Cough syrup
The memo is based on the initial meeting and subsequent research relating to Fred’s new
business involving a miracle cough syrup. As per the discussion that was conducted, you would
like to market your product locally as well as in several national sectors. You intend to produce
the syrup on your farm and take Sam’s assistance for making the deliveries. After conducting
research on the new business idea, a number of issues have been identified, such as potential real
property issues, liability issues, management issues etc. have been identified. Ultimately, a
suitable recommendation has been made regarding the business type that must be adopted to
introduce Fred’s Miracle Cough syrup in the market.
Business Entities
Some of the common types of business entities that exist include sole proprietorship,
partnership and corporation. The sole proprietorship is a type of entity that is owned by a single
individual. It is considered to be one of the simplest legal forms of business organizations that
can come into existence. Such an entity is relatively simple to manage and control. The owner
can act as the chief decision-maker, and he is the one who is solely responsible for the assets,
profitability, expenses and income. The partnership is a common form of business in which the
owners have unlimited personal liability for the operations and actions of the business. The
owners are responsible for investing their personal funds, efforts and time into the business, and
the partners share the profits or losses within them proportionately. Corporations are the other
type of business entity. They are considered to have a separate legal identity of their own in
which the owners have a limited liability. The complexity in creating such a business entity is
high as compared to sole proprietorship and partnership. Additionally, it is legally cumbersome
to form such a business entity (Tulsian, 2002).
Application of Product Liability Law
In every kind of business, there exist certain kinds of liabilities. Product liability refers to
the responsibility of the manufacturer of an offering to compensate for any kind of injury that
may arise due to his defective merchandise that is offered for sale. A manufacturer could be held
liable for manufacturing defects, product defects or deficient warnings relating to potential
dangers of using the product. A manufacturer can be dragged to the court of law in case his
produce causes any kind of harm to a person or a third party (Cohen & American Law Division,
2003). In the specific case, a major product liability issue may arise because one of its key
ingredients leads to severe reaction if it is taken along with aspirin. Even though his cough syrup
is homeopathic, it can lead to harm to the end-users in case they consume it without prior
warning about the reaction. Another issue that may arise relates to the product’s name. As per the
Fair Packaging and Label Act, businesses must clearly identify their product so that deceptive
packaging can be prevented (Fair Packaging and labeling act: Regulations under section 4 of the
fair packaging and labeling act. Federal Trade Commission, 2020). However, ‘Fred’s Miracle
Cough syrup’ seems vague.
Agency Relationship
An agency relationship is the arrangement between a principal and an agent in which one
party acts on behalf of the other party. Such an association can be created by an express contract
or by implied actions. An agent has the authority to legally bind the principal with third parties.
In the specific scenario, the involvement of Sam in the business can act as a critical asset since
he owns a van that can be used for making deliveries. Since Sam is Fred’s son, till now, there is
no formal agreement in place, and there is no agency relationship (Libretexts, 2021). However,
since the relationship between a principal and an agency is contractual in nature, it is advisable to
create an agreement that would give Sam the authority to act on behalf of Fred. It would give
Sam the authority to play a proactive role in the business setting. Sam must ensure that all
compliances are met while transporting the products in the market.
Potential Real Property Issues
Another important area that must be given high priority relates to real property aspects.
As per the business idea, the cough syrup would be produced on the family farm, where the
family members would continue to stay. Personal property can be categorized into rea property
as well as personal property. The real property encompasses elements like land, building, etc.,
whereas personal property involves movable goods such as furniture and fixtures. In the new
business context, one of the main real property issues that may arise is liability risk. In case a
lawsuit is filed against the business, the entity along with the entire family would be at risk. In
order to mitigate the risk, it is advisable to separate personal property from the business property.
The land could be subdivided for business purposes and for family purposes. Another risk relates
to a lack of compliance with zoning laws. As per zoning laws, rational planning must be done so
that private property is used without causing any kind of harm to existing residents (Libretexts,
2021). As Fred’s family lives on the farm, it is critical to be extra cautious to ensure all the
relevant conditions relating to zoning laws are met.
Impact of manufacturing
The manufacturing of Fred’s Miracle Cough syrup in the family farm does not necessitate
a formal transfer of ownership or processionary rights, specifically when control is retained over
the new business. However, it would be wise to create a lease for the buildings that are being
used for business purposes. Such a step would help to segregate business assets and personal
assets. It would also create an opportunity to enjoy several benefits such as tax deductions, etc.
Suitable decisions must be made concerning the interests relating to real property ownership.
Potential Personal Property issues
Since Sam would use his personal vehicle for the delivery purpose, potential issues
relating to personal property may arise. Some of the common issues include vehicle liability, the
drafting of the vehicle’s policies and documents and tax-related aspects relating to Sam’s van.
The vehicle liability issue may arise in case accidents occur. There is a need for relevant
insurance so that such liabilities would be covered. Vehicle policies need to be drafted
highlighting the policies for the use of the vehicle. For example, some of the policies that could
be integrated include the use of the van for business purposes, abstinence from illegal use of the
vehicle and ensuring that flexible policies are introduced that can ensure the safety and security
of the business in case any accidents take place. Taxation is another important area that Sam
must focus on while using his van for business purposes. He must ensure that an in-depth record
for all business-related expenses relating to the use of the van is maintained.
Liability Issues
The use of the personal vehicle by Sam in the business context exposes the business to
certain liability issues such as negligence. Such an issue may arise in case there is a negligent
hiring procedure. Thus, it is imperative for Fred to conduct an in-depth and detailed checking of
Sam’s driving records and other details before he is made responsible for making deliveries. In
case such checking is not carried out, the risk for the business may arise relating to poor driving
or instances of accidents. Due to such matters, the business could be dragged to the court of law.
In case the vehicle is borrowed by another party, and it is involved in some complicated situation
or event, it may also showcase neglectful behavior.
Potential Estate Planning Issues
A number of potential estate planning issues may arise with regard to the business as well
as the family farm. In the specific context, Fred and Sam live on the farm along with their
children and grandchildren. However, it is advisable to have in place an estate plan. According to
the Uniform Probate Code (UPC), proper planning must be adopted relating to the succession of
a property after the death of the owner of the property (Probate code. Probate Code - Uniform
Law Commission, 2020). In the business context, suitable ‘will’ must be formed in advance so
that ambiguity relating to the estate can be curtailed to a considerable extent.
Estate Planning Vehicles
In case Fred and Sally desire to transfer the ownership of the business and the family
farm to their children Sam and Lilly equality, they can consider using a number of estate
planning vehicles. The options that can be considered for the planning purpose include family
limited partnerships (FLP) and trusts. FLP would act as a flexible planning tool based on which
the family members could pool money for the purpose of running the business project (Lieb,
2002). It would ensure that the next generation can serve as limited partners while Fred and Sally
could exert control over their syrup business. The main advantage is reduced tax liability by
issuing stock for the children (Lieb, 2002). The other option that can be considered is trust. This
option would help in transferring the legal title of properties to the trustee from the settlor. The
main advantage is that it would enable the legal transfer of property in a simple manner while
ensuring the tax amount is reduced (Lieb, 2002).
Recommended type of entity
Based on the detailed analysis of the formation of new business and the associated issues,
the suitable type of business entity for Fred’s Miracle Cough syrup is a Limited Liability
Corporation. It would minimize the financial risk by limiting the liability for Fred, and it would
offer ample flexibility to carry out the business operations. By opting for this type of business
entity, it would be possible to shift the position of Sam from employee to partner.
Sincerely,
Freddy Arguello
References
Cohen, H., & American Law Division. (2003, February). Products Liability: A Legal Overview.
Congressional Research Service, Library of Congress.
Fair Packaging and labeling act: Regulations under section 4 of the fair packaging and labeling
act. Federal Trade Commission. (2020, March 4). Retrieved March 15, 2022, from
https://www.ftc.gov/enforcement/rules/rulemaking-regulatory-reform-proceedings/fair-
packaging-labeling-act-regulations-0
Libretexts. (2021, September 14). 15.2: The agency relationship. Business LibreTexts. Retrieved
March 15, 2022, from
https://biz.libretexts.org/Bookshelves/Law/Fundamentals_of_Business_Law_(Randall_et_
al.)/15%3A_Agency/15.02%3A_The_Agency_Relationship
Lieb, C. (2002). The IRS Wages War on the Family Limited Partnership: How to Establish a
Family Limited Partnership That Will Withstand Attack.DUMKC L. Rev.,D71, 887.
Probate code. Probate Code - Uniform Law Commission. (2020). Retrieved March 15, 2022,
from https://www.uniformlaws.org/committees/community-home?
CommunityKey=a539920d-c477-44b8-84fe-b0d7b1a4cca8
Tulsian, P. C. (2002).DBusiness organisation and management. Pearson Education India.
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