Introduction to Business Law

This course is designed to enhance your understanding of various legal principles and issues that affect business practices and decisions and their application in business environments. The focus of the course is to identify and examine legal risks and liabilities in operating a business and explore how to minimize and resolve problems associated with risks and liabilities.

The BMGT 380 course comprises five (5) legal themes, including an overview of the legal system, business organizational structures, torts, product liability, contracts, and agency law.

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The BMGT 380 course focuses on the story of a company, The Largo Group (TLG), a business consulting and research company based in Maryland that advises and conducts research for potential owners considering startup businesses and for owners operating new companies.  You and your classmates will be active participants throughout the story, acting as consultant-employees of TLG assigned to complete consulting-related and/or research assignments and projects for TLG clients.

Your TLG assignments begin with an overview of the legal system, important background for business owners.  Other TLG assignments will concentrate on four (4) categories of business law principles that present significant risks and liabilities for startup businesses:

(1) tort law, including negligence, premises liability, and product liability,

(2) contract law, including the Uniform Commercial Code sales and e-contracts,

(3) agency law, and

(4) business organizational structures, sometimes called business forms.

Starting a new business requires extensive preparation, market research, and examination of the legal environment of business.  The success of startups and new companies requires identifying the nature and scope of legal risks and liabilities that affect business practices and decisions.  Exploring ways to prevent, minimize, and resolve risks and liabilities is also essential in forming and operating a business.

The primary focus for the 380 course and assignments for TLG clients will center on the question:

How can a business owner identify and minimize legal risks and liabilities associated with operating a business?

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Background:  The Largo Group (TLG)

After graduating with a B.S. in Management, you have been working for TLG for three years as an assistant consultant for Winnie James and Ralph Anders, senior consultants who serve clients in various industries.   Your work involves interviewing and meeting with clients, conducting research, writing office memoranda, making recommendations for clients, meeting with Winnie, Ralph, and with attorney-consultants, and coordinating and/or leading discussions for TLG’s in-house professional development seminars for its consultants.

Background:  The Formation of Viral Clean

Connor, Denise, Larisa, and Sam are all successful business owners who are friends or professional acquaintances in the business community.  Connor is a Marine veteran that operates his own small company.  Denise has been the Vice-President and Director of Marketing for a Mid-Atlantic-based carpet cleaning company with franchises on the East Coast.   Larisa owns a mid-sized, successful residential remodeling business.   Sam owns a residential cleaning service business.

The four recently attended a Chamber of Commerce presentation about businesses that clean and sanitize buildings to prevent the spread of the COVD-19 virus.  This spurred their interest, and they went to dinner following the Chamber event to discuss possible business opportunities.

After several meetings, they decided to start a business together.  The business would focus on using the latest technology to clean and sanitize commercial and residential structures against dangerous viruses.  They also decided that the business would be a retail and wholesale distributor for cleaning and antiviral solutions and personal protective equipment.  They agreed to pursue the possibility of launching a Maryland-based business that they would like to name Viral Clean (“Clean”).  They are committed to operating the new business as an environmentally responsible company using only chemical-free cleaning products in the new business.

The four met several times with a business consultant to analyze market trends and demands in the cleaning industry and confirm whether Clean would likely be a viable business. Because of the COVID-19 pandemic, the market analysis showed an increased demand and need for this type of business. Consequently, the group decided to move forward with their idea to establish and market Clean.

The group plans to purchase PPE and cleaning supplies from Environmental Pro, Inc. (EPI), a mid-sized manufacturer incorporated in a nearby state, that produces chemical-free, environmentally-friendly cleaning products.  The four are familiar with the corporation as each has purchased EPI products for their respective current businesses.   The four friends intend to resell certain EPI products directly to Clean clients.  The Clean group plans to market and advertise its services and resell EPI products through print, television, radio, internet, and social media.

Clean will be headquartered in a local shopping center.  Clean headquarters will include private business management offices, a reception area, and conference meeting and planning space. Potential and existing customers will be invited to discuss proposals to purchase cleaning products and services.  The business space will also be open to the public to acquire PPE, collect information, inquire about cleaning and sanitizing services, examine cleaning supply displays, and view photos and exhibits from ongoing and past commercial jobs.

The potential Cleaner owners recently attended a startup business seminar sponsored by the local chapter of the Small Business Administration.  Following the seminar, the owners began to define the nature and scope of the work necessary to prepare a plan for the startup business.  They realize this process requires time, thoughtful analysis, and clear guidelines.

They also recognize the need for professional business consultants, such as TLG, to guide their startup for Clean.  Consequently, the four have hired TLG to advise and guide them through the startup process for Clean.

Clean Owner Profiles:

Connor:

Connor is a veteran of the United States Marine Corps.  Although he retired from the military, he operates his own business.

He wants an initial 30%-40% interest in Clean but wants to limit his future capital commitment until he is confident the business is operating smoothly and profitably.  He does, however, want the option to acquire others’ interests if they die or leave the company for any reason.   He also wants to take out money from the business, in the form of salary, benefits, expenses, and/ dividends, as appropriate, as soon as Clean has a healthy net profit margin.

Connor is most concerned about liability. Although he trusts the other owners as “straight shooters” and successful business persons, he is uneasy about working with a group of investors with whom he has no previous business connections.  He wants to limit his liability in the business to no more than his capital contribution, and he prefers complete protection.  If possible, he wants Key Man Insurance for the owners to have protection if one owner can no longer contribute to the business for any reason.

Connor wants a managerial position so he can make decisions for day-to-day operations.  He believes he is the best person to run the business as he currently owns a maid service and understands how to run a successful cleaning service business.

Denise: 

Denise is a first-generation college graduate of Spelman College.  Denise’s parents raised her in Baltimore, MD.  However, both of her maternal grandparents were leaders in the Civil Rights Movement in Georgia in the 1960s.

Although Denise will be a Clean business owner, she plans to retain her V.P. position with the carpet cleaning company.  Denise wants a 25% interest and prefers to minimize additional investments to protect her cash assets needed for her other businesses.  Her main goal is to realize a return on her investment as quickly as possible.

Denise wants to minimize her personal liability and protect her interests in the event of bankruptcy or the death of any of the other owners.

Denise wants to participate in long-term business decisions and major decisions about spending and organizational commitments. Still, she does not want to be involved in day-to-day business activities.  She favors hiring a general manager to run the business, preferably one with commercial cleaning experience.

Larisa:  

Larisa has an MBA from the Wharton Business School at the University of Pennsylvania.  Her family immigrated from Mexico in the 1980s.  Before leaving Mexico, Larisa’s parents owned a cleaning business in Mexico City.

Larisa initially wants to invest up to 40% and is willing to invest another 5% because she knows startup businesses often need more capital.  She favors a larger, rather than a smaller, stake in the company.  She wants to take out as much money as possible from the business as soon as financially possible.

Larisa wants to minimize personal liability, as well as liability for the business.  She realizes the future of the industry is uncertain, and she wants maximum protection against all pitfalls.

Larisa wants to use her MBA.  Larisa, therefore, is willing to be involved in day-to-day business operations and has the time to do so because her other business is running smoothly with competent managers.  She wants to play a vital role in establishing the structure, business environment, and culture for Clean along with the other owners.   However, she believes that a skilled general manager with commercial cleaning experience would be optimal.

Sam: 

Sam is a recent graduate of Montgomery Community College.  In college, he majored in Operations Management and Business Analytics.

Sam is willing to commit to an investment of 51% interest in Clean but is agreeable to a lesser interest.

Sam wants to minimize his personal liability and prefers to limit it to his capital investment but is willing to negotiate.

With a maximum interest of 51%, Sam wants complete control over business operations; even with a lesser interest, he wants a strong managerial position.  Sam wants all owners with a minority interest to be silent in the day-to-day management of Clean.