Legal Environment of Business

Question: Describe about theLegal Environment of Business. Answer: Summary of Applicable Facts: The Career Institute of America, the client, is a nonprofit organization. They are not sure whether they want to continue their status as a nonprofit organization. The CEO who is also the founder wants to continue his ownership of the organization. Further, he wants to ensure that the individuals working in this organization are not employers but individual contractors and at any point (since it has been mentioned that the individual contractors agreement is poorly drafted) if there is question regarding the status of individual he is of the opinion that he will declare the corporation as bankrupt. Issues: The two issues that are there are: What is the best form that the organization should keep (either of a nonprofit corporation, a for-profit corporation or LLC). What is the best method to go about for appointing of Individual Contractors for the corporation? Law Issue 1 There are various limitations that exist with respect to nonprofit corporations, the first being that it can be established for the purposes that are exempt such as educational, charitable, religious, scientific or any such other purposes that are specific. The financial gains cannot be distributed between the officer, members or the directors ("TITLE 8 - CHAPTER 1. GENERAL CORPORATION LAW - Subchapter I. Formation", 2016). The distribution of the corporate assets can be made to only another organization which is tax exempted upon the nonprofit corporations dissolution. There can be no participation by the nonprofit corporations in campaigns that are political either against or for a person. They also cannot engage substantially in activities that are political in nature ("How to Form a Delaware Nonprofit Corporation | Nolo.com", 2016). The most attractive benefit that a nonprofit corporation has as compared to a for-profit corporation that there are significant state and federal tax benefits one the tax-exempt status under section 501(c)(3) of the Internal Revenue Code from the IRS (Internal Revenue System) has been obtained. In the Plumstead case (Plumstead Theatre Society, Inc. v. Commissioner of Internal Revenue, 1982), it was concluded by the court that an organization that was charitable could also be in a limited partnership a general partner for being able to raise funds for the operation of the theater without having to the lose the exemption that has been provided to it. It was also stated in this case that an organization which had been exempted under the Section 501(c)(3) of the IRC can participate and form an LLC or a partnership. The operation agreement for an LLC should, however, allow that ventures that are hybrid can be formed between nonprofit entities and for-profit entities. There is, however, a limitation on them statutorily under the clause of required purpose. The uniform and state Acts have eighteen purposes, however, the default language that any purposes or purpose which is language or some form of this language is used in most states. Delaware under Title 6 Sections 18-106(a) (2008) have provisions for general business activity which states the purpose of the business can be any lawful business which may or may not be for profit the only exception being the business of banking. The American Law Institutes Principles of Law acknowledged the LLCs ability to be an exempt organization. Further, it must also be noted that in a for-profit corporation the owners of the corporation shall be the shareholders. In an LLC, the owners are the members of the LLC. There is a complete freedom which has been given to an LLC for distributing the ownership stakes that it has to the members of the LLC without taking into consideration the contribution of capital by that member ("Understanding the Differences Between Corporations, LLC's, and Partnerships", 2016). Issue 2 The criterion for the status of the independent contractor is that the persons who are performing the work should not have any direction and control over their performance either under the contract or in fact ("Put Your Independent Contractor Agreements in Writing | Nolo.com", 2016). In the situation wherein the status of the independent contractor is questioned it is necessary for the employer to determine that there is a Federal Identification Number of the individual (Contractor Contractor, 2016). Further, if there is misclassification of the employers, then the ramification of the same would depend on the determination by the IRS and the DOL (Department of Labour) whether the same was intentional, fraudulent or unintentional. In case there is an intentional misconduct or fraud that is suspected by IRS, there are various fines and penalties that can impose by it. Other than paying of fines there can be criminal penalties as well amounting to $1,000 per worker who has been misclassified and further imprisonment for one year can also be imposed. Additionally, to all this there can be personal liability for suppression of tax for the tax that has not been collected. Analysis Since LLC can be treated as the nonprofit organization and they can also have the exemption from the tax it would be better for the clients to form an LLC and they would continue to retain their exemption benefit and also can work for profit to generate revenue. Further unlike corporation the entire ownership of the enterprise will be with the members of the LLP and not the shareholders. Thus, given the fact that CEO wants to retain ownership LLP would be the best option. Further for appointing of Individual Contractor they need to ensure that the contract does not control or direct such individual. In the situation wherein there is a misclassification of employer in a manner that is fraudulent or intentional it could lead to various ramification and these can be personal liabilities as well. Bibliography Contractor, C. Contractor, C. (2016). Contract With Independent Contractor. com. Retrieved 23 May 2016, from https://www.nolo.com/products/contract-with-independent-contractor-noe3-pr113.html How to Form a Delaware Nonprofit Corporation | Nolo.com. (2016). com. Retrieved 23 May 2016, from https://www.nolo.com/legal-encyclopedia/forming-nonprofit-corporation-delaware-36056.html Plumstead Theatre Society, Inc. v. Commissioner of Internal Revenue, 675 F.2d 244 (1982). Put Your Independent Contractor Agreements in Writing | Nolo.com. (2016). com. Retrieved 23 May 2016, from https://www.nolo.com/legal-encyclopedia/put-independent-contractor-agreements-writing-29713.html TITLE 8 - CHAPTER 1. GENERAL CORPORATION LAW - Subchapter I. Formation. (2016). delaware.gov. Retrieved 23 May 2016, from https://delcode.delaware.gov/title8/c001/sc01/ Understanding the Differences Between Corporations, LLC's, and Partnerships. (2016). org. Retrieved 23 May 2016, from https://www.hg.org/article.asp?id=30933