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The formation of a business should be informed by numerous strategic decisions regarding the purpose of the business, key activities, major customers, legal aspects, and everyday operations. It is important to properly plan and make informed decisions necessary to shape the direction of the business. Proper decision-making early before the actual launch of the business helps to ensure continued growth without major hiccups. As a business, ACME Fireworks has the objective of changing its business entity in the face of new changes in its business environment.

In order to establish which among the many business structures is the most appropriate; the management of the business must consider several elements such as the development of new strategies, acquisition of new employees, the types of contracts under which they are employed among other things (Rogers, 2012). In view of the existing conditions and the intended changes to ACME Fireworks’ business environment, the business should be governed by Uniform Commercial Code (UCC) and operate a limited liability company (LLC) instead of a sole proprietorship.

Common Law or Uniform Commercial Code?

Common law refers to a body of unwritten laws based on legal proceedings developed by courts of law. This type of law affects the decisions made in unusual cases based on established statutes or written rules of law. Conversely, the uniform commercial code (UCC) is a comprehensive set of laws governing all commercial transactions in the United States. The certainty of business relationships brought about by the UCC allows businesses to grow and has thus been termed as the backbone of US commerce (Martin et al., 2017).  The UCC is a universally adopted law, and this implies that businesses can enter into contracts confident same terms will be applied similarly by the courts of every U.S. jurisdiction.

Work Environment Assessment

ACME Fireworks has operated as a small business under the sole proprietorship business structure. The business is growing fast, with the customer base expanding steadily. It is therefore anticipated that the business will access contracts from individuals beyond their state and with more significant implications. This makes it necessary for ACME Fireworks to ne under the UCC and not under common law. Under this law, it will be possible for interested buyers beyond the state where it is situated to establish long lasting relationships with the business. With the changing business environment, ACME will find it necessary to borrow money, lease equipment, establish contracts and sell goods outside of the state and hence making it necessary to comply with the UCC. Although in many states the UCC and common law are related, there is a lack of adequate precedents and the containment of specific rules or guidelines. The uniform commercial code makes it possible for companies in different states to do business with each other because it provides a standard legal and contractual framework. For ACME Fireworks, an establishment under the UCC will enable it to predict the structure of contracts in the court of law.

Common law applies mainly in contracts of services, insurance, and real estate while the UCC is mainly concerned with the sale of goods (Lamond, 2014). Whereas both laws can apply to the ACME Firework’s case, it is necessary to understand the implications of each on the business in general. If the company is managed under the UCC, it can always change the terms of contracts without a specific counter-offer unlike in common law where such changes to a contract make it unacceptable unless original terms have been changed and a counter-offer given. The UCC will be the best body of law for ACME Fireworks to be governed under for the many benefits it accords the business. Based on these, any contracts entered into between the ACME Fireworks and any inquiring businesses would fall under the uniform commercial code.

Key Elements of a Contract

The validity of a contract under either the common law or the UCC is based on the presence of five important elements. These elements are; offer, acceptance, consideration, legality, and capacity (Hillman, 2012). In the event of contract breaches, courts are required to establish whether or not there existed a valid contract between the parties. In the case of ACME Fireworks and the inquiring businesses, to determine if a valid contract exists, there is a need to examine the applicability of each of the five contractual elements.

A contractual agreement usually begins with an offer whereby one party, the offeree makes a business proposition or an offer to another party, the acceptor who considers whether or not to reject the offer (Hillman, 2012). A valid offer has to have an unequivocal promise to enter a contract, its terms must be clearly outlined and it must be communicated clearly from one party to another (Rogers, 2012). With these conditions in mind, ACME Fireworks’ owner made an offer to its inquiring businesses. Upon request, an unequivocal promise was made by the proprietor to the inquiring businesses and a price per display was offered. It can therefore be concluded that the first contractual element was met.

An enforceable contract must also have the acceptance element. A valid offer should be accepted unambiguously and be communicated between the parties entering into a contractual agreement (Rogers, 2012). Acceptance may be expressed in words, deeds, or performance as indicated in the contract. In the case of ACME Fireworks and its inquiring businesses, there was a price per display communicated by the proprietor and was agreed upon between the two parties, an indication that the element of acceptance was also fulfilled.

The third element of a contract is consideration. Consideration refers to the benefit that must be bargained for between the parties and is the essential reason for a party entering a contract. Consideration can either be in the form of financial compensation or a benefit from the contract (Rogers, 2012). In the case under review, this element is fulfilled in that there was an agreement to exchange the goods and services offered by ACME Fireworks for an agreed-upon price with the business inquirers.

The fourth contractual element is legality. Legality is based on the understanding that courts cannot enforce a bargain that is illegal. A contract is only enforceable when the intention of making it legal and that the parties to it intend to be legally bound by their agreement (Hillman, 2012). For ACME Fireworks, there has to be proof that it complies with the regional and state laws in its fireworks business. if it is proven that the business complies with the laws regulating fireworks, then the agreement between the firm and the inquiring businesses fulfills the element of legality.

The fifth element of an enforceable contract is capacity. This refers to the mental competency of the parties entering a contract. All parties to a contract must possess mental competence in terms of sanity and age (Hillman, 2012). ACME Fireworks and the business inquirers are both adults with mental competence and are entering the contract knowingly and intentionally; therefore, this meets the element of capacity.

Based on the above analysis of the elements essential for a contract to be enforceable, it can be concluded that there existed a valid and enforceable contract between ACME Fireworks and its potential customers.

Potential Personal Liability of If A Spectator Is Injured by a Firework

Fireworks can sometimes be dangerous to people. With ACME Fireworks dealing with this product, it is likely that stray fireworks may cause bodily injuries to people accidentally and so ACME will be held personally responsible. In the event of a firework accident in which a party is injured, there is the likelihood that an application against the company for possible negligence of a tort may be made, that the company did not take appropriate measures to ensure the safety of spectators. Continuing to operate as a sole proprietorship means that the owner will be held personally liable for a stray firework that causes injury to a spectator. The sole proprietorship status does not protect a sole proprietor’s assets and reliability, and this exposes the company’s monetary expenses which then go to cover damages of that particular lawsuit. In addition to stray fireworks causing injury to a spectator, the addition of new employees to the business would complicate the owner’s liability if any of the new employees causes unintentional or intentional injury to a bystander in the line of duty.

Employment Types and The Agency Law

ACME Fireworks has a total of 15 employees but there is no specific information as to the types of employment relationships existing between the company and the employees. An agency refers to a relationship in which one party called the agent acts on behalf of another party, called the principal. Agencies may either be compensated or gratuitous. However, issues of contract liability do not need to be compensated for validity. Two kinds of employment agencies exist; employees and independent contractors. The contract liabilities of principals are usually the same, but the principals are normally liable for the torts of servants that are committed within the scope of the relationship. This does not apply to independent contractors. Each employment type has advantages and disadvantages as follows;

ACME Fireworks may hire employees or independent contractors. In hiring employees, the advantages accrued to the firm include better control, improved workflow, flexibility, and improved loyalty. According to Muller (2019), committing to hire employees can lead to gaining more loyalty as compared to independent contractors. Flexibility occurs as a result of being free to move employees into multiple roles and have more control over their performance of assigned duties.

The disadvantages of having employees include costs in employee benefits, increased liability in relation to employment and agency law, increased overhead costs for facilities, and the need for additional employee responsibilities for improved profitability. Employee injury or injury caused by them on other people in the line of duty may cause the company to be liable for damages (Muller, 2019).

Hiring independent contractors may be advantageous to the company in several ways including reduced labor costs, low overhead costs, less risk for lawsuits, and more flexibility in assigning staff to projects. Numerous labor and employment laws do not apply to independent contractors since they are not employees. The company with independent contractors will not incur expenses in workman’s compensation, health benefits, and others as applied to employees. Most of the rights that employees enjoy are also not applicable to independent contractors hence reducing the exposure of the company to lawsuits. Such rights include the minimum wage, protection from discrimination based on national origin, race, gender among others, and the right to be unionized among other rights (Muller, 2019. Flexibility with hiring independent contractors results in that they can be hired for a specific project and once it is completed their services are terminated.

Independent contractors have their disadvantages including less exercise of control over workers, increased liability for mistakes of the workers, and the risk of increased government audits. Exercising control over independent contractors may be limited due to the level of autonomy enjoyed by them. Also, just like employees, independent contractors can increase the liability of the company if they are injured in the line of duty (Muller, 2019). The lack of workman’s compensation for independent contractors can make them sue the company for damages if their injury is a result of negligence or carelessness.

From the comparison of the two types of employment relationships, considering their pros and cons, it would be appropriate for ACME Fireworks to go for independent contractors at the moment when the demand for fireworks displays has soared. This will alleviate a situation where a slowdown in demand for fireworks displays in the future would require the company to undertake massive layoffs which can damage the reputation of the company and result in an increase in lawsuits.

Why ACME Fireworks Should Not Operate as a Sole Proprietorship

A sole proprietorship is the simplest business structure with little investment capital and fewer legal requirements among others. However, sole proprietorships present several disadvantages including limiting the owner’s options of raising capital and increased liability. The business owner may be personally liable for any lawsuits filed against the business. This business structure may be suitable for a business that has few operations. ACME Fireworks has been run as a sole proprietorship for two years but its operations have outgrown the current business structure necessitating change.

Recommended Business Entity

ACME has recorded an increase in demand for its fireworks displays and as such is facing more liability due to the nature of the product. This makes it appropriate for the company to adopt a new business entity to protect the owner from personal liability (Dammann & Schündeln, 2012). Since the company is still small in size, the next best business entity to be considered is that of a limited liability company. A limited liability company is advantageous because it requires little initial capital outlay and easy to manage. It also has no ownership restrictions and requires fewer corporate formalities. Besides, it offers liability protection for both members and managers hence protecting them from bearing personal liabilities.

Conclusion

Based on the above analysis, it has been established that ACME Fireworks has overgrown its sole proprietorship status, and going by the prevailing conditions, the business should be formed into a limited liability company. This is necessitated also in part by the nature of the product the business offers, fireworks, which is quite dangerous and increases the potential liability. Besides, an increase in demand for labor also increases potential liability. As per the prevailing conditions, the business should hire independent contractors to fulfill customer demands for fireworks displays and maybe consider hiring employees in the future if the demand is sustained.

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