Question

Fred is well known in his town for his homeopathic cough syrup. After years of encouragement, he has decided to take his miracle cough remedy to market as "Fred's Miracle Cough Syrup." While his cough syrup is homeopathic, one of the key ingredients causes a severe reaction when taken in conjunction with aspirin. Fred plans to make and bottle his cough syrup in an outbuilding on the family farm. His son, Sam, has been raving to the locals about his father's cough syrup for years, and the local drug store and grocer have contacted Fred to place orders as a result. Sam also intends to approach several national chains in an effort to secure supply contracts for( Fred's cough syrup. Fred has asked Sam to assist him with deliveries, as Sam has a van. Fred would like Sam to be involved with the business as an employee initially, with the option of making him a partial owner at a later time. Fred and his wife Sally have two children, Sam and Lilly. Both live in cabins on the family farm with their spouses and children. Fred and Sally engage you as their attorney to assist with the formation of the new business, including determining the appropriate business entity type, management issues, product liability issues, and estate planning for both the business and family property. After your initial meeting, you identify and research the following issues.

Specifically, the following critical elements must be addressed:

I. Describe the main types of business entities and their defining characteristics.

II. Apply product liability law and determine what issues are present. How would you advise your client to mitigate those issues?

III. Apply the elements and characteristics of an agency relationship to Sam's actions. Does Sam's involvement prior to the business formation, as well as his anticipated role once the business is formed, create an agency relationship? Why or why not?

IV. Identify potential real property issues based on the location of the business on the family farm. Justify each potential issue.

V. Does the manufacture of Fred's Miracle Cough Syrup on the family farm necessitate a formal transfer of ownership or possessory rights? Defend your response.

VI. Identify potential personal property issues based on the use of Sam's personal vehicle to deliver the product. Justify each potential issue.

VII. Does the use of Sam's personal vehicle in the course of business expose Sam or the business to any liability issues? Defend your response.

VIII. Identify potential estate planning issues with regard to the business and the family farm. Justify each potential issue.

IX. What estate planning vehicles are available to Fred and Sally should they desire to transfer ownership in the business and family farm, respectively, to Sam and Lilly equally? What are the advantages and disadvantages to each?

X. Applying your analysis of the issues above, which type of business entity do you recommend for Fred's Miracle Cough Syrup and why?

Answer 1

Answer-

Dear Fred/ Sam

Greetings of the day !!!

Please find below my response to address certain queries that you have:

1. Business entity in the form of a sole- proprietorship firm should be created wherein Fred is the sole- proprietor and Sam is instead appointed as an agent. For the same, agency contract will need to be signed between the proprietorship firm and the agency which outlines the detailed terms and conditions under which Sam will operate and assist in marketing and supply of products on behalf of the proprietorship

2. As you are aware, that the cough syrup (that you have manufactured) leads to problems if consumed with aspirin. Therefore, this needs to be clearly highlighted in all sorts of external communications including marketing advertisements and word of mouth publicity. Also, please ensure to include this under "Warnings Label" in bold letters as part of product packaging and include this in your invoice also in bold letters. This is to ensure that whosoever is buying this product from you is aware of its side-effects. Product liability law gives authority to consumers to have a recourse in case they are affected due to consumption of your product. To this effect, kindly estimate the additional treatment cost for someone who consumes this syrup with aspirin and accordingly get the proprietorship firm insured against any such probable event

3. Sam's actions clearly create an agency relationship as he is acting on behalf of Fred for both publicity of product as well as for managing the supply chain

4.Since the property is located on the family farm, please check with local authorities if the area can be utlized for such commercial activities involving manufacturing and supply of a cough syrup. What all precautions needs to be implemented even if it is allowed. What consequences one can face in the event of non- compliance to any of such regulations. Also, do environment and social risk assessment for implementing this project and take necessary clearances before beginning.