Fred’s Miracle Cough Syrup

Good Evening Fred and Sally,

I am reaching out in response to our initial meeting last week. I have been working hard over this time to come up with some ideas in regard to your new business. Presented below you will find management information, product liability, estate planning, and business entity ideas. Please look over what I have presented and I look forward to hearing back to set up our next meeting. I am here for your family and to help you succeed in your futures.

BUSINESS ENTITIES

There are a few different entities you may want to consider including sole proprietorship, a partnership, a limited liability company (LLC), or a Corporation. Looking into sole proprietorship, you have one sole owner that controls management and the profits from the company. This is a potential option for Fred’s Miracle Cough Syrup, but if you are looking to add your son, Sam, or wife, Sally, as an owner at some point it will be nearly impossible.

The next option is a partnership, in which your business would be a voluntary relationship between you, Fred and you Sally, maybe Sam in the future. A corporation is an option that includes investors and stock which is a big jump for you at this time. The best option for you at this point in time would be a limited liability company (LLC). An LLC is “an unincorporated business that is taxed like a partnership, with the members paying person income taxes, but has a limited liability of a corporation” (Kubasek, 2017 p.

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798). This is optimal right now because Fred, you are able to run the business on your own for now, and are able to add either Sally or Sam into a management position no problem in the future.

PRODUCT LIABILITY LAW

There are three main issues within product liability law including negligence, strict product liability, and breaching warranty. Negligence which creates an unreasonable risk of harm to others would be a potential issue for Fred’s Miracle Cough Syrup because it is being manufactured in an outhouse on your property, not in a manufacturing plant. There is also an issue regarding the disclaimer of reaction from the syrup if taken with aspirin. This is something that needs to be clearly stated on the product or it would be considered an act of negligence if someone files a lawsuit due to a reaction. Next there is the idea of strict product liability which causes the company that made the product, distributor, or seller of the product liable for any injured party.

This would cause any issue to fall directly back on Fred’s Miracle Cough Syrup because you are making the product in house, and Sam will be delivering the products. Once you end up approaching national chains there could potentially be some issues between them and Fred’s Miracle Cough Syrup if there is to be a disturbance (Kubasek, 2017). The last potential issue regarding product liability is breach of warranty which relates directly with the severe reaction that occurs when the product is taken alongside aspirin. This again, needs to be something address well in advance on your product and to your customers.

AGENCY RELATIONSHIP

An agency relationship is something to think about in regards to Sam. This type of relationship is between one party and an agent that acts on behalf of that party (Kubasek, 2017 p. 747). Sam is going to act on behalf of you Fred, because he is going to be delivering your product all across town.

This relationship can either be seen as an expressed agency which is an oral relationship, or an agency by implied authority where it all depends on the party’s performance. Technically speaking Fred, you already have this agency relationship in both forms because you spoke on behalf of Sam becoming a potential owner at a later time.

REAL PROPERTY

There are some potential real property issues that may occur when operating a business on your property. This involves zoning laws and the city or town you live in. The main role zoning laws play in operating a home business are to maintain the character of a neighborhood. There are specific pieces of equipment that are not allowed, along with restriction on amount of employees, etc.

The biggest issue would be the permit and business licenses required. This brings on fees and receipts of your business (Kluwer). This is something you need to address right away with the city or town hall and understand the rules and regulations they may have.

MANUFACTURE

Since this product is being manufactured on the farm, you have to consider Lily and Sam. There needs to be more talk regarding the title of the land. If it is under Fred and Sally, you two have the authority to say what goes on, on the farm in a free simple interest deed.

If the title is under Fred, Sally, Lily, and Sam since you all live on the premise things become more complicated which means you are all a part of a joint estate, where it was left to Fred, and his heirs (Hashmall, 2015). A joint estate means equal ownership of the property giving everyone a say in what happens.

PERSONAL PROPERTY

Since Sam is going to be distributing this product for Fred’s Miracle Cough Syrup there are some potential person property issues. This could lead to some vehicle liabilities.

Accidents happen, if Sam were to get in an accident while delivering product his personal property is damaged. In this situation Fred’s Miracle Cough Syrup as a company will need an insurance policy that will cover vehicles owned by the drivers. This will help steer clear from potential insurance lawsuits against the company itself.

LIABILITY ISSUES

There are a few liability issues that come into play when owning a company. The first would be the potential for product damage. Since Sam would be delivering the product to your customers it could get damaged in transit which would fall on the company.

This happens due to the strict product liability tort mentioned before under the product liability piece. Fred, you may feel as though it should be on Sam because he is the sole delivery driver for the company but it falls on the company itself.

ESTATE PLANNING

At this point in time it is difficult to navigate this topic because i.e. information provided is unknown if Fred solely owns the property or there is a joint estate on your hands. If you do not create a will or trust in the near future and something happens then the family farm may get sold off per the state.

If you do make a will and leave the farm to both children, then there is no sole person in charge. There is also potential issues regard the death of a child, would their spouse be able to still live with their children on the land of the family farm? This is something we will discuss in our next meeting.

TRANSFER OWNERSHIP

When thinking about potential transfer of ownership in a company there are a couple different ways. The first option would be through a will, which is a legal document that outlines how a person wants their property distributed upon death.

This is something you would use if you plan on owning and running the company until death, but there are significant tax advantages if you decide to transfer the company prior to that. Sometimes family members do not want to take over the company, so when you leave it in the will for them to take over the ball is now in their court and they have to either sell the company or stick with it.

The second option would be a trust, which is most beneficial for you. A trust transfers the property or in this case, the company to another person. This option gives the opportunity for an equal distribution of the company to each child. The problem that may occur would be backlash. Sam will have worked with you Fred, and have been a part of the company as a potential part owner and Lily had next to nothing to do with the company.

This could potential create an issue between the children and you as parents. Equal distribution is not something that needs to be done, and again this is something you will have to take into consideration regarding the work Sam as done for the company.

FRED’S MIRACLE COUGH SYRUP

Overall, a limited liability corporation is highly recommended. Again this 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 p.798).

This gives you the flexibility to work for yourself, create your own hours, etc. An LLC opens the door for new potential management position as well, due to your interest in promoting Sam from delivery driver to potential co-owner.

Fred’s Miracle Cough Syrup – Bankruptcy

Good Evening Fred and Sally,

I am reaching out in regards to the meeting we had this week. I have been working on your case regarding the legal issues at hand. Presented below you will find legal defenses regarding Jane’s actions along with civil claims. Also, if you did decide to file bankruptcy I have provided the best option in guard to yourselves, your family, and your property. Finally, you will find a few different legal recourse options in regards to Bob’s actions. Please take a look over what I have presented and I look forward to hearing back to set up our next meeting. I am here for you and your family to help you through these tough subjects.

LEGAL DEFENSES CHECKS TO DON

For Janes actions there are a couple of legal defenses you are able to charge. The main defense would be in regards to forgery. Which is, the “fraudulent making or altering of any writing in a way that changes the legal rights and liabilities of another” (Kubasek, 2017). Jane altered checks because she forged your signatures. The checks written to Don, due to Jane’s gambling issue were completely and utterly forgery.

Jane has a gambling addiction and something needs to be done about it. Since she completed this action, there is no way you will be able to trust her again with your financials. Forgery is going to be a successful claim against Jane because she clearly altered the checks from the company and she is not eligible to sign the checks anyway.

LEGAL DEFENSES CHECKS TO CHURCH

Where Jane forged your signature on the check to the church, you may be able to file for tax fraud as well. Since the check written to the church was a donation, Jane is able to write that off on her taxes and receive a larger tax refund. Both forgery and tax fraud are going to be successful claims against Jane because there is strict evidence proving that she signed these checks in forgery and the check to the Church was a donation which she can claim on her tax return. Even though she has not filed her taxes yet, we can assume she is going to write-off that donation to the church.

With this check, the Church is considered a holder-in-due-course because they received the check in good faith and the law protects them in this situation. Since Jane did this, you are able to have the Church dishonor the check and you will get the money back.

CIVIL CLAIMS

There are two main civil claims you are able to make on Jane’s behalf which are forgery and embezzlement. As Kubasek states, embezzlement is, “a wrongful conversion of another’s funds or property by one who is lawfully is possession of those funds or that property”. Jane clearly completed this act by taking money from the account when she was supposed to be an ethical bookkeeper for your company, Fred’s Miracle Cough Syrup. There is a bookkeeper’s code of ethics that states you must be honest at all times.

Something I have always been told is, “never steal from the people that put the food on your table”. Forgery is when someone produces another copy of a document or signature which is a white-collar crime. At the end of the day, you will be able to charge Jane with forgery and embezzlement and it will be successful. The reason for these charges being successful, is because she committed these acts. She altered the checks, mainly because she is not authorized to sign these so her signing is considered altering them.

BANKRUPTCY

Since Fred’s Miracle Cough Syrup is an LLC, as we established previously, there is one main way to file bankruptcy which is under Chapter 7. Filing under Chapter 7, the bankruptcy trustee will gather and sell all nonexempt assets of your company and use the proceeds to pay the debts of the company in accordance with the bankruptcy code.

This is best for you because it is just going to liquidate Fred’s Miracle Cough Syrup as a whole, and all the debts on the company will be paid. There is one stipulation to this way of filing, which is that you may result in loss of property where the state could put a lien on the farm. There is conversation to be had here once we meet and I can fully understand the ownership of the family farm.

If you were not an LLC and your company was a sole proprietorship then you would be able to file under Chapter 13 which is only for individuals. Through this method you would have to come up with a payment plan to repay all or part of Fred’s Miracle Cough Syrups debt and it would have to be done within five years (U.S. Courts, 2019). You both should be luck that you are an LLC and this is a main reason why we decided to go that route in our first meeting.

Being an LLC, you and your family members that are owners of the company are protected. Only the LLC itself is liable for the debts incurred, not the owners. Chapter 7 is going to be successful for you because once you file and they liquidate all the company’s assets, you will have no future obligations in paying back any of the outstanding debt you may have.

BUSINESS ASSETS

Filing through Chapter 7 may result in loss of property where the state could put a lien on the farm. t. If they are to put a lien on the farm then the government has the first legal claim to your property. The issue that would arise here is your living quarters. The farm is technically a business asset because it is where you create Fred’s Miracle Cough Syrup, but it is also your home, where you live.

Something that is still unknown is if the farm is in all your names, just one name or under Fred’s Miracle Cough Syrup. Being an LLC the government cannot come after your personal property so you will not end up losing your home if all buildings on the property are under your name and not Fred’s Miracle Cough Syrup.

FAMILY MEMBERS

Since Fred’s Miracle Cough Syrup is an LLC the government cannot come after any of your personal assets. Like we talked about earlier with the business assets, they can only put a lien on Fred’s Miracle Cough Syrups assets not your personal assets.

INTELLECTUAL PROPERTY RIGHTS

Through intellectual property rights Fred, you can charge Bob with copyright infringement and patent infringement. As we spoke last meeting, getting a patent for your homemade remedy and trademarking “Fred’s Miracle Cough Syrup” and logo were key in your business because once people start to see what you have made they will try to do the same. Because you were able to put these in place you are able to charge Bob.

Copyright infringement is the “use or production of copyright protected material without the permission of the copyright holder” (Sharper Insight). Bob breached this copyright because he posted the ingredients without the permission from either of you. You are also able to charge Bob with patent infringement, which is when someone directly uses, makes, or sells something that has a patent.

Bob did just this, he acted willfully and posted the ingredients online just to get back at you because you backed out of an exclusive distribution with his drugstore. Through copyright infringement and patent infringement you will be successful in charging Bob. He took your product, broke it down to its main ingredients and posted online without your permission which violates both charges.

 Fred’s Miracle Cough Syrup – Legal Analysis

Good Evening Fred and Sally,

I am reaching out in regards to the meeting we had this week. I have been working on your case regarding Tammy and the possibility of taking Fred’s Miracle Cough Syrup public.

Presented below you will find a few potential legal issues that will occur in taking the company public, a legal test that can be performed to ensure the company is in compliance with government regulations, along with some recommendations to improve compliance and company growth. Please take a look over what I have presented and I look forward to hearing back to set up our next meeting. I am here for you and your family to help you through these tough subjects.

LEGAL/REGULATORY ISSUES

Looking at some legal and regulatory issues that may occur include, Jane’s embezzlement, Tammy’s lawsuit, and the classification of Fred’s Miracle Cough Syrup as a company. The first issue that arises is Jane’s embezzlement charges that gave the company a bad look. Jane committing this crime from within the company will cause investors to take a huge risk in investing because if something like that happens again they will be screwed and Fred’s Miracle Cough Syrup will be done for good. The second issue is in regards to the lawsuit Tammy is willing to file against the company and Fred himself for sex discrimination.

This alone will push away potential employees, investors, and retailers looking to sell your product. Everything starts to get really serious when sex discrimination gets involved. The third issue would be the classification of Fred’s Miracle Cough Syrup. In our previous meetings we decide the company to be an LLC, and if you are looking to go public you would have to change your business model, leaning towards an s corporation. There are a few steps to take when converting from an LLC to a corporation which fall under statutory conversion. Fred’s Miracle Cough Syrup is a domestic product, which covers the first requirement of an s corporation. The issue that arises next would be the amount of shareholders. Being a small company to start with does not help in the growth of the business nationally.

LEGAL TEST

Looking through some legal tests, I found the Howey Test to be most appropriate. This test was created by the Supreme Court to determine whether transactions through the company are investment related. For this test they require financials, information about management, security (shares) provided, and the description of the business and its assets. Fred’s Miracle Cough Syrup meets some but not all requirements of this test. This creates an opportunity for a great conversation about the ins and outs of becoming a public company.

RECOMMENDATIONS

I recommend that you wait to become a public company until you fully get back on your feet from the issues regarding Jane and Tammy. Along with growing your customer base creating an opportunity for more investors when you officially decide to expand from an LLC to an s corporation. After all the things you have been through as a family and company, it is in your best interest to wait a few more years and make sure you are in the clear form any bad press. Something else to consider is making a few more products to really pull clients in.

References

1. Hashmall, M. J. (2015, April 23). Fee Simple. Retrieved January 24, 2019, from https://www.law.cornell.edu/wex/fee_simple
2. Haskins, J. (2017, August 09). Closing an LLC After Bankruptcy – What You Need to Know. Retrieved February 6, 2019, from https://www.legalzoom.com/articles/closing-an-llc-after-bankruptcy-what-you-need-to-know
3. Kubasek, N. (2017). Dynamic Business Law. Mcgraw-Hill Fourth Edition.
4. Sharper Insight. Smarter Investing. (n.d.). Retrieved February 6, 2019, from https://www.investopedia.com/
5. Wolters Kluwer. (n.d.). Legal Restrictions on Home Businesses. Retrieved January 24, 2019, from https://www.bizfilings.com/toolkit/research-topics/office-hr/legal-restrictions-on-home-businesses
6. U.S Courts. (n.d.). United States Courts. Retrieved February 6, 2019, from https://www.uscourts.gov/