Introduction
A sole proprietorship is the kind of enterprise that is owned by an individual and is responsible for its debts. It does not entail a legal distinction between the business itself and the owner. As such the owner has unlimited responsibility for the business's mortgages, loans, and profits. In the case of Acme Fireworks, a sole proprietorship business entity, the company is now faced with the dilemma of changing its mode of operation following the inquiries from several large businesses. These inquiries are targeted at creating several display frameworks on a regular basis. Furthermore, the owner stated that the questions were based on the fulfillment of display orders by these companies in which the price per display was settled. The cost of these displays would cater to insurance and skilled labor. However, in case the large orders from these companies are terminated, the company may not be able to sustain its new employees regarding compensation. It is for such a reason that the owner is considering to transform the business entity from a sole proprietorship to another more effective one. As the Acme Fireworks business manager, I am obliged to determine the contracts involved across the two parties with the aim of developing a critical evaluation of the potential liability for the business, different employment types and relationships, and why the company should not operate as a sole proprietorship.
Contracts with the Businesses
The settlements within the two businesses should either be governed by the Uniform Commercial Code (UCC) of the common law. First and foremost, a deal is upheld where an offer has been made and accepted as well as the existence of sufficient consideration to make the offer valid (Gao & Singh, 2014). The common law promotes strong acceptance through the aspect of a mirror image where all the parties are involved. The requirements for approval are only met when the offer is relatively precise. Such a type of offer is subject to counteroffer and revocation. On the other hand, the UCC focuses on quantity while the contract can be discharged only after it is proven impracticable. Furthermore, the UCC entails some statutes of fraud which are enforceable in writing to prevent the chances of revocation. As such, the common law applies to the contracts used in involving employment, services, intangible assets, insurance, and real estate among others. On the other hand, the UCC contracts are used in the case of trades involving securities and goods.
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For the case of Acme Fireworks and the larger businesses, the contracts should be governed by the common law. This is because, it embodies the aspects of insurance, employment, price, nature of work, and services among other things that apply to the operation of the businesses. On this note, in case the contract was made under this law, then the Acme Fireworks business would not have to worry about paying its employees after the large orders are ceased. Besides, the common law does not allow any changes as it would translate into the rejection of the offer which favors both parties in securing their business agreements. Most importantly, this law promotes the idea of privity where each party is allowed the legal standing to sue the other or being sued. Such a concept would advance the interests of the involved parties due to the fear of legal consequences in case the contract is violated. Overall, the common law will be used to govern the business in a bilateral approach through developing new legal obligations confining the two parties into their terms and conditions as depicted in their written agreement.
Owner's Formation of a Contract with the Businesses
By agreeing to deliver the display orders to the larger businesses, Acme Firework's owner formed a contract with these businesses. On this note, the owner committed to filling the orders while proceeding to discuss the price per display. Although the agreement did not include extensive details of the contract, it was also presented that the significant share of the cost would be used to compensate the services of setting off fireworks, insurance, and skilled labor. With all these factors into consideration, it can be deduced that the owner formed a contract with the businesses which would lead to future business transactions. Nonetheless, the contract formed was not based on the legal detriments required by the common law such as the development of a written document for the agreement. Besides, it is not stated that the owner engaged in the discussions regarding the rejection of an offer and the consequences of a violation as required by the common law.
Five Essential Elements of an Enforceable Contract - According to the "Statute of Frauds" contracts must be written to prevent perjury or fraud. Such agreements are only enforceable if they are in writing. In this regard, there are five essential elements of a binding contract. They include; the offer, acceptance, consideration, mutual obligation, and legal subject matter. In the case of the owner and the businesses, the element of an offer was relatively upheld following the inquiries made by the large companies asking for fireworks displays on a regular basis. Subsequently, the owner accepted the offer by committing to fulfill the display orders and agreeing on the price per show. This promoted the element of acceptance. On the other hand, the aspect of consideration was also upheld based on the discussion of services involved, skilled labor, and insurance policies. Notably, the agreement also promoted a legal subject matter since the product on sale is the display of fireworks which is not illegal within the context of the operation. Despite the agreements made on the costs, it was not agreed on the employment of new employees which means that the element of mutual obligation was not adequately met.
Potential Personal Liability to Acme Fireworks
In case a spectator is injured by a stray firework from the display, the Acme Fireworks would be liable for the compensation of such damages. One of the significant factors considered in the agreement was that of insurance. The joint law decisions are somewhat binding meaning that the occurrence of such an injury would result in settlement through financial means. Unlike the statute law, the common law does is not written in a book of rules instead it comprises of doctrines that originate from the court. On the other hand, unlike for the workers' compensation where injuries are usually the remedy, the injuries incurred under a common law contract depend on the victim's fault. Compensations are rather limited. If a spectator is injured, the owner of the Acme Fireworks would be subjected to a personal form of liability referred to as tort liability. In such a case, the spectator would be compensated by compelling the wrongdoer to cover the damages incurred. At this point, for the spectator to be paid, it would require proof of negligence which assesses the amount of pain and suffering incurred, degree of fault, and the resulting disabilities among other factors.
Based on the common law, the personal liability of the owner is structured around the aspect of tort negligence. This mainly rests on the proof of fault on the victim. As such, to be compensated, the owner has to consider that the spectator owed him the legal duty of care, as well as a breach of such care, was involved. Furthermore, the owner must consider the fact that the injury was caused by the violation of the required standard of care. Overall, the universal laws hold the employer liable for the spectator's damages based on three forms of liability. They include the vicarious, personal and breach of statutory duty liabilities. In this case, the personal responsibility of the owner applies where he is responsible for the violation of the duty of providing standard care. In such a liability, the owner is eligible for providing a safe working environment, the system of work, and safe plants and appliances. Since the spectator was injured by a firework from the owner's products and place of work, then it is upon him to provide the necessary compensation as agreed between the plaintiff and the defendant. The settlement between the two parties could be settled in the court where the owner is mandated to cover all the losses suffered and the treatment costs.
Employment Types and Relationships Relevant to the Agency Law
The agency law defines the approaches by which the legal authority has with its employees. The agent of principal is required to create productive relationships with the other parties to promote a conducive and harmonious working environment. Concerning the agency law, various employment types and relatio0nships would apply to the Acme Frameworks. Their respective advantages and disadvantages also characterize these relationships. Be either part-time, full-time, or casual employees, the ordinary law workers are subjected to classification depending on the employers control over their performances and mode of operation (Herriot, 2013). Despite the type of relationship, the employer is obliged to ensure that they withhold the unemployment taxes, social security, income taxes, and Medicare.
Independent Contractor – This type of employment relationship embodies the workers with no employee-employer affiliations with the company. The contractor's involvement with the company is structured around the use of their supplies and tools in performing their services. They are subject to a specific kind of employment contract. One of the advantages of this type of employment relationship to Acme Fireworks is that it saves on fringe benefits as well as the share of an employee on the payroll taxes. Furthermore, it mitigates the legal responsibility of the owner and his liability to the worker. Nonetheless, one of the disadvantages is that the tax codes from the IRS do not allow the treatment of independent contractors as common-law employees.
Statutory Employee – For this type of employment, the workers may be taken as company employees despite the consideration of them as independent contractors as stipulated by the common law. Such a situation depends on the development of a service contract declaring the individual's personal investment in the applied equipment. Also, the employee may meet specific criteria which include the continuing performance services. An example of such an employee would be someone paid on commission to install and operate the display fireworks who uses his tools to assemble and manage the firework. One of the advantages of such a relationship to Acme Fireworks is that the owner is obliged to offer neither the retirement plans nor fringe benefits. However, the worker might impose their retirement plans which would burden the owner of Acme Fireworks regarding the involved policies and funds.
Statutory Non-Employee – According to the Internal Revenue Service, there are only two recognized categories of such employees: direct sellers and the real estate agents. Such individuals are treated as self-employed to impose taxes on them. Nonetheless, the perception of self-employment depends on the compensation of total sales concerning the number of hours worked within the payment period. Besides, it also depends on the execution of services under a written contract that emphasizes their treatment as non-employees. In the case of Acme Fireworks, such kind of employees would be beneficial since they must operate under a written agreement which promotes quality work outputs. The other advantage to the owner is the income and expenses reports received from these employees which allow for effective budget management approaches. Nonetheless, these employees may be disadvantageous to the owner as they are limited according to their forms of services offered.
Recommendation of a New Business Entity for Acme Fireworks
Acme Fireworks should not operate as a sole proprietorship. This is because, if the owner hires new employees to provide the labor force required in offering display fireworks for the large businesses, he would have to adopt a backup compensation strategy when the order is terminated. If not so, the owner would have to fire the newly hired employees since there would not be sufficient funds to compensate for their services. Instead of maintaining the sole proprietorship business entity, the owner should consider transforming into a limited liability company. Under a limited liability company, the owner's assets are separate from the company (Clark, 2013). Moreover, the owner would have to legalize every business operation through documentation while developing a more complex management structure that involves a board of directors. Not only will the owner have secured his assets but also those of the involved shareholders. Therefore, to minimize the high risks associated with a sole proprietorship type of business entity, the owner could adopt a limited liability company.
Conclusion
Overall, contracts involved between the two parties will be governed by the common law which proves more effective and efficient in such a context. Considering the owner's situation and committed agreements, the contract conforms to almost all of the five essential elements of an enforceable contract. The issue arises with the mutual obligation, where there are no agreements made on the management of the newly hired employees even after the termination of the contract. From the different types of employment relationships, the owner of Acme Fireworks could consider the most competent kind of workers based on their costs of compensation and the quality of services they offer to the company. This is by evaluating the advantages over the disadvantages associated with the respective types of employment. Besides, the business entity should change to a limited liability company with the aim of mitigating the high risks associated with a sole proprietorship business entity.
References
Clark, R. (2013). The japanese company . Tuttle Publishing.
Gao, X., & Singh, M. P. (2014, May). Extracting normative relationships from business contracts. In Proceedings of the 2014 international conference on Autonomous agents and multi-agent systems (pp. 101-108). International Foundation for Autonomous Agents and Multiagent Systems.
Herriot, P. (2013). The employment relationship: A psychological perspective . Routledge.
