Acme Fireworks
A number of factors are to be considered when it comes to taking the decision of the most favorable business structure for a specific commercial venture. Given the situation of Acme Fireworks, the pros and cons that need to be weighed before deciding on the business structure include the offering of highest protection, the highest investment return, and the most favorable rates of taxes. When there is a need for liability consideration, along with needs of employment and huge contracts, the recommendation to Acme Corporation owner would be to amend his status from the present sole proprietorship to a potential corporation of limited liability.
The display of fireworks is highly hazardous and so even if the injury is minor, it may cost the owner loss of individual assets in litigation. By placing highly skilled labor on the setups of arts and firework display execution, there can be reduction of error risk and possible lawsuit damages by the owner. By verbal commitment of services to concerned businesses, there is statement in common law that one should consider the risk of breach or the arrangement. Thus, there arises a need of sufficient staff for the varied contract facilitations. For the same reason, there should be consideration of labor contracts for filling up gaps in the employment roster of the Company, eventually being able to fulfill commitments and reduce expenses of overhead.
Common Law vs. Uniform Commercial Code
The business contracts for the continuity of performance would be included in the common law. This is the law system which has emphasis on the formulation of rules via decisions made in the court, and has its origin from England (Rogers, 2012). The evolution of common law was from the UCC (Uniform Commercial Code), however; it includes the governance of only those items that are commercial transactions by nature. The UCC may be taken as the effort for the unification of state laws that affect the commerce in a single code, which means all states could have adoption of policies for making the commerce between states easy and efficient (Rogers, 2012).
In the case of Acme Fireworks Company, the favorable aspect in the scenario is the huge display that the Company would create and perform, rather than the variable fireworks that are under the governance of UCC. Though there is mobility of fireworks, the selling is not done on independent basis. There is purchase of the setup from the customers, along with the performance and display. When a display starts, it ceases to be movable, which means that it falls in the purview of common law governance.
Generally, common law also governs the service contracts. Though they are inclusive of goods, they also consider services. Hybrid contract is the name given to such contracts with services/goods mix (West, 2002). There is strict adjuration from the courts regarding the common law and the goods and services separation and there is also assumption that given that there is service element in the hybrid contracts, the clause of UCC may not be applicable directly (West, 2002). If the minimum is taken, a pyrotechnical display takes up to twelve hours of process for set up which means that skilled labor is required. This means that there is enough reason for taking this in the category of service verses good transportation.
Question of Contracts
A contract may be defined as an agreement that is enforceable by law. It is said to come into existence by the assent of dual or more individuals voluntarily so that they can legally be bound into an agreement (Rogers, 2012). In the common law, there is an expressed contract which says that a contract becomes valid when the offer of the offeror is accepted voluntarily by offeree in the agreement (Rogers, 2012). There are many inquiries from large business representative about contacts to Acme Fireworks for setting up displays for the event. There was a statement from the owner that Acme was able to fill in orders at an agreed upon rate. The instance representative would be known as the offeree. They have an inquiry about the vendor services, which was from Acme Fireworks. The main person at Acme says that he has the ability to fill in the requests. The statement places him as the offeror in the agreement. The owner can then quote the price for the representatives so that event displays can be set up, the price being considered as the offer made or the proposition of business in question. The offeree or more so the representative, confirms the offer or price, the offeror or the owner and thus provides the establishment of contract. The establishment of a mutual accord is quite critical in this overall process.
The relation between the main parties of the contract and sub-contractors is necessary to be defined. Also, the representative and his scope of power after the termination of the contract, for demanding compensation by the loss of dispute between main partied of the contract should be kept into consideration. Also, conditions on voidable and void contracts and the competency of parties, the anticipatory breach could also be taken reference from the Contract Act.
Offer is the foremost element required in any contract. As has been stated in the previous paragraph, there is establishment of offer from the owner by provision of price to the representatives. The other element to a contract that is valid is the acceptance. There needs to be agreement on the price by the representatives, so that acceptance is established. The element that comes third in a contract is consideration. In the given case of Acme, the consideration would be the display of fireworks given by Acme and the price to be paid to Acme as agreed upon by the representatives of the Company.
The validity of a contract is also affected by the legality. Till the time that Acme is able to give assurance for the fireworks being acquired from legal sources with all necessary permits, legality will be there. Capacity could be taken as the last element required for ensuring a valid contract. The owner must be devoid of external influence of substance of any kind that could incapacitate the ability of the persons for making effective decisions. This is applicable to the representatives. In case the representative or owner are found to be minors, i.e. below age, the contract could be valid in case of presence of guardian, but minority can cause breaching of contract.
Liability
Fireworks classify as business of dangerous kind and thus would classify under hazardous occupations involving great degree of prevalent risk (Rogers, 2012). This creates a risk for the owner related to claims of strict liability in case there is injury to someone or in case there is fire on the stray spark. An offence that rises in situations where there is suffering of an injury involuntarily, by engagement in some kind of essentially unsafe activity is a strict liability (Rogers, 2012). Thus, the owner has to be able to convert the business sole proprietorship into a limited liability company promptly and obtain insurance for liability so that business is further protected.
There is assurance in case of liability insurance that even in case a malfunction occurs, there would be protection of business loss. We could take an example of Ramsey v. Marutamaya Ogatsu Fireworks Company, 72 Cal.App.3d 516. This was a case where persons were injured from the display of fireworks by malfunctioning of pyrotechnic (Glotzer & Sweat, 2013). Followed by a non-jury trial where liability was found for all the defendants involved, there was an appeal and argument from the sponsors that they just had the role of hiring professionals for fireworks. However, the litigation from the plaintiff in the case of Ramsey was on the basis of theories, except the negligence theory, which also included product liability theory and it had potential liabilities for all the manufacturers and people in the chain involved for the distribution of goods that are defective (Glotzer & Sweat, 2013). After the trial judgment, there would be consideration from the side of Acme owner for suggesting any customer that there should be consideration of a policy for covering from such given outcomes.
Employee Types
The total number of employees that the owner has in his office is fifteen. In case the owner is considering the addition of staffs, there may be consideration for the hiring of temporary contracts that have skill but will not need benefits, filed taxes, prolonged contracts, development of career and formal assessments (Bildwell, 2009). There could also be contract of all the accounting and payroll services, thus creating a reduction in the headcount of office that can be substituted with additional skilled pyrotechnical people.
There needs to be assurance from the side of owner that the contractors have other commitments too, own a private office, have their personal tools and set personal working hours. Care needs to be taken regarding protection of the business from the scrutiny of IRS. There needs to be careful weightage from the business if or not the classification of employees is better. In the recent present years, IRS has been able to issue noteworthy crackdown on the employees that dodge taxes on payroll, so that there is surety of being on the right side of the codes of taxes (HR Specialist, 2010).
As per Business week Magazine, there can be employee saving of up to 30 percent through hire of contractors of independent nature. This is because there is avoidance of taxes on payroll, insurance for unemployment, disability and compensation of workers and also benefits that is inclusive of sick leaves, pensions, vacation periods and health insurance. Since contractors that work independently are taken to be self-employed, there must be payment to the Federal Government up to an amount of 15.3 percent for particulars such as Medicare and Social Security, and also local or state taxes (Fusion, 2014).
Employees that are engaged in work for a certain company have tendency of stronger loyalty sense as compared to a contractor and the IRS audit risk can be considerably reduced by the employment of individuals. Additionally, any creation of employee in the course of business would be the copyright of the business, which cannot be the case in case an independent self-employed contractor is used. However, taxes will increase with the amount of employees and the emotional challenge is high. There can also be challenges in releasing an employee legally which may be absent if independent contractor is taken and contract is written in a favorable manner.
Business Entity
There can be easy understanding from the owner side as to why there has been start of the business by the owner as sole proprietorship. The set-up is quite simple for establishment and flow of taxation systems. The owner would have the ability to manage personal assets and co-manage funds. Inopportunely, there is outgrowing of business structure and there is placing of the owner in a risky situation, mainly in case larger or large number of events is being taken.
The most suitable business model to create would be the Limited Liability Company. As has been written on the Essentials of Business Law, the companies with limited liabilities indeed represent attempt that combine best attributes that partnership has with the best attributes that a corporation exhibits (Rogers, 2012).
A company that has limited liability will be able to provide an owner with the highest level of protection with minimum investments in terms of paperwork and expenses. In case a company faces lawsuit, the person who files the charges or the creditor of the limited liability company can use the business assets, however, the assets of the individual members in the organization cannot be confiscated (Lorette, 2014).
There are also tax benefits associated with limited liability companies which eventually benefit the business and the owner. The business expense and the costs of operation are deductible from the business’s gross revenues (Lorette, 2014) and so companies will be able to reduce company asset depreciation as a part of the limited liability company balance sheet (Lorette, 2014).
A company structure with limited liability is able to enjoy many benefits in comparison to other varied business structures. One of the most notable advantages is the pass through tax provisions. There is taxation of profits at each member level and not specifically at the level of LLC and personal assets of the members are protected through status. Additionally, the amount of work in administration and records is much less in comparison to other structures of business. The interests of members for limited liability can have assignment and there can still be separation and assignment of these economic benefits, by providing the assignee distribution benefits for losses and profits, like in case of partnership. This excludes transfer of title for the interests of membership.
Conclusion
In a sole proprietorship, the legal character of the owner is same as that of the entity. This means that the owner personally becomes liable for the debts of the business and therefore can be held liable in case where creditors file for litigation against the company for financial troubles or business damages that have been observed during the course of business. In case this occurs, there can be loss of the personal assets of the owner, but in case of limited liability there is security for personal assets.
There can still be an exception to this case. This is when the court decides to lift the corporate veil and levy personal obligation on directors, officers, members and shareholders (Fitzpatrick, 2014). The corporate veil may be decided to be lifted in cases where there remains no separation among the owners of a business and the entity itself, when the actions of a Company are fraudulent or wrong, when there is suffering to the creditors of the Company for an unjustified cost, there is engagement of company in fraud activities, there is failure in compliance of corporation formalities, there is no adequate capitalization, or in cases where only a handful or people that are closely related, take control of the corporation as a whole (Fitzpatrick, 2014).
References
Bildwell, M.. (2009). Do Peripheral Workers Do Peripheral Work? Comparing the Use of Highly (2012, August 25). LLC vs. Corporation Issues Addressed with the New Release of LLC
Fitzpatrick, D. (2014). Piercing the Corporate Veil: When LLCs and Corporations May be at Risk | Nolo.com. Nolo.com. Retrieved October 16, 2014, from http://www.nolo.com/legal-encyclopedia/personal-liability-piercing-corporate-veil-33006.html
Fusion, J. (2014). Costs of an Employee Vs. Independent Contractor. Small Business. Retrieved October 26, 2014, from http://smallbusiness.chron.com/costs-employee-vs-independent-contractor-1077.html
Glotzer, J. W., & Sweat, S. (2013, July 7). When does a fireworks explosion become negligence under California law?.California Accident Attorneys Blog. Retrieved October 25, 2014, from http://www.californiaaccidentattorneysblog.com/2013/07/07/when-does-a-fireworks-explosion-become-negligence-under-california-law/
Rogers, S. (2012). Essentials of Business Law. San Diego, CA: Bridgepoint Education, Inc.
West, E. (2002). Construction Contracting: Building Better Law with the Uniform Commercial Code. Case Western Reserve Law Review, 52(4), 1067.Retrieved October 13, 2014, from the Ashford Online Library database.
Lorette, K. (2014). What Are the Benefits of a Limited Liability Company in Texas?.Small Business. Retrieved October 17, 2014, from http://smallbusiness.chron.com/benefits-limited-liability-company-texas-4438.html
