There is much to consider when expanding a business. How will you make, market, and distribute your product. Are you willing to take full liability for your product and understanding the legalities of what happens if your product is defective? Once that has been established, it’s important to make sure that your business dealings are in order. The strength of the contract and what all it entails. Knowing that the legal document is important more so when things tend to go downhill. Above all is deciding which type of business entity the company will select especially if the company starts out small and looks to expand. Which entity will best serve the growth of the company such as Acme Fireworks? Some years ago I watched a movie called fight club. The movie dealt with a ton of social issues. One of the characters worked for a car company that would fly out their employers out to the areas where there were car accidents. They worked almost as an insurance adjuster that would come and appraise a vehicle once it has been in a wreck and determine, based on the damages how much they would award the car owner.
However in the case here the employees would view accidents all over the country and decide if it would cost more to recall the product or pay the total fee for the said accident. If the cost was too much to do a recall then the company would take responsibility for the accident if a law suit is brought forth, however if it is cheaper to recall then the necessary actions would be taken to recall the malfunctioned part. Knowing this it is important that we label the products and its proper uses so if there is an issue then it can be said that the manufacture warned the consumer. In this way, any injury would not be the fault of Acme Fireworks, but the consumer. Just as the example with the cars above, if someone lights a firecracker in a closet and the firecracker goes off and injures the person then the company is not liable being that it is neglect on the part of the consumer (Rogers, 2012). Now if the same individual uses the firework outside in an open area as is stated on the label and they light the firecracker and it goes off in their hand as soon as the fuse is lit, then that is negligence on behalf of Acme. It must be understood that regardless of the product used, all products have the potential to cause consumer harm (Anthony, 1995).
So that is why it is important to make sure everything from the development of the fireworks to the warning labels have been gone over to make sure that the product is not faulty. If a fuse is too short in a product or if the material used to cause the firecracker to explode is too much then that is a defectively manufactured product. Another issue could also be the type of firework that is made. Let’s say for instance that one of the products has the tendency to go off in extreme temperatures and is purchased and placed in areas of storage when the temperatures extreme then that is negligence on the consumer, however if the consumer was not made aware of this by the manufacture then the liability falls to the company. I recall about three years ago when I was in a car accident. Our brakes that we had from the car company had been recalled. We were sent notices in the mail, phone, and email about the recall and were told to bring our vehicle in to make sure the brakes were not faulty and if they were they could be fixed free of charge. The deadline came and went a after it expired I was in a car wreck. I was making a turn in the rain and slammed my brakes and they were locked. I had the repair work done on the vehicle and was told that the brakes were faulty.
I informed the dealership of the issue and was told that the company was no longer liable because the deadline had passed. I was outraged and wanted to file a lawsuit against the company, however there are deadlines and limitations to when a suit can be filed and in the state of Georgia, you have up to a year to file such claim. I missed it by 3 months and was unable to file suit against the manufacturer (Day, 2014). Another import issues are the contracts. There are 5 basic elements to a contract: Offer, acceptance, Consideration, Legality and Capacity (Rogers, 2012). Other retailers stated to the owner of Acme Fireworks that they wanted a certain amount of orders filled on a regular bases for an undisclosed time frame and a price was agreed upon, this is the acceptance and offer portion of the contract. The offeror, which in this case are the large retailers, makes an offer which once accepted by Acme Fireworks, creates a binding contract. Acceptance must be in some way agreed by all participants; it may be verbal, symbolical, oral or written. The came from the retailers, they had a want from Acme to manufacture a product for them at a certain cost (Stim, 2010). Consideration is another element of a contract and what consideration brings to the table ask the whys and what’s: Why are we entering the contract and are you receiving? In this case Acme gets more money by being able to produce its products and grow their brand and the other retailers receive fireworks from Acme.
However in this instance the owner of Acme may have taken on a task bigger than himself. This is a company with only 15 workers and to fill the orders with the new retailers, more employees need to be hired. Not only do they need to be hired, but they need to be trained as well. This must be done while filling out the orders. Here there is not much consideration given by the owner. How many employees do we need, how much will the work flow increase, and how long will we have a contract with the other retailers. No time period was given for the contract. Will this just be one order or is this something that will go on annually. What happen if the orders are not filled on a timely manner is the contract then void? Another question to ask is the capacity and legality of a contract. Capacity to contract means the legal competence of a person to enter into a valid contract. Usually the capacity to contract refers to the capacity to enter into a legal agreement and the competence to perform some act. The basic element to enter into a valid contract is that s/he much has a sound mind. Recently there was an issue with an owner of the L.A. Clippers making comments about minorities. The group of owners in the league wanted him to sell his team.
He didn’t want to sell and wanted to fight it, however it came out that he does not have the mental faculties to run the organization or make business decision so that responsibility was given to his wife. It came out that he has dementia, but he is fighting this claim as well. Once it is established if he can mentally make these decisions then the wife will not be able to go into discussions to purchase the franchise legally. Acme has 15 full time employees as it stands now. This is without the orders for the new retailers. What we know is that the owner guaranteed that we can take on more business, not considering the staff that we currently have. For the orders to be filled we would have to take on more labor force. Before this can be done we have to first consider what we have now. We currently have 15 people employed by Acme, to fill the new orders; do we take on double or triple the size? If we do take on more people, would it be something on permanent or temporary bases? Employment is very important when business is involved.
There are many things to consider when a workforce is involved. When it comes with dealing with explosives it is important that we consider finding individuals who have experience with working with explosives and are well trained as well. This will cost more money for the company when it comes to hiring individuals that are trained to handle explosives. So these can’t be regular workers that one can find at a temp agency. However, we do not know how long to hire these individuals because there is no clarity as to the length of the contract, so the types of workers that we would have to hire would have to come through labor force agencies (Smith, V., & Neuwirth, E.B., 2009). The great thing about a temp agency is the large pool of people that they have to choose from. There are times when many corporations view temp agency workers as people who are unskilled, however with the types of agencies that are around today, they can find highly skilled individuals that many companies would be hard pressed to do, being that they would have to exhaust many resources to do so.
It has to be understood that this business started out of a garage a couple years ago and is now grown into a company that employees 15 people on staff. Now with the new revenue that will come into the company, Acme Fireworks will have to expand. Acme is a sole proprietorship owned by one individual. This is the simplest organization structure to have. There is less paperwork as well as the tax implications. If there is a loss for that year you can use this loss to offset your other income on your personal return (Fishman, 2014). Though operating as a sole proprietorship is easier, it can also have some setbacks as well. The main problem is that there’s no separation between the individual and the business with the sole proprietorship. That means that if something should happen in the business, like taking on huge contracts with no clear time line and limited planning and staff, you’d be personally liable. For example, if Acme Fireworks business is ever sued or runs into financial trouble, the owner would be personally on the hook and creditors and lawsuits can come after your personal assets.
That is an issue because if the company profits go to offset the debt, there is little to no money to run the company properly, expand, or take care of the employees. This is just one of the many things to consider when changing your business entity as well as deciding on what is best for the company as a whole. Acme Fireworks started out of a garage, like most businesses it is difficult to raise capital or arranging long term financing because of fewer assets. Also there is one voice and one view which can scare big business opportunities away. This is why a Sole Proprietorship for the future of Acme Fireworks would not be feasible. Being in this type of entity makes it hard to expand. To grow and expand a company needs a formal business structure. So the choice is which entity to choose? With such an undertaking in such a short time, the risk would cause a sole owner to want to form an LLC or incorporate his or her business.
In the case of Acme Fireworks, it would be best to change the business entity to a corporation. With the promise of product to these new large retailers, Acme Fireworks would need more capital to grow the business as well as purchase the necessary material to make sure the new orders are able to fill as well as fulfilling previous obligations to the other retailers that we have business with. Choosing this entity protects the owner from legal liability, gives the ability to attract more investors through stocks, and has more structure where there is not just one voice for the business. The juxtaposition to this is the tax liability and the time and how much it cost to incorporate, unlike a sole proprietorship, incorporating a business takes much more paperwork, as well as fee’s that need to be paid to the state the business is in. One of the silver linings for the employees is that even if something happens to the owner, or if he or she retires, the corporation will still be in tact unlike sole proprietorships.
There are many things to consider when it comes to running a company, expanding it, and watching it flourish. There are many businesses that started out in a small garage, Steve Jobs, Bill Gates, even men like John D. Rockefeller. However, growth cannot take place without determination and risk. The best way to make sure that your ready to expand is to be sure where you want to take the company and have a sound plan as to the steps one will take to get there. Once you have a vision and financial backing the next step is to decide which type of business entity you want to be. There are many entities to choose from and no one is greater than the next. It’s all about how you want to mold and model your business.
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