Case Study: Murdaugh Case Study 3

This case study assignment is designed to have you apply the main topics from the readings and presentations assigned this week. Each week you will review the case and answer the questions posed based on each week’s content.

Review the

Murdough Case Study

and answer the questions below.

Before you begin, be sure to review the following resources:

• Chapter 13: Criminal Law and Business
• Chapter 14: Business Organizations

Please review the case studies and answer all the questions. Each case study response must be at least one double-spaced page, APA format.

1. Based on this business structure, what liability does the firm have related to Murdaugh’s mishandling of client accounts?
2. As a partner of the firm, what will Murdaugh’s personal liability be, if any, based on the business structure?
3. What business structure, if any, might have offered PMPED great protection from liability?

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14-1
The Legal & Regulatory
Environment of Business 19e
Chapter 14
Business Organizations
Pagnattaro Cahoy Magid
Shedd
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14-2
Learning Objectives
• To describe the factors to consider when
deciding on the form of organization
• To contrast the basic organizational forms that
businesses select to conduct business
• To compare the hybrid organizational forms
businesses may utilize to take advantage of
attributes of various basic structures
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14-3
Learning Objectives, II
• To describe the authority of agents to act on
behalf of a principal in contracts and beyond.
• To recognize trends in managing
organizations.
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14-4
Forms of Business Organizations
• Basic
– Sole proprietorships
– Partnerships
– Corporations
• Hybrid
– Limited partnerships
– S corporations
– Limited liability companies
– Limited liability partnerships
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14-5
Number of Owners
• Closely held: Organizations owned by only a
few persons
– Family-owned and family-operated businesses
• Publicly held: Businesses owned by hundreds
or thousands of persons
– Business stock is traded on a public exchange
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14-6
Pop Quiz
pop pop pop
QUIZQUIZQUIZ
Which is not a basic form of business
organization?
a. Corporation
b. Partnership
c. Union
d. Sole proprietorship
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14-7
Factors to Consider When Selecting
a Business’s Organizational Form
• Cost of creation
• Continuity of the organization
• Managerial control of decision
• Owner liability
• Taxation
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14-8
Figure 14.1 – Corporate Form Selection
Factors
Source: Delaware Division of Corporations, Legal Business Structure Table,
https://revenuefiles.delaware.gov/docs/business_structures_table.pdf
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14-9
Figure 14.1 – Corporate Form Selection
Factors, II
Source: Delaware Division of Corporations, Legal Business Structure Table,
https://revenuefiles.delaware.gov/docs/business_structures_table.pdf
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14-10
Sole Proprietorships
• Least expensive business organization to
create
• Proprietorship’s continuity is tied directly to
the will of the owner
• Sole proprietor is in total control of the
business’s goals and operations
• Owner has unlimited liability for the
obligations of the business organization
• Not taxed as an organization
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14-11
Partnerships
• Agreement between two or more persons to
share a common interest in a commercial
endeavour
• Factors while considering the appropriateness
– Creation
– Continuity
– Managerial control
– Liability
– Taxation
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14-12
Think Tank
think think think
TANK TANK TANK
Each partner in a partnership is jointly
and severally liable for claims
against the partnership
a. True
b. False
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14-13
Corporations
• Artificial and intangible entity created under
the authority of a state’s law
• Types
– Domestic
– Foreign
– Alien
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14-14
Corporations, II
• Creation
– Created by a state issuing a charter upon the
application of incorporators
– Corporation must be licensed to be able to
conduct business in foreign states
• Continuity
– Corporation has perpetual existence
– Shareholder’s death or sale of stock does not
affect the organizational structure
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14-15
Corporate Managerial Control
Shareholders
Elected
Board Of
Directors
Officers
Hired
Employees
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14-16
Corporation: Liability
• Limited personal liability: Owners are liable
for debts only to the extent of shareholders’
investment in the cost of stocks
• Piercing the corporate veil: Marginalization of
the corporate entity by courts when finding
out that the corporation is being misused
• Alter-ego theory: Used to impose personal
liability upon corporate officers, directors, and
stockholders
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14-17
Case 14.1 – Corporations Liability
• Case
– Alli V. U.S.
– 83 Fed. Cl. 250 (2008)
– Federal Claims Court
• Issue
– Dr. Alli and his spouse, property owners, sued the U.S.
Department of Housing and Urban Development
(HUD) for failure to pay housing assistance. These
owners held apartment complexes through BSA
Corporation. Should the court strip away the liability
protection of the Allis’ corporation and pierce the
corporate veil?
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14-18
Corporations: Taxation
• Corporations must pay income taxes on their
earnings
• Double tax: Profits taxed at corporate level and
then dividends taxed at individual level
• Methods to avoid double taxation
– Reasonable salaries
– Reasonable expense accounts
– Reasonable loans from shareholders
– Reasonable accumulation of earnings
– Subchapter S election
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14-19
Limited Partnerships
• Includes all the attributes of a partnership
• Limited partners: Not responsible for the
debts of the business organization
• General partners: Personally liable for the
organization’s debts
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14-20
S Corporations
• Shareholders of certain corporations elect
unanimously so that the organization is
treated like a partnership
• Include all legal features of a corporation
• Shareholders have to account individual
income tax returns for shares of profits or
losses
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14-21
S Corporations, II
• Shareholders avoid having a tax assessed on
the corporate income
• Cannot have more than 100 shareholders
• Individuals are eligible to elect under
subchapter S
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14-22
Limited Liability Organizations
• Limited liability company (LLC)
– Treated as nontaxable entities
– Owners have more flexibility compared with S
corporation
• Limited liability partnership (LLP)
– Variation of the LLC
– Have characteristics of both a partnership and a
corporation
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14-23
Non-Profits
• Must be approved by the IRS
• Created for a specific reason allowed by law
• Must be created for a public purpose and not
to personally benefit owners or members
• Must return any profits made to the
organization to be used for future operations
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14-24
Operating the Organization through
Agents
• Roles of a principal, agent, third-party, and
independent contractor
• Contractual liability from an agent’s acts
– The different types of authority: actual, implied
and apparent
– The concept of ratification
• Tort liability from an agent’s acts
– Respondeat superior
• Criminal liability from an agent’s acts
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14-25
Case 14.2 – Fiduciary Duties of
Corporate Executives
• Case
– Marchand v. Barnhill
– 212 A.3d 805 (Del. 2019)
– Delaware Supreme Court
• Issue
– When Blue Bell Creameries had a listeria
outbreak, forcing it to recall its product, shut
down production, and lay off employees, did key
executives breach fiduciary duties to
shareholders?
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14-26
Deciding on Organizational Form
• Review should be performed in consultation
with advisers
• Factors and costs involved should be
appropriately weighed
• Most suitable form should be selected
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14-27
Trends in Management
• Benefit corporation: Combines aspects of
non-profit and profit organizations
– Pursues explicit socially oriented goals
• Continued definition of the nature of
corporate personhood
– Corporations are considered as legal persons
– Corporations and individuals have equal claim to
rights and protections under the law
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14-28
Trends in Management, II
• Increased decline in criminal prosecutions for
corporate wrongdoing under deferred
prosecution agreements (DPA)
– Encourages self-reporting and remediation of
illegal acts before a criminal case is commenced
– Could lead to an overly lenient environment for
addressing corporate malfeasance
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14-29
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13-1
The Legal & Regulatory
Environment of Business 19e
Chapter 13
Criminal Law and Business
Pagnattaro Cahoy Magid
Shedd
Copyright ©2022 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
13-2
Learning Objectives
• To recognize the basic terms and procedures
relevant to criminal conduct
• To explain Fourth, Fifth, and Sixth Amendment
rights
• To identify the elements of specific crimes
• To understand the far-reaching impact of
criminal behavior as the same acts can give
rise to both civil and criminal liability
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13-3
Crimes
• Wrongs against society
– Criminal law punishes wrongdoers who affect the
ownership of property
– Federal and state penal codes define criminal acts
and omissions
• White-collar crime: Any illegal offense that
occurs in a business or professional setting
– Committed to harm the business or for personal
gains
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13-4
Table 13.1 – Examples of White-Collar
Crimes
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13-5
Classification of Crime
Felony
Misdemeanor
Indictment
Grand Jury
Information
Gov’t Charge
Fine or
Imprisonment
Fine Or
Jail