Ted Brown and Jim Green Business Deal

Ted Brown and Jim Green have been discussing going into business together for several months, and they are anxious to start that business before the end of this month. However, both Ted Brown and Jim Green each have to be out of town for several weeks on other business, so Ted Brown has told his son, Theodore, who is 16, about the discussions with Jim Green and has appointed Theodore to complete negotiation of the final details of the business. Jim Green has told his son James, who is 18 years old, about the discussions with Ted Brown and appointed James to complete the negotiations.

The business that Ted Brown and Jim Green want to create will develop an app for cell phones that will identify family oriented attractions along major highways so families can download the app to help in planning family vacations. The development of the app will take 4 months, and then it will take approximately another 4 months to fully deploy the app. As the app becomes popular, the business will solicit family-oriented businesses to advertise on the app. Ted Brown and Jim Green have very little capital to use in the development and deployment of the app and will probably need to raise the capital necessary to develop and deploy a quality app.

In your case study, address the questions below.

1. Can Theodore Brown and James Green legally create the business that Ted Brown and Jim Green have been discussing? Why, or why not?

2. If Theodore and James do create the business, what duties do they each owe their father? Describe what those duties mean in this case.

3. What factors do Ted Brown and Jim Green (or their sons on their behalf) need to consider in selecting a form for this business?

4. What form of business will provide the most advantage for their venture?

5. What are the disadvantages of the form of business that they selected?

 

Answer:

  1. Legality of Creating the Business:
    • Theodore Brown and James Green, being minors (16 and 18 years old respectively), lack the legal capacity to enter into contracts on their own behalf. While they may have been appointed by their fathers to negotiate, they cannot legally bind Ted Brown and Jim Green to any agreements or create the business without their fathers’ consent.
    • Additionally, the business they intend to create involves complex contractual arrangements, development of intellectual property (the app), and solicitation of advertisers, all of which typically require the legal capacity to contract. Minors generally lack this capacity, and any contracts they attempt to enter into may be voidable at their discretion.
  2. Duties to Their Fathers:
    • Both Theodore and James owe their fathers a duty of loyalty, good faith, and obedience. This means they must act in the best interests of their fathers and the business, disclose all material information, and follow their fathers’ instructions to the best of their abilities.
    • They should also exercise reasonable care and diligence in negotiating and finalizing agreements, ensuring that they protect their fathers’ interests and avoid any potential legal pitfalls.
  3. Factors to Consider in Selecting a Business Form:
    • Ted Brown and Jim Green (or their sons on their behalf) need to consider factors such as liability protection, taxation, management structure, ease of formation, and capital-raising capabilities when selecting a form for the business.
    • Given their limited capital and potential need to raise funds, they may consider forms such as a limited liability company (LLC) or a partnership, which offer flexibility in management and taxation while providing limited liability protection.
  4. Optimal Business Form:
    • Considering the nature of their venture and the need to raise capital, an LLC may provide the most advantage for their venture. An LLC offers limited liability protection for its members, flexible management structure, and pass-through taxation, making it attractive for startups with multiple owners and limited resources.
    • Additionally, an LLC allows for the pooling of resources and skills of its members, which may be beneficial in developing and deploying the app.
  5. Disadvantages of the Selected Form:
    • While an LLC offers limited liability protection, it may require more formalities and administrative requirements compared to other forms such as a partnership.
    • Additionally, members of an LLC may face self-employment taxes on their share of the company’s profits, which could impact their personal tax liabilities.
    • Furthermore, the flexibility in management structure may lead to potential conflicts or disagreements among members regarding decision-making and control of the business.
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