Potential for Acme Fireworks Company - Research Paper Example

Acme Fireworks Company Course Name and Number Instructor’s Name Due Date The potential for Acme Fireworks Company has grown both in sales and in the number of new customers. These changes necessitate the owner and the management to review the existing structure of the Company because growth is anticipated to continue to the near future. The company’s potential liabilities have increased because of increased availability of the product in the market. In addition, with the requirement of additional employees, equipment and more expected contracts, it is imperative that Acme re-position itself in order to protect the success of the young growing business. The current business entity must be evaluated, and assessment made for any changes needed. The product liability needs to be assessed and measures put in place to mitigate it as much as possible. The contract obligations, which apparently have increased with increase in product’s demand, also need to be assessed and capacity to fulfill them without defaulting evaluated. The company also needs to evaluate the best option for adding new employees in order to sustain the growth of the business. Evaluation of Acme form of business entity The current form of Acme is a sole proprietorship in the sense that one person owns it. Several advantages accrue to this form of business from a legal point of view. Firstly, starting a sole proprietorship is less complicated in terms of legal procedures required as compared with other forms of businesses, that is, corporation and partnership. In addition, Acme has no limitation to the type of business activity it can engage in. Diversification of the business to other lines products, totally different from fireworks, or entering into contracts, which are not related to the original type of business activity the entity was created would be legal and consistent with all laws, because the ultra-vires doctrine applies to formal corporations and not the sole proprietorship form of business. The main drawback of this form of business is unlimited liability. The owner of the business is directly and fully liable for any debts, losses, or violations from the entity. For instance in a situation where the business is indebted, the owner could be sued and be compelled to satisfy the debt from personal funds. In the case of a corporation, the owners liability is limited in the sense that the shareholders of the company cannot be held directly responsible for debts and violations from the business. In the case of debts, liability is to the extent of an amount of un-paid capital or amount the members undertook to contribute in the event winding up of the business. Sole proprietorship also lacks continuity. In the event of the owners death, the entity is wound up, and it is considered part of personal estate of the owner distributable to beneficiaries who also inherit all liabilities attached to the previous entity. A corporation continues regardless of death of the founder or a member. Other drawbacks of sole proprietorship include difficulty in raising capital. Capital is easily raised in the case of corporations and partnership since the partners, in a partnership, or members of the company pool their funds to raise the capital needed. A partnership is more or less similar to a sole proprietorship in the sense that the liability is also unlimited, and there is no continuity of the business when a partner dies. (Kcsourcelink.com, 2014) I would recommend Acme owner to convert the business into a formal corporation in order to enjoy the advantages of a corporation discussed above. Most importantly, consideration should be directed to the benefit of limited liability considering that the business is enjoying expansion and subsequently exposing itself to more liabilities. If any liability such as product liability arises, under the current situation, the owner of Acme will be sued in his name and held personally liable. After conversion into a corporation, it is a corporation that will be sued in its name and held liable (Kcsourcelink.com, 2014). Potential personal liability The nature of fire- works expose Acme to potential personal liability because of injuries or damages that may be sustained by consumers or other businesses because of using the product. This personal liability arises from product liability under the consumer protection act (CPA) and the common law of negligence. Under product liability, manufacturers, suppliers, distributors, and retailers are held responsible for injuries caused by products. Any contract limiting liability is immaterial if the product or its components are defective. Under CPA or negligence, action can be brought to Acme for personal injury, death, or damage on private property because of fireworks defects (Out-law.com, 2011). The CPA does not require people injured by faulty products to prove negligence on the part of the manufacturer (Acme), but merely need to prove that damage or injury was caused by the product. CPA applies to consumer products and products used at place of work. A claim under CPA can be brought by any person for personal injury, death, or damage to private property immaterial of whether the person bought the product. However, no claim can be made for damage to property of the business or pure economic losses. CPA specifically provides that no claim shall be made for loss or damage to the defective product itself. CPA imposes no financial limit on producer’s total liability (Out-law.com, 2011) For the purposes of CPA, a product is defective if its safety, with respect to both personal injuries and damage to property, is not such as persons are entitled to expect generally. The product will not be considered defective because a safer version is later introduced into the market. In evaluating the safety of the product, the court will consider: 1) all aspects related to marketing of the product. 2) Use of any mark in relation to the product. 3) Warnings and instructions. 4) What might be rationally expected to be done with the product at the time supply of the product was made (Out-law.com, 2011) The producer has the following defenses: 1) the product defect exists in compliance with domestic law. 2) The party facing the claim did not supply the product. 3) The product was not manufactured or supplied in the course of business. 4) The defect was not there at the time the product was put into supply. 5) If the party is litigated because it manufactured a part- that the defect arises due to the defect in the finished product, and was brought out by the manner in which the final product was designed or because of instructions given by the finished product’s manufacturer. (Out-law.com, 2011) Due to the strictness of consumer protection laws, Acme should put in place the necessary quality controls to avoid manufacture of defective fireworks that could render the owner of the business liable in case of death, injury of damage to property due to defects in the fireworks. Contact obligations The owner of Acme entered into a valid contract with retailers by analysis of the five basic elements of a valid contract as outlined below: Intention to create legal relations: The assumption is that in a commercial transaction, the parties contracting must have the intention to make a legally binding contract. In Acme’s case, assuring retailers of large regular orders and fixing price implies that the owner expects to be sued or sue the retailers, whoever defects from the agreement. However, this agreement will not constitute a valid contract if Acmes owner expressly stated that he did not intend to be a party to a legally binding contract. Offer and acceptance: Offer refers to the readiness to do something so that another person is justified to understand that his consent to the bargain will conclude a contract. In this case, retailers made the offer to purchase fireworks in large quantities and regularly. Acceptance, on the other hand, is an agreement to the terms made by the offeree in the way required by the offer. In this case Acme’s owner accepted the offer with its terms that is, large quantities of fireworks on a regular basis at a fixed price. A contract can, therefore, be assumed to have been constituted. Consideration: Consideration refers to detriment to the promise or a benefit to the promisor. There is a consideration in this case of a fixed price the retailers are to pay to Acme. Capacity to contract: The basic assumption is that both the owner of Acme and the retailers are competent parties authorized by law to contract. They are sound minded; they are not minors, and they are under no prohibition to contract under any provision of law (Davids, Flemming, Greene & Share, n.d.) It is very essential that Acme review its capacity to fulfill the retailers’ orders since assuming that all the five elements of a valid contract above were fully satisfied, and to a large extent they were, any default to fulfill an order might render Acme’s owner liable for breach of contractual obligations in accordance with the law of contract. Employee options for the growing business Apparently, additional employees are required if Acme will fulfill the increasing customer’s orders. The sustainability of this growth needs an evaluation in order to determine the best employment type. The major options available for Acme are full time employees, part time employees, leased employees. Full-time employees, although work for longer hours receives employee benefits, for instance, sick leave, retirement funds contributions and vacation time. This type of employment does not suit Acme in economic sense due to uncertainty of whether the large orders demanded by retailers will be long lived. There would be a financial crisis if the retailers cutoff their quantities requirements. Part-time employees work for fewer hours per week. However, they allow for flexibility since they can be hired or laid off in accordance with production requirement and product demand. Since there is uncertainty of sustainability of Acmes growth, this option is the best due to the flexibility discussed. Leased employees are employed and paid by lease service firms. If Acme can estimate the expected duration of the high demand of fireworks and consideration to be paid to the lease service firm is considered fair and then leasing some employees will be a good option. (William, 2014) In summary, the fundamental changes due to growth of Acme business require a critical review from legal and economic point of view. There in necessity to change the business structure from a sole proprietorship into a formal company in order to avoid personal liability inherent to any expanding business. There is also need for market research in order accurately to determine the sustainability of growth of the business so that sound decisions can be made. References David, R., Flemming, A., Greene, T., & Share, A. (n.d.). Business contracts A to Z (1st Ed.). Kcsourcelink.com, (2014). Forms of Business Organization. Retrieved 28 August 2014, from http://www.kcsourcelink.com/learning-center/starting-a-business/register-and-license-your-business/forms-of-business-organization Rogers, S. (2012). Essentials of Business Law. San Diego, CA: Bridge point Education Out-law.com, (2011). Product liability under the Consumer Protection Act. Retrieved 28 August 2014, from http://www.out-law.com/en/topics/commercial/supply-of-goods-and-services/product-liability-under-the-consumer-protection-act/ wiliam, S. (2014). Types of employment, Work environment, Employment issues, Commerce Year 9, NSW | Online Education Home Schooling Skwirk Australia. Skwirk.com. Retrieved 28 August 2014, from http://www.skwirk.com/p-c_s-18_u-130_t-359_c-1255/types-of-employment/nsw/types-of-employment/employment-issues/work-environment Read More