Legal Considerations and Business Entity Formation for Acme Fireworks.You are the manager of Acme Fireworks, a fireworks retailer who sells fireworks, puts on ground display fireworks, and large aerial display fireworks. The company started in the owner’s garage two years ago and now has 15 employees that you manage.
QUESTION
You are the manager of Acme Fireworks, a fireworks retailer who sells fireworks, puts on ground display fireworks, and large aerial display fireworks. The company started in the owner’s garage two years ago and now has 15 employees that you manage. The company started as a sole proprietorship, and the owner has never changed the entity. The owner has informed you that the company has received inquiries from several large businesses wondering if the company could create several fireworks displays on a regular basis. The owner told the inquirers that the company could fill such display orders, and a price per display was agreed upon. It was discussed that most of the cost for a fireworks display is for skilled labor, insurance, and the actual service of setting off the fireworks. No other details were discussed. The owner is anticipating that new employees will need to be hired, but he is worried that if the large orders for fireworks displays do not continue, the company will not have the funds to pay the new employees. The owner is now considering changing the business entity, but he does not know what entity to form or how to form it.
The owner has asked you to do the following:
Determine if the contracts with the businesses will be governed by common law or the Uniform Commercial Code (UCC), and explain why.
Analyze whether the owner formed a contract with the businesses, and apply the five essential elements of an enforceable contract.
Explain the potential personal liability to Acme Fireworks if a spectator is injured by a stray firework from a fireworks display.
Discuss the different employment types and relationships relevant to agency law, and analyze the advantages and disadvantages of each type specific to Acme Fireworks.
Explain why Acme Fireworks should not operate as a sole proprietorship. Recommend a new business entity, and provide rationale to support your recommendation.
For each task, be sure to analyze the relevant law, apply the facts to the law, and make a conclusion.
The paper
Must be 8 to 10 double-spaced pages in length (not including title and references pages) and formatted according to APA style as outlined in the Ashford Writing Center (Links to an external site.).
Must include a separate title page with the following:
Title of paper
Student’s name
Course name and number
Instructor’s name
Date submitted
Must begin with an introductory paragraph that has a succinct thesis statement.
Must address the topic of the paper with critical thought. That is, describe what your response is to the content, either positive or negative, and defend your position. If multiple options, alternatives, and/or positions are present and are being rejected, you must also defend the reasons for rejecting an option.
Must end with a conclusion that reaffirms your thesis.
Must include at least five scholarly sources, two of which must be from the Ashford University Library, in addition to the course text.
Must document all sources in APA style as outlined in the Ashford Writing Center.
Must include a separate references page that is formatted according to APA style as outlined in the Ashford Writing Center (Links to an external site.).
Carefully review the Grading Rubric (Links to an external site.) for the criteria that will be used to evaluate your activity.
ANSWER
Legal Considerations and Business Entity Formation for Acme Fireworks
Introduction
Acme Fireworks, a fireworks retailer and display provider, is facing new opportunities to create fireworks displays for several large businesses. As the manager, I have been tasked with determining the applicable law for the contracts, analyzing the formation of the contracts, assessing potential personal liability, discussing employment types and relationships, and recommending a new business entity for Acme Fireworks. This essay will address each of these tasks, providing a comprehensive understanding of the legal considerations and options for the company’s future.
Applicable Law for Contracts
The contracts with the businesses will be governed by the Uniform Commercial Code (UCC). The UCC applies to the sale of goods, and since fireworks are considered goods, it falls under the UCC jurisdiction. The UCC provides a standardized set of rules and regulations for transactions involving the sale of goods, ensuring consistency and predictability in commercial dealings.
Formation of Contracts
To determine if the owner formed a contract with the businesses, we must examine the five essential elements of an enforceable contract: offer, acceptance, consideration, legal capacity, and legal purpose.
Offer: The owner’s communication to the businesses indicating that Acme Fireworks can fulfill the fireworks display orders constitutes an offer.
Acceptance: If the businesses agreed to the price per display without any additional negotiations, it can be considered acceptance of the offer.
Consideration: The price per display agreed upon by the owner and the businesses represents consideration.
Legal Capacity: Assuming the owner and the businesses have the legal capacity to enter into contracts, this element is satisfied.
Legal Purpose: The purpose of the contract, which involves providing fireworks displays, is legal and does not violate any laws or regulations.
Based on the presence of these essential elements, it can be concluded that a contract has been formed between Acme Fireworks and the businesses.
Potential Personal Liability
If a spectator is injured by a stray firework from a fireworks display, Acme Fireworks may face potential personal liability. The legal concept of product liability would be relevant in this case. Acme Fireworks, as the provider of the fireworks display service, has a duty of care to ensure the safety of spectators. If negligence or failure to meet this duty can be established, Acme Fireworks may be held liable for the injuries suffered by the spectator. It is crucial for Acme Fireworks to maintain comprehensive insurance coverage to mitigate potential liability risks.
Employment Types and Relationships
In the context of agency law, Acme Fireworks should consider the following employment types and relationships:
Employees: Hiring employees provides Acme Fireworks with direct control over their work and allows for more supervision. Employees can be trained according to specific requirements, providing consistency in service quality. However, hiring employees entails additional costs such as payroll taxes, benefits, and potential legal liabilities.
Independent Contractors: Acme Fireworks can engage independent contractors for specific tasks, such as skilled labor for fireworks displays. Independent contractors offer flexibility and reduced long-term commitments. However, Acme Fireworks has less control over the work of independent contractors, and misclassification can lead to legal and tax consequences.
Agency Relationships: Acme Fireworks may also consider forming agency relationships, where agents act on behalf of the company. These relationships can provide specialized expertise and expand the company’s reach. However, it is essential to establish clear contractual agreements and monitor agent activities to avoid potential conflicts or breaches of fiduciary duty.
Each employment type and relationship has its advantages and disadvantages, and Acme Fireworks should carefully evaluate their specific needs and circumstances before making any decisions.
Recommendation for New Business Entity
Operating as a sole proprietorship exposes Acme Fireworks to significant personal liability. To mitigate risks and enhance the company’s legal and financial protection, I recommend forming a Limited Liability Company (LLC) for Acme Fireworks. An LLC offers a combination of limited liability protection for owners and the flexibility of a partnership or sole proprietorship. This entity type shields the owner’s personal assets from business debts and liabilities while allowing for pass-through taxation.
By forming an LLC, Acme Fireworks can benefit from enhanced legal protection, potential tax advantages, and increased credibility in the business community.
Conclusion
Acme Fireworks, faced with new opportunities for fireworks displays, must carefully navigate the legal considerations associated with contracts, personal liability, employment relationships, and business entity formation. By understanding the applicability of the UCC, analyzing the formation of contracts, addressing potential personal liability, considering various employment types, and transitioning to an LLC, Acme Fireworks can position itself for success while minimizing legal risks and maximizing operational efficiency.
