Family First Farm is a small family-owned business in Florida that grows a variety of fruits and vegetables. Although Family First Farm is a small business, they employee 15 full-time employees. Depending on the time of the year, the farm may employ 20 to 30 temporary hourly employees. They also operate several small retail outlets that sell a variety of products that appeal to families that enjoy healthy foods. The stores also sell small inexpensive household trinkets such as cookware, aprons, cookbooks, and handcrafted knick-knacks.
Over the past few months, Family First Farm experienced an unusual amount of legal problems. The owner of Family First Farm, Oliver Douglas, consults with the senior partner of the law firm where you work. The senior partner asks you to prepare a legal memo outlining the law as it relates to the issues, as well as an analysis of actions the corporation should take to remedy each situation.
1. Family First Farm was founded in 2006 by the Douglas family. Because it was a small family business, Oliver Douglas decided to keep things simple and operate as a sole proprietorship. Mr. Douglas is concerned that the business has grown too much for one owner and some of the issues the business faces could affect his personal assets. What options are available for Mr. Douglas and Family First Farm? Select the business type you believe is best for Family First Farm and support your decision.
2. Three of the Family First Farm board members entered into an agreement to purchase a new tract of land to plant orange and grapefruit trees. The board hired an independent contractor to prepare the tract of land. The independent contractor used a special chemical to fertilize the land. Because Family First Farm was family oriented, the employee's children often played in the fields. Arnold, the five-year-old son of Doris liked to dig in the dirt and spent all day trying to dig to China out in the new field. Arnold suffered a severe allergic reaction to the chemicals. Arnold's throat was almost completely blocked and a painful rash covered his entire body. After being resuscitated by paramedics, he was hospitalized for several days. Doris threatened to sue Family First Farm, the independent contractor, and manufacturer of the fertilizer. Can Doris recover damages from any of the parties? Discuss why or why not.
3. Each year since 2007, the accounting firm of Goode and Thuro was contracted to prepare audited financial statements for Family First Farm. Each year until the current audit, the CPAs did not find any discrepancies. This year, Arthur Goode discovered quite a few discrepancies in Family First Farm's records. After some investigation, Arthur discovered Eva, who handled accounts receivable for Family First Farm, had embezzled approximately $50,000 in company checks and obtained a loan using falsified records. Instead of depositing checks into the company account, Eva endorsed and cashed approximately 75 checks made payable to Family First Farm over the course of nine months. In 2009, Eva falsified the accounting records to make it look like Family First Farm had more assets than the company actually owned. Eva then induced the local bank to give Family First Farm a loan based on these falsified records. The local bank president demanded the remainder of the loan be paid in full within 90 days. Family First Farm did not have the money to pay the loan. Which party or parties will be responsible for repayment of the loan to the bank? Are the accountants liable to anyone? Can Family First Farm recover the $50,000 in forged checks from Eva or the bank? Discuss why or why not.
4. On a recent trip to Family First Farm, a manufacturer of computer equipment promoted a new digital seed planter as "the best planter in the world!" Oliver entered into a verbal contract to purchase one of these planters for $6,500 to be delivered by March 1, 2011. The seller failed to deliver the planter and explained that its failure was caused by unanticipated technological difficulties. What rights does Family First Farm have? Is the manufacturer in breach of contract? Discuss why or why not.
5. Because the loan is due in 90 days, Family First Farm is experiencing serious financial problems. Several creditors hinted that they might force Family First Farm into an involuntary bankruptcy if Family First Farm does not pay them. Family First Farm has been trying to prioritize their payments so that the creditors that are most important to keeping their business open are paid. What are Family First Farm's options?
6. Operating farm equipment can be dangerous, so Family First Farm requires all full-time and temporary employees to take random drug tests to reduce job-related injuries. In the past year, the tested employees were 89 percent Hispanic and 11 percent other ethnicities. Hispanics made up only 90 percent of the temporary work force. Family First Farm does not have any Hispanic employees on the full-time payroll. In the past year, 15 Hispanics lost their jobs after failing the drug test. Does Family First Farm's testing policy violate any laws? Discuss why or why not. If so, do the fired Hispanics qualify for some type of compensation?
Prepare a legal memorandum using a Word document answering the six issues described in the scenario. Advising my senior partner on the best course of action for Mr. Oliver and Family First Farm to take for each issue. Support your analysis with cites to applicable case law and other scholarly legal authority. I need this to be as real as possible so I can use this for future reference in future cases.
Memorandum for Rick's case study
1. Initially, one must determine if Family First Farm is owned by Oliver Douglas alone, or if other family members have equitable or legal claims to ownership and the percentages of, or rights to acquire that ownership in the family business. It seems counterintuitive to state that it is a family owned business if only one member owns it. If all of the assets are owned only by Oliver Douglas, he must consider the tax issues related to converting personal assets to business assets (capital investment versus loans), what assets he wishes to keep as his personal assets or transfer into the future business operations; of creating ownership in other family members, and what if any consideration should be paid or provided by other potential owner family members. Mr. Douglas may also wish to limit the transfer of ownership interests outside of the family, retain the ability to control business decisions, and -as Family First Farm has experienced an unusual amount of legal problems - consider the potential liability corresponding to those legal problems that might lead to claims of fraudulent transfers by existing creditors should the title to assets change ownership.
The options available include ownership to be held in a Florida corporate form (S or C), depending on how many family members might obtain ownership and where they reside; limited liability company; limited partnership; general partnership; joint venture; or other business entity. While incorporating a business entity in some other jurisdiction to own the business assets and qualifying it to do business in Florida is possible, since the assets and the business are already operating and located in Florida, incorporating a Florida business entity makes greater sense; especially if this jurisdiction maintains a business friendly environment.
If limiting imposition of claims on personal assets is the primary objective, I would opt for a corporate form of ownership and operations. Stocks corresponding to ownership and control in the newly incorporated business can be divided among family members or fully retained by Mr. Douglas or otherwise disposed of pursuant to Mr. Douglas' business and personal goals. Issuance and subsequent transfer of stocks can be conditioned upon Mr. Douglas retaining authority for making business decisions and limiting transfers to non-family members; whether through retaining majority ownership or via stockholder agreements, including rights of first refusal and formula to determine stock prices in the event a family member wants or has to transfer his or her stocks. Further while limited liability companies and other relatively new business entities legislatively created in various ...
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