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Important information about Contract Law

Create your own business-to-business entity (see case below). In a 1,050 to 1,750-word paper address these basic elements of business formation:
1) Idea/vision for the business
2) Identify legal and regulatory issues to be considered in creating/modifying this business
3) How you would select professionals to rely upon for business advice, and whom would you choose?
4) What legal entity choice would you make for this business and why?

Case Business Situation
Maury and Sons is an oilfield-drilling contractor. Maury has been dead for years and Monty and Max, two of Maury's grandsons, now operate the business as a general partnership. They contract with companies such as ExxonMobil and BP-Amoco. Last year's contracts exceeded $1 million in revenues, an all-time high. The partnership currently employs 50 people on oil-rig crews and 10 in administrative positions.
Monty and Max each own 25% of the business (they acquired their interests from their deceased fathers, Fred and Barney). Two aunts, Wilma and Betty, own the remaining 50%. Wilma and Betty, each in their early 80s, have no children.
The business was originally a sole proprietorship. Maury brought Fred and Barney into the business, yet there is no formal partnership agreement. Wilma and Betty have never been actively involved in the business, yet were given their interests after Maury's wife, Mable, passed away.
Monty and Max want to continue to expand the business and, eventually, sell the business to a "consolidator" (a company that buys local businesses, usually in exchange for a combination of stock, cash, and debt).

Solution Preview

1) Idea/vision for the business.
The idea/ vision of the business is to develop the oilfield drilling business and make it grow to such an extent that it can be eventually sold to a consolidated at a profit.
The basic vision would be to provide the best oilfield drilling services in the area at the most competitive prices.
Since the business is already having contacts with companies like ExxonMobil and BP-Amoco, the business should strive for the best business contracts in the region. The company should make sure that they meet or even exceed the expectations of their clients and establish a reputation as a high quality oilfield-drilling contractor. Moreover, the company should invest in the best equipment that is available in the market, adopt excellent safety measures for its employees and market its services to the best oil companies in the region. As the company wishes to expand it should streamline its methods of oilfield-drilling, introduce the latest quality improvement measures and focus on obtaining result that would satisfy the customer.
2) Identify legal and regulatory issues to be considered in creating/modifying this business.
There are legal and regulatory issues in modifying the business. The business can continue as a partnership, it can be turned into a limited liability company; it can be an S corporation or a C corporation. What is important about these is the objectives the business. If the company wants to continue as a partnership and Monty and Max are actively involved in the business and drawing salaries from the partnership, they would have to pay self-employment tax. On the other hand if they go in for a S corporation then Monty and Max will have to withdraw the earnings by way of dividends in order to take advantage of single taxation on S corporation income.
However, the needs of Monty and Max are different, they want to continue growing the business, which in other words means that there would be to plough back the profits into the business. The business would be allowed to grow till it is finally sold off to a consolidator.

3) How you would select professionals to rely upon for business advice, and whom would you choose? The selection process for professionals is dependent on the objective that we want the professional to fulfill, the required qualifications that the professional must possess, the work experience that the professional must have to meet the requirements of the oil-drilling business and the functions that he must fulfill in order to meet the requirements of the company. For example the process of consultant selection is given below. Even though the selection process is not a business but the process is very thorough and fully applicable to business situations. The following part is taken direct from the website:
"Sole-Source Procurement
Using this approach, an agency selects a single consultant either for a particular task or for a continuing relationship. Not all local governments have the flexibility to use this selection process, and an agency considering this option should consult with its legal adviser. For both legal and political reasons, an agency using sole-source procurement should document its reasons for doing so. Where a local government has the flexibility to use such a selection process, it may be appropriate to do so under the following circumstances:
1. When a consultant, due to prior work with the local government, has significant background in a matter requiring resolution in a short period of time or on a very limited budget
2. When it is politically or practically necessary to retain a local consultant, and there is only one who is qualified
3. When the community requires the services of a consultant with a unique specialty
4. If there is not sufficient time to go through a formal search procedure
5. When significant cost savings can be achieved by using a consultant who is familiar with the community and the agency and its procedures
Selection from a List of Prequalified Candidates
This process is particularly ...

Solution Summary

Contract law is discussed in great detail in this solution.