Change of Business Entity
Introduction
Starting a business as a sole proprietor has its advantages and disadvantages and with development, it is normal for entrepreneurs to consider converting to other business types that have better terms. Some of the primary benefits of this sort of business include; the owner has full control of the company operations, can sell or transfer ownership, and does not incur tax whatsoever. Furthermore, the entrepreneurs spend less on acquiring the legal documents as compared to the other types of business. However, entrepreneurs operating in sole proprietorship are held responsible for any business debt or liability unlike the other types of business. Moreover, the business operations rely on personal loans or individual assets for financing unlike for corporation or partnership, which have a comprehensive source of funds to finance the company (Dungan, 2015).
Changing a commerce entity requires an entrepreneur to outline a new body and contributing capital that will be used to fund the trade. However, the required input varies depending on the nature of the business entity that is expected to be formed as they have varied requirements. Although the consequences incurred by the change of the business entity is relatively high (Hopson & Hopson, 2014), entrepreneurs can benefit from the different opportunities that they derive from the new forms of business that they venture into. The study aims to help understand the necessary procedure that is followed in changing business entity and the above case; the focus will be on how Acme Fireworks, which is a sole proprietorship business, will change to a different object. The paper will highlight the different consequences that come with the new entity and the impact created by the enterprise.
Main Body
Contract Law
Contract law is a concept that is commonly applicable to business enterprises across the globe and serves various functions in regulating different parties that are involved. Hence, a contract in business refers to a legal binding between two or more people that is signified by the signatures of the corporate parties and should be enforceable. However, for it to be regarded as a lawful convention, both parties that are involved in the commerce ought to agree to the set requisites and accept them. Moreover, the partners included in the contractual agreement must be of sound mind and judgment and that the terms should be legally acceptable. Hence, the use of business laws is to govern that the concerned parties adhere to the contractual terms by offering their promises in the enterprise. Some of the universal conventions that are used in the regulation of the contract terms include the common law and uniform commercial code (UCC) (Wilkinson-Ryan, 2015).
Acme Fireworks should consider using UCC as it is the most useful type of law that supports commercial contracts between parties. Furthermore, UCC is historically renowned for managing transactions between states and business hence will be most efficient in the above case. UCC is designed in a manner that it works uniformly to regulate the set standards of business to ensure that fairness is upheld in commercial transactions and that no party is subjected to any form of irregularity whatsoever. Furthermore, UCC incorporates almost nine articles an aspect that makes it be a comprehensive instrument that can be used in the management of the different commercial operations (Plesko & Toder, 2013).
For the case of Acme Fireworks, article two of UCC will be used as it is the most efficient tool to use in the management of business transaction between parties as it makes facilitates easy management of the contracts. Unlike the case of common law, the parties involved must serve different roles such that while one party is offering, the other one is left with a mandate of accepting and that for the contract to be valid, they must exchange something of value. The common law should not be used in the above case as it has strict terms of the agreement which are difficult to maintain in a business environment that is subject to change. Like for instance, the use of characteristic does not allow for price variation once the agreement is made and in case the other party accepts a different price, the terms of the contract will also vary. However, for the case of UCC, it is flexible hence allows for slight changes in the business to accommodate the uncertain environment where business operate (Odinet, 2015).
Elements of an Enforceable Contract
The owner of Acme Fireworks did not enter into a contract with any business as all items of the contract were not achieved. The inquiries he received from the other company to offer more services is an indication of an offer which he accepted to consider. Moreover, consideration of the convention was reached as the parties settled on the costs of display and other services that will be offered by the company. However, the other discussions that would complete legalizing the contract like legalizing of their intention to enter into a contract were not done. Furthermore, it is not clear from above incidence to understand if the business which offered inquiries were competent to enter into a convention with. Hence, we can conclude that Acme Fireworks did not enter into a contract with any organization as all elements that are required to enforce a contract were not reached from the above discussion. The essential elements of a legal contract will be discussed below as follows;
Offer and acceptance
Any agreement has to incorporate essential elements for it to be considered as a legal contract and if any is missing, the agreement will be rendered invalid. The first aspect that is appreciated by making an agreement enforceable is the offer between the parties and should be precise indicating the expiration time of the contract, and the value attached to it. However, once the time agreed elapses, the offer is considered to have elapsed or else through withdrawal. An acceptance of commercial agreement indicated the end of a negation as it is a sign of understanding between the concerned parties and established the different conditions under which the contract is based. However, acceptance can either be done orally or through writing and must coincide with the stated method as per the offer for it to be considered useful (Wilkinson-Ryan, 2015).
Intention to create legal relations
The second requirement for a contract is that the agreement should be legalized through the establishment of legal relations between the concerned parties. The above statement, therefore, indicates that the contract should in no way prohibit the law of the state or violate any policy, however, if the concerned parties decide not to legalize the matter, it is important noting that it should be stated clearly in the offer.
Consideration
The aspect of consideration is an indication that for the convention to be fulfilled there ought to be a value that is offered by the parties. However, the consideration offered should not guarantee fairness, and there is no way a party can use the court unless the incidence of fraud, or behavior which is against the agreement (Odinet, 2015).
Capacity to parties
Any business should enter into a contract with only the parties which are competent to sign a contract and in case one is done with incompetent people, it is rendered invalid. Some of the aspects that may execute a contract to be regarded invalid include signing an agreement with a minor, an insane person or else someone who has been restricted by law.
Free consent
Consent indicates that the concerned parties agree on the same thing in the same direction and that there should be no aspects of fraud whatsoever. Therefore, the two sides should have a harmonized intention and in case one party is any way misled, the contract will be regarded to void. The above state can be understood through conducting a review on how the parties agreed to the respective terms of the contract and the expected consideration from the partnership (Odinet, 2015).
Potential personal liability to Acme Fireworks
Acme Firework is a sole proprietorship company, an aspect that makes it liable for any claims that may be subjected towards the business. Hence, if the customer of the claims to be compensated for any injury whatsoever, the business together with the owner is liable and has to pay the affected individual as may be required by law. Hence, it is important that sole proprietors find possible ways on how they can evade such claims that may lead to further applications. There are different reasons why a business may be held liable with one of the key issue being the cause of injury to the client as for the case of Acme Fireworks. Such incidents are legally referred to as torts and may impact costly on the owner of the business and the enterprise itself hence need to be maintained. Although sole proprietor Enterprise evades potential liability of being sued by co-owners as for the case of companies and partnerships, they are subject to contract and tort claims. Employees stand one of the potential risks of this type of business as they can sue the owner in case of wrongful termination of their jobs or cases of discrimination (Hopson & Hopson, 2014). For the above case of Acme, it is worth noting that customers as well have a right to sue the business or the owners for either contract or tort claims which stand as some of the potential risks to the proper running of the enterprise.
Employment types; analysis of the advantages and disadvantages
Different types of employment exist for use by any business and include either full employment or contractual employment. However, with contracts, the employer has no control over how work is done in the business or who does it but can manipulate the final results that are released.
Full-time employment
Advantages
Employees who are on full-time basis indicate those that work for your business for over thirty hours a week and normally have a longer commitment to the enterprise. The first advantage of this type of employment is that employees are guaranteed of a job security an aspect that motivates them to work hard. Secondly, it is cheaper as compared to contractual payment whose amount is based on hourly rate, and they are often available to attend to any duty all the year round. The employer has the right to delegate tasks to the employees unlike in contracts and business can be operated more efficiently without the owner's presence (Lavoie, 2010).
Disadvantages
Full-time employees require more benefits from the company which will lead to increased expenditure like additional health care plan or vacation hence impacting negatively on the business performance. Irrespective of the results obtained, the employer, has to pay for their salaries as agreed and a limited payroll that is audited for different details. Moreover, the company is held liable for the training that is offered to their employees or the licensing requirements unlike in the other types of employment.
Contracts
Advantages
The employer can save more based that he has no capacity to cater for the employees' benefits as well as committing themselves to any salary agreements whatsoever. Employers experience flexibility in that if they are dissatisfied with the work of an individual they have the right of not hiring them again and it is often easy to fire such people. Furthermore, such people cater for their professional requirements and licensing an aspect that saves the governmental funds significantly.
Disadvantages
One of the significant disadvantages of the above type of service is that the owner has no power over the employees regarding how the job is done. Moreover, the fact that the work is short-term, it is not possible to use same people all through as they are employed on a first come first served basis. Furthermore, the contractors focus on promoting their brand other than the business name so as to get a good reputation in the job market at the cost of developing the company products. Hence, it is, therefore, evident that the owner of Acme Fireworks has a right to choose whether to enter into a contract with new employees or enter into full employment.
Why Acme Fireworks should not operate as a sole proprietor
As highlighted earlier, the disadvantages of operating a single business are more that the advantages, an aspect that should be considered in the above case. The first limitation of the sole is that the owner is liable for any debt or liability that the business incurs, and both the business and the owner are held responsible in this case (Dungan, 2015). Furthermore, the owner explicitly depends on own assets and funds to start a business while at the same, he controls all the business operations hence monitoring the company performance.
The owner of Acme Fireworks should, therefore, consider changing his business entity into a corporation over sole proprietorship for the following reasons. With a corporation, the individuals are not held liable for the business for the company debt and, therefore, don't risks losing their money or property as the case in the former type of business entity. With corporate, the owner will save a lot of cash as taxation applies only to the salary that is paid out to cater for the employees and not the profits that are realized from the business. Corporation experiences an extended life hence business operation can be operated even without the owner and has diversified means of raising capital to expand the company for more opportunities. It is therefore recommended that Acme should consider changing its business entity into a corporation so as to benefit from the different opportunities that the company is limited from enjoying as indicated above.
Conclusion
It is important however to note that change of business entity is important to any business as it enables the owners to enjoy the business opportunities that are available in the other entities but comes with consequences. While one entity benefits the owner in one way or another, changing to another body should thus be a task that is well planned on how the new consequences can be met.
References
Dungan, A. (2015). Sole Proprietorship Returns, 2012. Statistics of Income (SOI) Bulletin, 1-59.
Hopson, J. F., & Hopson, P. D. (2014). Making the Right Choice of Business Entity. CPA Journal, 84(10), 42-47.
Lavoie, M. (2010). Canadian Common Law and Civil Law Approaches to Constructive Takings: A Comparative Economic Perspective. Ottawa Law Review, 42229.
Odinet, C. K. (2015). Commerce, Commonality, and Contract Law: Legal Reform in a Mixed Jurisdiction. Journal of the American Academy of Matrimonial Lawyers, 75741.
Plesko, G. A., & Toder, E. J. (2013). Changes in the Organization of Business Activity and Implications for Tax Reform. National Tax Journal, 66(4), 855-870.
Wilkinson-Ryan, T. (2015). Intuitive Formalism in Contract. Www.Law.Upenn.Edu/Journals/Lawreview/, University Of Pennsylvania Law Review, University of Pennsylvania Law Review, 1632109.
