Operating as a sole proprietorship might originate several complications necessary to address for the future benefit of the business. When establishing legal agreements and providing services to other entities, the owners should be aware of the legal consequences of creating a nonvalid contract. In the case presented, the company Acme Fireworks operates dangerous materials that might harm employees, customers, or other individuals, causing potential liability issues.
The complications might become adverse in the future without careful strategic and organizational evaluation. Although determining the aspects of contractual and agency relationships between the collaborating entities necessitates special care and knowledge regarding business relations, this endeavor is essential for the future development of the sole proprietorship. In this work, a critical case analysis of Acme Fireworks will be conducted with regard to business contracts, potential liability, agency law, and organizational entity types, providing possible resolutions for the corporation’s issues.
Business Collaboration Regulations
Prior to establishing business relations with other entities, it is essential to determine the legal guidelines that will govern future endeavors. In the case discussed, Acme Fireworks is entering into an agreement with several large corporations, providing assistance with the creation of firework stands. According to the contract requirements, Acme Fireworks is to construct a number of displays during a specific amount of time in exchange for financial reimbursement from the businesses. Considering that the sole proprietorship is offering its services and the skilled labor of its employees, this type of collaboration can be referred to as a service agreement governed by the common law.
The Uniform Commercial Code (UCC), which is often implemented in the maintenance of commercial relations, presents recommendations on the transfers of goods that require monetary payments. However, as employment contracts, real estate, and service arrangements cannot be included in the discussed category, to sustain the relationships regarding these topics, the common law is applied (Olmsted, 2018). Although it is possible to suggest that a commercial transfer of goods, namely fireworks, still occurs, the overall nature of the relationship is based on the expertise of the proprietorship’s workers. Therefore, the business relations established between the companies and Acme Fireworks are service-related and will be controlled by the common law requirements.
Enforceable Contract Analysis
Creating a legally correct contract can be a challenging task that requires careful evaluation. As the repercussions following the development of an improper agreement can substantially harm the involved entities, the basic elements of a legal commitment, namely offer, acceptance, consideration, legality, and capacity should be manifested clearly in the established arrangement (Rogers, 2012). First of all, the contracts between Acme Fireworks and the companies requesting their services contain the offer aspect as the other businesses propose to enter a financial agreement. This suggestion includes the exchange of monetary funds for the labor connected to creating a product display and triggering the fireworks.
After that, the offeree is required to provide acceptance with the suggestion, agreeing to begin the business relations. According to the case, the owner had granted his acceptance to start the relationship, specifying that Acme Fireworks could fulfill the necessary orders. Furthermore, the following discussion regarding the display prices and services costs adheres to the consideration demand. A valid exchange between the entities should be reflected in the created contract, constituting a fair trade (Rogers, 2012).
In this regard, the offerers have agreed to transfer a particular sum to the sole proprietorship, which will cover the necessary labor fees, the costs of insurance, and the subsequent triggering of the fireworks. Therefore, Acme Fireworks is fully reimbursed for the services provided and is obligated to install the displays on a regular basis.
Another factor essential for this discussion is the legality of the agreement. Under the common law, entering business relations regarding the exchange of services and financial payments is possible if both parties possess the capacity to participate in such endeavors. It is demanded that both entities owners are of necessary age, lacking mental disabilities, and the companies themselves are established legally (Lewis, 2020). Given that all of these requirements were met, it is certain that the capacity element was enforced. Overall, considering that the aforementioned elements of offer, acceptance, consideration, legality, and capacity were fully reflected in the arrangement between Acme Fireworks and the corporations, it is certain that a proper enforceable contract was created.
Personal Liability Issues
The risks related to managing a sole proprietorship are closely connected to the subject of personal liability. While acting as the owner of a sole proprietorship, the individual and the business become one entity, and the distinction between the person and the company disappears (Grepperud, 2020). Any legal claims presented by customers, employees, or other corporations are directed to the owner, who is legally responsible for any damages or threats created by the enterprise. In this regard, if a spectator was harmed by a stray firework installed and operated by Acme Fireworks, the owner would be personally liable for the physical and emotional injuries that originated from the accident.
Following the characteristics of unlimited personal liability, the owner of the company could face the necessity to financially reimburse the individual or even be forced to undergo a criminal investigation (Grepperud, 2020). In this scenario, the monetary payments could be withdrawn directly from the owner’s personal savings.
Nevertheless, it is imperative to consider the insurance element evident in the contract created between Acme Fireworks and the business entities. Sole proprietors often purchase various types of personal insurance to negate the consequences of legal claims. If proper legal protection against potential accidents, such as injuries to the spectators or environmental damage, was devised, it is possible that the owner may face less severe legal consequences (Grepperud, 2020). However, any payments and charges would still be presented to the sole proprietor directly rather than to the company. In certain scenarios, insurance might not be as beneficial as limited liability.
Employment Types and Relationships in regard to Agency Law
Agency Type Analysis
To properly govern the relations between Acme Fireworks and other entities, it is vital to consider the nature of the agreement and additional legal demands that apply to various types of agencies. The sole proprietorship provides its services to the interested companies, which is governed by agency law. According to the commitment, Acme Fireworks, an agent, performs the tasks dedicated by the principals, the other contributing parties who are involved in the creation of fireworks displays (Rogers, 2012). On behalf of the businesses, the sole proprietorship purchases fireworks, constructs fireworks stands, secures necessary insurance, and triggers the fireworks, receiving a discussed fee in return. These practices highlight the role of Acme Fireworks as a compensated, rather than gratuitous, agent.
Although the business could also act gratuitously, providing its services free of charge, it would be a considerably disadvantageous endeavor, as the costs for labor and product expenses would not be reimbursed. Considering the quantity of the installed displays and the amount of effort required to properly construct and trigger the fireworks, it is tremendously beneficial for Acme Fireworks to remain a compensated agent. Altogether, this practice could aid the owner in securing the funds for future business activities.
The Attributes of Compensated Agents
Another essential distinction lies in the qualities of employees and independent contractors, which might receive various advantages based on their status. In general, independent contractors are largely independent of the employers, offering their services for a limited time and governing their working activities in a manner suitable for them (Benassi & Kornelakis, 2021). Employees, on the other hand, commit to a regular exchange of goods or services and can enjoy several employment and labor privileges, which must be provided by the employer according to state legislation.
It is possible to suggest that the principal companies have a diminished level of control over the actions of Acme Fireworks, as they only establish the requirements regarding the installation and triggering of fireworks. All additional matters, such as the purchase of goods, the construction, and triggering techniques, as well as insurance and labor specifics, are controlled by the owner of Acme Fireworks and cannot be influenced by other parties. Therefore, Acme Fireworks is fulfilling the role of an independent contractor, attaining a specific fee for the services offered and securing a degree of freedom in its actions.
It could also be argued that the sole proprietorship might be defined as an employee given the regular commitment element of the enforceable contract established. Indeed, the owner agreed to install the display on a regular basis and is reimbursed for the services. However, an imperative characteristic is the principals’ management of the proprietorship’s endeavors, which is almost nonexistent as all activities are performed by Acme Fireworks. The decisions regarding the stands and the product are also made by the owner, who obtains an independent business and caters to other organizations as well. In addition, as the other entities do not provide any additional coverage, for instance, needed equipment, it is certain that Acme Fireworks is an independent contractor.
Acting as an independent contractor might be remarkably advantageous for Acme Fireworks, given the degree of freedom and overall control over the provision of services. Furthermore, all involved parties are bound by an enforceable contract is that is rather easy to maintain in comparison with other employment possibilities, which required the application of employment laws (Loewenstein, 2017).
Nevertheless, there are also several substantial disadvantages of sustaining a status open independent contractor, namely the lack of employer liability, payroll taxes deductions, and supplementary coverage packages usually provided to the employees (Loewenstein, 2017). Although such possibilities might generally benefit the sole proprietorship, remaining in the position of an independent contractor is more efficient in this scenario. This practice allows establishing further business relations with other interested entities rather than remaining obligated to a particular organization.
Sole Proprietorship Limitations: The Benefits of Improving Business Organization
Even though many individual business entities uphold the status of a sole proprietorship, yielding the benefits of simple documentation and organizational structure, there are significant limitations originated by the Acme Fireworks’ area of operations. Given the unlimited personal liability present in this entity form, any damages resulting from the use of fireworks will be directed to the owner personally, becoming a serious issue for the integrity of personal assets (Rogers, 2012). These threats of operating fireworks products are especially high, not only due to spectator injuries but also work-related accidents. All of these complications can be a tremendous personal burden for the owner, necessitating additional protection from legal responsibility.
Considering the aforementioned difficulties, it would be efficient to alter the type of business that offers limited personal liability. A possible solution is a partnership that alleviates some of the management complications, introducing an option of cooperating with other individuals. Nevertheless, the issues of unlimited liability still remain open, and the necessity to find other contributors interested in the business can also be a tremendous obstacle (Mikalonienė, 2020).
Therefore, founding a limited liability company (LLC) is the most permanent solution, which offers limited personal responsibility for the owners and presents additional taxation options. As LLC allows to distinguish between personal and company assets and decrease is the impact of legal claims on the founders, it could tremendously impact the affluence of Acme Fireworks, positively affecting the organizational structure (Mikalonienė, 2020). In the previously discussed scenario, with a spectator suffering from a stray firework, the company itself would be charged instead of the owner, who would be protected from personal responsibility for the injuries caused.
Nevertheless, maintaining an LLC might be more challenging than compared to a sole proprietorship in consideration of necessary taxes, establishment fees, and supplementary regulations. Corporations are usually offered an opportunity to diminish the impact of taxation on the company assets, allowing for extra profits to be directed towards the organization’s endeavors (Mikalonienė, 2020). Although this option would be beneficial for Acme Fireworks, it incorporates multiple complications connected with bylaws, articles of incorporation, and shareholder values, which are considerably difficult to maintain. Therefore, LLC remains the perfect strategy of business reformation for the owner, who can yield the benefits of limited liability.
To conclude, the case of Acme Fireworks, a sole proprietorship entering business agreements with other corporations, was discussed in this work. Given the nature of the agreements established between the companies and the proprietorship, it is evident that is all of the necessary elements of an enforceable contract were fulfilled, and further business relations will be governed by common law. Furthermore, the pertinent issues regarding unlimited personal liability can constitute a significant threat for the business, as Acme Fireworks is involved in a potentially dangerous area of operations. In this regard, it is recommended for the owner to alter the organizational structure to a limited liability company, a business entity that provides necessary support from future legal complications that often originate after incidents.
The agency laws and types examined in this work are also remarkably significant for the future success of Acme Fireworks, which currently acts as an independent contractor. The business can continue operating in this position to attain the benefits of autonomous management, as well as enter contracts with other businesses. Overall, it is possible that changing t the entity from a sole proprietorship to an LLC will enhance the future relationships between Acme Fireworks and various organizations.
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