Business law memo

business law memo over a case

Business Entity Formation Memorandum
Fact Pattern:
You just passed the bar and are working at a small firm in Lubbock when a new client strolls into your
office with the following situation:
“My name is Billy Joe Smith and I want to take advantage of the amazing demand for tortillas out here,
especially with all of them kids chunkin em at the Tech games. I’ve been messin around in the kitchen
and came up with a winning recipe I reckon. My tortillas are aerodynamic and heavy enough to really
allow for them to get on to the field or hit opposing players…lol. They’re also infused with honey, so
you can have a tasty snack right out of the package. Everyone who’s tried em loves em. I put my
$20,000 tortilla press that I bought on Ebay at Sammy Jo’s house, because he has lots of land and a nice
building here in town. I don’t have a lot of cash, so I’m probably going to need some money at some
point to help with supplies and advertising. I talked to granny the other day and she’s willing to help in
return for being a part owner, but she’s concerned about losing all her cotton fortune if a problem came
up. I told her she was crazy, as I know what I’m doin. I thought I could just start baking and selling to
keep costs down, but my cousin Sammy Jo, who wants to be a part owner/operator of the business, said I
might need to talk with one of you legal fellers first to make sure we’re structuring things right as we
don’t want to pay a lot in taxes either or run into other legal troubles. Should I do anything legally or
should we just take grannies cash and get goin?”
Your task is to draft a memo to the client expressing your opinion as to what he should do with regards
to the organization of his business given the circumstances described. You should discuss completely
the business entity you recommend for his venture and also explain why you might not have felt that the
others were very appropriate. This is your chance to show that you can apply the class concepts and
terminology appropriately. Do not consider or even mention the LLP, FLLP, or C Corporation in your
response at all!
Format: This memo (“google” memo formatting if you don’t know) is to be typed in Times New
Roman, 12 point font. Memos are generally single spaced. The correct length is whatever it takes to
adequately explain your recommendation to the client and briefly discuss why you would not
recommend the other entities we studied and I didn’t exclude. The best submissions average about a
page and half or so.
Grammar issues are worth 24 points. This includes using memo format and citing (internally) where
appropriate, as well as including references at the end. As a new legal professional, you should also be
correctly using basic grammar conventions with regards to spelling, punctuation, and proper phrasing.
An overall grading rubric may be found on the next page. A more detailed grammar rubric is attached in
the assignment instructions. Please title your submission as: Your last name_Entity_Sp 22.
Retake the Bar
Probably an
Ethics
Complaint
Issues with
proper memo
format and/or
numerous
grammatical
issues per page
on average. (916 points)
Paying the Bills Going to be the
next TV star!
The entity
could work
given the facts,
but is not the
best. (8-12
points)
There were a
few minor
errors with
regards to the
entity
discussion
and/or one key
entity may have
either been left
out or needed to
be discussed
more. (43-53
points)
Grammar (see
separate
attached rubric
for breakdown
of this
component)
Not in memo
format and/or
has rampant
issues with
grammar. (0-8
points)
Entity Choice
There is no way
this entity
should have
been chosen.
(0-3 points)
Did not choose
an appropriate
entity. (4-7
points)
Analysis
Accuracy issues
were rampant
and/or business
entities were
not the focus
and the paper
deviated
significantly
into other
matters. (0-24
points)
There were
significant
accuracy issues
in discussing
the entities
and/or multiple
entities were
not mentioned.
(25-42 points)
There may be a
slight format
issue and/or
there are two
grammatical
mistakes per
page on
average. (17-20
points)
The paper is in
proper memo
format and
contains no
more than one
grammatical
mistake per
page on
average. (21-24
points)
Recommended
the most correct
entity given the
facts. (13-16
points)
In all cases the
entity
characteristics
were discussed
accurately and
there was good
analysis as to
why the other
entity forms
were not
recommended.
(54-60 points)
TO: Billy Joe Smith
FROM:
DATE: April 30, 2022
SUBJECT: Business Entity for Tortilla Company
There are many different entities that an owner can choose from when creating their business.
The key is to choose an entity that will be best for the business and for the owners. These entities
range from a sole proprietorship all the way to a corporation. In this memo, I will go over each of
the entities and talk about the benefits and problems with each one. I will give my opinion on
which entity will be the best for your current business and its future based off the information
you have told me.
After reading the situation of your current business and doing some research on business entities,
the best option for your business in the future is to become a limited liability company (LLC).
An LLC “is a hybrid entity that combines the limited liability aspects of a corporation and allows
the tax advantages of a partnership” (Clarkson & Miller, 2021). In an LLC, the owners of the
business are called members and they all have limited liability when it comes to the business.
The first thing you mentioned is that these tortillas are good for throwing at Tech games. By
having an LLC, this will reduce the liability of the members in case someone gets hurt when
these tortillas are thrown. You will not be held personally liable because the business will shield
the members from being personally liable. This way, Granny, will not lose her “cotton fortune”
because she cannot be held personally liable for the business. There are only a few instances
when a court can hold a member personally liable. The first is when a member personally
guarantees payment of a business loan to the LLC (Clarkson & Miller, 2021). That member will
then be held personally liable because they individually guaranteed the payment. Another reason
a member could be held personally liable is when a member fails to comply with certain
formalities within an LLC (Clarkson & Miller, 2021). The event must be clearly extraordinary
for the courts to pierce the corporate veil (Clarkson & Miller, 2021). This shows that if, Granny,
follows the rules for the LLC she will not be held personally liable, and she will not lose her
“cotton fortune”. You mentioned that several people wanted to be part owners of the business
and contribute resources. An LLC will allow them all to be members of the company.
Another advantage of your business becoming an LLC is that there is flexibility in taxation of the
business. An LLC with two or more members can choose to be taxed as a corporation or a
partnership (Clarkson & Miller, 2021). If you choose to be taxed as a corporation, the entity must
pay income taxes on its profits, as well as the members must pay an income tax (Clarkson &
Miller, 2021). This will result in double taxation on the business and its members. You
mentioned that you wanted to keep taxes low. The best way to do that is to decide to be taxed as
a partnership. In a partnership, the entity will not have to pay taxes. Instead, the profits are
“passed through” the business to the members (Clarkson & Miller, 2021). The members will then
pay a tax on the income they receive from the business. This will result in the business and the
members to be taxed once on the profits. The only disadvantage of becoming an LLC is that state
LLC statutes are not uniform (Clarkson & Miller, 2021). This means that a company that
operates in multiple states may not receive consistent treatment in these states. This should not
affect your company if you are only planning on operating in the state of Texas. Overall, I think
this will be the best decision for your business.
There are many types of business entities that I think will not be the best for your company. I
will share why I think these entities would not work for your business. The first is a sole
proprietorship. A sole proprietorship is when the business owner is the business (Clarkson &
Miller, 2021). This type of entity is when the business has a single owner. Your business will not
be a sole proprietorship because you have more than one owner. Also, in a sole proprietorship
the owner alone must bear the losses and liabilities of the company (Clarkson & Miller, 2021).
This means that the liability will not only hurt the business but will hurt the owner of the
business personally. The personal assets will be at risk for the owner (Clarkson & Miller, 2021).
That is why a sole proprietorship is not the best business entity for your company. The next type
of entity is a franchise. A franchise is when an arrangement is made where the owner of
intellectual property licenses allows others to use it in the selling of goods and services (Clarkson
& Miller, 2021). This type of entity will not work because you are wanting one location and you
plan on doing all operations yourself. Franchises are for businesses that want to enter multiple
markets. The next type of entity is a general partnership. A partnership is when two or more
persons co-own a business for profit (Clarkson & Miller, 2021). A partnership is good for
business in terms of taxation. This is because the taxes are only applied to the personal profits of
the owners and not at the business level. The reason a partnership will not be good for the
business is that the owner are held personally liable for losses (Clarkson & Miller, 2021). This
means the personal assets of the owners are at risk.
The next type of entity is a limited partnership. This type of partnership is when one owner is a
general partner that assumes management responsibilities and has all responsibility for the
partnership (Clarkson & Miller, 2021). The other partner is a limited partner that only contributes
cash or other property (Clarkson & Miller, 2021). The problem with this type of partnership is
that you have multiple owners that want to be involved in the operation of the business. The last
type of entity is a S corporation. A S Corporation will not benefit the company because as a
corporation the owners will be taxed twice. Once through the profits of the business and once
through the profits the owners receive form the business. This will result in high taxes which is
not what you want as owners. This why I think that an LLC will be best for your business
because it will keep your taxes lower and limit the liability of the owners.
This is a good example of the form and structure I want to see. The memo starts with a general
overview of the task, previews the entity selected, discusses the plusses and minuses in detail of the
chosen entity, and then explains why the other potential entities were not appropriate. As you can
see, some points were lost for grammar, phrasing and a few inaccuracies, but this paper would have
still scored fairly well. The length itself is not critical and I have had a couple score higher in the past
that were approximately one page and hit things more directly and cleaner overall. It is a risk though
in going short and leaving out important details.