Legal_Issues_Research

Running head: LEGAL ISSUES RESEARCH PAPER United Organic Pasta Incorporated Legal Issues University of Phoenix Business Law 415 Jerome Tatar March 17th, 2008 Abstract A company that is just being formed will have many issues to be considered over the lifetime of the enterprise. Legal problems can range from contractual disputes to what types of warranties will affect the daily activities of the corporation. In this paper, our team is going to discuss the Alternative Dispute Resolution process, how it fits into our business and what types of ADR the company will use. This paper will also explain the application of agency law to United Organic Pasta’s business operation and what kind of legal perspective the company will take if the agent-principle relationship is used. The definition and applicability of legal nuances for the different types of business entities and the impact the types will have on each person of the company will be explored. Lastly, the influence that e-business has on the overall business operation will be contemplated. United Organic Pasta Incorporated Legal Issues Table of Contents 1. Introduction p. 4 A. Business Characterization 2. Alternative Dispute Resolution Pp. 4-10 A. What is Alternative Dispute Resolution' B. Alternative Dispute Resolution versus Litigation and Expected Results C. How does Alternative Dispute Resolution fit into our business' D. What types of Alternative Dispute Resolution can be used' 3. Agency Law Pp. 10-13 A. Explain the applications of agency law to the business 1. Agent (Representation) 2. Agency (The Agreement) B. Why agents will or will not use agents in our business C. Legal perspectives of agent employment 4. Legal Nuances and Entities Pp. 13-14 Description of the legal nuances and distinguishing of business entity type Selection of a particular business entity Impact of business entity selection regarding the business membership 5. E-Business p. 14 A. What is E-Business' 1. Existence of a company on the Internet 2. Use of Internet technology to conduct business B. The legal impact of E-Business and its use in the restaurant industry 6. Conclusion p. 15 7. References Pp. 16-17 Introduction A company that is just being formed will have many issues to be considered over the lifetime of the enterprise. Legal problems can range from contractual disputes to what types of warranties will affect the daily activities of the corporation. In this paper, our team is going to discuss the Alternative Dispute Resolution process, how it fits into our business and what types of ADR the company will use. This paper will also explain the application of agency law to United Organic Pasta’s business operation and what kind of legal perspective the company will take if the agent-principle relationship is used. The definition and applicability of legal nuances for the different types of business entities and the impact the types will have on each person of the company will be explored. Lastly, the influence that e-business has on the overall business operation will be contemplated. Business Characterization The United Organic Pasta Corporation was formed as an idea a small group of entrepreneurs had in response to the growing backlash of public opinion against adulterated food products. If people wanted organically grown food, it would be a profitable idea to sell it to them. The restaurant industry was selected as a viable means to make an impact within public opinion, people need to eat everyday and Americans in particular enjoy the dining-out experience. The restaurant industry is often faced with legal issues that include organized labor strikes, personal and industrial injuries and consumer health concerns regarding national obesity. Additional legal concerns include zoning and building codes, federal, state and local health codes and supplier contract issues. Alternative Dispute Resolution The basic question that needs to be asked is, “What is Alternative Dispute Resolution'” Most people are familiar with the litigation process because that right is provided by the Constitution of the United States and is taught in every high-school government class throughout the nation. That awareness is reinforced by regular election cycles that most citizens of the United States participate in to allow the citizens of the country to elect the judiciary for established terms of service. What most people might not be aware of is that Congress, in 1925, enacted into law the Federal Arbitration Act as a method to allow consenting parties to resolve disputes that could also fall under state or federal statutes and not force them to undergo a lengthy and costly litigation process. Using the word ‘arbitration’ to describe the overall Alternative Dispute Resolution process is a misnomer; many types of dispute resolution are provided for under the FAA other than just Arbitration (Cheeseman, 2004). Arbitration is beginning to be a more common procedure in the United States since more businesses are beginning to discover the advantages and cost-savings of using ADR to forego trial litigation. Both parties usually agree during the formation of a contract to handle disputes through the arbitration process where an impartial third-party expert is chosen to be the arbitrator and whose is responsible for hearing all evidence presented by both parties and determining a decision that the parties are required to abide by. Unlike a trial judge, the arbitrator is usually very familiar with the general topic at hand for example, if a dispute involved a building construction matter, the arbitrator selected to hear the arguments (besides undergoing arbitration certification by a recognized arbitration association) generally has experience in building construction and the business transactions involved before, during and after construction. This knowledge is a large advantage in the arbitration process because it allows the disputing parties to forego explaining basic trade terminology for the benefit of the jury and ensures that common trade practices are taken into account when determining the arbitration award. Arbitration awards are usually final because both parties have previously agreed to be bound by the arbitration decision. However, if one party feels so aggrieved, they can appeal the arbitration award to the trial court having jurisdiction, but because of the less formal evidentiary rules and the trade-specific knowledge of the arbitrator, most court decisions will only reaffirm the arbitration award. Most labor unions throughout the nation have a grievance process subject to the National Labor Relations Act that attempts to identify a dispute and solve it through an alternative dispute resolution process, which commonly selects arbitration as that method (Stallworth, Varma, & Delaney, 2008). Other methods of Alternative Dispute Resolution include Mediation and Conciliation. Mediation is only like arbitration in that a neutral third-party is chosen to hear both sides of the dispute; at that point, the similarity ends. The Mediator does not make any kind of decision or award from the evidence or arguments. The Mediator’s function is to merely serve as a go-between for each of the disputing parties, communicating each position and offering advice when asked, allowing the dispute to be worked out to the point of settlement. Conciliation involves a third-party that has an interest in the outcome of the dispute and attempts to reach an agreement between the parties by suggesting sacrifices or commitments that each party may make in order to resolve the problem. Mediation and Conciliation are usually performed prior to more legally binding avenues that mandate a course of action that the parties must take. Reaching a settlement through Mediation or Conciliation usually means that each party has received some benefit, but also has relinquished something in return. Outside of the processes that have each party working towards a joint agreement, Alternative Dispute Resolutions provide each side the opportunity to present the evidence in the dispute to a neutral party (most commonly a retired judiciary member) in a format very similar to a trial. This Mini-Trial allows the parties to present their evidence in a forum presided over by a person whose sole function is to keep order and ensure that the evidence is presented in a proper manner. Once the Mini-Trial is over, the disputing parties meet to attempt to negotiate an agreement using the evidence presented at the Mini-Trial. This method often uses retired judiciary members to preside over a private trial and render judgment as part of the Alternative Dispute Resolution system while receiving the benefit of a quasi-trial process. While this judgment is binding, it may be appealed through the public litigation system. During the Alternative Dispute Resolution process, the gathering of evidence about the dispute is very important and could determine the strength or validity of either position in the dispute. Sometimes, to prevent any sense of impropriety or to allow an outside view of the problem, a neutral third-party is hired by both sides to gather evidence, organize it and present a recommendation to both parties about the validity of the dispute that can be taken into account during further settlement negotiations. (American Arbitration Association, 2005) The Alternative Dispute Resolution process is designed to resolve quickly a dispute between the two parties that usually is a result of an action by one party that appears expressly to violate an agreement or, more commonly, is implied to violate the spirit of the agreement. Written agreements cannot provide enough detail to describe the responsibilities of each party for every situation that may arise. The expectation that both parties will act in a responsible manner and provide notification to the other party when they cannot meet their terms of the agreement is usually accepted as a matter of principle. Adhering to a code of ethics provides a strong position during any Alternative Dispute Resolution process; the selection of a third-person to overview the dispute is designed to provide an ‘outside’ view of the decision-process that each party followed and determine if that process followed common practice and met ethical responsibility. The Alternative Dispute Resolution process is usually championed over the Trail Litigation process because ADR offers a comparatively fast and efficient method; public litigation trials are fed through the established court system that can literally be responsible for millions of people inside their jurisdiction and thousands of cases per year. Arbitration, for example, allows parties to the dispute to hire a trained and certified arbitrator to hear the evidence in the dispute and make a decision while bypassing scheduling issues common to the litigation system. The trained and certified arbitrator can also be chosen based upon their knowledge of the dispute area, limiting the need for extra time to explain the basic nuances of a certain type of business. Another large selling point of the Alternative Dispute Resolution system over the public litigation system is that the litigation system is public and open to anyone who chooses to review the records. The Alternative Dispute Resolution system is private, an uninterested party can view no information presented as evidence. This benefit of the ADR process allows the presentation of sensitive information to resolve a dispute with the knowledge that the information will not be available to the public at large (Keith, 2003). Due to the large increase of concern in organically grown food items and their processing into food items identified as organic, the United Organic Pasta company has a legal liability to ensure that the vendors used by the company follow an identified process that allows the label ‘organically-grown’ to be affixed to any product that is sold. This information can be used by competitor companies and is deemed too sensitive to be presented in a public forum. The best business interest for the United Organic Pasta Company and other such companies is to choose an Alternative Dispute Resolution process over the public litigation process to prevent the release of information that could be used to harm legitimate business activities. Submission of a dispute through an ADR method is also intended to limit the number of appeals a party to the dispute can file. The appeal process, a necessary tool that is designed to address issues of procedure for the public litigation process, also tends to significantly increase the length of litigation action. Appeals are also allowed in the ADR process, but due to the basis that the dispute was lawfully presented in a manner agreed upon by both interested parties, large deference is given to the original decision and only issues of grievous error in the process or strong evidence of perjury by a disputing party will overturn the ADR decision. The application of the Alternative Dispute Resolution process to the United Organic Pasta Corporation is a standard process that is supported by law and past industry practice. A majority of food-service workers are represented by union labor contracts, which fall under the National Labor Relations Act, which specifically protects union members who participate in a grievance process that is designed to resolve disputes. The use of an Alternative Dispute Resolution system is also to the United Organic Pasta Corporations’ benefit in the scope of personal and industrial injury applications. The operation of several food service facilities allows the public at large to interact on a daily basis with the company and presents an issue of liability exposure to the company from several fronts. By using a legally authorized Alternative Dispute Resolution method for industrial operations issues (to include Industrial injury and Supplier Contracts) within the company as part of the corporation’s standard operating procedure and contractual agreements, consent to participate in the ADR process is expressly given by the company’s employees as a condition of employment and by external vendors as conditional acceptance of a sales contract. Of the types of Alternative Dispute Resolution process available, the United Organic Pasta Corporation will tend to use three basic types: Arbitration, Negotiation or Mediation and Fact-Finding. The Arbitration process is basically used when a clearly defined issue included in a written agreement that has occurred. The use of arbitration will provide a quick and informed resolution that allows both parties to receive the benefit of a platform to present their evidence and hear a definitive decision. The Negotiation or Mediation processes can be used when a clearly defined issue not identified but the belief that the intent of an agreement is violated. Although negotiations are possible with a Supplier, the Negotiation or Mediation process is usually reserved for labor disputes, as applied to the food-service business. Fact Finding is a method that can be used to deal with a situation that has not appeared in prior circumstances. Understanding the entire situation and chain of events that led to an incident is vitally important to being able to make a solid decision that allows for the correct placement of liability. Agency Law Agency law is a combination of contract and tort law and is drawn from a large body of established common law. Agency accords are formed by the collective agreement of a principle and an agent and are defined as a fiduciary relationship. The Principle is the party that employs another to act on his or her behalf; the Agent is that party to assume the authority to perform a specific act or function for the Principle (The 'Lectric Law Library, 2008). The use of a business agent is a very common occurrence in the food service industry in that many business operations that take place in running a restaurant other than just serving food to customers. Examples could be: Supplies must be ordered, health agency regulations must be met and financial transactions must be completed. If the restaurant owner were to attempt to perform all theses tasks in addition to serving customers, a high probability exists that one or more of the mentioned areas would suffer from a lack of attention. An example of an area that requires a large amount of attention is the payment of corporate and business taxes; if not properly defined and separated, the payments could amount to double-taxation. Understanding that Retained year-end earning used for expansion and growth would be taxed at a lower rate. UOPI’s owners can save money by keeping some of the profits within the company and deducting the full-cost of the fringe benefits (NOLO, 2008). By employing an agent, the restaurant owner can monitor daily operations and provide assistance where needed instead of getting bogged-down in the minute details. The most basic business owner’s agency relationship is the one he or she hold with his or her employees. By virtue of being the owner of the restaurant (in this case, the United Organic Pasta Corporation), the owner has the authority to transfer specific authority to certain individuals who would then have the capacity to act in lieu of the actual owner. The transfer of authority for the United Organic Pasta Corporation to an individual is necessary in that corporations are legal entities and are typically made up of several entities or have a multitude of stockholders whom all possess certain degrees of ownership. The transfer can be authorized to a single person, who then can split the authority into many different sections as the need arises. This allows the owner’s agent to monitor the daily operations from wait-staff taking the customers to the accountant who pays the state and local tax assessment without performing the tasks themselves. Whereas an agent does have the authority of the principle to conduct identified business transactions to release the owner for other duties; the agent relationship is also employed to take advantage of specific qualifications that the agent can provide that the principle might not possess. Advertising a business to the public is a very costly proposition; society as a whole has become inured to advertising to the point that it takes a very unique and memorable advertisement to effect an individual’s purchasing decision. Most restaurant owners do not possess those skills and employ advertising companies to develop an appropriate advertising campaign. Agent qualifications are also not limited to creative ideas, having an efficient business operation will allow the corporation to realize the maximum profit potential from the business over the long-term. Potential agency agreements might take advantage of purchasing power generated by specialized purchasing agents that combine several restaurant orders for supplies and negotiate with a manufacturer for the best possible price. Other possible agent agreements could be made with contractors that provide specialized services such as valet parking or other operations that expressly support the restaurant operation. The decision to open an agent/principle agreement is a very serious undertaking, the agent will be acting with the full authority of the principle, but the liability for the agent’s actions could lie fully with the principle. Different types of authority exist that the agent’s actions could be performed under; all rely upon the ability to connect the agent with the principle. Express Authority is the authority given to the agent and is clearly defined in the oral or written agreement. United Organic Pasta Corporation has given foodstuff-purchasing authority to We Shop Cheap Company to only purchase certified organic tomatoes at the lowest current daily market price. The authority is clearly defined as to whom is going to do what and how they will perform that task. Implied Authority is usually found in conjunction with Express Authority because many different situations cannot be anticipated by the Express Authority instructions and the agent would then act in the best interest of the principle. We Shop Cheap Company had discovered that the contracted organic tomato grower has been supplying poor-quality tomatoes to UOP. We Shop Cheap then canceled the contract with the original grower and initiated a purchasing agreement with a second grower that has the next best price. Apparent Agency Authority is described as the conduct of the agent to a third party that leads the third party to believe that the agent indeed has authority to act for the principle. Regarding the situation with the organic tomato growers, We Shop Cheap was able to enter into a valid contract with the second tomato grower because they were known to be an authorized agent of United Organic Pasta Corporation. Agency by Ratification demonstrates the acceptance of the authority that the principle has tendered to the agent. If the We Shop Cheap Company had entered into an inappropriate sales agreement with the second organic tomato grower, and the United Organic Pasta Corporation accepted the first shipment of tomatoes; UOP would then be liable for whatever terms the We Shop Cheap Company negotiated, even if the terms were un-advantages to UOP (Barnes, Dworkin, and Richards, 2003). Legal Nuance and Entities Several legal types of businesses are common within the United States. These types include sole proprietorships, partnerships, corporations, S corporations, and a limited liability company (LLC). The primary difference between each of these entities is the amount of liability that is placed on the owners. Sole proprietorships are unincorporated businesses that are solely owned by a single individual. The advantages to this type of business include sole control of operations and revenues, but sole responsibility for legal and tax liability is also present. Business entities that are under an LLC have a similar advantage to a corporation in that members have “limited personal liability for debts and actions or the LLC” (IRS, 2008, p. 1). Corporations and S Corporations are similar by structure, with primarily tax liability considerations as the difference. Qualifying corporations can “avoid double taxation (once to the shareholders and again to the corporation) by electing to be treated as an S corporation” IRS, 2008, p. 1). Finally, the partnership format of business divides the liability of the business between all members equally. Tax liability is similar to that of a sole proprietorship, and self-employment status is maintained. Chosen Type of Business Entity United Organic Pasta Inc. is a corporation that owns and operates several restaurants specializing in pasta dishes made from organically produced pastas. The decision to organize as a corporation came as a majority. Some debate was made about using an S corporation status to reduce potential double taxation, but supporting qualifications reduced the desire to continue with this idea. The ability to finance startup and initial operating costs though stock offering, and reduction of personal liability also make a corporation an excellent choice for this industry. Impact to Stakeholders The use of a corporation as the structure of our business creates a need and requirement for corporate responsibility. Every stakeholder of the company can be affected by ethical, legal, social, and management decisions. In 2002, President George W. Bush unveiled a “Ten-Point Plan to Improve Corporate Responsibility and Protect America's Shareholders” (Bush, 2002, Para. 5), which was implemented in form and function by the Securities and Exchange Commission (SEC) to better reduce inappropriate corporate actions. These regulations dictate that investors should have prompt and accurate accessibility to vital company information used to determine investment potential and risk. In addition, these regulations state the corporate leaders, managers, and officers must personally back and notify the public of pertinent information and not personally profit from fraudulent or misinformation. Legal Impact of E-business   With the rapid growth of Internet based operations throughout the world, United Organic Pasta Inc. will use E-business methods to reduce costs, increase sales, communicate with suppliers, streamline customer service, and manage other specific operations. The use of electronic mail (E-mail) over the Internet can be used for standard communication, contract negotiations, shipping, and ordering. One primary concern that is present in electronic communication is enforceability of electronic contracts. Under the Statute of Frauds, a contract must be in written form to be enforceable. When negotiating contracts with suppliers, agents, contractors, and other business relations the contact can be printed to fulfill this requirement (Cheeseman, 2007, p. 357). Our business will focus on the distribution of our product though physically located retail outlets. Sales of products will not be made available via the Internet or by any other electronic methods. Without the use of electronic sales via the Internet, interstate tax differences, collections, and legal influences will not be a factor in our use of e-business. Conclusion It needs to be understood that legal issues relating to the operation of a consumer-oriented business are very complex due to very unpredictability of daily operations with the public and overall free-market system of economics. The ability to freely negotiate the obstacles of public opinion, labor demands and supply-system fluctuations while remaining in compliance with the various regulatory agency requirements demand a business operation that is aware of the levels of legal nuances and thinking about how the company can use that awareness to its advantage. A company’s knowledgeable use of the legal system will reduce the burden on the business and allow more time for the management team to concentrate on the primary purpose of the enterprise; selling organically grown pasta to paying customers in order to earn a profit. 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