Acme Fireworks

Acme Fireworks is a sole proprietorship company. The company produces and sells fireworks to consumers. Recently, the retail companies have registered their interest to make large purchases to the company. While the company does not have a contract yet, the company must create a strategy to handle huge orders from such companies. The company also needs to change the type of entity to a more reliable type.

1. Liability

A company is liable for the damage caused by the products they produce. It can be divided into three parts. First, a company is liable for the damage caused by the product it produces based on its defects. In every jurisdiction, it must be proved that the product contains a defect (Sherrow & Marzilli, 2010). There are three types of defect. First, there is a design defect.  A design defect is a defect that results from the design of a product. This defect occurs even before the product is manufactured. It occurs from the negligence of the company to look out for weaknesses in the design process. Second, a product may have a manufacturing defect. A manufacturing defect occurs during the manufacturing process. Only a few products are affected by the defect. Finally, the company may produce a product that has a marketing defect. This defect results from a company’s failure to warn the consumer about latent dangers and lack of sufficient or proper instructions.

Acme Fireworks produces products for which utmost care is made (Smail, 1961). The company however still stands liable for the products it produces. The company may be held liable for the fireworks it produces if the product is found to contain either one of the defects mentioned above. While utmost care is made during the entire process of production, either one of the three defects may be present in a product.

A design defect may result in the company’s attempt to make savings hence not putting sufficient safety measures in the design process. In this case, the product may lack certain components that make the product safer (Smail, 1961). The product may also be defective due to an error in the manufacturing process. As in the case of design defects, a manufacturing defect may result in the failure to put certain components that would enhance the safety in the use of a certain product. Marketing defects may arise if the company is found not to put sufficient consumer information on the product. The product may involve information about the proper usage and disposal of products. It may also not contain sufficient information on the dangers posed by the product.

Product liability may be based on negligence, breach of warranty or strict liability (Sherrow & Marzilli, 2010). Strict liability does not depend on the care that the defendant put while using the product. Instead, it depends on the nature of the product. Negligence may occur if the manufacturer does not put proper measures to ensure product quality. Acme Fireworks may be found liable if the company produces a product but fails to put instructions of use inside the packaging of the product.

The company has various points of defense. First, the company may lodge a sufficient defense if the company did not supply the product. If the product was stolen from the possession of the company and the company can prove this fact, then the company may be able to defend itself from liability.

Secondly, the company may be freed from liability if the defect was not present at the time of distribution of the product (Sherrow & Marzilli, 2010). In this case, the company would be put to task to prove that the defect was created in the course of distribution or use of the product. The liability would then be placed on the person who created the defect.

Finally, if the product is used as a component of a finished product, the company may not be liable if the defect resulted from the defect that occurred from the design of the finished product or the failure by the manufacturer of the finished product to put certain instructions. In this case, the liability is transferred to the manufacturer of the finished product.

• Contract

While the retail companies showed interest in doing business with the company, no contract was made between the company and them. First, while an offer was made and the terms of the contract discussed, the details of the contract were not discussed. The details of the contract would include the exact size of the orders, the date of delivery and any other specifications.

On the other hand, certain elements of a contract were satisfied. First, the first party, Acme Fireworks, made an offer to the different retail companies (Luecking, 1927). The offer made was that the company was able to fill large orders for them. There is no evidence that the offer was accepted.

The two entities also showed interest to be involved in a legal agreement. While the retail companies did not enter into a contract with Acme Fireworks, they showed interest which shows that there is a future likelihood of forming a contract. The company should not however seek to fill the orders of the retail companies.

The parties of the contract were of legal capacity. Presumably, the people with whom the owner of the company discussed the terms of the contract were people who have the capacity of representing the company (Burton, 2009). The corporations are therefore the legal entities that are entering the contract in this case.

The accepting party made a consideration. The retailers discussed with Acme Fireworks’ owner the amount they were going to pay for the fireworks. Regardless of how much each of the companies agreed to pay for the fireworks, they still met this element of a contract (Sayre, 1927).

The parties also made the discussions willingly and with proper understanding of what they were discussing. The discussions were therefore made in consent of each of the two parties.

In conclusion, the parties did not enter into a contract with Acme Fireworks. Instead, they just showed an interest and considered the offer made by the owner of the company. The contract lacked acceptance and the companies are not bound by the contract until the offer is accepted. At this point in the contract, any party may withdraw from the contract without any eventualities or without any legal consequence.

• Types of employment

The owner of the company is at loss of the type of employment system to adopt. Currently, he has fifteen employees. The fifteen employees who the company already engages cannot meet the demand of the retail companies if the company secures contracts from them. The company owner has not been able to secure contract from the retail contracts. He is therefore not in a position to gauge the future of business with the retailers. He must make informed decisions on the type of employment to adopt for any additional employees he may want to engage. There are various forms of employment available to the employer.

First, the company may engage the employees on a permanent basis. Permanent employees are employed to attend to work on a regular basis and on specific days or hours (England, 2007). Permanent employees may be either part-time or full-time. They are entitled to regular wages and payments as well as other benefits like paid sick leave, and long-service leave.

Second, employees may also be employed on a temporary basis. Employees who are engaged on a temporary basis are employed to meet temporary demands for the company (England, 2007). They however stand a chance of being employed on a permanent basis if their work is impressive. Employing on a temporary basis saves the employer the need to recruit regular basis and are usually less expensive to maintain. They are only entitled to regular salaries and wages but may not be entitled to other benefits like employee insurance, pension, and long-term leave.

An employer may also engage employees on a casual basis. Casual employees are stand-by employees. They are only absorbed into the workforce when the demand cannot be met by internal employees (England, 2007). Casual employees are only paid according to their hours of service. If they do not work, then they are not paid.

Contract employment or fixed term employment may also be used by an employer. An employer who uses this method absorbs employees for a limited period of time on an agreed rate for a specified period of time (England, 2007). The terms of the employment are agreed in a contract basis in terms of payment, and period of employment. This form of employment is mostly used for single projects and to replace employees who are on leave.

Acme Fireworks requires a payment method that is cheap and one that can be relied on during peak period when the company is serving a large demand for its products. Casual employees may be employed when the company has an order. In this case, the company need not absorb employees before orders are made. Once orders are made, the company may offer casual employment to job seekers. The employees will only be engaged for the period of servicing the order. Once orders reduce, the employees will be stopped.

The company may also employ on a contract basis. The employees who are employed in this manner are only engaged for a limited period of time after which the contract is nullified (Lobban, 1975). The contract may be renewed if the company still requires the services of the contracted employees.

In conclusion, the company needs to identify a means of acquiring employees’ services for limited periods of time without having to pay them when work is limited. The best forms of employment for the company’s case are contract and casual forms of employment. In this case, an employer absorbs the workforce when there is a lot of demand for the company’s goods. Once the demand goes down, the company does away with the unwanted employees.

• Change of Business Entities

Acme Fireworks is a sole proprietorship.  It is under the under the ownership of individual who runs the business for his own profit. This type of business is the commonest in the US due to the fact that it is easier to begin and costs less to initiate. A sole proprietorship has no existence apart from its owner (Behrenfeld, Biebl & Bang, 1989). When the business owner dies, the business is terminated. Legally, a sole proprietorship is not a separate entity from its owner. However, it is a separate entity for accounting purposes and receipts and records are maintained separately.

Due to the disadvantages of running a sole proprietorship, the business owner may be interested in changing the business entity to one of the other available options. First, the company owner may change the entity to a small business corporation. A business corporation is a legal entity (Smith, Raabe & Maloney, 2003). It is formed upon filing articles of incorporation with the state. Shareholders are not liable to the operations of the company and those employees who are also shareholders may benefit from certain tax benefits. A corporation is put under double taxation, first through tax on company profits and second through the dividends earned by the shareholders.

A small business corporation is a special kind of corporation. It benefits form a tax advantage by giving the waiver of corporate taxes hence eliminating the aspect of double taxation common to regular corporations (Spilker & Ayers, 2011). A small business corporation also has other benefits aside from its ability to waive taxes.

First, a small business corporation benefits from a limited liability to stock holders. Liability is limited to the amount personally invested in the business.  Personal assets may also not be seized by creditors to pay debts incurred through the corporation. Second, the business benefits from perpetual life (Smith, Raabe & Maloney, 2003). Their existence is separate to that of the shareholders. Even after a shareholder dies, business continues to exist as a legal entity. Shares of the company may be passed on through inheritance. Third, a small business corporation is easier to transfer ownership. It is possible for corporations to sell off shares when they desire. Fourth, the company is more capable to raise capital through sale of company shares. Finally, the small business corporation benefits from tax benefits elected to strengthen them.

A corporation also has disadvantages. First, being a legal entity, the company is subject to all state regulations that pertain to small business corporations. A corporation charter must also be obtained from the state. Second, the costs of organizing corporations are higher. Third, a corporation must obtain authorization from other states to be allowed to operate there.

In conclusion, while a sole proprietorship benefits from ease of initiation and low costs of creation, it also has some disadvantages. Its existence is limited to the lifetime of the business owner and it has limited source of capital. It is therefore the intention of business owners to convert their businesses to more reliable business entities. A small business corporation is elected on its ability to acquire capital through the sale of stocks, its perpetual life and its qualification to tax benefits. The small business corporation is also a limited liability company and cannot be seized for debts obtained by its owners.

References

Behrenfeld, W., Biebl, A., & Bang, C. (1989). Business entities (1st ed.). New York, NY: American Institute of Certified Public Accountants.

Burton, S. (2009). Elements of contract interpretation (1st ed.). Oxford: Oxford University Press.

England, G. (2007). Employment (1st ed.). Markham, Ont.: LexisNexis Canada.

Lobban, R. (1975). Employment (1st ed.). London: Batsford.

Luecking, C. (1927). Review of “The Elements of a Contract,” By Victor Morawetz. Washington University Law Review, 12(3), 223–224.

Sayre, P. (1927). Elements of a Contract, by Victor Morawetz. Indiana Law Journal, 2(4), 9.

Sherrow, V., & Marzilli, A. (2010). Product liability (1st ed.). New York, NY: Chelsea House Publishers.

Smail, L. (1961). Basis of Liability in Fireworks Accidents. Wash. \& Lee L. Rev., 18, 144.

Smith, J., Raabe, W., & Maloney, D. (2003). An introduction to business entities (1st ed.). [Mason, Ohio]: Thomson/South-Western.

Spilker, B., & Ayers, B. (2011). McGraw-Hill’s taxation of individuals and business entities (1st ed.). New York, NY: McGraw-Hill/Irwin.