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Final Project

Final Project: Case Study Analyses

Lydia Harris

BUS 206: Business Law I

April 19, 2020

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Module One:

A. Jurisdiction

In this case, Donald Margolin is filing a suit in New York against Novelty Now Inc., as well

as Chris, Matt and Ian, who are the owners of Funny Face. There are several different factors to

look at in order to determine which jurisdiction fits for this case. The first factor to consider is

personal jurisdiction, which refers to a court having the power to bring a defendant come before

the court and allows the court to reside over a case (Kubasek, 2017). The court gains personal

jurisdiction over the plaintiff once they file their suit with the court (Kubasek, 2017). The court

can then issue a complaint and summons with the defendant, which gives them personal

jurisdiction over the defendant, and lays out exactly what they are being charged with and

explains how they should respond to these documents (Kubasek, 2017). Generally, this

jurisdiction only covers as far as the states borders. However, if a party meets the minimum

amount of contact in the place where the incident occurs, then personal jurisdiction will be

extended to that location (Personal Jurisdiction, n.d.). Since Chris, Matt and Ian live in

California, Novelty Now Inc. is based in Florida, and the suit is being filed in New York, the

only possible way there could be personal jurisdiction in state court is if the courts in New York

used the long-arm statute. This statute “allows for a court to obtain personal jurisdiction over an

out-of-state defendant on the basis of certain acts committed by an out-of-state defendant,

provided that the defendant has a sufficient connection with the state” (Long-arm statute, n.d.).

This way, no one can cause injury or do something illegal, and then evade all responsibilities by

leaving the state (Kubasek, 2017).

As mentioned earlier, minimum contacts are another factor that must be looked into to

determine the jurisdiction of this case. Minimum contacts are “the level of a nonresident
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defendant's connection with or activity in a state that is sufficient under due process to support

the assertion of personal jurisdiction under a long-arm statute” (Merriam-Webster, n.d.). As long

as the plaintiff can provide enough evidence that the defendant had a compelling connection with

activities that occurred there, then personal jurisdiction can be applied through the long-arm

statute. The plaintiff would need to prove that Chris, Matt, Ian, Funny Face and Novelty Now

Inc. fulfill the minimum contacts in New York, and have a convincing connection through their

activities with their company in New York, in order to extend the personal jurisdiction. In this

situation, since Funny Face is marketed nationally through the radio, newspapers, the web and

Facebook, it could be argued in the courts that they did business in this state. This would then

meet the minimum contacts requirement and show that these men had sufficient connection with

the state of New York. If this could be proven in the court of law, then the New York state would

have personal jurisdiction over Novelty Now Inc., Funny Face, Chris, Matt, and Ian.

The last factor regarding jurisdiction that must be looked into is subject matter jurisdiction.

This is “the requirement that a given court [has the] power to hear the specific kind of claim that

is brought to that court” (Subject matter jurisdiction, n.d.). Additionally, this jurisdiction decides

which court will hear which case depending on the requirements they fulfill, whether it’s state

jurisdiction, federal jurisdiction, or concurrent jurisdiction (Kubasek, 2017). This case could be

tried in federal court because it is a suit that involves two people who live in different states.

However, in order to be brought to federal court “the amounts in controversy [must] exceed

$75,000” (Federal vs. State Courts, 2016). The case could also be brought to state court since this

subject matter is covered in their courts. State courts cover a very vast and diverse jurisdiction

that hears anything from family disputes to robberies (Federal vs. State Courts, 2016). More

important cases like bankruptcy or copyright, and where the United States is one of the parties
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involved in the case are usually brought to federal courts (Federal vs. State Courts, 2016). Since

this case is not as serious of a circumstance, and the state of New York can likely use the long

arm statute, the suit should stay on the state court level rather than bring it up to the federal

courts.

B. ADR- Alternative Dispute Resolution

ADR, which stands for alternative dispute resolution, refers to “the resolution of legal

problems through other methods other than litigation” (Kubasek, 2017). Two different forms of

ADR that should be considered are arbitration and mediation. With arbitration, all parties are

able to select a neutral party to hear all of the facts in the case, and then make a decision based

off that (Kubasek, 2017). This is done outside a court of law, and is generally a lot faster and

cheaper than litigation (Kubasek, 2017). Moreover, parties have more control over the situation

rather than in litigation because they are able to choose the arbitrator who can be an expert on the

topic of the dispute (Kubasek, 2017).

There are some disadvantages of using arbitration that are worthy of looking at, as well.

Firstly, trying to appeal an arbitration award is incredibly difficult, and they can sometimes end

in unfavorable decisions (Kubasek, 2017). Furthermore, some people believe they may be giving

up some of their rights (i.e. the right a speedy trial and due process) by giving up litigation, and

choosing arbitration (Kubasek, 2017). Privacy could potentially be an issue of arbitration, as

well, if companies or as party wants to keep their legal disputes from being public knowledge

(Kubasek, 2017).

Very similar to arbitration, both parties choose a neutral party in mediation, but the

neutral party is used “to help facilitate communication and suggest ways for the parties to solve

their dispute” (Kubasek, 2017). All parties involved try to work together to mutually agree on a
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solution to the dispute at hand, which offers more autonomy and control of the situation than

both litigation, and even arbitration in some ways (Kubasek, 2017). The mediator is generally an

expert in the area of the dispute between the parties, so they can offer some essential information

(Kubasek, 2017). An additional advantage of using mediation is it preserves relationships with

all parties involved since everyone communicates openly and honestly throughout the process

(Kubasek, 2017). When all parties recognize where the other is coming from is allows more

understanding between everyone, and can lead to more creative solutions that will please both

parties in some way.

One of the main disadvantages of mediation is if a party goes into the process with zero

intention of actually making an agreement (Kubasek, 2017). That’s a waste of time and money

for both parties, and could potentially draw out the disagreement, and open up the possibility of

the other party eventually dropping the dispute. Another disadvantage is “if one party is more

knowledgeable of than the other, the agreement is not necessarily fair or equal” (Kubasek, 2017).

The party who does not understand much about the process could get the short end of the deal,

but think they made out well because of what they were told.

C. Preferred ADR

While both arbitration and mediation are great options for all parties in this suit to use, the

ADR method that Chris, Matt, Ian, Funny Face and Novelty Now Inc. would prefer to use is

mediation. First of all, it would be a quick, and less expensive option for them to take since they

are just starting out in their business. Secondly, mediation would be in every party’s best interest

to keep things out of the public eye. Keeping the dispute quiet for Chris, Matt, Ian and Funny

Face’s is important because, again, Funny Face is a new company. Mr. Margolin, additionally,

probably will not want everyone knowing about this mishap with a product since he may want to
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keep his powerful image. Furthermore, mediation allows an opportunity for both parties to find a

solution to the dispute that pleases everyone. Lastly, a decision that’s made in arbitration is very

hard to overturn, so it would be in their best interests to try to use mediation first.

The ADR method that Donald Margolin would prefer to use would be arbitration. Based off

the facts of the case, it does not seem like Mr. Margolin is willing to talk this over, and really

wants to be compensated for all the medical costs and all of the money he lost in business. Mr.

Margolin really depends on his business reputation for his living, so if that was tarnished and

cannot be regained among his peers, he may not be willing to attempt mediation. Arbitration will

also keep the costs lower than litigation, as well as speed up the process. He also has more

control over this situation than he would in litigation because he can help choose the neutral

party. The only problem Mr. Margolin may run into with arbitration is there is not much privacy,

and word may get out about this dispute.

D. Criminal Acts

According to the common law, “a corporation could not be considered a criminal because it

was actually not a person and thus did not have a ‘mind’” (Kubasek, 2017). In order to meet the

mens rea or “guilty mind” requirement, the defendant would have to be a person and not a

business (Kubasek, 2017). With that said, corporate officers, like Chris, Matt and Ian can still be

found personally liable if they are in some way benefiting from the crime committed by their

company (Kubasek, 2017). “Under the ‘responsible corporate officer’ doctrine, a court may

assess criminal liability even on a corporate executive or officer who did not engage in, direct, or

know about a specific criminal violation” (Kubasek, 2017). Even though Chris, Matt, Ian, Funny

Face, Novelty Now Inc. did not intentionally set out to turn their customers’ faces blue with their

product, it happened because they were trying to cut corners to lower their profit margins.
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Furthermore, although Chris was the sole person who made the decision to switch emulsifiers, it

could be argued they all failed to do their duty to prevent this from happening. Due to the

responsible corporate officer doctrine, the courts may find all parties involved guilty of

negligence, and held liable of damages.

E. Potential Criminal Acts

The main potential criminal act that could be found in this case is fraud. This is when a party

intentionally deceives others for their own personal or financial gain (Kubasek, 2017). There are

three elements that have to have occurred in order for fraud to take place: “1) a material false

representation made with intent to deceive (scieter), 2) a victim’s reasonable reliance on the false

representation, and 3) damages” (Kubasek, 2017). As long as it can be proven that all three of

these elements existed, then the law provides that fraud occurred in this situation.

F. Potential Criminal Liability

With this case, PYR was used in the product when the FDA had not approved it and that

information was not made apparent to the customers who were using the product. Funny

Face and Novelty Now Inc. were lying to the public about what their product contained.

Next, these customers relied on the product working correctly as an aftershave lotion that

was marketed nation-wide. When Mr. Margolin was using the product he was using it under

the false representation the company was providing. Then, the product caused permanent

damage to Mr. Margolin’s face when the product turned his face a shade of blue. Mr.

Margolin depends on being a public speaker and depends on his business reputation as CEO,

which all took a negative impact when his face became discolored due to the aftershave

lotion.
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This case shows that Chris was the representative from Funny Face who was meeting

with Novelty Now Inc.. He also made the ultimate decision of cutting costs and using PYR

instead of an FDA approved emulsifier they were using previously in Novelty Now Inc.’s

formula. That decision alone can be seen as a criminal offense. Although Chris is the one

who was making these decisions, all the men can be found liable because they didn’t stop

these decisions from occurring, and did not use their power to prevent this situation.

Furthermore, Novelty Now Inc. can be found liable due to fact they were knowledgeable and

complicit in changing the emulsifier in the product to one that was not FDA approved. Like

stated previously, that action can be considered a criminal act, further proving the law will

most likely also hold Novelty Now Inc. liable in this suit. All of these facts lead towards the

court and the law finding Chris, Matt, Ian, and Novelty Now Inc. found guilty of fraud, and

being held liable of negligence in this case.

G. Ethical Decision-Making

The process of essential ethical decision-making that businesses use is called the WPH

process. WPH has three elements: Who (stakeholders), Purpose (values), and How

(guidelines) (Kubasek, 2017). In this situation, the main stakeholders would be the

consumers. These are the people who are buying a product that is being misrepresented to the

public. The consumers can also be negatively impacted by permanent skin damage and

discoloration due to the product containing PYR. The values in this circumstance would be

efficiency because the whole reason Chris and Funny Face ultimately switched emulsifiers

was to cut costs and increase their profit margins. They tried to cut corners to minimize costs,

which only ended up damaging their reputation, and harming a consumer. Lastly, the

guideline in this case is the Golden Rule. Perhaps if someone was put in Funny Face’s shoes,
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he or she may do things differently than Chris, Matt, and Ian did, and not put money above

their consumer’s safety. Ultimately, no one knows exactly how he or she would act in that

situation. Nevertheless, the Golden Rule states ‘treat others the way you want to be treated’,

and Chris, Matt and Ian would most likely not want to be treated like they’ve treated their

consumers. If Chris, Matt, Ian and Novelty Now Inc. could go back, maybe their choices

would be different knowing the consequences and negative impacts it would cause.

Milestone Two:

A. Valid Contract

To understand whether or not Sam Stevens and the chain store had a valid contract, there are

four elements to review. The first element of a valid contract includes the offer to enter into a

contract by one party to another, which leads to the acceptance of said offer (Kubasek, 2017).

Sam was an inventor of a machine that played a sound of a barking dog that would be used as a

safety device to scare off any intruders. In this situation, Sam verbally told the manager of a

national chain store, which sold safety products, that he would ship them 1,000 units of his

invention. The chain store, additionally, told Sam they wanted to sell his invention exclusively.

In regard to the first element, it does appear to be fully satisfied by both parties. Although a

contract had not been signed, both the chain store and Sam had agreed to the 1,000 units, and

exclusive selling rights.

The second element of a valid contract is the consideration, which lays out exactly what

each party will be receiving in the contract (Kubasek, 2017). It’s difficult to know if the two

parties discussed what Sam would be receiving in exchange for the product. However, based on

the information provided, consideration for Sam does not appear to exist. There is no information
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about how Sam would get paid, what percentage of the money Sam would receive for the sold

product or if he would be getting any compensation for giving the store exclusive selling rights.

The consideration for the national chain store would have been 1,000 units of Sam’s device, as

well as the exclusive selling rights to this product. By the rule of law, the contract could be

deemed not valid based on this element not being completely fulfilled.

The third element of a valid contract is contractual capacity or “the legal ability to enter into

a binding agreement” (Kubasek, 2017). Generally, if the two parties are over the age of majority

(which is usually 18 years old), are not intoxicated, and do not have a mental illness, then they

would qualify to have contractual capacity (Kubasek, 2017). Based off the information provided,

it can only be assumed both parties in this contract are above the age of 18, and were in sound

mind when creating this agreement. The specifics of ages and mental health of either party has

not been stipulated. However, if it turned out that Sam was under the age of 18 when this

agreement was made, then the contract would not be valid, and Sam would not be held liable.

Additionally, the contract would not be valid if Sam suffered from a mental illness, or if he was

inebriated and was not in sound mind when he made the deal. Until these specifics are given, this

third element has not been satisfied.

The fourth and last element of a valid contract is legal object, which states nothing illegal or

against public policy can exist in the contract in order to be able to implement it (Kubasek,

2017). In this scenario, nothing illegal took place in the oral agreement made between Sam and

the store manager. The two parties made a verbal agreement to send the chain store 1,000 units,

and give exclusive rights to their product. No part of this scenario is against the law or against

public policy; therefore, this element is to be fulfilled.

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Altogether, all of the elements required for a valid contract are not satisfied. There is no

consideration explicitly stated for Sam in the information provided, as well as no information

about each party’s contractual capacity. Additionally, there was no specific timeline discussed or

a written contract explicitly lying out all the terms. Sam had, also, not heard from the store in

months regarding the agreement he had made with the store manager. According to rule of law,

this is not a valid contract between Sam and the chain store. The two parties have only made an

agreement, but not a formal or valid contract yet.

B. Quasi-Contract and Promissory Estoppel

Assuming there is not a valid contract between both Sam and the chain store, quasi-contract

and promissory estoppel could potentially be valid in this scenario. A quasi-contract is a

contractual obligation imposed by the court “in order to prevent one party from being unjustly

enriched at the expense of another” (Kubasek, 2017). This only occurs if there is not an actual or

valid contract between two parties in order to be fair and to not give one party any unjust

enrichment (Kubasek, 2017). In this scenario, it is not evident how Sam gets any advantage or

unjust enrichment by not sending the 1,000 units of his product immediately. It would greatly

benefit Sam to sell his product at a chain store. Furthermore, it could potentially tarnish his

business reputation if he did not follow through with an order if he was under contract. If

anything, this could cause more harm than good to Sam’s business, getting his product out on the

market, as well as his reputation. Moreover, it is not clear exactly how Sam not sending the

1,000 units of his product straight away harmed the chain store. Based on the information

provided, it does not appear there was any exchange of money so the store is not losing money

by not receiving the product. Either party does not seem to have an unfair advantage in this

situation, therefore is highly unlikely the chain store will prevail on the claim of quasi-contract.
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The last claim the chain store may be able to justify is promissory estoppel. Promissory

estoppel happens when three things occur: 1) one party promises something, and understands the

other party relies on said promise 2) the other party actually does rely on the promise that was

made 3) the promise is carried out in order to avoid unfairness (Kubasek, 2017). There is a slight

chance that the chain store may be able to claim promissory estoppel because a verbal agreement

was made between Sam and the store regarding the 1,000 units of his product. However, very

similar to the reasons why quasi-contract would not prevail, it does not appear that Sam not

sending the 1,000 units harmed the store in any way. There was no money exchanged yet, so the

store was not losing anything by not receiving the product. The store did send a letter demanding

the 1,000 units that were promised, but other than that, there is not much information about the

store heavily relying on this product. Additionally, it does not appear Sam understood the store

would be expecting the product immediately. They had not spoken to him in months, and a valid

contract had not been created regarding all the logistics and considerations. Based on all of this,

the chain store will most likely not prevail on the claim of promissory estoppel, either.

C. Rights and Obligations

The leasing contract that the tenant, Sam, and his landlord, Quinn, had originally agreed upon

and signed states all of the rights and obligations of each party. Some of the obligations for

landlords include: duty to put tenant in possession, duty of covenant of quiet enjoyment, and

duty not to commit waste (Kubasek, 2017). The corresponding rights of tenants include: right to

retain possession, right to quiet enjoyment of the property, and the right to reimbursement for

tenant’s waste (Kubasek, 2017). One of the basic rights that Sam is breaking with the noise from

his dog invention is the tenant’s right to quiet enjoyment of the property. Sam is allowed to

peacefully enjoy his property, as long as he does not disturb any of the other occupants with
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unreasonable amounts of noise and disturbing the peace. The facts provided suggest the barking

product was disturbing other apartments surrounding him, which would be a violation of his

contract with the landlord. The breach of contract gives the tenant grounds for eviction.

The second reason Sam was evicted was because he was running a business in his

apartment. Some leasing contracts stipulate a commercial business may not be run out of a rental

residential property (Kubasek, 2017). If this law is violated, then that can result in eviction. The

zoning laws may also restrict how people must use the property including running a business out

of a residential property (Kubasek, 2017). Sam had a conversation with Quinn, his landlord,

about his barking device, which is most likely when he became aware of Sam’s business. Since

Sam appears to be creating a product in his home that he may start selling in stores, Quinn

considers this starting a business in his apartment, which would be in breach of his leasing

contract.

D. Grounds to Evict

Based on all of the information provided, Quinn has grounds to evict Sam from his apartment

due to Sam disturbing other tenants with his device. In the contract, Quinn promised to provide

Sam with covenant of quiet enjoyment, which Sam, in turn, has been given the right to quiet

enjoyment of the property. Since Sam is not obeying this part of the contract he signed, Quinn

has the legal grounds to evict Sam. Additionally, just as Quinn promised to provide Sam with the

covenant of quiet enjoyment, he promised his other tenants that same thing. Therefore, if a tenant

is being to loud and breaking the quiet enjoyment of others in the building, Quinn is responsible

for handling the situation and keeping the peace.

Quinn may also have grounds to evict Sam if there was a part of the leasing contract that

stated Sam was not allowed to run a business out of his apartment. Where Quinn may run into
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difficulty, in regards to the law, is that he did not tell Sam to stop when Sam informed him of this

“business”. If Quinn knew Sam was breaching the contract they had signed, legally he should

have told him to stop upon hearing of the business. This could be seen as Quinn waiving the

clause, and approving of the business, especially since Quinn wished Sam luck on the invention

of the device.

E. Defenses

Sam has many defenses that he may raise to combat the eviction action on both grounds. Firstly,

regarding the noise the complaint, the information provided doesn’t show exactly how many

people or how often the other tenants were complaining about the barking. The severity of the

problem was not provided, so it is difficult to know how big of an issue it was for the other

tenants. Additionally, if Sam can prove in court that his invention was not absurdly loud and did

not break the peace for other tenants, then he may be able to bring a suit against the landlord or

even sue for damages. Furthermore, Sam was not warned about the noise problem before he

received his eviction notice. He was not given a chance to amend the noise problem or to even

realize that it was an issue that needed to be changed. Moreover, depending on the state that they

reside in, Sam could be allowed up to 90 days to move out of his apartment (Goldscholle, 2020).

Usually, “the time allowed under state law for such a notice is usually 30 or 60 days, but it may

be as short as 20 days or as long as 90 days” (Goldscholle, 2020). This all relies on the laws in

the states that Sam and Quinn reside in, however. This could potentially give Sam a little more

time to find another place to move out, or even determine with a lawyer if he has a chance at

beating Quinn in court.

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In regards to Sam running a business out of his apartment, like stated earlier, Quinn

wished him luck on the invention of his device when Quinn was told about it. Quinn has no

grounds to evict Sam if he knew of his wrongdoing, and he did not tell Sam to stop running the

business in the apartment. Sam was informing his landlord of what was happening, and Quinn

wishing him luck with his device can be seen as Quinn waiving the clause in the lease

agreement. This interaction between the two can also appear to be a verbal agreement that

showed the landlord was okay with Sam’s business in the apartment, as well as Quinn

encouraging Sam to keep going. Lastly, Sam, again, was not warned about his actions prior to

the eviction notice, and thus not given a chance to correct his actions or to understand what he

was doing was not allowed in his apartment. As far as he knew, the landlord approved and

encouraged him in regards to his invention. Therefore, Sam has ample grounds to defend himself

in the courts of law against both of the causes for eviction.

Milestone Three:

A. Business Entities

There are four different business entities for Jeb and Josh to consider before selecting the

right one for them. The first business form is sole proprietorship, which is when one person

undertakes all the responsibilities of management and receives all the profits (Kubasek, 2017).

This is the first and main reason why this form would not work for Jeb and Josh. Jeb has said

that he will not participate in the day-to-day operations at the store or any of the excursions.

However, he will not have much say in the business if they choose sole proprietorship with Josh

as the sole proprietor, and vice versa if Jeb is the sole proprietor. Additionally, one partner has to

rely on the other to provide him his half of the profits, or perhaps more likely, they would have
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to draw up a contract stating each partner receives equal profits. This may be far too much

paperwork and trouble than this option may be worth. Furthermore, sole proprietorships are very

easy to start up, but the sole proprietor is held personally liable for the losses of the business and

can be sued personally for something related to their business (Kubasek, 2017). This would be a

huge downside to this option for Jeb and Josh. Additionally, the only funding that the owners get

are their own personal funds, as well as any loans that they can acquire (Kubasek, 2017). This is

another big downside to this entity. Altogether, a sole proprietorship does not seem to fit the

needs of Jeb and Josh, and would not work for multiple reasons.

The second business form to consider is partnership, which is “a voluntary association

between two or more people who co-own a business for profit” (Kubasek, 2017). Just like the

last form, the creation of partnerships is very easy to start up, and the partners can be held

personally liable for any losses of the business (Kubasek, 2017). This would be the main thing

that would most likely deter Jeb and Josh from choosing this option. Being liable for all the

business losses are not a great position to be in if something goes wrong. Plus, the main source of

money comes from Jed, so if anything were to happen that would bankrupt him, the business

would greatly suffer. On the positive side, any income that the business receives would be

considered personal income for the partners (Kubasek, 2017). Moreover, any of the losses from

the business may be taken from taxes (Kubasek, 2017). This form offers a lot of advantages that

would be good for Jeb and Josh, and a valid choice for them to consider choosing. However,

being personally held liable for any losses of the business may ultimately not be the best course

of action for the two business partners.

Other forms of partnerships include general partnerships, limited partnerships (LP), and

limited liability partnership (LLP). A general partnership is a partnership where the partners
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divide the profits and management responsibilities between them equally (Kubasek, 2017).

Additionally, the partners in this partnership are responsible for all the debts the business accrues

(Kubasek, 2017). The liability for the business losses is a big disadvantage for Jeb and Josh, plus

Jeb does not want to a part of the day-to-day operations of the business. A limited partnership

consists “of one general partner and at least one limited partner who does not have any part in the

management of the business” (Kubasek, 2017). While Jeb did not want to be part of the small

everyday decisions, he most likely will want to have a say in bigger management decisions. With

this partnership, he will not have much say over what occurs in the business, or where his money

will go. The general partners are also responsible for the business losses, while the limited

partners are only liable up to the amount they invested in the business (Kubasek, 2017). Josh will

not have the cash flow to help pay the debts if any problems were to arise, and Jeb may not either

if he goes bankrupt. Altogether, these do not seem like good options for Jeb and Josh to choose,

as it does not cover their personal liability and cash flow problems. Lastly, a limited liability

partnership (LLP) is “a partnership in which all partners are liable only to the extent of the

partnership’s assets” (Kubasek, 2017). This may be a good option for Jeb and Josh to consider

solely for that reason. They will only have to be responsible for paying up to the amount they

invested in the business if any liability issues were to come up (Kubasek, 2017). This will protect

all of their personal assets, like Jeb’s wind-farms. However, being liable for the amount of

money invested may be more of a problem for Jeb since he is investing more money into the

business than Josh. Furthermore, LLPs have a few special requirements in order to be created,

and the partners have to pay taxes on their shares of income they get from the business (Kubasek,

2017). Overall though, an LLP seems like a solid form for Jeb and Josh to consider choosing.
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The third business entity for Jeb and Josh to consider is a corporation in which “a legal entity

[is] formed by issuing stock to investors, who are the owners of the corporation” (Kubasek,

2017). The shareholders of the company cannot be sued because they have limited liability, and

all the profits they receive are taxed as their personal income (Kubasek, 2017), which are great

advantages for Jeb and Josh. Jeb could also be considered a shareholder since he does not want

to be a part of the day-to-day operations, but still wants to have a say where his money is going.

As shareholders, they cannot be sued for something related to the company, which would protect

the business assets of any shareholders or officers. This would be greatly beneficial for Jeb

regarding his wind-power business. Furthermore, in a company is it fairly easy to increase the

business’s capital by distributing stock (Kubasek, 2017). This is preferable because investors,

loans and personal funds are not the only option for funding. Whenever more money is needed,

the company can issue more stocks.

However, there are a few disadvantages of corporations to consider. The first is that “a

corporation must pay taxes on its profits, and its shareholders must pay taxes on the dividends

they receive from it” (Kubasek, 2017). Jeb and Josh may also not have as much say in what goes

on in their company since there are multiple stakeholders to please, and officers making the final

decisions (Kubasek, 2017). Additionally, there are regulations companies have to keep up with in

order to institute and preserve the corporate form (Kubasek, 2017). This includes creating

bylaws, as well as documenting certain officer or board meetings and transactions (Kubasek,

2017). Depending on how many formalities, and guidelines Jeb and Josh prefer to follow, this

may be a good option for them to consider. The most important aspects are covered with this

form, which is money and limited liability for the shareholders, making this one of the better

options for Jeb and Josh.

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The fourth and last business for the two to consider is a limited liability company or LLC.

The members of this unincorporated business have limited liability, similar to corporations, and

are taxed similar to partnerships (Kubasek, 2017). These are huge advantages since the members

cannot be sued or be held liable on behalf of the company’s actions, and they will only get taxed

once. While there are many positives, there are also a few negative aspects. The main downside

is the partners will be held personally responsible for any of the business losses, which, again,

may become a problem if Jeb goes bankrupt for whatever reason. Additionally, it is quite

difficult to form an LLC. Limited liability companies, also, do not cover the potential money

flow problem, but it does provide limited liability for Jeb and Josh, which is a huge positive. This

business form has many advantages for Jeb and Josh, and would be a valid entity to consider for

Arcadia Sports.

B. Specific Business Entity

The business entity that Jeb and Josh should choose is a corporation. First of all, with a

corporation, if Jeb and Josh are shareholders, they will not be held personally liable for any debt,

and cannot be sued. This could potentially be a big problem since they are including outdoor

excursions in their business. The limited liability, plus any insurance the company purchases to

further cover other kinds of liability, and personal injury waiver forms, will cover Jeb and Josh

quite well. Their profits from the business will be taxed like income, as well. Furthermore, one of

the biggest advantages of a corporation is the fact they can issue more stock in order to gain

more capital for the business. Cash flow could potentially be an issue if they solely relied on

Jeb’s money, and if he had gone bankrupt. Even though they have to follow more regulations

that any other business entity, and pay taxes twice, the advantages of this form seem to outweigh

the disadvantages.
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C. Damages

The business entity that would find Jeb and Josh liable to Jane for damages regarding the raft

accident is a partnership. As stated earlier, when a partnership is formed “partners are personally

liable for all losses, including those of another partner (in most cases)” (Kubasek, 2017). The

liability also extends to any injuries or damages that may befall their customers in the business.

This is due to partnerships having unlimited liabilities (Kubasek, 2017). In a business where

people can potentially get hurt, it is important to have a business entity that protects the business

from being sued and held liable. Evidently, a partnership is not the right way for Jeb and Josh to

go, which is why choosing the correct business form that matches the business model is so

important. Additionally, the use of liability waiver forms and purchasing insurance to cover any

other ways of liability is essential.

D. Seize the Assets

After analyzing all the business entities, it seems many of them would allow Jeb’s personal

creditors to seize the assets and/or profits of Arcadia Sports. However, there does seem to be one

business entity that would give Jeb’s personal creditors the ability to seize a great amount of the

assets and/or profits of Arcadia Sports and that is a general partnership. As identified earlier,

partners in a general partnership are responsible for all debts and losses that a business

accumulates (Kubasek, 2017). Furthermore, each partner in the partnership has unlimited

liabilities regarding each partner’s commitments in the business (Kubasek, 2017). This means all

of the partners can be equally held liable for any amount of injuries or damages. So Jeb’s

personal creditors would then be able to seize Arcadia Sports’ assets and/or profits, and Jane

could most likely receive compensation for her injuries. Altogether, this is why a general

partnership is not ideal for Jeb, Josh, and the future of Arcadia Sports.
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Final Project

References:

Federal vs. State Courts - Key Differences. (2016, June 21). Retrieved from

https://litigation.findlaw.com/legal-system/federal-vs-state-courts-key-differences.html

Fraud: Definition of Fraud by Lexico. (n.d.). Retrieved from

https://www.lexico.com/en/definition/fraud

Goldscholle, G. (n.d.). Eviction Notices: Requirements and Procedures. Retrieved from

https://real-estate-law.freeadvice.com/real-estate-law/landlord_tenant/eviction-notice-

process.htm

Kubasek, N. K. (2017). Dynamic Business Law. New York, NY: McGraw-Hill Education.

Long-arm statute. (n.d.). Retrieved from https://www.law.cornell.edu/wex/long-arm_statute

Minimum Contacts Legal Definition. (n.d.). Retrieved from https://www.merriam-

webster.com/legal/minimumcontacts

Personal Jurisdiction. (n.d.). Retrieved from

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

Subject matter jurisdiction. (n.d.). Retrieved from

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