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Things to Consider in Business Organizations:
Transcript of Things to Consider in Business Organizations:
Things to Consider in Business Organizations:
Agencies and Different Business Structures
Limited Liability Companies (LLC's)
What is an agency and how is it created?
Agency law explores the obligations, responsibilities and duties owed in an agency relationship. Agency is the relationship that's created between a person (principal) and one who acts on their behalf (agent).
Principal- the person who has someone working for him (master/employer)
Agent- the one who acts on behalf of someone else (servant/employee)
Principals have liability for the actions of their actions
An agency relationship exits when:
there's a principal
there's an agent
there's mutual agreement (consent) that agent will act on behalf of principal
a fiduciary relationship is created
Elements not required for agency relationship
Duties of agent to Principals
1. Duty of loyalty
2. Duty to obey instructions
3. Duty of care
4. Duty to provide information
what happens when an agent breaches a duty to a principal?
Duties of Principals to Agents
1. Duty to compensate as agreed
2. Duty to reimburse reasonable expenses (indemnify)
3. Duty to cooperate with agent
What terminates an agency relationship?
agency at will
wrongful termination- you might have the
to terminate, but not the
if one party can no longer perform the duties under the agency agreement (license revoked, death or incapacity)
automatically terminates with a breach of the duty of loyalty by the agent
change in law or circumstances (subject matter is destroyed
When the agency relationship ends, the agent can no longer act on the principals behalf and if the agent does, they're liable to the principal for any damage their further acting cause.
Principal maintains a duty to indemnify agent of any expenses that occured while agent was acting on behalf of principal (even after agency ended).
Agent must continue keeping confidential information confidential even after the agency relationship has ended.
Liability to 3rd Parties
Principal is liable for acts and statements of his agent to a 3rd party if:
1. the agent has authority, OR
2. the principal ratified the acts of agent
Types of Authority
Express- expressly granted by words or conduct
Implied- those actions that are reasonably necessary to accomplish the task
Apparent authority- if the Principals action causes a 3rd party to believe
the agent is authorized, they can be liable
- when a principal decides to later be bound by the unauthorized actions of an agent
- agents of the agents, principal is liable to them just like regular agenets
Principal's Liability for Contracts
Agent's Liability for Contracts
UNIDENTIFIED and UNDISCLOSED principal- 3rd party can recover from principal or agent (joint and severally liable)
FULLY disclosed principal- 3rd party can only recover from principal, not agent
* if agent has no authority, principal is not liable 3rd party at all, and only the agent is liable.
Liability to 3rd Parties (con't)
Principal's Liability for Torts
employer is liable for PHYSICAL torts committed by employee (not independant contractors) w/in scope of employment and only for nonphysical torts committed while employee was acting with authority (respondeat Superior)
principals are liable for non-physical torts (reputation, feelings, $) only if the employee acted with express, implied, or apparent authority
negligent hiring- the principal will only be liable for the torts of an independent contractor if they were negligent in hiring or supervising them
How do you know if an employee is w/in the scope of employment?
Agent's Liability for Torts
Agents are ALWAYS liable for their own torts, regardless of whether the principal is liable or not and regardless of whether the principal authorized it or not.
most common form of business
owned by 1 person; owner and business are one
default business organization
easy to form
taxes and profit (flow through to personal)
easy to control
LIABILITY (not limited personal & complete)
A legal entity separate and apart from the owners (shareholders)
Limited liability (but can pierce the corporate veil)
C and S Corporations
For tax purposes, corporations can be divided into C and S corporations. This dictates how the corporation is taxed.
enjoy pass through taxation, BUT
are limited in the # of shareholders
can only have one class of stock
shareholders can't be partnerships or other corporations
shareholders must be US citizens or residents
all shareholders have to agree that the company should be an S-Corp
no limit on shares, stocks, or shareholders
don't confuse with
(small # of shareholders whose stock isn't publicly traded and whose shareholders are actively involved in the management, governed by state law where they receive special treatment.
A business structure that is not a separate legal entity but allows for the pass through taxation of a partnership with the limited liability of a corporation (fairly new area)
easy to form (charter & articles of organization/operating agreement)
limited liability (but can pierce the company veil)
members can be corporations, partnerships, etc.
can have different classes of stock
don't have as many formalities
going to an LLC from a partnership or from a partnership to a corporation is not a taxable event
transferability of interests
going public= taxed as a C-Corporation
switching from corporations to LLC 's is a taxable event
Businesses or organizations set up to tackle social, economic or environmental issues; seeking profit while in a socially responsible manner while caring about people, profit, profits
Whereas most companies are driven by maximizing stakeholder wealth, social enterprises can be creative.
Ex. Patagonia, TOMS shoes
Professional Corporations (PC's)
some still in existence, but not around as much
it attempted to offer limited liability to professionals (like doctors and lawyers) without the need to become a partnership
limitations of a PC:
all shareholders had to be in the same profession
expensive and time consuming to create
taxes can be complicated
An unincorporated association of 2 or more owners who operate a business for profit. Most typical form is general partnership; default for 2 ore more
Continuity/transfer of ownership
Limited Liability Partnership
Allows partnerships to form with limited liability while maintaining their flow through tax status.
Partners are only liable for own misdeeds and not that of the other partners.
Partners must file a statement of qualification with the state
officials and must maintain annual reports