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

Scenario One
Otis should establish a sole proprietorship. A sole proprietorship is the simplest form of
business that one can start. The owner is connected to the business, and the business does not
have a separate legal entity. A sole proprietorship is the most ideal business that Otis can start
owing to its various advantages. It can be established with ease. Establishing the business will
not need various legal obligations. Less paperwork is involved in the establishment of a sole
proprietorship. In contrast, a limited liability company involves a detailed legal process (Kim et
al., 2019). One must register with the state government before they can be allowed to start
business operations. The procedure is time-wasting, and Otis can avoid this process by selecting
a sole proprietorship. He will only need a license from the state and local government.
Otis can take advantage of the easy tax set-up associated with a sole proprietorship.
Unlike a limited liability company, tax requirements. Otis will not be expected to file separate
returns for the business. Instead, the income obtained from the business will be included in the
personal tax return (Kim et al., 2019). He will not have to apply for an employer identification
number (EIN). The social security number can instead be used in the payment of taxes. Sole
proprietorships are treated as a pass-through entity, and this makes the filing of taxes easier.
Another advantage stems from the control over the business. In a partnership, Otis will be
expected to make business decisions together with his partners. However, in a sole
proprietorship, Otis will have total control of the business (Kim et al., 2019). He will make
critical decisions and will have a personal touch with the business. A sole proprietorship is
highly flexible. The bureaucracy of making business decisions is eliminated in a sole

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proprietorship. One can always ensure that various rectifications are made in case they feel that
something is not working. Otis can maintain efficient operations of their business if they set up a
sole proprietorship. Wastages can be eliminated with ease. Further, Otis has the opportunity of
keeping business secrets. They will not be expected to share the business secrets, and no law will
compel them to reveal financial information about the business.
Scenario Two
Otis is liable for the injuries suffered by Doug Driver. Otis has hired Kelly Kleaner to
help him out in undertaking various activities at the shop. The employment contract creates an
agency relationship between Otis and Kelly. There ate three important elements of an agency
relationship. One of the elements is consent by both the agent and the principal. Otis and Kelly
have both consented to the employment relationship (Sharkey, 2018). The second element of
agency is an action by the agent on behalf of the principal. In this scenario, Kelly acted on behalf
of Otis by cleaning the business premises. The final element is controlled by the principal.
Kelly’s actions were being directly controlled by Otis.
The principle of vicarious liability arises as a result of this principal-agent relationship. A
supervisory party bears liability for the actions of a subordinate. Vicarious liability is the result
of the fact that the superior had control over the actions of the subordinate. An employer is liable
for the negligent acts or omissions that are undertaken by the employee (Sharkey, 2018).
Determination of liability is established through differentiating an independent contractor and an
employee. In the case of Otis, Kelly’s action and inactions resulted in the injury of Doug. Kelly
was not acting as an independent contractor, and therefore Kelly’s actions make Otis be
vicariously liable.

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Scenario Three
Otis should not use artificial sweeteners. From a financial point of view, the use of
sweeteners would result in short-term financial gains. Otis would enjoy financial gains that are
associated with increased sales. The sweetener is inexpensive, which also means that using it will
not result in a significant rise in the costs associated with running the business. However, in the
long run, the decision may result in various negative financial implications. The ingredient is not
authorized by the U.S. Food and Drug Administration (FDA). It is likely that the ingredient will
cause adverse reactions when consumed. Existing data show that the ingredient is linked to
cancer. In such a case, Otis could be exposed to criminal charges that would result in serious
legal sanctions and in extreme cases, he could be imprisoned. He could lose his license and could
be heavily fined for using the ingredient. To this end, the use of the ingredient could be
associated with serious financial implications that could result in serious losses.
Business ethics play an important role in defining business decisions. Any business must
be grounded in strong ethical practices that define what is ethical and what is not. Ethical
behavior helps ensure that a business is concerned about the welfare of its consumers as well as
other important stakeholders (Ferrell et al., 2019). A business stands to reap a lot if it behaves in
an ethical manner. One of the ways through which a business can behave ethically is through
defining the values. A business must ensure that it has a code of ethics. The values must be easy
to analyze as well as remember. There are various ethical theories that have been advanced over
the years. One of the ethical theories is utilitarianism (Ferrell et al., 2019). Utilitarianism is a
consequential ethical theory where the action is evaluated based on its consequences. The most
ethical decision is one that maximizes happiness for the greatest number.

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Otis can evaluate the decision using utilitarianism. If he uses the sweetener, the result is
that the profits will increase. However, the sweetener may cause various health complications,
including cancer. As a result, the most ethical decision based on the outcomes is not to use the
sweetener. The decision will ensure that the business continues operating and that the welfare of
the consumers is given the weight it deserves. Immanuel Kant also proposed a different ethical
theory. Kant reiterated that human beings have the responsibility to ensure that they respect
others and treat them with dignity (Ferrell et al., 2019). Every human being has certain ethical
responsibilities that they have to fulfil. In this case, Otis should not use the sweetener since the
implication of such a decision is that he is not treating others with dignity. He should seek to
ensure that he evaluates his actions on the welfare of his customers before making any business
decision.

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References

Ferrell, O. C., Harrison, D. E., Ferrell, L., & Hair, J. F. (2019). Business ethics, corporate social
responsibility, and brand attitudes: An exploratory study. Journal of Business
Research, 95, 491-501.
Kim, K. T., Lee, J. M., & Anderson, S. G. (2019). Retirement Savings Habits of
Business‐Owning Families in the United States. Family and Consumer Sciences
Research Journal, 48(1), 65-84.
Sharkey, C. M. (2018). Institutional Liability for Employees’ Intentional Torts: Vicarious
Liability as a Quasi-Substitute for Punitive Damages. Val. UL Rev., 53, 1.