Legal and Ethical Scenarios Select two of the scenarios provided below. Analyze the facts in the scenarios and develop appropriate arguments/resolutions and recommend
Legal and Ethical Scenarios
Select two of the scenarios provided below. Analyze the facts in the scenarios and develop appropriate arguments/resolutions and recommendations. Support your responses with appropriate cases, laws and other relevant examples by using at least one scholarly source from the SUO Library in addition to your textbook for each scenario. Do not copy the scenarios into the paper. Cite your sources in APA format on a separate page. Submit the paper to the Submissions Area by the due date assigned.
Scenario 1—Bankruptcy
Rusty Weaver, a project manager for the Tipton Machinery, filed a petition in bankruptcy under Chapter 7, seeking to discharge $75,000 in credit-card debts and $45,000 in student loans. Weaver’s wife died and left him with two children, Paul, who attended college, and Diana, who was thirteen years old. According to Weaver, Diana was an "elite" swimmer who practiced ten to fifteen hours a week and placed between first and third at more than thirty competitive events. Diana was homeschooled with academic achievements that were average for her grade level. His petition showed monthly income of $5,325 and expenses of $5,200. The expenses included annual homeschool costs of $8,200 and annual swimming expenses of $5,000. The expenses did not include college costs for Paul, or airfare for his upcoming summer trip to Europe, and other items. The trustee allowed monthly expenses of $4,227, with nothing for swimming, and asked the court to dismiss the petition.
- If Weaver qualified for Chapter 7, which debts would be discharged? Which debts would not be discharged? Why?
- Using the median income from your state, does Weaver qualify for Chapter 7?
- Should the court grant the trustee’s request? Does Weaver have other options if the Chapter 7 petition is dismissed?
Explain your answers and support them with relevant scholarly sources.
Scenario II – Organizations and Liability
Vance Armstrong was the sole incorporator of Triathlon Training Inc., a corporation designed to operate a training center for triathletes of all ages. The business was incorporated according to Florida law in January 2015, with Armstrong as the sole director and shareholder. Armstrong contributed $20,000 of starting capital, which was just enough to make minor repairs to the property he purchased for $400,000 with a loan from the bank. The corporation had no liability insurance. On June 15, 2015, the center opened for business. Over the next few months, the corporation operated with a profit.
In July, Armstrong took a two-week vacation in France and used a check written on the company bank account to purchase his airline ticket. In September, Armstrong decided to have the pool resurfaced. Because business had slowed and the corporation's bank account did not have sufficient funds, Armstrong wrote a personal check to cover the work. Armstrong feared he would not make enough money through the winter to turn a profit, so he decided to work a part-time job selling fitness equipment as an independent contractor for Bowflex. Armstrong used the training center's office phone to make calls, the copy machine for copies, and the computer for searches. He made a substantial profit, which was maintained in a third bank account not associated with Triathlon Training or his personal account.
On April 1, 2016, a child with a mild learning disability drowned in the pool while training for the local children’s triathlon. The parents brought a suit for wrongful death against Triathlon Training Inc. and against Armstrong in his individual capacity as owner. At the time of the suit, the corporation had less than $2,500 in its bank account. Because of these limited funds, the child's parents hoped to recover most of their damages directly from Armstrong, who lived in a mansion on the beach.
- Will the parents be successful in holding Triathlon Training Inc. liable for the child's death?
- What should the parents argue in order to hold Vance Armstrong liable in his individual capacity? Will the parents prevail? Why or why not?
- How could Armstrong have protected himself against this type of potential liability?
Scenario III—Insider Trading
During a session with her doctor, Billy Mooney, Maggie Mason mentioned in confidence the imminent merger of Walgreens with Rite-Aid. Mason's ex-husband, Gus Mason, was on the board of directors at Walgreens. Mooney communicated the information to a securities broker, Olive Green, who immediately made trades in Walgreen’s securities for her own account and for her customers' accounts.
- Did Mooney, Maggie Mason, Gus Mason, or Olive Green engage in illegal insider trading? Explain the potential culpability of each party. Include possible civil or criminal penalties for each party.
- Was the conduct of the parties ethical?
****** need to see you cite and reference your work fully as well as to have it in the proper APA format. ***
Securities Regulation.html
Securities Regulation
Securities are instruments such as corporate stocks or bonds that evidence ownership or debt. The Securities Act of 1933 and the Securities Act of 1934 are designed to protect investors from deceptive, unfair, and manipulative practices when buying or selling securities.
Section 10(b) of the 1934 act prohibits use of any manipulative or deceptive device in the sale of securities. Rule 10b (5) prohibits fraud in connection with the purchase or sale of any security. The goal of these rules is to prevent purchase or sale of securities using information that is not available to the public, which is known as insider trading. Any material omission or misrepresentation in connection with the sale or purchase of security may violate these provisions.
Rule 16(b) of the 1934 Act relates to short-swing trading, which is the purchase and sale or the sale and purchase by officers, directors, and shareholders owning more than 10% of the equity securities of a public company within a six-month period. The rule was enacted to prevent insiders from taking advantage of information to make short-term profits.
Rule 10b is the principal antifraud rule under the Securities Exchange Act of 1934. The rule applies to all private securities actions and provides liability for material misrepresentations or omissions in fact. Trading on "inside information" is unlawful and may subject those involved to a civil penalty of three times the profit made on the improperly disclosed information.
Plaintiffs in a Rule 10b-5 action must show all of the following elements.
- Defendant used interstate commerce, mail system, or national securities exchange.
- Defendant's statement(s) misrepresented or omitted a fact.
- The fact was of material importance.
- Statement or omission was made with scienter (culpable state of mind).
- Statement or omission was made in connection with purchase or sale of securities.
- Plaintiff relied on defendant's statements.
- Defendant's statement or omission caused the plaintiff to suffer losses.
To deepen your understanding of the concepts introduced in the lecture, consider reading some additional scholarly articles and cases on this topic. To get you started, review the following articles available in the SUO Library and cases available on the Internet. These materials provide information that will assist you in completing assignments in this lesson.
- Grzebielski, R. J. (2007). Why Martha Stewart did not violate rule 10b5: On tipping, piggybacking, front-running and the fiduciary duties of securities brokers. Akron Law Review, 40(1), 55–83.
- Leahy, J. K. (2015). A decade after Disney: A primer on good and bad faith. University of Cincinnati Law Review, 83(1), 859–901. (WestlawNext)
- U.S. v. Stewart, 433 F.3d 273 (2d Cir. 2006).
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Forms of Business Organizations.html
Forms of Business Organizations
Prior to starting a business, the potential owners should consider the ease of creation, liability of owners, method of taxation and need for raising capital. The principal forms of business organizations include sole proprietorships, partnerships, limited liability partnerships, limited liability companies and corporations.
In a sole proprietorship, one person owns the business, controls all decisions, receives all profits, and has unlimited liability for all obligations.
A partnership is created when two or more persons agree to carry on business for profit as co-owners with equal right to manage and share profits that enjoy “pass through” taxation, but involve unlimited personal liability.
A limited liability partnership (LLP) is designed for professional service firms such as accountants. This form of business provides limits on personal liability of the partners and allows “pass through” tax advantages.
The limited liability company (LLC) is a hybrid entity that combines the limited liability of a corporation and the tax advantages of a partnership.
Corporations are created by state statute. Corporations have constitutional rights and can be sued, but shareholders are not personally liable for corporate obligations unless certain rare conditions exist such as inadequate capitalization or fraudulent formation. The business judgment rule provides management immunity from liability for corporate acts as long as the acts were made in good faith and with due care.
Entrepreneurs have a variety of business types to consider when starting a business. If you wanted to start a business, would you know which form would be the best for your business?
Let’s match the type of business organization to its definition by reviewing Business Organizations Matching.
Additional Materials
View the PDF transcript for Business Organizations Matching
media/week4/SUO_MBA5005 W4 L1 Business Organizations.pdf
Business Organizations Matching © 2017 South University
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Law and Ethics for Managers
©2017 South University
2 Business Organizations Matching
Business Organizations
1. Sole Proprietorship
2. Partnership
3. Corporation
4. S Corporation
5. LPs, LLCs, LLPs
6. Joint Venture
7. Franchise
A. Pooling of capital resources and the business or professional talents of two or more individuals with the goal of making a profit.
B. Hybrid forms of businesses that permit limited liability and single taxation.
C. Artificial being created by government grant, which for many purposes is treated as a natural person.
D. Form of businesses where two or more persons or firms come together for a single project and share profits and losses equally unless otherwise agreed.
E. Form of business that qualifies for special income tax treatment, which is taxed the same as a partnership but the owners enjoy the privileges of limited liability.
F. Form of business owned by one person who is responsible for all obligations of the business.
G. Type of business where the primary “owner” grants another party the right to sell products or deliver services based on the owners business model within a specific geographic area for a specific time.
Match the terms in the left column to the definitions in
the right column.
Page 3 of 2
Law and Ethics for Managers
©2017 South University
3 Business Organizations Matching
Business Organizations
1. Sole Proprietorship
2. Partnership
3. Corporation
4. S Corporation
5. LPs, LLCs, LLPs
6. Joint Venture
7. Franchise
A. Pooling of capital resources and the business or professional talents of two or more individuals with the goal of making a profit.
B. Hybrid forms of businesses that permit limited liability and single taxation.
C. Artificial being created by government grant, which for many purposes is treated as a natural person.
D. Form of businesses where two or more persons or firms come together for a single project and share profits and losses equally unless otherwise agreed.
E. Form of business that qualifies for special income tax treatment, which is taxed the same as a partnership but the owners enjoy the privileges of limited liability.
F. Form of business owned by one person who is responsible for all obligations of the business.
G. Type of business where the primary “owner” grants another party the right to sell products or deliver services based on the owners business model within a specific geographic area for a specific time.
Page 4 of 2
Law and Ethics for Managers
©2017 South University
4 Business Organizations Matching
Business Organizations
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Debtors, Creditors and Bankruptcy.html
Debtors, Creditors and Bankruptcy
State and federal laws assist debtors and creditors in resolving their disputes without the debtors filing for bankruptcy. The most common rights and remedies that common and statutory laws created for creditors include:
- Liens
- Garnishments
- Mortgage Foreclosures
- Suretyship and Guaranty
When these remedies are not viable, debtors have no alternative other than to file bankruptcy to resolve disputes with creditors. The Bankruptcy Code is divided into a series of chapters.
Chapter 7 is available for individuals corporation and partnership and provides liquidation proceedings (the selling of the debtor’s nonexempt assets and the distribution of the proceeds among the debtor's creditors). The means test is used to determine if debtors have the ability to pay debts. Debtors who have the means to pay debts will not be able to proceed with Chapter 7, but can pursue Chapter 13.
Chapter 13 provides the adjustment and repayment of debts of parties with regular income. Chapter 13 is available for individuals with a regular income. Debtors are allowed to retain all assets but must agree to use their disposable income to pay debtors for the duration of their repayment plan, which usually lasts three to five years.
When a business is in trouble, it inevitably runs short of revenue and falls behind in payments. Creditors with collateral may pursue foreclosure and others file lawsuits in a race for the remaining assets. The manager is responsible for understanding and evaluating the options available to the company to defend against the actions taken by creditors in order to keep the company out of bankruptcy, which would leave many individuals unemployed and send disruptive signals to related industries.
When a business is in trouble, it inevitably runs short of revenue and falls behind in its payments. Creditors may be temporarily appeased, but those with collateral ultimately pursue foreclosure and others file lawsuits in a race for the remaining assets. In such a situation, it is the responsibility of a manager to have an idea of all the options available to the company to defend against the actions taken by creditors in order to keep the company out of bankruptcy, which would leave many individuals unemployed and send disruptive signals to related industries. The purpose of the bankruptcy law is to provide a mechanism for debt relief for persons or businesses that are unable to pay it off, while ensuring that creditors are able to use the debtor's assets to the extent possible in order to satisfy their claims.
To gain a deeper understanding of bankruptcy, let’s review some terms.
Additional Materials
View the PDF transcript for Bankruptcy Terms
media/week4/SUO_MBA5005 W4 L3 Bankruptcy.pdf
Bankruptcy Terms © 2017 South University
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Law and Ethics for Managers
©2017 South University
2 Bankruptcy Terms
Debtor-Creditor and Bankruptcy
Bankruptcy: Terms to Know
Automatic Stay: The suspension of almost all litigation and other actions by creditors against the debtor or the debtor's property; the stay is effective the moment the debtor files a petition in bankruptcy. Creditors cannot continue attempts to collect the debt. Bankruptcy Estate: Consists of all of a debtor’s legal and equitable rights to his or her property. Bankruptcy Trustee: A person who is either appointed by the U.S. Department of Justice or by creditors in bankruptcy cases. Cram-down Provision: A provision of the Bankruptcy Code that allows a court to confirm a debtor's Chapter 11 reorganization plan even though only one class of creditors has accepted it. The court must demonstrate that the plan does not discriminate unfairly against any creditors and is fair and equitable. Debtor in Possession: In Chapter 11 bankruptcy proceedings, a debtor who is allowed to continue in possession of the estate in property (the business) and to continue business operations. Discharge: Order by the bankruptcy court relieving the debtor from obligation to pay the unpaid balance of most claims. Exempt Property: Property excluded from the bankruptcy estate, such as clothing, pets and a certain value of household goods. Involuntary Proceeding: A bankruptcy proceeding initiated by one or more creditors. Liquidation: Process of converting the debtor’s property into money. Means Test: Requirement that determines whether debtor has enough ability (means) to repay creditors. Preference: In bankruptcy proceedings, property transfers or payments made by the debtor that favor (give preference to) one creditor over others. The bankruptcy trustee is allowed to recover payments made both voluntarily and involuntarily to one creditor in preference over another. Proof of Claim: A claim filed by unsecured creditors, stating the amount of their claim Voluntary Proceeding: The debtor files for petition for relief. Zone of Insolvency: A condition in which there is a substantial risk that a company will be unable to pay its debts when they become due.
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