Business Organization and Torts
Question
Go through the scenarios below. For each scenario, answer the questions and support each answer with at least one reference to one of the readings in the background materials. Be clear about how your reading supports your answer. Your paper should be a minimum of 3 pages (excluding title and references pages) and include 3 scholarly sources:
1.You are the CEO of a corporation. After attending a business conference in Hawaii, you and some other CEOs you met at the conference decide to relax and unwind with a few drinks at the hotel bar. The hotel bar closes, so you and the other CEOs decide to go back to your room and continue the party. You proceed to raid the large whiskey collection in your minibar. Your memory becomes hazy at this point, but you wake up the next morning and find the hotel room is completely trashed. The hotel sends you a $50,000 bill for the damages. Are you personally liable for this bill, or is it only the corporation that is liable since you are a CEO and the incident happened during a business trip for the corporation?
2. You and two other business associates are owners of a limited liability corporation that owns and operates several restaurants. One of your waiters takes an order for hot tea from a customer seated at a table. The waiter places a teapot of hot water and a teacup with a tea bag on the table and turns to take an order from a customer at another table. As the waiter turns, he bumps into a third customer on her way to the restroom. The waiter jostles the table with the teapot, spilling hot water into the lap of the first customer who has to be taken to the hospital by ambulance because of burns. Would this be a tort? If so, would it be an intentional or an unintentional tort? Finally, would you, as an owner, be personally liable if the injured customer decided to sue?
3. You form a corporation with two other investors. Keneisha is putting up 60% of the initial investment for the new corporation, while Terry and you are each putting up 20%. When you form the bylaws for the corporate charter, it is agreed that Keneisha will choose six of the 10 members of the board of directors, Terry will choose two, and you will choose two, so your influence on the board is directly proportional to each of your investments. Per the bylaws, the board of directors has the authority to select and hire the CEO of the corporation, and the board chooses a CEO that all three of you are happy with. But then over the holidays, Keneisha goes on vacation, as do four board members. Terry and you recommend to the remaining six members of the board that they fire the CEO. The six members vote to fire the CEO and appoint Terry’s brother-in-law as the new CEO. Upon learning of the change, Keneisha is furious that the CEO was fired without consulting her, especially since she owns 60% of the company stock. She is determined to regain control, even if it means going to court. Do you think she would prevail in court?
4. You are visiting your regular barber who owns an old-fashioned barbershop with a heavy barber pole mounted next to the front door. As another customer, Sam, grabs the front door handle to push the door open, the barber pole falls to the ground, missing Sam’s foot by inches. Sam faints. The barber runs to Sam’s side. Sam revives almost immediately and stands up with the barber’s help. The barber is extremely apologetic. Sam seems fine and stays to get his hair cut. A few days later, Sam calls the barber and tells him he can’t stop thinking about what happened, that the barber could have killed him, and that he is going to sue the barber because it is the barber’s responsibility to make sure his barber pole is mounted safely. In this case, did the barber commit a tort? If so, was it an intentional tort or an unintentional tort? Explain your reasoning.
5. You are the sole proprietor of a small occupational therapy practice that is rapidly growing, but you need to raise additional money to fund your expansion. You talk to several friends and family members about making them partners in your business in exchange for investing in your business. However, they tell you that even though they have confidence in your business, they are too busy to be your business partners. They also do not want to be liable for your debts if you go bankrupt or for any lawsuit that you face. They also aren’t interested in getting involved in the taxes due on dividends from stocks. Furthermore, you find out that limited liability companies are not allowed in your state for healthcare practitioners (LLC laws vary state by state). What kind of legal structure do you think you should switch to in order to help persuade your friends and family members to invest in your business? Explain.
Assignment Expectations
The minimum length requirement for the Module 2 Case Assignment is 3 full pages (excluding title and reference pages). The 3 full pages will include an introduction, a body of work (supported with three scholarly sources), a conclusion, and a References page (see APA 7 template).
Provide a minimum of at least 3 scholarly sources using APA Style.
Provide an APA-formatted title page and use the APA 7th Assignment Template.
Proofread your work!
Upload your paper to the Case 2 Dropbox before the assignment due date.
Also, see the help resource sites below for APA help and student support:
Student Support Resources
Trident's Introduction to APA
Understanding Plagiarism
Grading Note:
At Trident University International, rubrics are used for grading. These rubrics specify the points available for each component of an assignment. Points are earned based on the level of the work submitted. The rubric in the Case Dropbox is used for this Case Assignment.
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Solution
Business Organization and Business Torts
Cases of torts are not always as clear-cut as the ones described in this scenario. In some cases, a person may be liable for damages even if they did not commit a tort. For example, suppose a company is found to be negligent in its manufacturing process, and as a result, products are sold that cause injury to consumers. In that case, the company may be held liable for those injuries. Similarly, if a property owner fails to maintain their property in a safe condition and someone is injured, the property owner may be held liable. It is essential to consult with an attorney to determine if you have a valid claim in these cases. Therefore, the essay will provide further discussion on the potential liability for the CEO in these cases and different types of torts.
Case Scenario 1
The CEO of a corporation is typically not personally liable for damages during the business (García‐Sánchez & Martínez‐Ferrero, 2019). In this scenario, the business would be held liable for the $50,000 hotel bill. However, there may be some exceptions if the CEO acted negligently or recklessly. For example, if the CEO was the one who trashed the hotel room, then they could be held personally liable for the damages. In addition, if the CEO was not present during the incident but was aware that it would happen and did not take steps to prevent it, they could also be held liable. In general, though, the CEO would not be personally responsible for damages during the business.
Case Scenario 2
The first question that needs to be addressed is whether or not the waiter committed a tort. The tort of negligence would most likely be applicable in this situation. Negligence is the failure to exercise the degree of care that a reasonable person would under the circumstances (Sharkey, 2020). In this case, the waiter failed to exercise due care when he turned away from the table with the hot water, causing it to spill and burn the customer. The next question is whether or not this would be an intentional or an unintentional tort. Intentional torts are when the person committing the act knows that it is likely to cause harm. Unintentional torts are those in which the person committing the act did not know that it was likely to cause harm. In this case, the waiter did not intentionally spill the hot water on the customer. Rather, it was an accident that occurred due to his negligence. Finally, whether or not you, as an owner, would be personally liable if the customer decided to sue would depend on a few factors. First, it would be dependent on whether you were personally involved in the situation. If you were not directly involved, you would most likely not be held liable. However, if you were directly involved or found to have been negligent in your supervision of the waiter, you could be held liable. Additionally, it would depend on whether or not the customer decided to sue the corporation or you individually (Sharkey, 2020). If the customer sued the corporation, you would not be personally liable. However, if the customer sued you individually, you could be held liable for damages.
Case Scenario 3
The scenario described presents a situation where the CEO of a corporation is potentially liable for actions taken by the board of directors without consulting the majority stockholder (Pekovic & Vogt, 2021). In this particular case, Keneisha would likely have a strong argument that she was not consulted on the decision to fire the previous CEO and replace him with Terry's brother-in-law. If she can prove that the board's decision was not in the corporation's best interests, she may be successful in having the decision overturned. However, the court may also rule that Keneisha does not have a valid claim, especially if it is determined that the board had good cause to believe that replacing the CEO was in the company's best interests (Pekovic & Vogt, 2021). In any case, it is advisable to consult with an attorney to discuss the specific facts of the situation and assess the likelihood of success if Keneisha were to pursue a legal claim.
Case Scenario 4
The scenario described presents a situation where the barber may be liable for a tort. First, the barber would likely be found liable for an unintentional tort, such as negligence in this particular case. The barber was not reasonably careful in securing his barber pole, which resulted in it falling and nearly injuring Sam (Trautman et al., 2021). If Sam were to sue the barber, he would likely be successful in recovering damages from the barber for any injuries he incurred due to the incident. For example, Sam could recover medical expenses if he required treatment for any injuries sustained in the fall.
Case Scenario 5
The scenario described presents a situation where the proprietor of a small occupational therapy practice may need to switch to a different legal structure to persuade friends and family members to invest in their business. One option for the proprietor would be to form a limited liability company (LLC). This would provide some limited liability protection for the owners of the LLC, which may help to persuade them to invest in the business. Another option would be to form a corporation (Schmidt, 2018). This would provide even greater liability protection for the corporation owners, as they would not be personally liable for debts of the corporation or lawsuits against the corporation. However, keep in mind that corporations are subject to different tax rules than other business entities, so this should be taken into account when selecting a legal structure (Schmidt, 2018). For instance, corporations are subject to corporate income tax, while LLCs are not. Ultimately, the decision about which legal structure to switch to will depend on various factors, including the business's needs and the preferences of the potential investors.
Conclusion
Each of the case scenarios described presents a unique legal situation that business owners may find themselves in. It is vital to examine the unique circumstances of each case and talk with an attorney about the best course of action. Depending on the circumstances, there may be various options available to business owners, such as forming a limited liability company or a corporation. Ultimately, the decision about which legal structure to switch to will depend on various factors, including the business's needs and the preferences of the potential investors.
References
García‐Sánchez, I. M., & Martínez‐Ferrero, J. (2019). Chief executive officer ability, corporate social responsibility, and financial performance: The moderating role of the environment. Business Strategy and the Environment, 28(4), 542-555.
Pekovic, S., & Vogt, S. (2021). The fit between corporate social responsibility and corporate governance: the impact on a firm’s financial performance. Review of Managerial Science, 15(4), 1095-1125.
Schmidt, E. (2018). New Legal Structures for Social Enterprises: Designed for One Role but Playing Another. Vt. L. Rev., 43, 675.
Sharkey, C. M. (2020). Public Nuisance as Modern Business Tort: A New Unified Framework for Liability for Economic Harms. DePaul L. Rev., 70, 431.
Trautman, L. J., Freeman, T., Johnson, V., & Koretz, L. (2021). Customer Injuries: An Introduction To Tort Law. Available at SSRN 3795841.
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