Introduction
Several elements must be considered and assessed when choosing the most beneficial company structure for a specific business endeavor. What will provide the most excellent protection, the most considerable return on investment, and the best tax rates are the pros and drawbacks for the company Acme Fireworks that need to be considered. The best advice for the owner is to change his status from sole proprietorship to a Limited Liability Corporation, given the liability, labor requirements, and significant contracts in place.
Fireworks displays are hazardous, and even a minor accident might result in a lawsuit that could cost the owner their assets. The owner can further mitigate the risk of error and potential damages resulting from a lawsuit by utilizing the best labor for the creative preparation and execution of the fireworks shows. He consented to offer his services to these companies, and according to common law, he must honor that commitment or face a potential breach of contract; as a result, he will need to have enough workers to carry out these agreements. Due to this, he should consider hiring temporary workers to fill any openings on his business’s staff to uphold his promises and reduce costs. The paper explores Acme Fireworks’ sole proprietorship and the difference between common law and UCC. It claims the owner must consider workers, ensure other clients employ contractors, have a workspace and equipment, and control their schedules.
Common Law vs. Uniform Commercial Code
Several elements must be considered when determining the most advantageous company structure for a business. The owner of Acme Fireworks has orally agreed to provide his services to firms, and under common law, he is obligated to uphold that agreement or risk being in breach of contract. This situation raises the question of which body of law should govern the arrangements with the firms. Common law is a body of law that emphasizes the creation of rules through judicial judgments, and it originated in England. The Uniform Commercial Code (UCC) is a development of common law and applies only to commercial transactions involving transportable goods (Rogers & Seaquist, 2022). The UCC aimed to consolidate state laws governing commerce into a unified code that all states could adopt to streamline and enhance interstate trade.
The benefit to the Acme Fireworks Firm is not the transportable fireworks, which the UCC would regulate, but rather the substantial show that the company would design and conduct. As a service, it falls squarely into the purview of common law. Courts have closely followed the standard law division of commodities and services, assuming that because hybrid contracts have a service element, the UCC is not immediately relevant (Assaad et al., 2020). Therefore, the contracts with the firms will be governed by common law, rather than the UCC.
Question of Contracts
Examining the applicable law is essential to establish whether the owner entered into a contract with the businesses. Generally speaking, a contract is formed when two parties agree to specific terms and conditions and can fulfill those terms (Fisher, 2018). In this case, the owner may have created a contract with the businesses if they both agreed to the terms and conditions and could fulfill them. To further examine whether a contract was created, it is necessary to examine the elements of a contract. According to the law, a contract must include an offer, an acceptance, and consideration (Fisher, 2018). An offer is when one party states a set of terms and conditions they would like fulfilled (Fisher, 2018). Acceptance is when the other party agrees to the terms and conditions of the offer. Finally, consideration is when both parties exchange something of value.
The document does not indicate whether these elements were present in the owner’s agreement with the businesses. If all three elements were satisfied, it can be inferred that the owner made a contract with the businesses. Ultimately, having more information makes it easier to assess whether a contract was formed. Still, when all contractual elements are present, the conclusion remains that the owner did form a contract with the businesses.
Essential Elements of an Enforceable Contract
The five essential elements must be present for a contract to be considered enforceable. According to contract law, these include an offer, acceptance, consideration, capacity, and genuine agreement (Fisher, 2018). The case of Acme Fireworks involves a written contract between the company and a customer for the purchase of fireworks for a Fourth of July celebration.
The customer was unaware that fireworks were illegal in the state and was arrested when the police discovered the fireworks. The offer was made when Acme Fireworks sent the customer a written contract for the purchase of the fireworks. The acceptance was made when the customer signed the contract, agreeing to purchase the fireworks. The consideration was the payment of money in exchange for the fireworks. Both parties had the capacity to enter into the contract, as they were both of legal age and had the legal capacity to enter into a contract.
Liability
Fireworks are an ultrahazardous activity with a high degree of inherent risk. If someone is hurt or something catches fire due to a stray spark, the owner may face a strict liability lawsuit. When someone is injured while engaging in a fundamentally risky activity rather than due to someone else’s purposeful action, strict responsibility as a tort occurs. This is why the owner should change their sole proprietorship into a Limited Liability Company (LLC) as soon as possible and obtain liability insurance, which will further safeguard their company.
The Sarbanes-Oxley Act demands stringent revisions to the current securities standards, helps safeguard investors from misleading financial reporting by firms, and imposes severe new penalties on offenders. Despite its flaws, it might be argued that Sarbanes-Oxley has succeeded in maintaining the public’s faith in financial markets and financial reporting. The law has fundamentally altered the relationship between businesses and their auditors, improved the accuracy of financial reporting, and established the Public Company Accounting Oversight Board (PCAOB) (Peregine & Elson, 2022). It sparked the corporate responsibility movement—creating a stronger respect for corporate compliance, a fiduciary duty to shareholders, attentive board oversight, and ethical conduct. It is also clear that the number of financial accounting problems affecting public firms has significantly decreased since its introduction.
Agreements may not waive the duties of good faith, diligence, fairness, and care imposed by the Uniform Commercial Code. If the agreed-upon requirements are not irrational, the parties may choose the criteria by which the execution of those responsibilities is to be assessed (Uniform Commercial Code, n.d.). When the Uniform Commercial Code specifies a deadline for an activity, the parties may agree on a deadline that is not arbitrary.
In the event of a malfunction, liability insurance would ensure he was better protected from losing his clientele. To help companies achieve their objectives, Acme Fireworks is expected to produce a variety of fireworks shows on a routine basis. This hypothetical situation suggests that there is a chance that some spectators might get injured by a wayward firecracker.
Hence, Acme Fireworks would be personally liable for the incident. At the same time, the firm’s sole proprietorship structure makes it personally responsible for any losses, crimes, or injuries that may occur while offering its various services. Personal culpability also includes the corporate organization’s errors or omissions. Investors or company owners should consider obtaining sufficient insurance to mitigate the adverse effects of liability.
Employment Types and Relationships
Regarding hiring for its business, Acme has two options: employees and independent contractors. Employees come with advantages such as loyalty and copyright ownership of their work. However, they may incur higher taxes and can be more difficult to terminate due to legal and other reasons.
On the other hand, independent contractors are not subject to payroll taxes, unemployment insurance, workers’ compensation, and disability insurance (Depositing and Reporting Employment Taxes, n.d.). They will also not receive benefits such as pensions, sick leave, health insurance, and vacation time (Depositing and Reporting Employment Taxes, n.d.). Companies must be careful to ensure that contractors are not misclassified as employees and comply with the law. Firms may also save on payroll taxes and other costs by hiring independent contractors, but other clients must employ them, provide them with a private workspace, supply them with their equipment, and control their schedules.
Acme Fireworks’ relationships with employees and independent contractors are relevant to agency law. Agency law regulates the relationship between a principal, who delegates his authority to an agent, and the agent, who acts on the principal’s behalf. The business owner must know their obligations under agency law when hiring employees and independent contractors. He must ensure that any contracts he makes with the companies are valid under common law and that the employees or contractors he hires can form a legal contract. Additionally, he should consider getting liability insurance to protect his business from any potential lawsuits arising from an accident. Finally, he should be aware of the Sarbanes-Oxley Act and its requirements to ensure the accuracy of financial reporting.
Sole Proprietorship
A sole proprietorship is a business type where one person is responsible for all aspects of the business. This type of business structure has some drawbacks that make it less than ideal for Acme Fireworks. The significant disadvantage of a sole proprietorship business type is the owner’s personal liability for all debts and obligations.This means that Acme Fireworks could be held liable if a stray firework injures a spectator from a fireworks display. Additionally, the owner is exposed to unlimited personal liability, meaning that their personal assets could be used to pay damages in case of a lawsuit.
Finally, sole proprietorships do not offer the same tax benefits as other business structures. All business income is taxed as the owner’s personal income, and the owner cannot deduct business expenses. This can significantly reduce the business’s profitability. For these reasons, Acme Fireworks should not operate as a sole proprietorship. An alternative to a sole proprietorship is a limited liability corporation, which allows owners to keep their personal assets and take advantage of tax benefits.
Business Entity
The rationale behind establishing a sole proprietorship is the simplicity of creating this type of business and the tax laws that flow through.Unfortunately, this framework is no longer enough for his business, and heis putting himself in a precarious position if he continues to accept more and bigger events. The Limited Liability Company is the most appropriate company entity to create. Limited Liability Companies are an example of an attempt to blend a partnership’s most significant elements with a corporation’s best features (Rogers & Seaquist, 2022). A limited liability corporation provides the most protection to an owner with the least expenditure and paperwork.
The owner should consider several elements when determining Acme Fireworks’ most advantageous company structure. A Limited Liability Corporation (LLC) provides the owner with the best protection, the most significant return on investment, and the most tax benefits (Huston, 2022). An LLC can protect the owner’s assets from being used to pay damages in the event of a lawsuit, provides more flexibility in terms of labor requirements, and allows for the deduction of business expenses (Huston, 2022). Additionally, an LLC will provide the owner with limited liability, meaning that the owner will not be held personally liable for the debts and obligations of the business (Huston, 2022). As an LLC protects personal assets, provides more flexibility in labor requirements, and provides tax benefits, it is the most advantageous company structure for Acme Fireworks.
Conclusion
Due to the lack of a distinct legal identity for a sole proprietorship, the owner is personally accountable for any debts incurred by the firm.As a result, creditors may file a lawsuit against the owner for any losses or damages the business incurs.In contrast to an LLC, where personal assets are safe, the owner may lose their assets if this occurs. The exception to this norm is when courts impose personal culpability on officials, directors, shareholders, or members and tear the corporate veil.
The veil can be broken without separation between the company and its owners. Additionally, it can happen if the company’s actions were unlawful or fraudulent, the company’s creditors paid an unfair price, the corporation engaged in unlawful activity, failed to comply with corporate formalities, or was undercapitalized. It can also be changed if one person or a small group of closely related individuals completely controls the corporation.
Considering common law, a contract need not be enforceable in writing. Hence, the owner will breach the agreement if he fails to erect the displays as promised. Being an LLC will provide Acme Fireworks’ owner a better chance of success by securing his assets and putting him in a lower tax rate. By diversifying his personnel, the owner will be better able to complete the agreed-upon contracts. Contract labor will benefit him by increasing his profit margin and decreasing employment taxes and benefit-related costs.
References
Assaad, R., El-Adaway, I. H., Hastak, M., & Needy, K. L. (2020). Commercial and legal considerations of offsite construction projects and their hybrid transactions. Journal of Construction Engineering and Management, 146(12).
Depositing and Reporting Employment Taxes. (n.d.). IRS. Web.
Fisher, J. C. (2018). Contract law in England and Wales. Kluwer Law International B.V.
Huston, H. (2022). How to form an LLC, what is an LLC, advantages, disadvantages, and more. Wolters Kluwer. Web.
Peregine, M. W., & Elson, C. W. (2022). The important legacy of the Sarbanes Oxley Act. Harvard Law School Forum on Corporate Governance. Web.
Rogers, S., & Seaquist, G. (2022). Essentials of business law (2nd ed.). The University of Arizona Global Campus.
Uniform Commercial Code. (n.d.). Legal Information Institute. Web.