Barking up the wrong tree: when you do not hire a business lawyer, reality bites

Abstract

Research methodology This case was developed from both primary and secondary sources. Primary sources were interviews. The secondary sources include legal opinions and journal articles. Case overview/synopsis In 2012, Scot and his co-owner, both experienced groomers, planned to open their own grooming business. Scott talked with his accountant about the best legal entity for their situation, and the accountant advised Scott that a limited liability company (LLC) would be the best choice. The accountant steered Scott to Legal Zoom, an online legal resource that helps people form business entities, including LLCs. A few years after starting their business, Scott and his co-owner reached an impasse: Scott wanted to expand the business; his co-owner did not. Scott talked with an attorney and learned that the standard form LLC operating agreement from Legal Zoom did not cover this kind of situation. How is an LLC formed? What are the consequences of a flawed LLC formation? What kinds of duties do accountants owe business owners? Complexity academic level This case was written for use in an undergraduate introductory business law course, an introductory accounting course or an accounting ethics course. The focus of the case supports classroom discussion for online and face-to-face instruction regarding business entity formation and fiduciary duties. Educators who use critical thinking in lessons to apply information about the roles of accountants and attorneys working with business owners can use this case to explore and discuss the impact ethical decisions can have on business owner clients. Learning objectives Through evaluating and examining this case, students will be able to: • understand what an LLC is and explain how one is formed; • recognize the consequences of flawed LLC business entity formation; and • articulate the roles of accountants in the formation of an LLC.