Business Entities, Laws, And Regulations

This paper will focus on the challenges faced by one start-up businesses and an established company with labor issues. For the start-up, a birth clinic, a case needs to be made for the type of business entity they should each use. The established company is a construction company whose business entity must be identified and employment law pertaining to the scenario will be discussed. For each business, identification of the best business entity for the given situation needs to be accomplished first. The decision of the type of business entity will take into consideration control, taxation, and liability issues. Review of the laws and regulations that each ownership group must consider and identification of risks that the businesses should protect against will be discussed. Review of the construction company’s business structure and how it affects control, taxation, and liability issues along with how employment law impacts the current scenario is focused on.

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In examining the birth clinic identifying the ownership structure and control issues will determine of the proper business entity be used. Below is the information provided:

“Akiva and Tara have just completed all educational and experiential requirements to be licensed as obstetricians. They want to open a birth clinic together. They will take out a large loan to finance start-up costs”

The proper business entity for Akiva and Tara is a limited liability partnership (LLP). The reason for this is that it provides limited liability to the extent of their capital contribution to each of the partners for negligence performed by the other partner. However, the partner that causes the negligence can be held personally liable for their acts. The LLP is specifically designed for professionals, lawyers, doctors, etc. that want to go into business together. It is a requirement in many states that LLPs carry liability insurance of at least $1 million this is to cover any malpractice suits that may occur and to insulate the partners from personal liability.

Like the limited partnership discussed earlier the LLP is taxed via the “flow- through” method. Akiva and Tara must sign and execute documents in order to form the LLP in this case it is called articles of partnership that must be filed with the office of the secretary of state. The articles must state the name of the partnership, duration of the partnership and other information as required by the state (Cheeseman, 2010).

The scenario for the construction business requires a review of the business entity which is a corporation. This review includes taxation, control, and liability issues that affect corporations. Discussion of employment law as it pertains to the scenario will follow. Below is the information provided in the scenario:

“Mei-Lin is the hiring manager for Surebuild, Inc., a new construction company. She has advertised a position as a jackhammer operator. The position’s description states that the successful applicant must have a high school diploma. The following people apply for the position: Michelle, 35, who appears to be pregnant, is a high school graduate, and was formerly employed as a jackhammer operator; Eric, 55, who is experienced with a jackhammer, but has no high school diploma; Felipe, who is 38, speaks no English, has no high school diploma, but is experienced with a jackhammer; and Nick, 23, a college graduate who is epileptic, and has no experience with a jackhammer”

As previously stated Surebuild, Inc. is a corporation that for legal purposes is a legal person. This means that the corporation itself is considered to be an entity unto itself as far as the law is concerned. A corporation’s management is the responsibility of the board of directors which is elected by the shareholders; the shareholders are the owners of the corporation. The board of directors determine the policy for the corporation and appoint officers to manage the of the corporation. The combination of the elected board members and the up the corporate management team (Cheeseman, 2010).

Most of the shareholders have little or no say in the operations of the company and therefore have liability limited to the amount of their investment. The corporation itself is liable for any debts and contracts. Although, employees can still be held liable along with the corporation for torts committed while performing company business (Cheeseman, 2010).

The corporation files its own taxes with the federal and state governments and with any other entity that has the ability to tax income. The owners are only liable for taxes upon dividends received and realized capital gains. Dividends are payments to owner based upon a percentage of the share price or a percentage of profits. Capital gains are generally any monetary gain that an owner receives upon the sale of shares in the corporation.

Several labor laws can be called into question in the hiring portion of this scenario. A case can be made that none of them apply. Surebuild is not obligated legally or ethically to hire any of these candidates. Advertising an open position does not legally require a company to fill that position then or at any time in the future. Those laws that may apply are Title VII of the Civil Rights Act of 1964, Age Discrimination in Employment Act (ADEA), Americans with Disabilities Act (ADA), and the . These laws are to protect workers from discriminatory practices in the workplace including hiring. Title VII states that businesses with more than 15 employees cannot discriminate based on race, color, national origin, religion, or sex. ADEA protects employees from age 40 and up from being excluded based solely on age. ADA prohibits discriminating against potential employees based upon a disability. If a person with a disability is the best qualified applicant and making accommodations for the disability are reasonable then that candidate must be hired. The Pregnancy Discrimination Act protects women who are pregnant or have children from be discriminated against in the workplace (Cheeseman, 2010).

When deciding on the type of business entity to use owners must understand how the entities differ and how they are similar. It is not always cut and dry as to which entity is the correct one for some situations. All business leaders need to be aware of the various employment laws for there own protection against lawsuits from employees and prospective employees. Laws on discrimination in the workplace are in place to protect workers but those same laws also protect employers.


Cheeseman, H.R. (2010). The legal environment of business and online commerce: Business ethics, e-commerce, regulatory, and international issues. (6th ed.) , NJ: Pearson Prentice Hall.

University of Phoenix. (2010). Course syllabus. Retrieved from University of Phoenix, BUS415 – Business Law website.