Applying Legal Knowledge to Business Organization, Agency, Liability, and Contracts

Scenario One
Otis should choose a sole proprietorship for his business. A sole proprietorship is a
business that is owned and operated by the owner. The business is unincorporated, and this
means that the business does not have a separate legal entity from that of the owner. There are
various advantages that are mainly based on the ease of creation of a sole proprietorship. One of
the main advantages of a sole proprietorship is that it is easy to form (Beatty, Samuelson &
Abril, 2021). Otis Owner can establish a sole proprietorship with ease. There are no detailed
legal formalities that are needed for the formation of a sole proprietorship. There are no
agreements that need to be entered into or detailed legal processes associated with the formation
of the business. Dissolution of the business is also easy.
A sole proprietorship will mean that Otis Owner will get rewards for his efforts. Unlike in
a partnership, Otis will take risks and reap all the rewards associated with the risks. Any creative
idea implemented in the business will result in rewards that will be reaped by Otis. In addition,
Otis will have full control over the business (Beatty, Samuelson & Abril, 2021). He will make all
the relevant business decisions and will not have to wait for the decisions to be approved. He will
take charge of the business and will ensure that he acts in the best interests of the business. The
decision-making process will be quick. The bureaucracy associated with corporations will not be
present in a sole proprietorship.
A sole proprietorship has tax advantages. The process of paying taxes in a sole
proprietorship is relatively straightforward. The business will not need to apply for an employer
identification number. Instead, the income will be taxed as personal income (Beatty, Samuelson

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& Abril, 2021). Otis will thus use his social security number when filing tax returns. The taxes
for the business will not be paid separately, and this reduces the paperwork. Otis will have a
personal touch with the business. The business will ensure that Otis can bring his skills and
expertise. He will be able to convert his dreams into business ideas. The business will be simple
and dynamic. Otis can make changes to his business model based on the business environment.
He can make cost savings by ensuring that he adjusts his business accordingly. Further, Otis can
keep the business secrets. He will not share the secrets of his business with anyone and will
maintain control of the business.
Scenario Two
Otis is liable for the injuries that Doug Driver sustained. Kelly Kleaner works for Otis.
The implication is that they have a principal-agent relationship. The employment relationship
means that Kelly acts on behalf of Otis. In an agency, the agent is subject to rules and control of
the principal. They must follow the instructions that the principal gives. In this scenario, Otis has
assumed authority over Kelly (Beatty, Samuelson & Abril, 2021). A principal-agent relationship
creates certain fundamental duties. One of the main duties is the duty of loyalty. An agent owes
the principal the duty of loyalty. The implication is Kelly must remain loyal to Otis. Kelly also
has a duty to act in accordance with the terms set out in the contract. Kelly must also act
diligently and exercise high levels of care.
On the other hand, Otis has the duty to indemnify the agent. Kelly’s actions were
undertaken on behalf of Otis. As a result, Otis must indemnify Kelly. The principle of vicarious
liability applies in this scenario. Vicarious liability holds that employers are liable for the actions
of their employees. Vicarious liability arises when one party has the authority of control over the
actions of another party (Sharkey, 2018). They are therefore held liable owing to the control that

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they have over the third party. In this scenario, Otis has the ability to control the actions of Kelly
Kleaner. The negligent acts or omissions of Kelly Kleaner bind Otis. There is a sufficient
employment relationship between Kelly and Otis. Kelly was cleaning the business premises on
behalf of Otis, and this means that Otis is liable for any injuries that may have resulted from that
act.
Scenario Three
Otis faces a difficult legal and moral dilemma in relation to the use of artificial
sweeteners. However, Otis should not use the sweetener based on both ethical and legal grounds.
The sweetener is inexpensive, and this means that his business stands to gain. It will result in a
reduction in costs while at the same time increasing the sales revenue. The sweetener will result
in short-term benefits. However, the business could suffer from various problems in future. The
Food and Drug Administration (FDA) has put in place laws that make it illegal for business
owners to use ingredients that make their products harmful (Harpaz et al., 2018). The use of such
products is illegal even when there is no law that directly prohibits the usage of such products.
Any additive to food must be verified by the FDA before approval is granted.
If Otis uses the additive, he will be violating the law. He may therefore face various legal
sanctions in the future. If a legal suit is brought against Otis by the FDA, he could face various
legal sanctions. He could be fined heavily and could lose his license. In extreme cases, criminal
proceedings may be instituted against him, and he could be jailed as a result. Otis should,
therefore, not make the mistake of sacrificing the future of his business for short-term economic
gains. One ethical theory that can be used in this case is utilitarianism. Utilitarianism is an ethical
and moral theory that analyzes actions based on their outcomes. The implication is that an ethical
decision is based on the outcome of the alternatives.

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Utilitarianism advocates for actions that result in the happiness of the majority. Actions
that cause unhappiness and harm are opposed. The theory would advocate for business decisions
that help in the betterment of society. In the case of Otis, he has two alternatives which are using
the additive or failing to use the additive. In the first alternative, the implication would be that
many people would get cancer. This will create unhappiness in society. The second alternative is
to not use the additive, which would mean that he reaps lesser profits. However, since the second
alternative helps in creating happiness for the majority, it is the most ethical choice.

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References

Beatty, J. F., Samuelson, S. S., & Abril, P. (2021). Business law and the legal environment.
Cengage Learning.
Harpaz, D., Yeo, L. P., Cecchini, F., Koon, T. H., Kushmaro, A., Tok, A. I., … & Eltzov, E.
(2018). Measuring artificial sweeteners toxicity using a bioluminescent bacterial
panel. Molecules, 23(10), 2454.
Sharkey, C. M. (2018). Institutional Liability for Employees’ Intentional Torts: Vicarious
Liability as a Quasi-Substitute for Punitive Damages. Val. UL Rev., 53, 1.