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Most business activities are governed by distinct legislations thatare determined by the kind of the enterprise. Some of the forms ofthe entities include sole proprietorship, partnership, companies, andcorporations. Acme Fireworks is a sole proprietor business that beganits operations two years ago. and has employed fifteen employees. Ananalysis of the scenario reveals that the contract was formed and isenforceable under the UCC. It also argues that the owner of ACMEFireworks shall be held personally liable if a spectator is injuredby a stray firework. It also shows that the employment type theorganization can adopt is an independent contractor, and the entityshould be changed to a limited company instead of a soleproprietorship.

Howthe contract will be governed

When merchants make a deal, they can either be regulated by thecommon law or the Uniform Commercial Code (UCC). The UCC consists ofrules that are applied to agreements made concerning the sale orlease of commodities, use of negotiable instruments, banking, securedtransactions, and investment securities among others (Martin, Marks &ampBarnes, 2015). On the other hand, common law is applied to contractsthat consist of the essential elements of a valid agreement. It isconsidered to be more rigid as opposed to the UCC among merchants. Ananalysis of the agreement made between Acme Fireworks, and the largecompanies show that it shall be governed by the UCC rather than thecommon law. One of the reasons why the UCC is applied in the contractinvolving Acme Fireworks is the manner in which the agreement ismade. According to the common law, an agreement is made when theofferor makes a request, and the offeree accepts the offer by words,writing, or actions (Howard, 2015). However, in the UCC, a settlementcan be made in any manner since it is not necessary for the offer andacceptance to be present for a binding contract to be made. In thecase of Acme Fireworks, the companies only inquired whether the firmcould create several fireworks on a daily routine. The manageraffirmed that it was capable, and the parties went ahead to agree onthe price of the show, which led to the formation of a contract.Therefore, the manner in which the agreement between Acme Fireworksand the other companies was made was through words where they made aprice agreement. The approach applied implies that the UniformCommercial Code shall govern the contract of the business.

The UCC also governs the Acme Fireworks contract because it isconsidered more flexible than the common law. Businesses are known tobe evolving with the developments in the industry. As merchantsembrace the change, the contracts may be affected. Therefore, the UCCallows proprietors to incorporate the new business practices in theagreements made with their clients. Another reason is that the commonlaw requires the parties to the contract to outline specific termsand conditions that must be fulfilled, but in the UCC, norequirements determining the implementation of the settlement aremade (Martin, Marks &amp Barnes, 2015). The UCC only requires thequantity term to be defined, and other conditions can be filledlater. At Acme Fireworks, the contract was only made when theinquirers agreed on the price per display. Other specifics such asthe number of shows could be done later since the companies neededthe services on a regular basis. Hence, the agreement is governed bythe UCC.

Didthe owner form a contract with the business?

When operating a business, the owner establishes relationships withother merchants that involve commitment or obligation. According tothe law of contract, the essential elements of an agreement thatmakes it valid or legally binding to the parties involved must besatisfied (Howard, 2015). One of the primary requirements is where anoffer is made by the offeror specifying the details of the businessdeal between the individuals. A time limit may be determined beforeit can be revoked or canceled to avoid any form of disputes betweenthe parties. The mere inquiry done by the large companies on whetherAcme Fireworks could create fireworks displays, did not constitute anoffer. However, an offer was made when the owner gave asked theinquirers to fill the display orders. The companies then showed theiracceptance by conduct when they made the price agreements. Thus,acceptance constitutes the second element of an enforceable contract.

The third requirement of a valid contract is the intent to create alegal relationship. Under the common law, the parties in an agreementare required to show the intention to be legally bound by signing thecontract (Rogers, 2012). Hence, if one person fails to meet their endof the bargain, the other individual can sue in a court of law.However, since the UCC governs the contract between Acme fireworksand the other company, the intent to establish a legal relationshiphas not been applied. The only details that the owner discussed withthe organizations involved the price per display regarding skilledlabor, insurance and the setup of the fireworks. Thus, the formationrequirements were not strictly followed since they could use gapfillers as per the UCC in case a dispute arose.

The fourth element required in a valid contract is the considerationthat involves the promise made by one party to another person if theyfulfilled their role in the agreement. An analysis of the dealbetween Acme Fireworks and the company shows that consideration wasmade. The price per each display constitutes the consideration thatthe company would give to the owner of Acme Fireworks. The finalessential element is the capacity to contract. Since the owner ofAcme Fireworks has been operating the business, it justifies that hehas the capacity of being of sound mind. On the other hand, thecompany seeking the fireworks services can be said to be competent toform an agreement since if they had any mental disorder, the owner ofAcme would not be willing to get into a contract with them. Besides,the company must be operated by an adult since if it can only act onbehalf of a minor if the products are necessities (Rogers, 2012).Hence, a contract was formed, but it was not legally binding.

PotentialPersonal Liability to Acme Firework

When employees are performing their tasks, other people can be harmedeither intentionally or unintentionally. Small business owners needto understand some of the laws that may be applied in suchcircumstances because it might adversely affect their businessoperations. Under the law of agency, an employer can be held liablefor the acts of their employees if proper instructions were followedin the fulfillment of the assigned duties. The common law considersthe business owners as being vicariously liable under the respondentsuperior doctrine that states that the employers are responsible forthe acts of the employees during work (Brennan et al., 2016).However, it must be established whether the worker had any maliciousactivities that contributed to the accident and if he/she strictlyfollowed the instructions of the supervisor. Determining the factsrelated to the incident allows the judge to determine if the employeecan also be held responsible if it is found they acted independentlyor had personal motives.

When Acme Firework’s worker launches the display, and one of thefireworks strays and injures a spectator, the owner may be heldpersonally responsible for the damage suffered by the victim. Thepersonal liability shall be applied if the investigations of theaccident reveal that the employee strictly followed the instructionsof his/her supervisor. Vicarious liability shall also be implementedif the worker did not have any personal motives and was actingentirely on behalf of the business. Therefore, the owner of AcmeFireworks shall be required to meet the costs suffered by the injuredregarding the incident.

Employmenttypes and relationships relevant to agency law

The types of workers that are most common in today’s organizationsare classified based on one’s availability and the nature of work.In this section, the forms of employment shall be grouped intoemployees and contractors.


Workers consist of full-time, part-time, and casual individuals. Anemployer may hire his/her employees based on the nature of work thatthe people shall be performing as well as his/her ability to meet thewages costs. Besides the salaries, the staffs enjoy other benefitssuch as social security and medical insurance. However, thecompensations awarded to the employees’ vary across organizations. At Acme Fireworks, the owner has currently employed 15 people thoughthe nature of employment has not been specified. According to the lawof agency, the relationship between a person and a company can beestablished through written, spoken words or implied actions(Bernstein, 2015). Therefore, the manager of a company can ask hisemployees to sign a written contract that states the nature ofemployment and other terms. The agreement indicates the roles thatthe agent should perform on behalf of the enterprise as well as theduration of the actual authority. Although the form of employment atAcme Fireworks has not been stated, the fifteen employees working atthe firm are considered agents of the organization since they displaythe fireworks on behalf of the owner of the business.

The advantage of working with the staff is that it allows thebusiness owner to prepare a work schedule for the workers based onthe availability of work. For instance, at Acme Fireworks, theinquirers who seek the display fireworks may require the services ofthe company at different times. The proprietor is thus in a betterposition to prepare a work schedule for his employees that shallensure the needs of all the clients are met. Acquiring one’sworkers allows the managers a chance to train them personally. Theowner of Acme Fireworks can teach his staff on how to put the ground,and aerial fireworks display and even create awareness on theprecautionary measures they should observe to prevent any injuries toself or third parties. Despite the benefits mentioned, thedisadvantage of working with employees is that requires the managerto handle the taxes and benefits contributions for his staff andmaintain the records to prevent any form of disputes with theinsurance firms or the federal state regarding tax payments (Reilly,2015).


A company may decide to outsource another firm to provide certainservices or products on its behalf under specified terms. Unlike theemployees, when the business hires an independent contractor, theowner does not have to pay the social security benefits to theworkers or deduct taxes from the payments made to the independentcontractors. The tax obligations lie with the contractor since theyare considered to be self-employed. According to the law of agency,the parties involved need to act as per the terms defined in theagency relationship (Bernstein, 2015). If the agent goes out of hisscope of authority, he may be held financially responsible to theprincipal if his actions adversely affect the business. For instance,Acme Fireworks may decide to hire independent contractors to fulfillthe fireworks orders of the large companies. The contractor needs toact on behalf of the owner under the actual authority inferred.However, if he engages in other activities that are beyond thosedefined by the manager of Acme, he will be liable to the soleproprietor.

Hiring an independent contractor as opposed to employees might be thebest solution to the worries of the owner of Acme Fireworks. One ofthe merits of an independent contractor is that it supportsflexibility. Acme Fireworks can hire independent contractors when theorders for fireworks display are large, and end the agreement whenthe work reduces. As a small business owner, one also gets to save alot of money since one does not have to pay any benefits or a monthlysummary. Besides, the contractor shall be responsible for obtainingthe permits, and professional licenses for the fireworks display(Reilly, 2015). The demerit of working with independent contractorsis that the manager loses some control over how the tasks areperformed. For instance, the owner of Acme Fireworks cannot closelymonitor their work, but only guide them which might affect thequality of service delivered to the clients.

Reasonswhy Acme Fireworks should not operate as a sole proprietorship

Sole proprietors and partnerships are business organizations that aregoverned by the Partnership Act (Hopson &amp Hopson, 2014). Some ofthe elements outlined in the law may adversely affect the operationsof the individual enterprises. Acme Fireworks is a soleproprietorship it has some disadvantages that it experiences in thelong-term. It has operated for two years since its inception, and oneof the reasons it should regulate its operations is because of theunlimited personal liability. In case the firm suffers any loss, theowner might lose his personal asset since there is no distinctionbetween him and the business. It is not easy for the enterprise toget more capital as investors fear the insecurity of theproprietorship. Therefore, it becomes even impossible to explore newopportunities that require extra finances. For instance, if thecompanies place large orders, and the owner needs investments topurchase additional resources, it might be difficult to obtain thenecessary funds to support the delivery of services.

The owner of Acme Fireworks needs to consider adopting a new businessentity such as a limited company. According to the Corporations Act,such organizations have limited liability meaning that in the case ofany debt, the shareholders shall only be held liable to the extent ofthe amount invested in the company (Hopson &amp Hopson, 2014). Thefirm is also beneficial as it has a separate legal entity from itsowners. If one of the owners dies or retires, the organization shallcontinue with its operations and remain in existence. Acme Fireworksalso needs to operate as a limited company because the taxation rateis applied on the profits made.


The analysis of Acme Fireworks reveals that the owner’sconsideration to change the business entity is necessary. Operatingas a sole proprietor makes the merchant enter into contracts that aregoverned by the UCC. Therefore, one can suffer losses when disputesarise since it allows the other party to use gap fillers. AcmeFireworks created a contract with the large companies, but it was notlegally binding because the parties aim was not to establish a legalrelationship. The owner can also be held personally liable if a strayfirework injured a spectator during the display, but if only theemployee strictly followed the instructions of the employer andlacked personal motives. Acme Fireworks can work with the independentcontractor as it is a short-term agreement that can be terminated ifthe large orders reduce. Finally, the business should not operate asa sole proprietor but as a limited company since it can access morecapital and enjoy limited liability.


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Martin, J. S., Marks, C. P., &amp Barnes, W. (2015). The UniformCommercial Code Survey: Introduction. Business Lawyer, 70(4),1161-1163.

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