Memorandum

To: Fred and Sally

From: Andy Fillmore

Date: 12 December 2020

Subject: Fred’s Miracle Cough Syrup

Case Study 1

As you have requested here is some information you need to consider when formatting a

new business. First you need to decide what business you want to form. The main business

entities are Sole Proprietorship, Partnership, Limited Liability (LLC) and Corporation. Let’s look

at the forms of businesses and you choose what business would work best for you. First let’s

look at Sole proprietorship. A sole proprietorship is when a single person controls the

management and profits of a company (Kubasek, 2017, Pg. 793). Some reasons a person might

consider a sole proprietorship is that it is easy to set up, the proprietor is in complete control of

the company and keeps the profits, the profits are taxed as personal income. The downfall with

the Sole proprietorship is that your personally liable for all losses and obligations associated with

the business (Kubasek, 2017, Pg. 793). I would not recommend a sole proprietorship for you as

we know that one of the key ingredients in “Fred’s Miracle Cough Syrup” can cause a sever

reaction when taken with aspirin. This could land you in a lot of legal troubles if one of your

consumers happens to mix these two items. Also, you cannot have co-owners with a sole

proprietorship, this means if you are planning on making Sam a co-owner of the business you

would have to change the business format before doing so. Next let’s look at partnerships. There

are five types of partnerships which are General partnership, Limited Partnership, Limited
liability partnership, cooperative and joint venture. A partnership is defined as a voluntary

association between two or more persons who co-own a business for profit (Kubasek, 2017, Pg.

794). The benefits of a partnership are that it’s easy to create, the profit is taxed as personal

income and the business losses can be deducted from the taxes. The downfall is that the partners

are personally liable for all losses and those of the partner in most cases. (Kubasek, 2017, Pg.

794). Partnerships are also not considered separate legal entities, so considering that there are

known problems when taking Fred’s Miracle Cough Syrup with a medicine that’s used often

when one has a cold could cost you and any future business partners in the future a lot of money

I would not recommend a partnership at this time. Another option would be a corporation. The

advantages of a corporation are that capital is easy to raise by selling stocks to shareholders. A

corporation is also a separate legal entity so creditors couldn’t come after your assets should

some financial or legal problems arise. Some disadvantages are that corporations are taxed twice,

once on the profit and second on the dividends or the money distributed to the shareholders. You

also hand some of the control of the company over to the shareholders when you sell them

stocks. They hire the board of directors who manage the corporation. As you already have a

place to manufacture your product and you don’t need to raise too much capital a Corporation

may not be the best option for Fred’s Miracle Cough Syrup. Next let’s look at a Limited Liability

Company or LLC. An LLC is an unincorporated business that is taxed like a partnership, with

the members paying personal income taxes, but has the limited liability of a corporation

(Kubasek, 2017, Pg. 798). The positives of a LLC is that each member is only liable for their

capital investment, also the members can choose how they share the profits which would give

you the flexibility if you want to bring Sam in as a partial owner down the road. I believe that an

LLC would be your best fit for your company at this time.
 Next let’s talk about product liability. Cornell law defines product liability as “Products

liability refers to the liability of any or all parties along the chain of manufacture of any product

for damage caused by that product. This includes the manufacturer, the assembling

manufacturer, the wholesaler, and the retail store owner (at the bottom of the chain). Products

containing inherent defects that cause harm to a consumer (or someone to whom the product was

loaned, given, etc.) of the product would be the subjects of products liability suits. While

products are generally thought of as tangible personal property, products liability has stretched

that definition to include intangibles (i.e. gas), naturals (i.e. pets), real estate (i.e. house), and

writings (i.e. navigational charts). Products liability is derived mainly from torts law” (Products

liability 2019). Product liability refers to the responsibility of the manufacturer in the case of an

injury or loss caused by their product. Nancy Kubasek, a business law professor, stated that

“Products such as drugs and cosmetics are often the basis for actions based on negligent failure

to warn because the use of these products frequently causes adverse reactions” (Kubasek, 2017,

Pg. 241). She goes on to state that “The manufacturer must ensure that the warning will reach

those who are intended to use the product. For example, if parties other than the original

purchaser will be likely to use the product, the warning should be placed directly on the product

itself, not just in a manual that comes with the product. Picture warnings may be required if

children, or those who are illiterate, are likely to come into contact with the product and risk

harm from its use” (Kubasek, 2017, Pg. 241). Now considering that one of your key ingredients

is known to have a severe side effect when taking with aspirin it is very important you

understand who will be taking this cough syrup and design your warnings to prevent the mixture

of these two medicines. This will protect your customers as well as your business. A proper and
well-designed warning will save you a lot of headache and money further down the road if

anyone happens to mistakenly take your cough syrup while taking aspirin.

Next let’s talk about Sam and his role in this business. As he is already advertising the

cough syrup throughout the town, and knowing that it will be Sam who will be approaching the

national chain stores in an attempt to supply contracts for your cough medicine it is important to

know that an agency relationship has already been made. Even though there is no written

agreement I believe that the criteria have been met to justify an Implied Agreement. This means

that you have given Sam legal authority to act on your behalf when dealing with a third party.

This also means that you could be legally responsible for his actions while he is working for the

new company. Any contracts Sam sets up will be held could bind you legally, so make sure that

you and Sam are on the same page before any agreements are made.

Next let’s discuss some potential real property issues. Do you plan on hiring people to

work for your company other than Sam? Are people going to be allowed to come to your

property to pick up the cough syrup? These things are important as if someone is hurt on your

property you could be held responsible. Also, will your land need to be re zoned to be a

commercial zone to legally operate your business on your farm? Here are a couple options for

starting your company on your land. First you could deed the land that will be used by Fred’s

Miracle Cough Syrup to the LLC, I would also build a separate driveway to access the LLC that

would keep customers and/or drivers away from the family’s houses. This will protect you and

your property from being held responsible if there happens to be an accident on the deeded land,

you must make sure that this deed agreement is correctly documented stating that the LLC will

be liable for any and all accidents on said land. This agreement then must be distributed to all

necessary parties for example the town and all lawyers who are working with the new company.
If you don’t want to go the deed rout your next option would be to transfer the property to the

LLC. If you don’t mind giving some of the land to your LLC, then this could be a good option as

well. You would not want all your family’s homes tied to the business especially if it starts to

grow and start attracting large amounts of people, one accident and your whole family could

become homeless. Next you will have to visit your town and see what’s allowed in your zoning.

If you are in a residential zone then you probably will not be able to conduct this business on

your land, but if you are in a commercial zone or an agricultural zone then you will be alright

working on your farm. This must be cleared up with your town before starting the work.

Next let’s talk about Sam and the use of his personal vehicle for the company. There are

pros and cons to having Sam use his own vehicle instead of buying a company vehicle. If Sam

uses his own personal vehicle then most of the burden falls on Sam. He is responsible to

maintain it and make sure it meets the safety requirements for a vehicle being on the road. If he

get in a crash using his personal vehicle then most likely the claims would go through his

insurance first and then the companies insurance would come second. This would raise Sam’s

premiums on his insurance even if the accidents weren’t his fault. If Sam wants to use the

mileage for tax deductions, then he will have to take detailed logs to know what miles were for

business and which were for personal use. If Sam drives his vehicle and crashes while working

for Fred’s Miracle Cough Syrup, then the company will most likely be held responsible. The pro

of having a company car is you can be sure that it is up to date on maintenance and road worthy.

If Sam is using his own personal car and a tire blows out causing bodily damage to pedestrians

then you will still be responsible. You cannot force Sam to do his maintenance or buy new tires

on his personal car.

 Last let’s talk about your estate planning. You need to decide how you want to divide

your property between your children. Who is going to take what house, who is going to take over

the business, are they both going to be split up evenly? What if Sam is heavily involved in the

company and Lilly has little or nothing to do with it, Should Sam get less personal property since

he is getting the business? These are all important questions that need to be decided before it

comes time to pass down the inheritance. There are a lot of families that are destroyed due to bad

estate planning or no estate planning and its left up to the siblings to battle out what they feel like

they deserve. When you plan ahead you can discuss with your children and take their thoughts

into account. This will help you come up with the best Estate plan for your family. When you are

doing your estate planning there are some things you must consider. For example, say you leave

your business and property to your son and then he gets divorced. His wife/Ex-wife could end up

with the house or the company and maybe even both. One way you could protect from

something like this happening is creating a trust and placing your loved ones in it will protect

your properties from potential divorces, lenders or creditors after your passing. A trust will also

lighten the tax load that you are placing on your children when they inherit the properties. You

can also create what is called a Family Incentive Trust which could give your family members

“goals” and when these goals are met, they acquire certain inheritance. These types of trusts are

usually for those who worry about what their wealth will do to their children (Kubasek, 2017,

Pg. 1197). However, you decide to do your estate planning make sure you do it while you are in

good health, you must be in sound mind for your estate planning to be held up in court. These are

some of the things you need to consider when deciding how to split up your assets to your

offspring.
 Now after all this I recommend choosing an LLC for your new company. It is easy to

establish and will protect you and your family from the legal difficulties many people find

themselves in when running a business. You also can use the business losses as tax wright offs

which will help you make some of the gambles that are needed to get your company to grow. If

your business really takes off you can always change the business entity later down the road, but

for right now when your starting off I recommend the LLC.

Case Study 2

As you have requested here is some information you need to consider when formatting a

new business. First you need to decide what business you want to form. The main business

entities are Sole Proprietorship, Partnership, Limited Liability (LLC) and Corporation. Let’s look

at the forms of businesses and you choose what business would work best for you. First let’s

look at Sole proprietorship. A sole proprietorship is when a single person controls the

management and profits of a company (Kubasek, 2017, Pg. 793). Some reasons a person might

consider a sole proprietorship is that it is easy to set up, the proprietor is in complete control of

the company and keeps the profits, the profits are taxed as personal income. The downfall with

the Sole proprietorship is that your personally liable for all losses and obligations associated with

the business (Kubasek, 2017, Pg. 793). I would not recommend a sole proprietorship for you as

we know that one of the key ingredients in “Fred’s Miracle Cough Syrup” can cause a sever

reaction when taken with aspirin. This could land you in a lot of legal troubles if one of your

consumers happens to mix these two items. Also, you cannot have co-owners with a sole

proprietorship, this means if you are planning on making Sam a co-owner of the business you

would have to change the business format before doing so. Next let’s look at partnerships. There

are five types of partnerships which are General partnership, Limited Partnership, Limited
liability partnership, cooperative and joint venture. A partnership is defined as a voluntary

association between two or more persons who co-own a business for profit (Kubasek, 2017, Pg.

794). The benefits of a partnership are that it’s easy to create, the profit is taxed as personal

income and the business losses can be deducted from the taxes. The downfall is that the partners

are personally liable for all losses and those of the partner in most cases. (Kubasek, 2017, Pg.

794). Partnerships are also not considered separate legal entities, so considering that there are

known problems when taking Fred’s Miracle Cough Syrup with a medicine that’s used often

when one has a cold could cost you and any future business partners in the future a lot of money

I would not recommend a partnership at this time. Another option would be a corporation. The

advantages of a corporation are that capital is easy to raise by selling stocks to shareholders. A

corporation is also a separate legal entity so creditors couldn’t come after your assets should

some financial or legal problems arise. Some disadvantages are that corporations are taxed twice,

once on the profit and second on the dividends or the money distributed to the shareholders. You

also hand some of the control of the company over to the shareholders when you sell them

stocks. They hire the board of directors who manage the corporation. As you already have a

place to manufacture your product and you don’t need to raise too much capital a Corporation

may not be the best option for Fred’s Miracle Cough Syrup. Next let’s look at a Limited Liability

Company or LLC. An LLC is an unincorporated business that is taxed like a partnership, with

the members paying personal income taxes, but has the limited liability of a corporation

(Kubasek, 2017, Pg. 798). The positives of a LLC is that each member is only liable for their

capital investment, also the members can choose how they share the profits which would give

you the flexibility if you want to bring Sam in as a partial owner down the road. I believe that an

LLC would be your best fit for your company at this time.
 Next let’s talk about product liability. Cornell law defines product liability as “Products

liability refers to the liability of any or all parties along the chain of manufacture of any product

for damage caused by that product. This includes the manufacturer, the assembling

manufacturer, the wholesaler, and the retail store owner (at the bottom of the chain). Products

containing inherent defects that cause harm to a consumer (or someone to whom the product was

loaned, given, etc.) of the product would be the subjects of products liability suits. While

products are generally thought of as tangible personal property, products liability has stretched

that definition to include intangibles (i.e. gas), naturals (i.e. pets), real estate (i.e. house), and

writings (i.e. navigational charts). Products liability is derived mainly from torts law” (Products

liability 2019). Product liability refers to the responsibility of the manufacturer in the case of an

injury or loss caused by their product. Nancy Kubasek, a business law professor, stated that

“Products such as drugs and cosmetics are often the basis for actions based on negligent failure

to warn because the use of these products frequently causes adverse reactions” (Kubasek, 2017,

Pg. 241). She goes on to state that “The manufacturer must ensure that the warning will reach

those who are intended to use the product. For example, if parties other than the original

purchaser will be likely to use the product, the warning should be placed directly on the product

itself, not just in a manual that comes with the product. Picture warnings may be required if

children, or those who are illiterate, are likely to come into contact with the product and risk

harm from its use” (Kubasek, 2017, Pg. 241). Now considering that one of your key ingredients

is known to have a severe side effect when taking with aspirin it is very important you

understand who will be taking this cough syrup and design your warnings to prevent the mixture

of these two medicines. This will protect your customers as well as your business. A proper and
well-designed warning will save you a lot of headache and money further down the road if

anyone happens to mistakenly take your cough syrup while taking aspirin.

Next let’s talk about Sam and his role in this business. As he is already advertising the

cough syrup throughout the town, and knowing that it will be Sam who will be approaching the

national chain stores in an attempt to supply contracts for your cough medicine it is important to

know that an agency relationship has already been made. Even though there is no written

agreement I believe that the criteria have been met to justify an Implied Agreement. This means

that you have given Sam legal authority to act on your behalf when dealing with a third party.

This also means that you could be legally responsible for his actions while he is working for the

new company. Any contracts Sam sets up will be held could bind you legally, so make sure that

you and Sam are on the same page before any agreements are made.

Next let’s discuss some potential real property issues. Do you plan on hiring people to

work for your company other than Sam? Are people going to be allowed to come to your

property to pick up the cough syrup? These things are important as if someone is hurt on your

property you could be held responsible. Also, will your land need to be re zoned to be a

commercial zone to legally operate your business on your farm? Here are a couple options for

starting your company on your land. First you could deed the land that will be used by Fred’s

Miracle Cough Syrup to the LLC, I would also build a separate driveway to access the LLC that

would keep customers and/or drivers away from the family’s houses. This will protect you and

your property from being held responsible if there happens to be an accident on the deeded land,

you must make sure that this deed agreement is correctly documented stating that the LLC will

be liable for any and all accidents on said land. This agreement then must be distributed to all

necessary parties for example the town and all lawyers who are working with the new company.
If you don’t want to go the deed rout your next option would be to transfer the property to the

LLC. If you don’t mind giving some of the land to your LLC, then this could be a good option as

well. You would not want all your family’s homes tied to the business especially if it starts to

grow and start attracting large amounts of people, one accident and your whole family could

become homeless. Next you will have to visit your town and see what’s allowed in your zoning.

If you are in a residential zone then you probably will not be able to conduct this business on

your land, but if you are in a commercial zone or an agricultural zone then you will be alright

working on your farm. This must be cleared up with your town before starting the work.

Next let’s talk about Sam and the use of his personal vehicle for the company. There are

pros and cons to having Sam use his own vehicle instead of buying a company vehicle. If Sam

uses his own personal vehicle then most of the burden falls on Sam. He is responsible to

maintain it and make sure it meets the safety requirements for a vehicle being on the road. If he

gets in a crash using his personal vehicle then most likely the claims would go through his

insurance first and then the company’s insurance would come second. This would raise Sam’s

premiums on his insurance even if the accidents weren’t his fault. If Sam wants to use the

mileage for tax deductions, then he will have to take detailed logs to know what miles were for

business and which were for personal use. If Sam drives his vehicle and crashes while working

for Fred’s Miracle Cough Syrup, then the company will most likely be held responsible. The pro

of having a company car is you can be sure that it is up to date on maintenance and road worthy.

If Sam is using his own personal car and a tire blows out causing bodily damage to pedestrians

then you will still be responsible. You cannot force Sam to do his maintenance or buy new tires

on his personal car.

 Last let’s talk about your estate planning. You need to decide how you want to divide

your property between your children. Who is going to take what house, who is going to take over

the business, are they both going to be split up evenly? What if Sam is heavily involved in the

company and Lilly has little or nothing to do with it, Should Sam get less personal property since

he is getting the business? These are all important questions that need to be decided before it

comes time to pass down the inheritance. There are a lot of families that are destroyed due to bad

estate planning or no estate planning and its left up to the siblings to battle out what they feel like

they deserve. When you plan ahead you can discuss with your children and take their thoughts

into account. This will help you come up with the best Estate plan for your family. When you are

doing your estate planning there are some things you must consider. For example, say you leave

your business and property to your son and then he gets divorced. His wife/Ex-wife could end up

with the house or the company and maybe even both. One way you could protect from

something like this happening is creating a trust and placing your loved ones in it will protect

your properties from potential divorces, lenders or creditors after your passing. A trust will also

lighten the tax load that you are placing on your children when they inherit the properties. You

can also create what is called a Family Incentive Trust which could give your family members

“goals” and when these goals are met, they acquire certain inheritance. These types of trusts are

usually for those who worry about what their wealth will do to their children (Kubasek, 2017,

Pg. 1197). However, you decide to do your estate planning make sure you do it while you are in

good health, you must be in sound mind for your estate planning to be held up in court. These are

some of the things you need to consider when deciding how to split up your assets to your

offspring.
 Now after all this I recommend choosing an LLC for your new company. It is easy to

establish and will protect you and your family from the legal difficulties many people find

themselves in when running a business. You also can use the business losses as tax wright offs

which will help you make some of the gambles that are needed to get your company to grow. If

your business really takes off you can always change the business entity later down the road, but

for right now when your starting off I recommend the LLC.

Case Study 3

After Fred's family recovered from the financial scare of possibly going bankrupt their

business is starting to gain traction and grow. They were told that it would be a good time to

go public if that was something they wanted to do. The next step for Fred and his family is to

file a registration with the SEC. A registration filing must have the following: Description of

the securities for sale, Explanation of how the proceeds will be used from the sale of the

securities,  Description of the registrant’s business and properties, Information about the

management of the company,  A description of any pending lawsuits in which the registrant is

involved, Financial statements certified by an independent public accountant. There are a few

things that could give Fred's family some difficulties in this list. First is the lawsuit that

Tammy has filed against Fred and the company. I do believe that this lawsuit will probably

get thrown out giving the past difficulties that the business went through as well as it doesn't

seem like Tammy has any experience in this one of work nor a degree in accounting. Now that

we understand the damage that someone in this position can cause a company it's not difficult

to see why a company would want someone trained and with experience filling this position.

The next one that could give some problems is a financial statement signed by an independent

public accountant. This depends on how long it's been since Jane forged the checks. If it's
been more than two years, I don't believe that this information would be included in the

report. If it's been less than two years, then they might need to look into how they can correct

this situation as to not scare off investors or the SEC. Maybe it's best to leave Jane out of the

company and hopefully, she will understand that her actions could hurt the company’s

possible growth if she stays.

 Reference:

Embezzlement. (n.d.). Retrieved November 27, 2020, from

https://www.law.cornell.edu/wex/embezzlement

Kubasek, N. (2017). Dynamic Business Law. Retrieved November 28, 2020, from
https://newconnect.mheducation.com/

LII Staff. (2019, December 26). Products liability. Retrieved December 12, 2020, from
https://www.law.cornell.edu/wex/Products_liability

P.C., P. (2020, November 19). Stolen Trade Secrets: What Kind of Damages Can You Recover?
Retrieved November 28, 2020, from
https://www.hchlawyers.com/blog/2020/november/stolen-trade-secrets-what-kind-of-
damages-can-yo/

Selth, W. (2019, May 22). Pros and Cons of Chapter 11 Bankruptcy. Retrieved November 28,
2020, from https://www.wsbankruptcylaw.com/blog/2019/may/pros-and-cons-of-chapter-
11-bankruptcy/

Wimmer, A. (2018, July 11). Exempt vs. Non-exempt Property Under Chapter 7. Retrieved
November 28, 2020, from https://www.findlaw.com/bankruptcy/chapter-7/exempt-vs-non-
exempt-property-under-chapter-7.html