Mitigating Risk During a Possible Expansion

Introduction 

The maxim of Ignorantia juris non excusat is a common nightmare for entrepreneurs who get caught by legalities in the process of carrying out business. By definition, it means that the ignorance of law is not an excuse for breaking it. Over and above the intricacies of entrepreneurship from a business perspective, a manager also has to consider legal perspectives. This is because a great business idea that earns a company a fortune can also lead to adverse legal ramifications that will finally run down the entire business. In the instant case study scenario, business-based decisions run alongside legal issues that have to be considered contemporaneously. It is the obligation of the manager to balance these issues to ensure that as the company seeks to rake in a fortune that includes exponential expansion, it does not lose itself through legal liability (Bar-Gill et al , 2017) . Among the legal issues to be considered include the validity and reliability of the massive new contract, employment law, and third party tort liabilities. When it comes to legal issues in business, one must seek to err on the side of caution, not of speed with every decision being geared towards minimizing legal liability. 

Determination of the Nature of the Contract 

Under the law of contract, an agreement between two parties for the purchase of commodities without the existence of an executed contract can fall under either the common law or the Uniform Commercial Code (UCC). The UCC comes into the application when a definite amount of the commodity, be it goods of services is being sold at a definite amount of time and at a definitely specified time (Bar-Gill et al , 2017) . For example, the purchase of a car from a lot, or the purchase of goods from a convenience store falls under the UCC. Both parties to the contract know exactly what they are exchanging and at what price. On the other hand, when there are manifest ambiguities within the contract, the same will fall under the common law. 

The manifest ambiguities can either be with regard to the commodities being purchased or the consideration being offered (Bar-Gill et al. , 2017) . From an application perspective, the prospective business in question involves Acme Fireworks on the one part and ‘several large businesses’ on the other. The first manifest ambiguity lies on exactly who the other party to the contract is, how many they are and what their nature is. There is a definitive aspect of the fact that according to the owner, prices have been agreed upon . However, only the unit price has been agreed upon with no agreement on the lot price. Indeed, the lot price can only be agreed upon when the number of units ordered is determined. This is the second manifest ambiguity within the said contract. From the totality of the foregoing , it is clear that the contracts fall under Common law provisions and do not carry the definitive breach of contract provisions as envisaged by the UCC. 

Whether or Not there is a Valid Contract. 

Under the laws of contract applicable in the United States, the fact that two individuals and/or entities have come to an agreement does not necessarily amount to a contract (Patterson, 2014) . The owner of Acme Fireworks and several prospective customers have come to some form of agreement. Acme Limited has indicated a capability and intention of providing as many fireworks displays as the customers need. On their part, the customers have indicated a desire for this services. Most importantly, the parties have agreed on the price of every unit of the services to be provided . One would, therefore, wonder if this amounts to a contract. The true test on a lawfully binding contract lies in the existence of five basic ingredients. These are a valid offer, a valid acceptance, a lawful consideration, a legal objective and the capacity for each party to fulfill their lawful obligations (Patterson, 2014) . 

Since there are at least two parties to a contract, a lawful offer happens when one of the party approaches the other with the intention of engaging in a contract. In this scenario, it is important to evaluate whether there is an offer between Acme Fireworks and its proposed customers. Acme Fireworks is a company that offers fireworks services to anyone who wants to purchase the same. This , however, does not amount to an offer, but rather a precursor of an offer referred to an invitation to treat (Rogers, 2012) . It is similar to a gun store that places guns for sale on its display. This does not amount to a lawful offer, but rather merely an invitation to treat. The offer happens when a purchaser approaches the vendor with an offer to buy. In this instance, the companies have come up with an offer to purchase fireworks services from Acme. However, these offer is incomplete as it does not include a quantity of the commodity to be purchased (Rogers, 2012) . Under the circumstances, it cannot be considered a lawful offer but rather an inquiry . The second ingredient of a contract is an acceptance. By definition, an acceptance is a direct and positive response to an offer. For an acceptance to be deemed to have taken place, the second party must accept the offer given to the exact terms of the offer. If the second party accepts but with an adjustment, this is not an acceptance, but rather a counter offer. In this scenario, there is no definitive offer, thus there cannot be a viable acceptance. The offering of prices by Acme can be considered as part of a negotiation for a future contract. The third ingredient is a lawful consideration. This refers to the amount of money, goods or services that are exchanged within a contract (Rogers, 2012) . Lawful consideration does not mean that the exchange is fair or equitable but rather only acceptable to both parties. If two people agree to exchange the car for US$100, then the consideration is deemed lawful. In this scenario, it is unclear the exact units being exchanged, thus no lawful consideration can be elicited. The fourth ingredient is legality also known as a lawful objective (Rogers, 2012) . This means that what is meant to be exchanged ought not to be against the law. For example, a contract to sell narcotics, or a contract to kill someone is not valid even if all the other ingredients are in order, simply because it has an objective that is against the law. In the instant case study, however, the objective is lawful. Finally, there is the issue of the capacity of each of the parties to a contract to be able to fulfill their ends of the contract. For example, a contract to sell goods that do not belong to the person entering into it is void since the party lacks capacity. In this scenario, it is impossible to gauge capacity on the part of Acme Fireworks. In one large customer seeks for fireworks in all fifty states expeditiously, it would be impossible for Acme to deliver. In the very least, four out of the five ingredients have not be satisfied leading to the contention that there cannot be a valid contract. 

Personal Liability for Injured Spectator 

Fireworks have always been associated with funfair and happy times and are exploded to celebrate great feats and/or occasions. However, by their very nature, fireworks happen to be explosives, which can, therefore, be very dangerous if mishandled. Sometimes, fireworks can be dangerous accidentally, even when properly and appropriately handled. It is for this reason that the carrying out of most fireworks except the very simple domestic types are handled under a license. Under the law, any license to carry out activities that can cause harm such as preparing pharmaceuticals, handling edible foods or performing fireworks fall under strict or absolute liability (Worhsam, 2017) . This means that unless the licensee can lawfully provide an alternative bearer of liability, then the liability falls squarely on the licensee, both for civil and criminal charges. With regard to Acme fireworks, the company is registered as a sole proprietorship. This means that the company is not a recognized legal person and cannot be directly licensed. Therefore, the licensee is the owner, indicated as trading as Acme Limited on the license. In the case of any third party liability for an injury during a fireworks display, the owner will personally carry the liability and in extreme cases, the personal property of the owner of the company can be attached to cover damages. 

However, there are two main ways through which the owner of the company can mitigate liability in the case of an accident. The first way is to have a valid and comprehensive insurance cover for the said liability. This means that under the doctrine of subrogation, the insurance will assume the liability that the company had with regard to the accident (Worhsam, 2017) . It is, however, worthy of notice that it is the obligation of the company owner to ensure that the insurance company actually undertakes the subrogation. In the case the same does not happen, liability will automatically fall in the licensee who is the owner of the company. The second source of mitigation is lawfully laying blame on another party, mainly through a cross suit. In this regard, when the company is sued for liability, it can seek to show that the spectator was a victim of personal inadvertence. For example, a spectator who wanders into an area clearly marked as out of bounds can carry part of the liability for the injury. On the other hand, the company can argue that another licensed organization such as the manufacturer of the commodities used is to blame (Worhsam, 2017) . This can lead to the shifting of part or all of the liability to the other party. In conclusion, by its very nature of the business , Acme attracts major liabilities, more so from injured third parties. These liabilities fall squarely on the owner, albeit there are a few mitigating factors. 

Employment Types Available to Acme Fireworks 

Based on the case study, Acme limited seeks to employ some extra members of staff, over and above the fifteen already employed to cover the labor for the anticipated influx of new work. In considering who to employ under the circumstances, two primary considerations come to the fore. The first consideration is for the wages of the employees, failure to which the company will be liable for industrial action with adverse legal consequences. The second consideration is the possibility of injury, which would also have adverse ramifications for the company (Moore & Viscusi, 2014) . As aforementioned, firework display happens to be a dangerous line of work. This decision is a combination of both business evaluation and legal factors. However, the liabilities set to be avoided all fall under the legal perspective. A careful evaluation of the anticipated new contracts for Acme limited indicates that the company does not yet hold any enforceable contract with the envisaged customers. This means that the expected work may or may not come about . However, a good entrepreneur cannot ignore the prospect of a good investment that might rake in massive returns and push the business to the next level. This creates a scenario where the company might hire employees and the contracts fail. In the inverse, the company might fail to hire and miss out on large profitable contracts, develop a negative image and plummet. 

A viable compromise would be for the company to enter into its own common law agreement with a contractor that offers kindred labor services. The contract would be for the proviso of skilled labor, capable of handling a fireworks display only as and when Acme needs them. In return, the contractor would be paid a modest retainer and also costs for labor only when needed. This would have the benefit of eliminating the necessity for Acme to hire employees it might not be able to pay. It, however, makes available ready labor in the case the contracts for fireworks eventually come through. An added advantage of this arrangement relates to the subject of accidents that cause injuries to the employee in the course of duty. Under the law, it is the employer who is liable for injuries that take place in the course of duty (Moore & Viscusi, 2014) . Therefore, in the unfortunate event that an employee is injured, it is the contractor, not Acme that will be liable for the same. However, this solution also comes with a manifest disadvantage whether or not the envisaged contracts materialize. In case they materialize, Acme will have a higher labor cost since they will not only be paying for labor but also helping the contractor earn a profit. Further, in the case the contracts do not materialize, Acme may be condemned to pay a retainer with no possible returns. On a balance of probabilities, however, it would be more prudent to hire a contractor than offer employment under the circumstances. 

Necessity for Changing the Nature of Business 

Acme is a small company with a big vision, but it has also come a long way. It began as a small entity, registered as a sole proprietorship and located in the owner’s garage. It has, however, blossomed, hired sixteen employees but has not changed its initial format of registration. In the case the company is committed to seeing the new large impending contracts come to fruition, it should consider changing its registration format. There are several major disadvantages kindred to sole proprietorship more so when business keeps growing. As canvassed herein above, liabilities within a sole proprietorship are borne directly by the owner. In the case of an accident, the owner will be held personally responsible. This also applies in the case of creditors, who can be free to foreclose on the personal properties of the owner to satisfy the company’s debts (Hopson & Hopson, 2014) . Secondly, if the contracts go through, Acme may need heavy financing to satisfy the contracts. Mainstream financiers are overly reluctant to offer finance to sole proprietorships as the fate of the company is directly tied to that of the owner. When financing is offered at all, it might be on very stiff terms. 

After a careful analysis of the situation, the viable option for the owner of Acme Fireworks is to reregister and upgrade the sole proprietorship into a Limited Liability Company (LLC). An LLC is a circumspectly designed option for entrepreneurs who would want to register an entity that is more formal than a sole proprietorship, yet does not aspire to start a corporation yet (Sargent & Schwidetzky, 2014) . The LLC carries all the advantages of a sole proprietorship yet avoids its disadvantages. At the very same time, it also avoids the more stringent rules, laws and regulations set up for corporations. The first advantage lies in the limitation of liability. An LLC is a legal person in the eyes of the law, capable of taking up its own licenses thus shouldering its own liabilities (Sargent & Schwidetzky, 2014) . The owners will, therefore, not be held personally liable for company liabilities including those from accidents or debts. Secondly, LLCs do not have debt liabilities. Instead, the owner will declare income and pay personal taxes over the same. Finally, it is available for only one individual to register an LLC meaning the owner of Acme will not need to find a partner so as to register the upgrade. Therefore, if the new contracts materialize, the owner will be shielded from liabilities and have better access to financing. Yet, even if the new contracts will not materialize, registering an LLC will not come with any new major cost that was not prevalent during registration as a sole proprietorship (Sargent & Schwidetzky, 2014) . This is, therefore, the available and viable option. 

Conclusion 

Based on the foregoing , each option and recommendation given engender erring on the side of caution and not on the side of speed. This is in line with sound legal advice that ought to be availed to every entrepreneur. A careful evaluation of the contract, which evaluation sought to err on the safe side came to the conclusion that no lawful contract existed. Further, even the less complex provisions of the UUC have not been met . Therefore, the proposed jobs must be approached cautiously. It is on this basis that it is not advisable to hire extra employees but rather to retain a contractor. Third party liability is also a major issue for the company. Among the solution thereto is to ensure adequate insurance at all times and also seek to change the company’s registration from a sole proprietorship to an LLC. This caution-based steps may seem expensive, but legal liabilities can have debilitating consequences. 

References 

Bar-Gill, O., Ben-Shahar, O., & Marotta-Wurgler, F. (2017). Searching for the common law: The quantitative approach of the restatement of consumer contracts.    U. Chi. L. Rev. ,  84 , 7-495 

Hopson, J. F., & Hopson, P. D. (2014). Making the right choice of business entity. CPA Journal, 84 (10), 42-47. 

Moore, M. J., & Viscusi, W. K. (2014).  Compensation mechanisms for job risks: wages, Workers' Compensation, and product liability . Princeton University Press 

Patterson, D. (2014). Taking Commercial Law Seriously: From Jurisprudence to Pedagogy. Chicago-Kent Law Review, 74 (2), 625-645 

Rogers, S. (2012). Essentials of business law . San Diego, CA: Bridgepoint Education, Inc. 

Sargent, M., & Schwidetzky, W. D. (2014).  Limited Liability Company Handbook, 2014-2015 Edition . New York: Thomson Reuters 

Worsham, R. (2017, June 16). Legal types of liability . Retrieved July 11, 2017, from http://legalbeagle.com/7567769-legal-types- liability.html