UCC Contracts and LLC Structure for Acme Fireworks

Introduction

As the manager of Acme Fireworks, it is my responsibility to use the best business practices going forward. With business beginning to grow, the need to address certain issues is now pressing, and some decisions must be made quickly before any further steps are taken. Specifically, the company currently employs 15 workers, but with so many larger orders coming in from big firms, there is a need to hire and train more workers. However, if orders begin to dwindle in the future, there could be a problem with funds to pay these new hires.

The questions that need to be answered first and foremost are whether the current contracts with large businesses regarding the staging of a fireworks display will be governed by common law or by the Uniform Commercial Code (UCC). It is also important to know whether actual contracts have been formed with these businesses and what the five essential elements of an enforceable contract are. Additionally, the potential personal liability to Acme Fireworks should a spectator be injured by a stray firework must be discussed. The different employment types and relationships relevant to agency law also need to be examined, along with the advantages and disadvantages of each type in relation to Acme Fireworks. Finally, this paper explains why a sole proprietorship is a poor choice for this business and why converting to a limited liability company (LLC) is the better path forward.

UCC vs. Common Law

Common law applies mainly to real estate transactions, services, insurance, employment issues, and similar matters. The UCC, by contrast, governs contractual transactions in which goods and objects are transferred. In this case, a service is being provided — a fireworks display — but goods are also involved, namely the fireworks themselves. Since this is not a real estate transaction or a service related to insurance or employment, the UCC should govern these contracts. Rogers (2012) points out that "common law is primarily used in real estate and the law is made by the decisions of judges in individual cases" (p. 132). For this reason, a UCC contract basis is most appropriate for this particular scenario, as it is better suited to the commercial needs of Acme Fireworks. With this established, the question of whether the business has actually entered into enforceable contracts with its clients can be addressed.

Five Essential Elements of a Contract

A contract is formed whenever two parties voluntarily give their assent to an agreement about an exchange. The contract rests on mutual and voluntary agreement between the two parties and is legally binding. As Rogers (2012) notes, there are five basic elements to a contract:

1) Offer
2) Acceptance
3) Consideration
4) Legality
5) Capacity

First, an offer must be made; second, the offer must be accepted. In this case, Acme has made an offer to provide fireworks services to the businesses and the businesses have accepted that offer. Consideration refers to the thing of value exchanged — here, the businesses pay money to Acme and Acme provides the fireworks display. Thus, there is an offer, acceptance, and consideration.

Regarding legality, if the terms of the agreement have been settled and there is some evidence of the agreement — such as a bill of goods or an intent to pay — then there is a legal basis for the exchange and the contract is binding. There must also be capacity: both parties must have the actual ability to follow through on their respective obligations. In each of Acme's arrangements with client businesses, all five elements are present, and therefore enforceable contracts have been entered into.

Conclusion

Acme Fireworks is a growing business, and as its owner and manager, there is a responsibility to make sound decisions about its future direction. Because the nature of the work is unpredictable, important decisions must be made about what types of workers to hire, how to structure their engagement, how contracts with other entities should be understood, and how the business should be legally organized going forward.

First, contracts with other businesses for fireworks displays should be understood as binding under UCC law. Second, those contracts are enforceable whenever the five elements are satisfied: offer, acceptance, capacity, legality, and consideration. Third, personal liability within the company must be taken seriously, and the most effective way to mitigate that risk is to convert the business to an LLC, thereby limiting personal exposure and protecting the owner's assets in the event of a lawsuit.

Finally, the question of workforce structure must be addressed. While Acme already employs 15 full-time workers, additional help will be needed during busy periods. Hiring more full-time staff creates financial risk if work slows down. A better approach is to engage casual workers who have been trained in advance, or to use contract workers who are already trained and can be hired for specific events or defined durations. This flexible approach allows Acme to scale its workforce to match demand without incurring unsustainable fixed labor costs.

References

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Coleman, S. (2000). Access to capital and terms of credit: A comparison of men- and women-owned small businesses. Journal of Small Business Management, 38(3), 37–46.

Rogers, S. (2012). Essentials of Business Law. San Diego, CA: Bridgepoint Education, Inc.

Smail, L. (1961). Basis of liability in fireworks accidents. Washington and Lee Law Review, 18(1), 144–150.