Introduction
There are several options open to Acme Fireworks. As a sole proprietorship, the owner is able to hire employees. The biggest benefit of a sole proprietorship is the easiness of dealing with taxes and the easiness of running the business. There are some drawbacks to being a sole proprietorship, such as the fact that the owner is personally liable for any legal situation that arises through various contracts or business deals (Dishman, 2010). The owner of Acme Fireworks should strongly consider upgrading his sole proprietorship because the business contracts appear like they may be permanent; regardless, as Acme is increasing in size and scope, the company should upgrade in order to protect itself from possible liabilities. Acme should upgrade to a limited-liability company in order to better protect its owners from liabilities as the company’s expansion increases its contracts.
The Uniform Commercial Code or Common Law
The Uniform Commercial Code and common law are the two types of law that govern the interpretation of contracts. This situation should be governed by common law and accordingly, the existence of a contract has been established.
The Elements of a Contract
The elements of a contract include offer, acceptance, consideration, mutuality of obligation and competency of capacity. In the present situation, it is not clear if the parties actually entered into a valid contract. However, if Acme fulfilled its duties and performed within the contract, Acme can make a strong case that its client is liable under contract law.
Agency Law
Agency law is an area of law that should be addressed in this situation as Acme can consider a variety of methods in hiring new employees. In determining whether to hire full time or part time employees, Acme would be better to choose part time or temporary employees.
Business Entity
Acme has a variety of choices in the type of business entity to create. The sole proprietorship, the limited liability company, the corporation, a partnership are Acme’s options. The best choice for Acme would be the limited liability company.
Conclusion
Acme Fireworks will be governed by common law in this situation and it is likely that the owner formed a contract with the businesses as the elements needed for contract formation are present. Acme may potentially be personally liable for injuries from a stray firework as a result of its duty as a proprietor. Acme should consider changing its type of business entity to that of a limited liability company so that it could protect the owner’s assets in situations that may arise.
There are several options open to Acme Fireworks. As a sole proprietorship, the owner is able to hire employees. The biggest benefit of a sole proprietorship is the easiness of dealing with taxes and the easiness of running the business. There are some drawbacks to being a sole proprietorship, such as the fact that the owner is personally liable for any legal situation that arises through various contracts or business deals (Dishman, 2010). The owner of Acme Fireworks should strongly consider upgrading his sole proprietorship because the business contracts appear like they may be permanent; regardless, as Acme is increasing in size and scope, the company should upgrade in order to protect itself from possible liabilities. Acme should upgrade to a limited-liability company in order to better protect its owners from liabilities as the company’s expansion increases its contracts.
Acme is governed under the Uniform Commercial Code (UCC) when it is selling a tangible product, and it is governed by common law when it is selling a service, real-estate, etc (APA, 2016). All of the states have adopted the UCC as it provides a consistent code for states to do business in, without the troubles of the previous common law system. Common law is a system of unwritten laws that govern society, through a system of precedents and judicial decisions. Thus, the UCC is a form of statutory law. Understanding the differences between the two systems is very important because it designates the way to resolve legal disputes, and when it can be disputed. There are some differences between the two systems, as common law follows the mirror image rule where both parties have to have the same version of the contract. In the UCC, only the material terms matter, and if they remain unaffected, the contract can still be considered valid. Thus, there are considerable differences between the UCC and common law, the biggest being the fact that the UCC is statutory law and common law is based upon judicial precedent.
In addition, the UCC generally only considers quantity when determining the terms of the contract, while common law also focuses on price, performance, time, etc. (Denton, 2013). In this case, Acme Fireworks is providing both a good and a service to its clients; goods as a result of the physical fireworks, and a service because of the act of putting on the fireworks display. However, overall it is a service, and should therefore be governed under common law because of this, which has larger implications for Acme when dealing with its clients. In addition, Acme’s sales here are governed under common law because other factors were considered, such as price, quantity, and other determinants of the price. Thus, Acme has established a contract encompassing the common law of the United States, and it is legally binding.
There are five key elements of an enforceable contract. These are: offer, acceptance, consideration, mutuality of obligation, and competency of capacity. The offer refers to a promise to act or refrain from acting, depending on the circumstances, while the other party does the same. Offers must convey a serious intent, and must be accepted with the same intent. A rejection from the offeree will end the power of acceptance by the offeree and the liability of the offer from the offeror. A rejection occurs either when the offeree expressly refuses by clear and concise language, or when the offeree proposes different terms that change or alter the materiality of the contract. Acceptance is also very specific, and occurs when the offeree accepts the terms of the contract in the manner specified by that same contract. This form of acceptance can be by handshake, phone, written consent, etc. All that matters is that the offeree accepts the contract in a reasonable matter, which again is usually denoted by the contract. Possible issues can often arise because this is unclear and unspecific wording on the legal side; actions undertaken by one party can designate acceptance, such as not voicing complaints when a good or service is not the one specified by the offer. However, in most basic contracts, the rules are straightforward and clear. It is unclear if Acme actually has a contract decided, because it appears that neither party formally issues and offer other than just a basic discussion of pricing. Therefore, it must be assume that the two parties never reached this stage in contractual formation.
Consideration is a misnomer, as the typical definition of the word places this action as something that should be performed immediately after the offer was made. However, the legal definition here is that consideration occurs when the two or more parties involved in a contract offer something of value to the other. This is a very important step for the offeree, because typically courts judge their performance more than the offeror. Consideration can only occur with goods and services that are both measurable and considered legal duties in the court of law; thus, promises to give affection will not constitute a valid duty. Mutuality of obligation is very closely related to the concept of consideration. This clause of the contract states that once the promises to perform the duty are exchanged by the two or more parties, neither party then has the right to cancel the contract. One-sided contracts are typically declared void by courts, as the company with all the power faces no legal detriment at the cancellation of a contract.
Competency and capacity refers to the ability of both parties to reasonably make and accept the terms of the contract. The jurisdiction determines the legal age for capacity, whether it is eighteen or twenty-one. Minors are typically considered too immature or unknowledgeable to negotiate with adults, so the courts usually protect them from a breach of contract. In some cases, a party may lack the mental capacity to make a decision or to understand the terms of a contract. In these cases, the courts usually void the contract. In addition, contracts entered into while under the influence of alcohol and drugs are voided when breached. A sixth term also exists, but it simply refers to the statue of frauds and written contracts; this is necessary because written and oral contracts are often distinguishable between the other in a legal setting as a written contract is much more specific and can be easily proved, whereas in oral contracts, it can be difficult to prove what the exact offer was and if it was ever accepted.
Considering these five factors, it remains unclear if the two parties truly entered into a contract. As no specific method of acceptance was mentioned in the case study, it would appear as if no contract was formerly entered into. It does not even appear as if an offer was made by either party, as only the price was discusses. Without the acceptance aspect of contractual law, no legally binding offer occurred, meaning Acme Fireworks cannot be held liable for not delivering its services.
American laws are often unclear as to who will be held liable when the mishandling of fireworks occurs. Over the past couple of years, several lawsuits have arisen where customers blatantly mishandled their products and were seriously injured. These customers then sued the fireworks company and won the law suit. Thus, in a common law precedent, there is a potential that Acme Fireworks may be liable for any injuries that occur. It depends on the negligence laws of the specific state that this display is occurring in. Because Acme is directly responsible for the fireworks display, it is highly likely they would be held liable, though the injured parties would probably sue the company paying Acme first. Acme would assume any liability that it incurs, provided the injury occurred outside the scope of its contract. If Acme fulfilled its duties and only performed its duties in the scope of its contracts, then Acme can make a strong case that its client is liable, as they were performing services that they agreed upon. However, personal injuries typically occur outside the realm of legally created contracts, so it is highly likely it would be Acme’s fault.
Agency law is a branch of commercial law that concerns when an employee or a business agent is operating for someone or something else. Essentially, agency law is important because it governs when someone has the legal authority to act for someone else. This law almost exclusively deals with contractual or commercial cases. There are several different types of employment that Acme Fireworks should consider when hiring new employees. Employment is typically categorized between two major types: part-time and full-time. Full-time employees are usually entitled to healthcare benefits, bereavement, dental, and holiday pay. Part-time employees work significantly less, on average, than full-time employees do. They do not receive the same benefits, as there is no legal reason for employers to provide the same benefits. Again, different states have different laws that govern what employers must provide; in this essay, we will only consider the federally mandated rules and regulations. In addition, each company provides different benefits based upon what their intended goal is and to maximize employee happiness.
Full-time workers usually work forty hours a week, and part-time workers typically work about twenty to thirty hours per week. There are a few other types of employment: casual and contract employees. Contract employees are usually only engaged for a specific period of time in order to achieve a purpose or complete a specific objective. Casual employment can be divided into several different types, but it typically does not come with any benefits. Casual employment can be seasonal, such as a farming job or fishing job, and it is highly irregular work. A final employment category is the apprenticeship and internship category, where employees may or may not be paid for their services, or but are rewarded with skills or the experience provided.
There are considerable benefits that come with hiring part-time employees. Under the Fair Labor Standards Act, part-time employees must be allowed minimum wage and equal treatment, regardless of ethnicity or gender. Part-time employees are also subject to the same firing laws that prevent unfair removal. However, part-time employees can have their hours significantly reduced to a point where they may barely work. This is a significant advantage because if Acme does not immediately receive subsequent contracts after these displays are over, it may find it necessary to seriously reduce its employees’ hours. Acme could also hire temporary employees to meet its necessary quota, but doing so would likely significantly increase its labor costs because this type of employee usually has higher rates due to its temporary nature. Therefore, it would be far better for Acme to hire part-time employees and to reduce the hours if the future contracts do not materialize than to choose other employment types.
Determining the type of business that Acme should become is not immediately obvious. As already mentioned, a sole proprietorship afforded Acme with several benefits, such as tax incentives designed to help small business grow. As the business has developed over time, the company has needed to expand its employee base and prepare to grow into the fireworks market. There are numerous factors to choose from, and the biggest ones involve a lot of effort and high levels of coordination. However, due to Acme’s current size and their future growth plans, one business does stand out.
The next step above a sole proprietorship is that of a limited liability company (S&M, n.d.). LLCs are allowed by state statutes and usually consist of a few members, who own the business. These members can be individuals, corporations, and even foreign entities; there is no maximum number of members. The IRS will treat an LLC differently depending on a variety of circumstances. LLCs are a hybrid between a corporation and a sole proprietorship; they provide flexibility like a proprietorship and tax incentives like both of the aforementioned company types. LLCs also do not pass on the profits to shareholders, unlike the corporation business model. Profits are passed on directly to the members of the LLC. This can be advantageous because unlike public entities, LLCs are not subject to a profit tax. The government makes up for this by taxing the members through their income tax. This means that LLCs have one of the most advantageous tax requirements for a growing business to use. In addition to this, LLCs protect their members from individual liability. In a sole proprietorship, the owner is directly responsible for any losses that the company incurs; here, the members’ assets are protected from loss if the LLC incurs serious debts.
Limited liability companies can file for S-Corp status (S&M, n.d.), which means it will be taxed as a corporation. It can help minimize overall tax contributions and help the business owners plan on how they will be taxed. However, it limits the flexibility of the business’ operation. Therefore, members should consider carefully whether an S-corp is the right decision for them, and should decide after consulting a business lawyer who has specific knowledge of S-corporations.
Another type of business is a partnership. Partnerships are interesting because they involve multiple parties invested in a business. There are several types of partnerships: general partnerships, limited liability partnerships, and limited partnerships (Investopedia.com, 2003). General partnerships mean that the owners all share the same legal obligation and risk; it also means that the profit is distributed equally, along with expenses. All of the partners in this type of business are responsible for the debts the business takes on, which is the key difference between this business type and the LLC, which holds the company liable and not individual members or owners.
In limited liability partnerships, each partner is not normally at fault for malpractice or other legal issues (Investopedia.com, 2003). This means that if one partner is sued, the other partners may not be necessarily at risk of the same issue. Partners are generally paid bonuses based on the business’ profits, and this company type is best suited for architects and lawyers. This is because these types of careers are the most susceptible to being sued for breaches of contracts and malpractice; thus, the creation of this type of partnership was created to maintain the income benefits while protecting the assets of each partner. This type of business is essentially the combination of two proprietorships.
Limited partnerships are a mix between these two, and this company type usually has one general partner who assumes the full responsibility of the business (Investopedia.com, 200. Other partners assume a more limited risk, but they also have fewer management responsibilities and a decreased capacity to make managerial decisions. Acme should not consider forming this type of business, because it is not consistent with their long term goals. Acme is seeking to protect its assets, and the owner is the only stakeholder in his/her company. Thus, a partnership is not the best way to go in order to continue to expand.
I would recommend that Acme form a limited liability company to better ensure that it will expand and maintain a profit. All Acme has to do is register in the state that it is seeking to do business in. This is a relatively easy and painless process, usually. By creating an LLC, the owner of Acme can protect himself and his assets by dissociating himself with the business in terms of liability, which is the best route for the owner to pursue in the case of a business as volatile as the fireworks industry. In addition to this, the owner should be certain to form an actual contract with the businesses considering hiring them by actually accepting the offer if it comes through; until then, Acme has no real reason to change how it does its business. Acme is also governed by common law contracts, which mean that judicial precedent will determine the legality of a breach in contract; this is significant as Acme may have to protect itself legally from a breach on the part of the offeror. Acme Fireworks should also be keenly aware that while selling fireworks, a tangible good, they are governed under the UCC. Thus, it can be difficult to understand the differences between the two when a company provides both tangible goods and services, and the unique, individual contracts must be studied closely.
References:
APA. (2016). Uniform commercial code “UCC” contacts vs. Common law contracts asset protection attorney. Retrieved August 20, 2016, from Asset Protection Attorneys, http://www.assetprotectionattorneys.com/Legal_and_Business_Counsel/Contract_Formation_and_Review/Uniform_Commercial_Code_UCC_Contacts_vs_Common_L.aspx
Denton, B. (2013, January 29). The difference between a contract that falls under the UCC and one that does not and why it is important to you. Retrieved August 20, 2016, from Gunderson Solutions, http://gundersondenton.com/business/difference-contract-falls-ucc-important/
Dishman, L. (2010, March 15). The skinny on sole proprietorships. Retrieved August 19, 2016, from Business Structure, https://www.entrepreneur.com/article/205578
Investopedia.com (2003). Partnership. In Investopedia. Retrieved from http://www.investopedia.com/terms/p/partnership.asp
S&M. Limited Liability Companies. Retrieved August 20, 2016, from SBA, https://www.sba.gov/starting-business/choose-your-business-structure/limited-liability-company
Staff, L. (2007, August 6). Corporations. Retrieved August 20, 2016, from Cornell Law, https://www.law.cornell.edu/wex/corporations
