Final Paper
Name:
Institution:
Final Paper
Introduction
Business is governed mostly by laws as well as traditions and practices. Since there are different business types including sole proprietorships, limited liability companies, partnerships and variants of these entities. In the process of carrying out ordinary business functions, it is necessary to have a deeper understanding of the different business types. This is because with each business entity, there is a subsequent set of laws that apply to it. Of the three major business types, sole proprietorship presents the biggest form of risk and liability. However, in this case, the business owner carries all this liability. Given that the case study in the paper, Acme Fireworks, is a sole proprietorship, examining its business transactions with other clients will reveal important insight into business law and contract.
Laws that Govern the Contracts
In the question concerning the choice of law, it is prudent to conclude that the contract will be covered under the Uniform Commercial Code (UCC) instead of common law. The Uniform Commercial Code is a set of uniform acts designed to unify the laws on sales and commercial deals within the United States. Contracts among businesses for continuing performances are categorized under common law, the type of law that stresses the development of regulations through court proceedings. The Uniform Commercial Code originated from common law. However, it strictly controls commercial dealings for portable goods. The intention of the UCC was to merge state laws controlling commercial activities into a one code that applies to all the states and assist in facilitating interstate commercial transactions. In the case of
Acme Fireworks, the product being discussed is the large fireworks display that will be creating and presenting. Lastly, the movable fireworks are products that are controlled by the UCC. While the actual fireworks are mobile, they are sold as part of a package. The clients are procuring the setup, fireworks display and lights performance. After the display commences, it becomes a fixed object and in the process, placing it squarely within the control of common law. Contracts involving services are normally controlled by common law even though this law was mostly designed for goods. Courts categorize Acme Fireworks as a provider of goods and services and as such, they are given hybrid contracts. Courts maintain a strict division in common law concerning goods and services. In the same vein, the court assumes that since hybrid contracts incorporate an aspect of service, the Uniform Commercial Code cannot be applied.
Evidence of Contract
This section is designed to examine whether the business owner formed a legitimate contract with the client. It will also apply the five elements of an enforceable contract. A contract is a willing agreement between two or several actors that is implemented by law as an obligatory legal deal. The agreement of both groups is crucial in the validity of a contract. The first party is called the offeror who presents a proposition to another party that either accepts or deny. Every contract has five fundamental elements that must be observed. The following section applies the five elements of a contract to the Acme Fireworks case study.
The first element is the offer. Acme Fireworks received the offer from several large businesses to supply fireworks and create a display on a regular basis. Offers are an illustration of the readiness of a party to be conjoined in the contract. To ensure that the contract becomes a binding one, the client must agree to the offer. This creates a valid contract. The next aspect is acceptance (DiMatteo & Hogg, 2016). The clients accepted to receive the services offered by Acme Fireworks. In a manner different from the Uniform Commercial Code, changes can be included even though they alter the contract physically (Beatty & Samuelson, 2007). The UCC is popular for its emphasis on the quantity. This is different from common law that concentrates on the amount as well as the cost, time, nature of work and related issues. The third aspect is consideration. It is obvious that the clients considered the services offered and the prices set. The fourth element is legality. Fireworks are a legal product and therefore, they are legitimate. The last element is capacity. Both parties have the resources to deliver on their promises. From the analysis, it is clear that the contract is enforceable and legitimate. It is necessary for contracts to emerge from a process of bargaining between the parties. A consideration is necessary so that a legitimate and enforceable contract can be created. In other words, all parties in the contract stand to benefit items of value. Considerations take the form of finances or other valuable items exchanged between the parties. In matters concerning the alteration of the contract, the Uniform Commercial code permits amendment without any supplementary consideration (Beatty & Samuelson, 2007). Common law prohibits the amendment of a contract without making considerations.
Potential Personal Liability to Acme Fireworks
There is a substantial personal liability element in the case study involving Acme Fireworks. By the time of the analysis, Acme Fireworks was a sole proprietorship. This implies that if an observer or a user is injured in the process of the fireworks display, all the liability will be on the owner. Therefore, if any problems occur during service delivery, all the personal assets belonging to the business owner are vulnerable. Their property can be auctioned off to gather funds to pay off the damages or debt. Acme Fireworks can benefit greatly from a different business type particularly in terms of protecting the assets. The most probable type of lawsuit that could be leveled against Acme Fireworks is over the specific issues within the contract. When Acme Fireworks will carry out an activity such as injuring a spectator at the display or destroying property, it may violate aspects of the contract. The dispute over this issue can create a critical lawsuit. Matters such as these are categorized as contract claims since they originate from contractual disagreements. The most common and extremely dangerous risk faced by Acme Fireworks involves the user or observer becoming injured in the fireworks preparation and display. The damages can be monetary, physical or even unmentioned in the contract. Apart from the users and the observers, Acme Fireworks is also liable for any action committed by its employees. Consequently, most of the risk management strategies are deigned to prevent lawsuits or torts since they are relatively expensive to undertake. Therefore, it is advisable that the owner of Acme Fireworks consider switching their business entity from a sole proprietorship to a limited liability company (Blum, 2007). This will substantially reduce their exposure to different forms of liability created by employees and clients alike.
The current business transaction at Acme Fireworks is very disadvantageous to the business and its owner. This is because of two things. The first aspect is that of the business entity that has been covered extensively. A sole proprietorship transfers all the liability to the owners. However, the second aspect is similarly problematic for the fireworks provider. Even after understanding that they were a sole proprietorship, the company still made decisions that exposed them to risk. In the recent deal, Acme Fireworks took on a new job without formulating a contract to limit their liabilities. In the face of a need to increase the temporary labor and capital, a sole proprietorship is expected to shift the liability to the client. Rather than acquiring more fireworks and additional labor, Acme Fireworks should shift the responsibility to another party. In the long term, they will benefit form a switch in the business entity towards a low risk structure such as a limited liability company (LLC) (Beatty & Samuelson, 2007). The next section addresses the different types of employee relationships and their advantages as well as their disadvantages.
Employment Types and Relationships
Four common categories of employment types are acknowledged within the public realm. These relationships include independent contractors, statutory non-employees, statutory employees and common law employees. This section will evaluate their advantages and disadvantages in relation to Acme Fireworks (Blum, 2007). Independent contractors refer to employees that subscribe to an autonomous business or vocation. Ordinarily, these are not employees. This group includes auctioneers, contractors, accountants, lawyers, and other workers who provide their services to the public (Beatty & Samuelson, 2007). The rule is that an employee is categorized an independent contractor if the company they work for has the privilege to control the outcome of the project. However, the employer cannot influence the approach and method used to realize the outcomes. In relation to the Acme Fireworks case, the service providers running the fireworks display are contractors and this makes them independent contractors. This employee category has the advantage of high levels of autonomy from organizational influence. They have the option of choosing their own working conditions and pay rates. Independent contractors also have the flexibility of testing out new companies and professions. However, it has the disadvantage of poor contacts with other clients. Furthermore, independent contractors regularly encounter the problem of high turnover rates as they use short-term employees for different projects.
The next group of employees is the common law employee. Based mainly on the traditional common law rules, this category of employees carries out services that are prescribed and coordinated by an employer. The manager describes the responsibilities as well as the methods of implementation (Beatty & Samuelson, 2007). Most employees fall into this category. Little attention is awarded to employee relationships. As a result, the employee’s title is irrelevant (Blum, 2007). Other irrelevant aspects include the reimbursement process and the working conditions. One of the features of this type of relationship is that the employer has the power to dismiss the worker as well as offering them the appropriate tools and working environment (Furmston, & Brownsword, 2010). One of the major advantages of this employment type is that the employer offers resources that facilitate work. However, it has significant disadvantages. One of them is that the employee’s fate rests squarely with the employer. They cannot make their own decisions concerning their future, progress and projects. The third category is statutory employee. These employees work for an employerbut do not fit in withthe traditional connotation of a common law employee (Beatty & Samuelson, 2007). A popular example is an employee paid oncommission, short-termsales agents andtraveling salespersons.This employment relationship has the advantage of partial autonomy. However, it has the disadvantage of low job security. The last category is statutory non-employees. Such employees are normally acquired on a short-term basis whenever the organization is short handed. Common examples include sales agents and direct sellers. The advantage of such employees is that they are not affiliated to a single company. They can sell their skills to a wide variety of clients (Blum, 2007).
Disadvantage of Operating As a Sole Proprietorship
Selecting the appropriate business entity facilitates a businessperson in lowering exposure to liability, reduce taxes, and guarantees that the company can be financed and administered competently. It also offers entrepreneurs with a device for ensuring that the company operations will carry on, instead of terminating when the owner is dead or unavailable (Beatty & Samuelson, 2007). Identifying the business type is important as it clarifies the ownership of all partners in the business enterprise. In the selection of a business entity, the owner should consider the extent to which personal assets are exposed to liabilities emerging from the business. Apart from this, choosing the right type of business offers the option of diverse tax benefits and reduces repetitive taxation (White, Summers, & West Group, 2010). Lastly, the right business type allows the business owner to share ownership with other stakeholders and investors (Furmston, & Brownsword, 2010).
Several reasons exist that affirm why Acme Fireworks should not operate as a sole proprietorship. The owner covers the level of risks associated with a sole proprietorship. The biggest disadvantage for Acme Fireworks is that the owners cannot separate between business and individual assets. This implies that if Acme Fireworks is sued for breach of contract or any other reason, their assets such as money in the account, cars, and the houses can be auctioned. Adopting a company structure ensures a defined division between business and private assets. In this way, any legal complains can be settled using business assets. This acts as a safeguard for business owners (Beatty & Samuelson, 2007). The common practice among business owners is to acquire insurance to counter cases when sued. Insurance is useful in generating the money to settle lawsuits but it may also be ineffective in covering all the possible situations. For instance, most insurance companies lack an insurance cover for damages caused by fireworks. The high levels of variables involved in the business deal between the different partners is evidence that it would be unfeasible for Acme Fireworks to sustain their current business form as a sole proprietorship (Blum, 2007).
Conversely, Acme Fireworks should adopt a limited liability company structure. In this way, the business owner can reduce the amount of liability that he or she is exposed. A limited liability company is a mixed formation that protects all the shareholders from personal liabilities while covered under the tax benefits and flexibility of a partnership. Under the platform of a limited liability company, businesses and their owners are covered from personal liability for the expenses incurred by the business, provided there is enough evidence to back their claims that their activities are not illegal, unprincipled or negligent while handling the business activities (Beatty & Samuelson, 2007).
Conclusion
From
the analysis of the case study involving Acme fireworks and the creation of a
contract, the following conclusions can be made. It has emerged that among the
different business entities, the sole proprietorship is the riskiest and
rudimentary. It contains the biggest amount of risks particularly for the
business owner. In the event that the business is sued, the personal assets of
the owner can be auctioned to gather finances (Blum, 2007). In other words, the
owner is not protected from external losses. Transforming the business from a
sole proprietorship into a limited liability company (LLC) is the best decision
since the products and services offered by Acme Fireworks hold significant
danger to the property and lives of the users (Furmston, & Brownsword,
2010). In the current state, if a user were injured during the display, then
Acme Fireworks would be responsible for their medical costs. Making the change
to a limited liability company switches all of the liability to the business
entity instead of the owner. Contracts are a useful tool for coordinating
commercial transactions, reducing the amount of liability and defining the
working conditions for different parties. Acme Fireworks needs to consider the
existing business entity and the extent of exposure to liability. Implementing
the lessons learned from the analysis into contracts, employment types and
business structures in the organization can rectify the situation.
References
Beatty, J. F., & Samuelson, S. S. (2007). Business law and the legal environment. Mason, Ohio: Thomson/West.
Blum, B. A. (2007). Contracts: Examples & explanations. Austin: Wolters Kluwer Law & Business.
Furmston, M. P., & Brownsword, R. (2010). The law of contract. London: LexisNexis.
DiMatteo, L. A., & Hogg, M. (2016). Comparative contract law: British and American perspectives.
White, J. J., Summers, R. S., & West Group. (2010). Uniform commercial code. St. Paul, Minn: West Group.