Introduction
Business owners often face the challenge of choosing the most suitable business structure, as this decision can make or break their enterprise. Acme Fireworks, a company that specializes in selling fireworks, is no exception. Having been in operation for two years, Acme Fireworks now has an opportunity for expansion. Several major companies have regularly requested their services to create fireworks displays. To seize this growth opportunity, Acme Fireworks must develop a comprehensive business plan.
As Acme Fireworks expands, the risk of lawsuits also increases, and the company must be well-prepared and take the necessary precautions to avoid legal disputes. Therefore, this paper seeks to explicate important factors related to Acme Fireworks, including transitioning from a sole proprietorship to another business structure, managing contracts, expanding its workforce, and mitigating potential business liabilities.
Contractual Governance
Common Law vs. the Uniform Commercial Code (UCC)
In its pursuit of expansion, Acme Fireworks aims to establish contractual agreements with other businesses. It is crucial to determine whether these contracts, particularly those for ongoing performances, are governed by common law or the Uniform Commercial Code (UCC). For Acme Fireworks, these contracts will be governed by common law, a legal system based on court decisions.
Common law originated in England and served as the foundation for the UCC. However, the UCC specifically deals with transactions involving movable goods (Rogers & Seaquist, 2012). For example, the UCC Article 2 governs the sale of goods, including contracts for the sale of goods, warranties, and remedies for breach of contract.
On the other hand, Acme Fireworks specializes in providing services rather than tangible goods, so its contracts fall under the jurisdiction of common law. While fireworks themselves can be moved, their use in displays classifies them as immovable goods for contractual purposes, thus falling within the realm of common law. One applicable legal principle for consideration is the distinction between “chattels” and “fixtures.” Chattels are movable personal property, while fixtures are items that are attached to real property in such a way that they become part of it (Foran, 2022).
Additionally, Acme Fireworks’ services involve not only labor-intensive activities performed by its employees but also the organization and execution of intricate fireworks displays that require specialized skills and expertise. Most importantly, Acme specializes in providing complete fireworks display services, which include the entire process from planning and installation to the actual performance. When it comes to contracts with other companies, Acme abides by common law, specifically the principle of freedom of contract, which allows parties to negotiate and enter into agreements based on their own terms within the boundaries of legal enforceability.
Contractual Elements
Contracts are legal agreements that become valid when two parties willingly agree to enter into a deal. Under common law, a contract is formed when the offeror makes an offer, and the offeree accepts it (Salih, 2020). In this case, representatives from major companies have approached Acme Fireworks to request fireworks displays for their events, indicating their intent to enter into a contractual agreement with Acme Fireworks. By accepting the order at the agreed price, the owner of Acme Fireworks acts as the offeror, while the representatives of the companies are the offeree. The agreed price for the displays constitutes the offer, evidencing the parties’ mutual agreement and forming a contract.
Additionally, a contract is enforceable when it satisfies certain conditions. Primarily, it should have an explicit expression of intent made by one party to the other, indicating that they are prepared to enter a contract. Under common law, an offer is understood as a manifestation of willingness to enter into a contract, indicating both the intention and the capability to fulfill the terms proposed (Salih, 2020). However, it is essential to distinguish between an offer and an invitation to treat. The former requires acceptance, whereas the latter calls for negotiations.
Furthermore, acceptance must happen for the contract to be effective. Acceptance becomes valid only when communicated by the offeror to the offeree, as explained by Ropes & Gray (2022). This ensures the existence of common consent after having received clear acceptance from the parties involved. To affirm their commitment to the terms of this agreement with Acme Fireworks’ largest clients regarding corporate transactions between the firms, representatives of both firms signed.
Consideration is yet another important element for any contract to be valid. Ropes & Gray (2022) defines consideration as a legal value exchanged between the parties. In most cases, the party that enters into a pact under the agreement is entitled to some transaction, whether they are selling or buying goods or services. In this regard, the Acme Fireworks owner is fully committed to delivering on-demand fireworks displays for other businesses, hence it provides fireworks services. The company, in turn, benefits by charging fees for these services, thereby creating consideration under the contract.
Capacity is also an essential element that ensures the contract becomes binding and, under common law, that all parties involved possess the legal competence to understand the terms of the agreement and enter into it willingly. Moreover, Wolff (2020) notes that individuals must be of legal age and of sound mind to avoid entering into voidable contracts. Both Acme Fireworks’ owner and representatives from other companies meet these requirements and are competent to enter into legally enforceable agreements.
The last element of revolves around the need for a contract to have a legal purpose. This means that the subjects outlined and the actions stipulated in a contract must comply with the legal boundaries prescribed by relevant laws and regulations. For example, consumer protection laws such as the Federal Trade Commission Act (FTC Act) in the United States exist to outlaw unfair methods of competition that affect commerce (Wagner, 2020). Similarly, contracts must align with public policy objectives and cannot involve illegal activities or actions contrary to public interest.
In the case of Acme Fireworks and other companies, the use of fireworks and the provision of services would constitute lawful transactions. This thus makes the contract legally binding and subject to it meeting all other essentials. It should be noted that, in this situation, the common law governs contractual agreements. This means that common law is a system of law based on judges’ decisions and prior judgments rather than statutes enacted by lawmakers. To make a contract viable, each party must observe common law principles and meet all requirements set forth by the common law.
Liability to Acme Fireworks
Acme Fireworks faces a significant risk due to the complex nature of its business. Its exclusive focus on fireworks increases the level of risk, especially when working with large companies. This risk exposes the owner to potential liability for injuries or fires caused by fireworks displays (Rogers & Seaquist, 2012). The employees responsible for setting up and executing the displays act on behalf of the company and are considered the main parties involved, making the company responsible for their actions.
The Acme Fireworks Corporation is aware of the risks involved in its fireworks displays, especially when a flying uncontrolled firework accidentally injures a viewer. Here, strict liability principles, a concept in tort law, hold individuals or entities legally responsible for damages or injuries caused by their actions or products, regardless of fault or intent (Yuanitasari et al., 2023). The agents of the company or its employees must therefore act in accordance with the firm’s guidelines and requirements. Employees are accordingly expected to demonstrate the qualities of loyalty and obedience as stated in Acme Fireworks’ code of ethics.
On the other hand, Acme Fireworks has contracts with other companies and is obliged by these agreements to cooperate, indemnify, and reimburse its workers. To minimize the risk of incidents, Acme Fireworks must ensure that each agent is competent and experienced enough to run every display without errors. By adhering to all policies outlined in Acme Fireworks’ policy guidelines, the employer becomes fully accountable for any accidents that occur.
To address potential liability issues, the owner of Acme Fireworks should consider changing the current business structure from a sole proprietorship to another form of business. It is also crucial for the business to align with the principles of BusinessLiability Insurance Law, which strives to protect the financial interests of companies and business owners (Guan et al., 2021). This insurance will protect the owner from potential financial consequences arising from accidents or malfunctions during fireworks displays. Additionally, it is a good idea for the owner to encourage customers and visitors to follow policies to protect themselves from potential accidents while attending the displays. By taking these proactive steps, Acme Fireworks can effectively handle and lessen the liability risks associated with its operations.
Employment Types and Relationships
Currently, Acme Fireworks has 15 employees. However, with the company’s expansion plans, these employees may not be sufficient to handle the increased responsibilities. The company must hire staff to manage the growing workload and fulfill its obligations to contracted companies. This places pressure on the owner to secure funding for expanding the workforce. As the owner considers bringing in employees, various employment arrangements are under consideration.
Therefore, one possibility for Acme Fireworks is hiring full-time staff, which is regulated by employment law. Full-time employees typically work 40 hours per week and receive a salary through the company’s payroll system (Stovell & Besamusca, 2021). They also qualify for benefits such as Medicare and Social Security. These employees, like the manager at Acme Fireworks, contribute to a dedicated workforce that enhances efficiency and reduces the need for hiring and training (Stovell & Besamusca, 2021). However, it is important to note that permanent employment can be costly for businesses, as it entails expenses for employee entitlements, such as insurance and paid time off.
Acme Fireworks can supplement its workforce with temporary part-time employees to maintain business operations during potential labor shortages. In this case, these part-time employees, as explicated under the Fair Labor Standards Act, are entitled to receive at least the federal minimum wage for all hours worked (Flinchbaugh et al., 2020). In addition, employing part-time workers provides the company with the added flexibility to hire quickly and fire workers as needed. It groups workers into unnecessary payroll tax liability. Nonetheless, the process of recruiting part-time workers may be inefficient, as it can take significant time and effort to replace staff who have already resigned, thereby disrupting operations.
Acme Fireworks should place greater emphasis on employees’ safety and health, regardless of whether they hold full-time or part-time positions. This firm must care about workers’ health and safety on its production sites. In such a scenario, the company can hire contractors who would bear the burden of their employees. Employees who volunteer to help the Acme Fireworks will be protected from liability by the government. As is well known, employing independent contractors has its downsides – they may end up having significant power and control within the organization (Flinchbaugh et al., 2020). It is indeed a tall order to fulfill, and Acme Fireworks, being a risky industry, is a case in point.
Overall, the principal-agent relationship (employer-employee) is one in which the principal assigns work to their agent, or employee. Agency law places the responsibility on the employer for any injuries caused by employees within the scope of their authorized actions (Rauterberg, 2020). In assessing independent contractors, the independence-principal formula must be considered, where the contractor is not an employee but a member of a group of contractors appointed for specific duties.
CEOs or similar corporate representatives may still be held responsible for deliberate torts, whether created to promote their business interests or committed in the course of employment. On the other hand, independent contractors may be held accountable for their wrongs, a responsibility that is proper only in a formal employer-employee relationship.
Ideal Business Structure Recommendation
Acme Fireworks now operates as a Sole Proprietorship endeavor where the proprietor, therefore, is the sole person in charge of the whole company. The management structure under discussion has several advantages, though it also has serious shortcomings, particularly as the company seeks to grow. Risk is a serious problem because, under these rules, an owner may be held to unlimited liability.
In such a structure, the owner serves as the sole entrepreneur and assumes any debts or liabilities the business may incur. This might lead to the loss of the owner’s personal property, as it will be considered a source of cash to offset any financial losses the company may incur. In addition, as a sole proprietorship, the company is not exempt from paying personal income tax. In other words, this means the owners’ tax rates will be applied to the corporation’s net earnings. Consequently, they are unable to reduce costs and raise funds for further investment, which could spell doom for the organization.
Transitioning from a sole proprietorship to a limited liability Company (LLC) will be one of the most important steps toward general expansion and improved performance. One benefit of an LLC structure is that it creates a clear distinction between the owner and the business, thereby reducing the owner’s liability (Schwidetzky, 2018). This is helpful because the owner’s property will not be used for any business liabilities. The business will be standing on its own, giving the owner the peace of mind that even losses will not affect their assets.
Similarly, an LLC allows the entity to avoid double taxation, the problem most frequently faced by sole proprietorships (Schwidetzky, 2018). More specifically, LLCs provide pass-through taxation: the company pays income taxes only on personal profit (Rogers & Seaquist, 2012). This will ensure the company is taxed only once, at the business level. This tax-inspired fortune will give Acme Fireworks more financial power and allow it to invest the same money in additional expansion.
Conclusion
In summation, Acme Fireworks needs to thoroughly review its business structure to determine whether a change is needed, and it must also address issues related to contract management, workforce management, and business risk. When it contracts with others, it must adhere to the common law rules that require it to meet essential requirements such as proffering an offer, accepting an offer, offering something in return, having the ability to contract, and having a legal purpose. To avoid control binding and limit personal liability issues, and because of the dangerous elements of fireworks display activities, Acme Fireworks should attach importance to providing employees with broad training and experience.
The company’s rapid growth could require it to hire both employees and contractors to meet increasing demand for its services. Moreover, conversion from the owner to a limited liability company is necessary, as the owner’s personal assets and the business entity’s assets are legally protected. Acme can ensure an appropriate growth trajectory by considering these vital issues.
References
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