Acme Fireworks Converts to Limited Liability Company

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Introduction

Acme Fireworks is a sole proprietorship that started two years ago and currently has 15 employees. The business deals with various classes of illuminations and has been approached by various large organizations in need of displays regularly. The owner of the firm and employees anticipate that the new orders will necessitate additional workers. However, the business cannot afford to pay the newly engaged staff if the large orders for display fireworks are discontinued, which compels the firm to consider an alternative employment type. Acme Fireworks should escalate the business’ leverage by changing the organization from a sole proprietorship to a limited liability company (LLC). As a trader engaged in the sale of goods, Acme Fireworks’ contractual engagement with the large organizations will primarily be governed by the Uniform Commercial Code (UCC) instead of the Common Law. Although the firm is operating as a sole proprietorship, converting into an LLC will allow the uptake of bigger businesses without exposing the owner’s private assets to the risks and liabilities of their company’s operations.

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Contract to be Governed by Common Law Instead of UCC

The contractual engagement between Acme Fireworks and the large organizations for the regular creation of several fireworks displays will be governed by the UCC. In the United States, the common law and the UCC are the primary sources of law regulating and directing commercial undertakings. However, the two differ significantly, particularly regarding the requirements they impose on the agreements and the nature of the contracts they govern. Rogers (2012) contends that UCC’s application is limited to contractual engagements encompassing the sale of tangible and movable goods. In this regard, such items as commercial papers, real estate, land, and its fixtures, patents, and copyrights are not covered or governed by UCC. In Acme’s scenario, the sole proprietorship deals in fireworks, which are highly movable goods and not affixed to land or real estate.

Additionally, the UCC is applicable since the dominant aspect of the contract is in the provision and supply of the fireworks. Notably, in this agreement, the inquirers wanted Acme Fireworks to deliver the goods and launch them. In this regard, the nature of the undertaking combines an element of the sale of goods and services, with the former being the dominant component of the commercial engagement. Moreover, the appropriateness of UCC is underscored by its ability to eliminate the considerable strictness and stringent terms imposed by common law. Rogers (2012) asserts that the relative relaxation of the UCC rules is designed to reflect the practicalities of business dealings and attempts to facilitate the understanding of the parties engaged in a transaction. For instance, in this particular scenario, the business and the inquirers do not enumerate the precise and specific aspects of the fireworks.

Further, commercial transactions require a degree of flexibility which is achieved by leaving open some terms of the agreement for subsequent determination. According to Saunders (2016), UCC permits sellers to modify or exclude implied aspects of the contract, such as quality and quantity. However, under common law, the absence of these critical components would significantly render the agreement incapable of execution. Such flexibility would allow the two contracting parties to enter into a commercial engagement and do business under reasonable terms. In this regard, only under UCC would the contact between the buyers and Acme Fireworks be deemed binding since the failure to enforce the agreement would be injurious to the supplier. From this perspective, the objective of UCC is to establish the critical rules which will govern the covenant when the parties have agreed on the fundamental matters, such as the type of goods and price (Rogers, 2012). Therefore, this contract will be governed by UCC instead of the common law.

Evaluation of Whether the Sole Proprietor Formed a Contract

Contracts are a legally recognized and enforceable commitments entered into by parties. The agreement explicitly creates, defines, and governs the mutual obligations, duties, and rights of the contracting entities. Under the law, a covenant is deemed to have been formed if it integrates offer, acceptance, capacity, legality, and consideration (Rogers, 2012). In this regard, the absence of any of these components renders the commitment void, unenforceable, or voidable (Pouya et al., 2019). The first two elements build mutual consent and reciprocally bind the contracting entities to the provisions of the agreement. Therefore, the offer and acceptance made and received between the large business entities and the fireworks manufacturer establish a valid contract.

Offer

An offer constitutes one of the five fundamental components which are critical to the setup of a contractual agreement. It is an invitation or the expression of an intention of one party to engage with another in a contract. Rogers (2012) contends that one entity, known as the offeror, approaches another and makes a business proposition, referred to as an offer. In the given scenario, the large business organizations placing inquiries with Acme Fireworks can be deemed an act of the firms’ desire to enter into a covenant with the manufacturer, the offeree. Notably, the propositions and suggestions extended by the procuring firms to the firework’s manufacturer, including the price and cost constituents of the products, were agreed upon by the two parties. From this perspective, the business organizations have explicitly manifested the contractual intent to be bound by the provision communicated to the offeree. Moreover, there is no indication that the offeree varied the proposal, which would effectively render the offer invalid. In this regard, one of the fundamental elements of a valid contractual engagement is achieved.

Acceptance

After the offeror floats a business proposition, the other party, known as the offeree, acknowledges the terms in the offer and expresses a willingness and intent to be bound by the predefined conditions. According to Rogers (2012), acceptance indicates the desire of the party to whom the proposal is made their consent to the stipulated terms of the offer. In this regard, the acceptance of an offer by the offeree illustrates the common understanding, mutual comprehension, and agreement of the contracting entities.

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Additionally, Acme Fireworks willingly accepts the suggestions of the commercial enterprises without any duress or coercion, effectively anchoring the concept of mutual consent. Jadalhaq (2017) asserts that factors such as undue influence, threats, or compulsion render the mutual agreement defective since, in such a scenario, the concurrence of the mind is not validly established. This view is corroborated by Rogers (2012), who argues that the lack of mutual consent makes a contract defective even when all the other fundamental components are present. Rogers (2012) further argues that acceptance should be made unequivocally by the intended subject and communicated to the offeror. In this regard, a valid acceptance as the second element of binding is established.

Consideration

For any contractual engagement to be deemed legally binding, it should incorporate consideration of all the parties as an indispensable constituent of the agreement. It is the benefit that the contracting entities get or expect to get from the deal. Rogers (2012) posits that consideration encompasses anything of legal value requested and received as the price for establishing the contract. This implies that each of the contracting parties is relinquishing something to receive a benefit from the other in return. In this scenario, the large business organizations inquiring about fireworks displays are promising to make financial payments to Acme Fireworks for the supply of the wanted products. In exchange, the manufacturer, Acme Fireworks, will provide the required commodities and services. From this perspective, consideration is the primary reason and purpose for formalizing the intention to contract.

Legality

The objective or purpose of a contractual engagement should not be intended to violate the law or any public policy. The fundamental rule is that courts cannot enforce contracts in which the parties bargained to engage in illegality or where an aspect of the law is breached. This implies that covenants or agreements should be consistent with the established legal provisions in a given jurisdiction. In the given scenario, the contractual undertaking between Acme Fireworks and the various large business organizations is legally sound since the manufacture and launching of the illumination of displays are not prohibited by any law. According to Rogers (2012), contracts formed to infringe the law are unenforceable. For instance, contractual loan agreements charging higher interest rates beyond the allowed limit by usury laws are unenforceable.

Moreover, the entities committing to the agreement should be willing to legally bind and commit themselves to their agreements. This implies that contracting entities should be aware of the legal ramifications of making the contractual pledges. Consequently, the party breaching its end of the bargain should be mindful of the legal consequences of its failure to fulfill its obligations. Similarly, the other entity that suffers damage has the right to institute proceedings for the enforcement of the contract. Under this analysis, the element of legality was achieved in the engagement between Acme Fireworks and the various large business organizations.

Capacity

Capacity refers to the mental competency of the contracting entities to comprehend what they are undertaking thoroughly and the legal ability to enter into the covenant. In this regard, parties intending to enter into a binding contractual agreement should be of sound mind and have attained the age of majority. In Acme Fireworks’ scenario, the two entities have both the mental competence to comprehend and understand the meaning and effects of the engagement, and they are of majority age.

Determination

Since all the five fundamental requirements of a contract have been met by the business organizations and Acme Fireworks, a valid and enforceable agreement has been formed. The procuring entities made an offer to the manufacturer who accepted it, thereby establishing mutual consent. Additionally, there is a consideration in the engagement, and all have the mental and legal capacity to perform and fulfill their contractual obligations. Finally, the formed agreement does not violate any law or public policy, making the contract valid and enforceable.

Potential Personal Liability if Stray Firework Injuries a Spectator

Under absolute liability, direct proof of negligence, and exclusive control, Acme Fireworks and the business organizations could be held personally liable for fireworks that injure spectators. Notably, all these entities are legally obligated to sell commodities that function correctly and pose no harm to the public (Goldberg & Zipursky, 2016). This implies that a defective firework or faulty launching causes injury to a spectator amounts to negligence since the manufacturer and the other organizations owe the public the duty of care (Rogers, 2012). In this scenario, both actual and proximate causes are evident in that the business and manufacturers’ negligent act of creating faulty fireworks or launching them wrongly triggers the injury to the spectators. Similarly, it is expectable and foreseeable that unsound fireworks or defective launching could cause harm, indicating that the business and manufacturer can control the risk (Shavell, 2018). According to Illiyas and Mani (2018), fireworks victims can recover damages from the manufacturer, the local retailer, or the person launching them. However, the liability can be minimized by developing high-quality fireworks, using skilled labor, and integrating adequate warning signs and labels on the products.

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Employment Types and Relationships Relevant to Agency Law

The rules governing agency relationships emanate from the common law, which envisages gratuitous and compensated agents as the two employment types. The former is a party authorized by a principal to undertake specified actions without remuneration (Rogers, 2012). In this regard, this type of agent receives no compensation for services rendered. The advantages accruing to this type of agency is the principal’s considerably limited tort liability, the absence of a binding contract, and the eliminated agent overhead costs. However, this agency relationship is arguably limited to unskilled engagement. In the Acme Firework scenario, it would be challenging to find anyone willing to develop and launch the fireworks displays due to the technicality of the work. Compensated agents are the parties engaged by a principal and are paid for the services rendered and including employees and independent contractors (Rogers, 2012). The advantage of this agency relationship is the principal’s greater control of the worker, which implies that they obtain more value and efficiency than in gratuitous agency. The disadvantages include the general liability for tortuous acts of the servants and the considerably high engagement and sustenance costs.

Why Acme Fireworks should not Operate as a Sole Proprietorship

Acme Fireworks should cease operating as a sole proprietorship and register as a limited liability company. By taking this step, the business will enjoy enhanced stability similar to that of a corporation. Additionally, the proprietor will be protected and not held personally liable for the obligations or debts of the entity (Rogers, 2012). For instance, in the event that a spectator is injured during the launching of the fireworks, civil proceedings will be instituted against the company and the owner. Moreover, the proprietor’s assets would not be attached to offset the damages awarded by the courts to the victims of fireworks. Therefore, Acme Fireworks should start operating as a limited liability company.

Conclusion

Business practices are undertaken within the confines of a legal environment that regulate and govern most of their practices. Although most of the American provisions emanated from the common law, the Universal Commercial Code is the requisite set of legal provisions regulating and governing business practices. The latter allows entities some flexibility and facilitates the numerous aspects of practical day-to-day commercial aspects. In the Acme Fireworks case, UCC enables the performance of the contract since the company, and the other merchants had created a valid contract. However, Acme Fireworks should start operating as a limited liability company to protect the private property of the owner and enhance the firm’s stability.

References

Goldberg, J. C. P., & Zipursky, B. C. (2016). The strict liability in fault and the fault in strict liability. Fordham Law Review, 85(2), 744–786. Web.

Illiyas, F. T., & Mani, S. K. (2018). Routine to rare risk – a case study of firecracker explosion disaster in India. PLoS Currents, 10, 1–20. Web.

Pouya, H. M., Ghasemihamed, A., & Hosseinabadi, A. (2019). Elements and conditions of penalty clause validity in banking contracts. Journal of Law Research, 22(86), 119–146. Web.

Rogers, S. (2012). Essentials of business law. Bridgepoint Education.

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Saunders, K. (2016). Can you ever disclaim an express warranty? The Journal of Business, Entrepreneurship & the Law, 9(1), 59-71. Web.

Shavell, S. (2018). The mistaken restriction of strict liability to uncommon activities. Journal of Legal Analysis, 10, 1-45. Web.

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