Chapter 1 – Introduction to Business Organizations and Agency Law

Concepts

• Sole proprietorships – Business owned and operated by one person
• General partnerships – a voluntary association of two or more persons to carry on a business for profit
• Limited partnerships – Business created under a state statute in which some partners have unlimited personal liability and others have no liability beyond the amount contributed to the business
• Limited liability partnerships – Business entity providing limited liability for its partners
• Limited liability companies – Business entity providing limited liability for its members
• Business corporations – Legal entity existing under the authority of the state legislature
• Benefit Corporation – A new hybrid corporation that combines profit making with social good
• Professional corporations – Corporation formed by professionals, such as doctors, lawyers, accountants, and engineers
• S corporations – Corporation that passes through all income to its shareholders, who pay tax on income received
• Close corporations – Small corporation whose shareholders are active in managing the business and that operates informally
• Considerations in Selecting a Business Enterprise
  • Ease of Formation
  • Management
  • Liability and Financial Risk
  • Continuity of Existence
  • Transferability
  • Profits and Losses
  • Taxation
• Agency Relationships
  • Agent – One who acts for or represents another
  • Principal – The person for whom an agent acts
• Duties Owned by Agent
  • Performance
  • Notification
  • Loyalty
  • Accounting of Profits
• Duties Owned by Principal
  • Compensation
  • Reimbursement and Indemnification
  • Cooperation
• Key Features of Agency Relationships
  • Formation of agency occurs through agreement (which may be express or implied), or estoppel 
  • Agents have actual authority or apparent authority to act for their principals. Principals may always ratify the unauthorized acts of their agents.
  • Agents and principals owe fiduciary duties to each other.
  • Agents are liable for their own torts and principals are liable for an agent’s torts and acts committed in the course and scope of the agency.