BUS311 Final Paper...

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University Of Arizona *

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Business

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Nov 24, 2024

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Final Paper You are the manager of Acme Fireworks, a fireworks retailer who sells fireworks, puts on ground display fireworks, and large aerial display fireworks. The company started in the owner’s garage two years ago and now has 15 employees that you manage. The company started as a sole proprietorship, and the owner has never changed the entity. The owner has informed you that the company has received inquiries from several large businesses wondering if the company could create several fireworks displays on a regular basis. The owner told the inquirers that the company could fill such display orders, and a price per display was agreed upon. It was discussed that most of the cost for a fireworks display is for skilled labor, insurance, and the actual service of setting off the fireworks. No other details were discussed. The owner is anticipating that new employees will need to be hired, but he is worried that if the large orders for fireworks displays do not continue, the company will not have the funds to pay the new employees. The owner is now considering changing the business entity, but he does not know what entity to form or how to form it. The owner has asked you to do the following:  Determine if the contracts with the businesses will be governed by common law or the Uniform Commercial Code (UCC), and explain why.  Analyze whether the owner formed a contract with the businesses, and apply the five essential elements of an enforceable contract.  Explain the potential personal liability to Acme Fireworks if a spectator is injured by a stray firework from a fireworks display.  Discuss the different employment types and relationships relevant to agency law, and analyze the advantages and disadvantages of each type specific to Acme Fireworks.  Explain why Acme Fireworks should not operate as a sole proprietorship. Recommend a new business entity, and provide rationale to support your recommendation. For each task, be sure to analyze the relevant law, apply the facts to the law, and make a conclusion. The paper  Must be 8 to 10 double-spaced pages in length (not including title and references pages) and formatted according to APA style as outlined in the Writing Center (Links to an external site.) .  Must include a separate title page with the following: o Title of paper o Student’s name o Course name and number o Instructor’s name o Date submitted  Must begin with an introductory paragraph that has a succinct thesis statement.  Must address the topic of the paper with critical thought. That is, describe what your response is to the content, either positive or negative, and defend your position. If

multiple options, alternatives, and/or positions are present and are being rejected, you must also defend the reasons for rejecting an option.  Must end with a conclusion that reaffirms your thesis.  Must include at least five scholarly sources, two of which must be from the University of Arizona Global Campus Library, in addition to the course text.  Must document all sources in APA style as outlined in the Writing Center.  Must include a separate references page that is formatted according to APA style as outlined in the Writing Center (Links to an external site.) . Carefully review the Grading Rubric (Links to an external site.) for the criteria that will be used to evaluate your activity. 2

Final Paper Xxxx The University of Arizona Global Campus BUS 311: Business Law I Professor Rudnick November 6, 2023 In the fireworks industry, where safety is paramount, choosing the right business entity is crucial. The fireworks business inherently carries risks associated with accidents, injuries, and 3

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legal liabilities. A sole proprietorship, while simple and cost-effective, leaves the owner exposed to unlimited personal liability. Given the potential for accidents and safety concerns, this liability risk is particularly pronounced. In the event of an accident, such as a spectator being injured by a stray firework during a display, the owner's personal assets, including their home and savings, could be at stake. Transitioning to a limited liability company (LLC) or corporation provides a valuable solution. In the fireworks industry, an LLC offers personal liability protection, safeguarding the owner's assets. As the industry becomes increasingly regulated, the importance of operating within a structured legal framework cannot be overstated. Common Law or the Uniform Commercial Code (UCC) Whether a contract is governed by common law or the Uniform Commercial Code (UCC) depends on the nature of the contract and the goods or services involved (Uniform Law Commission, 2023). In the case of Acme Fireworks, the contract primarily revolves around providing the specialized service of fireworks displays, distinct from the mere sale of fireworks. The distinction between common law and the UCC lies in the fact that the UCC primarily governs contracts related to the sale of goods, while common law governs a broader spectrum of contract types, including those centered on service delivery (Rogers & Seaquist, 2023). In the context of Acme Fireworks, the essence of the contract extends well beyond a simple exchange of goods. Although fireworks, as goods, play a role in the contract, their primary purpose is to facilitate the delivery of a captivating fireworks display. 4

Fireworks displays are far from a straightforward sale of goods. The service includes many details, from orchestrating the artistic arrangement of fireworks to ensuring the safety of spectators. This complexity calls for a legal framework that can accommodate the multifaceted nature of the contract. The involvement of skilled labor, such as pyrotechnicians responsible for creating the display, underscores the service-oriented nature of the contract (Bureau of Alcohol, Tobacco, Firearms, and Explosives, 2023). The incorporation of skilled labor, risk management, and the execution of a visually stunning fireworks display positions this contract right within the realm of common law. While fireworks themselves are goods, their purpose in this contract is primarily as a vehicle for delivering a unique and expertly crafted service, making common law the apt legal framework for governing the agreement. Contract Formation To form a valid contract, the elements of offer, acceptance, capacity, consideration, and legality must be present. Based on the scenario described, the terms discussed between the owner and inquirers suffice as contract formation. Offer: The basis of any contract lies in the offer, a clear expression of intent to be legally bound by specific terms (Rasmusen, 2004). In the case of Acme Fireworks, the owner extended a formal offer to provide large fireworks displays at an agreed-upon price. This offer was more than a casual conversation; it was a deliberate statement made when the owner assured the inquirers that the company possessed the capability to fulfill their extensive display orders. The offer was clear and set the stage for a potential contractual agreement. 6

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Acceptance: Acceptance is the agreement to the terms of the offer. In the context of Acme Fireworks, the inquirers conveyed their acceptance by agreeing to the price per display. Acceptance can manifest in various forms, be it a formal written communication, a verbal agreement, or implied through the conduct of the parties. In this scenario, the inquirers explicitly agreed to the terms by accepting the proposed pricing. Other forms of acceptance could have been fortified by their actions, such as making a payment, thereby reinforcing their commitment to the contract (Rogers & Seaquist, 2023). Capacity: Capacity refers to the legal competency of the parties entering into the contract. While the available information may not provide a definitive assessment of capacity, certain presumptions can be made. It is reasonable to assume that the owner of Acme Fireworks is of legal age and capacity to enter into such agreements. This presumption stems from the expectation that a business owner possesses the legal standing to represent their company. Similarly, it is presumed that the inquirers, acting on behalf of their organizations, also possess the legal capacity to be bound by the agreement. However, in practice, verification of capacity through due diligence and background checks may be necessary to ensure compliance with legal requirements. Consideration: Consideration is a fundamental element of any contract and denotes the exchange of something of value between the parties. In the case of Acme Fireworks, the price per display represents the consideration. Both the owner and the inquirers recognized the importance of this element, as they reached a mutual agreement on the pricing structure. The consideration is not one-sided; it signifies a balanced exchange where both parties receive value. This reciprocal exchange validates the existence of consideration within the contract. 7

Legality: The legality of a contract is contingent on its alignment with local laws and regulations. For Acme Fireworks, the legality element is satisfied if the company operates within the bounds of these laws when providing fireworks displays. It is vital to adhere to safety regulations, zoning requirements, and any other applicable legal constraints. Ensuring the legality of the contract is imperative, as compliance with local laws forms the foundation for a legitimate and enforceable agreement. Though the terms of the agreement between the owner and inquirers establish a legal contract, there are potential challenges that could arise due to the loosely defined terms. Failing to clearly define the scope of the fireworks displays, dates and locations, insurance requirements, and payments terms can lead to disputes later. For something as substantial as fireworks, a written contract is recommended instead of an oral contract, although oral contracts are enforceable (Rogers & Seaquist, 2023). It is important to specify all the terms and conditions of the contract to help prevent misunderstandings and provide a clear record of the agreed-upon terms. Employment Pertaining to Agency Law When contemplating the expansion of its workforce, Acme Fireworks must carefully consider various employment types and their implications within the framework of agency law. The company has multiple options for hiring personnel, including full-time, part-time, and seasonal employees, as well as independent contractors. Each employment type comes with distinct advantages and disadvantages that can significantly impact the business. Hiring full-time employees is a traditional approach that offers the advantage of having a dedicated and committed workforce. Full-time employees are likely to be deeply invested in the long-term success of Acme Fireworks. However, this approach may entail higher payroll and 8

benefits costs, and the company could face financial challenges if large fireworks orders decline, making it difficult to sustain the employment of full-time staff. Additionally, maintaining a consistent workload is crucial to justify their employment, and a sudden drop in orders might lead to overstaffing issues. In contrast, part-time or seasonal employees offer greater flexibility. They allow Acme Fireworks to adapt its workforce size based on fluctuations in the demand for fireworks displays. This flexibility can be cost-effective, as part-time or seasonal employees are only compensated when actively engaged. However, their limited availability and potential need for ongoing training and onboarding may present challenges, especially when the company needs to rapidly scale up its workforce to meet unexpected surges in demand. Engaging independent contractors is another viable option, providing Acme Fireworks with the flexibility to respond to changing demand without committing to long-term employment. Independent contractors often bring specialized skills and expertise to specific projects, reducing the need for extensive training (Internal Revenue Service, 2023). However, this approach comes with reduced control over the contractors' work and actions and may result in less direct engagement with the company's mission and values. In the realm of employment relationships, understanding the principal/agency dynamic is crucial as it pertains to the various employment types of Acme Fireworks may consider. When examining full-time employees, it's evident that they predominantly establish an employer- employee relationship, where the principal-agent association becomes more implicit. In this context, the owner of Acme Fireworks functions as the principal, guiding and overseeing the work of the employees. While these employees perform their duties under the owner's direction and control, their primary legal classification remains that of an employee. However, within the 9

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scope of their employment, these individuals also act as agents, representing the owner's interests and executing tasks on the company's behalf. When engaging independent contractors, a different agency relationship arises. Independent contractors, distinct from employees, function as agents with a more pronounced degree of autonomy and control over their work methods (David, 2009). In this scenario, the owner of Acme Fireworks acts as the principal who enters into an agency agreement with independent contractors. The contractors are engaged to execute specialized tasks or projects on the company's behalf. While they maintain independence in how they accomplish these tasks, they remain agents representing the owner's interests within the context of the agreed-upon services. Business Entity Types A sole proprietorship is the simplest and most cost-effective business structure (Mitchell, 2010). However, there is no legal distinction between the owner and the business. This means that the owner has unlimited personal liability for the business’s debts, liabilities, and legal issues. In the fireworks industry, which is commonly associated with safety and liability risks, personal assets are at risk in the event of accidents, injuries, or lawsuits. Given the potential for accidents and safety concerns associated with producing fireworks displays, this unlimited personal liability can pose a significant risk to the personal assets of the owner of Acme Fireworks, including their home, savings, and other property. In the event that a spectator is injured by a stray firework during a fireworks display, the owner could be held liable. Acme Fireworks has a duty of care to ensure the safety of spectators attending the display. This includes properly securing the launch area, maintaining a safe distance between the fireworks and the spectators, and having trained personnel overseeing the display. A limited liability 10

company (LLC) or corporation would provide a more effective means of managing and distributing these risks, protecting personal assets, and securing adequate insurance coverage. Forming an LLC The fireworks industry is a highly specialized and safety-sensitive business, making the choice of the right business structure crucial. A sole proprietorship, while simple and cost- effective, has inherent drawbacks in an industry with pronounced safety concerns, potential accidents, and legal liabilities. To mitigate these risks and protect personal assets, it is advisable for Acme Fireworks to consider transitioning to a Limited Liability Company (LLC), a business entity that offers a structured and legal framework to manage the unique challenges of the industry. One of the primary concerns in the fireworks industry is the lack of personal liability protection associated with sole proprietorship (Mitchell, 2010). In this business structure, there is no legal distinction between the owner and the business. As a result, the owner's personal assets, including their home, savings, and other property, are exposed and at risk in the event of accidents, injuries, or lawsuits. Given the potential for accidents and safety concerns associated with producing fireworks displays, this unlimited personal liability poses a significant threat to the owner's financial well-being. The fireworks industry is notorious for its safety risks and potential legal liabilities. Acme Fireworks has a duty of care to ensure the safety of spectators attending its displays. This includes securing the launch area, maintaining a safe distance between the fireworks and the audience, and having trained personnel overseeing the display. Any lapse in safety measures or unfortunate accidents can result in substantial legal liabilities. Operating as a sole proprietorship 11

increases the owner's vulnerability to personal liability, putting their assets at stake in case of mishaps. While the business may have been successful as a sole proprietorship, transitioning to an LLC can project a higher level of professionalism and credibility (Mitchell, 2010). Large businesses often prefer to engage with entities that offer a more structured and legally compliant framework. An LLC provides a more formalized structure, which can instill confidence in potential partners and clients. Transitioning from a sole proprietorship to an LLC is a strategic move for Acme Fireworks in light of the unique risks and considerations associated with the fireworks industry. An LLC provides a solid foundation for managing safety concerns, legal liabilities, and the potential for business growth and investor attraction. It not only safeguards the owner's personal assets but also projects professionalism and opens doors to new opportunities for expansion and financial support, positioning Acme Fireworks for long-term success in this dynamic and safety-driven industry. In conclusion, the fireworks industry presents a unique blend of creative expression, safety consciousness, and legal intricacies. For Acme Fireworks, making the right choices concerning its business entity, contract governance, and employment relationships is pivotal. The transition to an LLC aligns perfectly with the safety-driven landscape of this industry, offering a protective shield while opening doors to new horizons. These considerations are not just legal formalities but strategic imperatives that ensure Acme Fireworks’ longevity and success in this vibrant yet challenging business landscape. 12

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References Bureau of Alcohol, Tobacco, Firearms, and Explosives. (2023). Explosives. ATF. https://www.atf.gov/explosives/fireworks David, J. (2009). Standard skilled employees' and job applicants' behaviors in the presence of independent contractors and outsourcing arrangements. Personnel Review, 39(1), 62-79. Internal Revenue Service. (2023). Independent contractor (self-employed) or employee? IRS. https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor- self-employed-or-employee Mitchell, P. (2010). Choosing the right legal form of business: The complete guide to becoming a sole proprietor, partnership, LLC, or corporation. Atlantic Publishing Company. Rasmusen, E. (2004). Agency law and contract formation. American Law and Economics Review, 6(2), 369-409. Rogers, S., & Seaquist, G. (2023). Essentials of business law (2nd ed.). The University of Arizona Global Campus. Uniform Law Commission. (2023). Uniform Commercial Code. Retrieved from https://www.uniformlaws.org/acts/ucc 13

BUS311 Final Paper...

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