Acme Fireworks
When starting a business, an individual must decide the type of business entity to form. Cahn and Donald (2010) argue that the form of a business plays a major role in determining the type of income tax return filed. Some of the most common business entities include partnerships, sole proprietorship, Limited Liability Company, and S corporation (Cahn & Donald, 2010). Tax and legal considerations are vital while selecting the structure of a business. To get the most out of a business, it is advisable to choose the right business structure. Choosing the right type of company for a new business helps to maximize the chances of operational and financial success (Balouziyeh, 2013). Therefore, this paper discusses why a company like Acme Fireworks with more than fifteen employees and serving several large businesses, should benefit from operating as a Limited Liability Company.
Governing of Acme Fireworks by Uniform Commercial Code
The contracts made by Acme Fireworks and other businesses will be governed by the Uniform Commercial Codes. The Uniform Commercial Code (UCC) is formulated to harmonize and coordinate the practices, statutes, and regulations in different states (Tepper, 2011). The UCC is designed to regulate commercial transactions. Additionally, UCC influences several commercial activities across the United States due to the numerous commercial activities, which involve different states (Tepper, 2011). Benefits are derived because there is a uniform system put in place.
The commercial activities carried out by Acme Fireworks involve different states. The aerial fireworks will affect other states. The businesses seeking to work with Acme Fireworks do not come from the same locality meaning that different states are also involved. According to Tepper (2011), the Uniform Commercial Code plays a major role in establishing laws that govern commercial transactions across different states thus leading to efficient and effective working. Fireworks made by Acme Fireworks should be controlled by UCC to ensure that high standards are maintained, and that there is uniformity across states to avoid possible conflicts. Additionally, being governed by the Uniform Commercial Code enables the company to offer fair services to all clients without necessarily having to undergo new procedures and forming new laws thus saving on time (Tepper, 2011).
The UCC, through its uniform laws, enables businesses across the United States to enjoy standard commercial expectations. The different businesses that are interested in working with Acme Fireworks will all expect to receive high quality services. The budgeting and planning for the activities will also be expected to continue without interruption to the understanding, review, and research of a different regulation or statute in a specific state. The UCC will ensure that there are minimal interruptions throughout the company’s commercial activities across different states (Tepper, 2011).
Since Acme Fireworks will enter into contracts with other businesses for goods and service over $500, UCC will require the businesses to put all terms and conditions in writing thus developing a strong sense of commercial stability (Tepper, 2011). The chances of having a dispute in the conditions and terms signed are markedly reduced because they are in writing. In this case, UCC is the most appropriate because it ensures a great sense of marketplace stability in terms of commercial transactions.
Essential Elements of an Enforceable Contract
The owner of Acme Fireworks entered into a contract with the businesses to ensure that everything was taken seriously and official. The contract would also mean that there would be legal actions taken in case there was breach of contract thus ensuring security to both parties. The essential elements of an enforceable contract include: offer, capacity, lawful consideration, intention to form a legal relationship, free consent, and lawful consideration (Cahn & Donald, 2010).
The services offered by Acme Fireworks are lawful, meaning that entering into contract is possible. The contract between the businesses is enforceable because it does not violate public policy and the services provided are not prohibited by the law. A contract involving the sale of illegal drugs cannot be enforced. Signing an agreement would help the involved companies to stay safe incase anything went wrong (Cahn & Donald, 2010). The contacting parties are also competent thus making it easy to enter into a contract.
An offer refers to the willingness of parties to contract with each other on particular terms with an understanding that the contract shall become binding if agreed upon by both parties (Cahn & Donald, 2010). Both Acme Fireworks and other business are interested in working in each other because of mutual benefits. The offer will determine how the businesses are willing to contract. The offer also involves a specific proposal, communication, and a statement of intent (Cahn & Donald, 2010). The contracting parties also need to accept the terms and conditions agreed upon to ensure that they all come into common terms.
For a contract to be enforceable, concerned parties should have a meeting of minds or a common intention on the business terms. All parties have to come to a common agreement in the same time and sense (Cahn & Donald, 2010). Acme Fireworks and other businesses have a common goal since they all aim at offering a service and benefiting from it. The businesses have to be keen on the terms they agree upon because the court uses them to determine whether both parties agreed on the same thing.
Potential Personal Liability to Acme Fireworks in Case of an Accidental Injury
Since Acme Fireworks will serve an increased number of businesses, fireworks displays subsequently leading to an increase in liability. If a spectator while watching the fireworks display performed by Acme Fireworks, the company will be liable for the injuries. The liabilities will mainly depend on the circumstance causing the injuries and the type of business entity. It is essential for Acme Fireworks to consider different employment relationships and types that are relevant to agency law. After making such a consideration, the company should analyze the advantages and setbacks of all employment types and relationships specific to Acme Fireworks. Injuries caused by accidental fireworks may be a responsibility of the company to pay for the damage. The company’s employee may also be liable if he/she displays fireworks in an incorrect way causing injuries. The company may also decide to take an insurance cover over such injuries caused by stray fireworks to reduce losses from compensation.
Employment types in Acme Fireworks
The most common types of employees are temporary, part-time, and full-time employees (Cahn & Donald, 2010). Most companies have the three types of employees to carry out the roles assigned to them. Different activities are carried out in a company thus requiring employees with different skills to work on them. It is important for a company to have part-time, full-time and temporary employees to ensure effective and smooth workflow. Employees are usually paid monthly salaries, hourly wages, and will have federal, social security, and other state taxes that will be deducted from their paychecks. Medical insurance is also deducted if a company offers that benefit to its employees. These employment benefits vary depending on the type of employment. When an employee is hired, the employer specifies his /her job description (de Graaf-Zijl, 2012). Employees are supposed to follow the employer’s directives of job responsibilities, tasks, and duties. Once the specified regulations and rules are not adhered to, employees may risk termination of their jobs.
For independent contractors, Acme Fireworks does not need to provide other employment benefits. This is beneficial to the company because it will reduce the costs incurred thus increasing income. The company will not necessarily be required to deduct payroll taxes as long as they work. The company will also not carry additional insurance or coverage thus minimizing expenses. The fact that the company can terminate the contract as they please means that it may cancel contracts when it gets few contracts to reduce losses. Other advantages include not having to pay bonuses or severance packages.
However, the company may be required to pay independent contractors a higher amount of money than wage employees. This may present a financial burden to the company if there a several independent contractors. Such employees should receive a high pay because they pay taxes by themselves, carry their liability insurance, and take care of their social benefits(de Graaf-Zijl, 2012).
Acme Fireworks may benefit from employing part-time workers since it does not need to provide vacations, insurance, or sick leave. They can also request the employees to work for more hours when there is a lot of work to be done, and reduce the hours of work when the business is quite low. This is advantageous because it will not need to let go existing workers r hiring new ones (de Graaf-Zijl, 2012). Part-time workers cover vacations and breaks for workers automatically. The part-time workers can be maintained at a low cost.
The administrative costs for part-time workers may be high because the company must provide strict management and process paperwork. Part-time workers do not have the experience and security brought by full-time employees thus resulting to inefficiency. Difficulties may also be encountered regarding consistency of performance when several workers perform the same task. The other risk is that part-time employees are likely to leave when they get a full-time job or a higher salary somewhere else.
According to de Graaf-Zijl (2012), there is job security for full-time employees meaning that they are likely to stay in their positions for a longer time than part-time workers. Such employees work for a long time thus gaining the relevant experience to carry out their roles in an effective way. Acme Fireworks will also spend reduced salaries because they get a lesser pay than freelancers do. The employee is also reliable thus can work during peak and off-peak. Little regular training is also done on full time employees as compared to part-time employees.
However, Acme Fireworks will face increased maintenance costs of such employees. They will expect to enjoy benefits such as maternity pay, sick pay and holidays leading to increased expenses. Even during quiet periods, the business will need to pay salaries, which may lead to potential losses (de Graaf-Zijl, 2012). Other expenses will include employee professional licensing requirements and training.
Operating Acme Fireworks as a Limited Liability Company
Acme Fireworks should not operate as a sole proprietorship because the business has grown bigger in terms of the number of employees it handles, the number of business activities have increased and the type of businesses it is currently working with are also large. The other important thing to note is that Acme Fireworks is entering more legal contracts with other businesses, which may have adverse consequences if not taken serious. The owner should choose a larger business entity than sole proprietorship to ensure that all transactions are conducted effectively and according to the law.
Acme Fireworks should be converted to a Limited Liability Company (LLC) due to various reasons one of them being increased legal contracts with other businesses. A limited liability company provides tax efficiencies, limited liabilities, and operational flexibility. It is easy to form a LLC because it does not necessarily need to be managed by several individuals (Balouziyeh, 2013). Acme Fireworks will benefit as a LLC because all losses and profits are passed to individuals thus reducing the risks faced.
There are several benefits of operating a business as a limited liability company. Due to that, the business gains stability and can survive during adversity. One of the benefits includes being limited liability. Members of Acme Fireworks will be protected from personal liabilities for actions of the company or business decisions. It, therefore, means that if the company is sued or is in debt, members’ individual assets are safe. Acme Fireworks will also keep fewer records because of its increased ease of operation. When compared to small corporations, a limited liability company has a lower start-up cost and less registration paperwork. The company also shares profits accordingly because it is free to determine its terms and conditions on profits earned (Balouziyeh, 2013). The owner may continue enjoying profits alone as before thus increasing his income due to the increased number of clients.
Conclusion
Acme Fireworks having increased the number of transactions, the type of business contracts and the types of businesses it was working with needed to change to a limited liability company to ensure that it still operated effectively despite its growth. The company also needs to be governed by the Uniform Commercial Code to ensure that the services it offers are fair and up to standard across different states and for different clients. Operating as a limited liability company helps Acme Fireworks to gain stability, to enjoy less start-up costs, less registration paperwork, and to enjoy higher profits with reduced risks.
References
Balouziyeh, J. M. (2013). Limited Liability Companies. In A Legal Guide to United States Business Organizations (pp. 99-102). Springer Berlin Heidelberg. DOI10.1007/978-3-642-37907-9_11
Cahn, A., & Donald, D. C. (2010). Comparative company law: Text and cases on the laws governing corporations in Germany, the UK and the USA. Cambridge: Cambridge University Press.
de Graaf-Zijl, M. (2012). Job satisfaction and contingent employment. De Economist, 160(2), 197-218. doi:10.1007/s10645-011-9180-7
Tepper, P. (2011). The law of contracts and the uniform commercial code, New York: Cengage Learning.
