1. Agency Law & Business Entities Chapters 24-26 in Text Book

2. Agency Law Restatement of Agency 2 nd § 1. Agency; Principal; Agent (1) Agency is the fiduciary relation, which results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other so to act. (2) The one for whom action is to be taken is the principal. (3) The one who is to act is the agent.

3. Termination of Agency Relationship By Revocation –Need mutual consent –Revocation may breach contract By Fulfillment of Purpose By Operation of Law Death Destruction of Subject Matter

4. Authority of Agents Actual Authority – the authority given to an agent by the principal –Express actual authority – spoken or written by the principal –Implied – arises when the action taken is incidental and necessary to fulfill the purpose of the agency Apparent Authority – the authority that a third party believes the agent has based upon the principal’s manifestations

5. Liability of Agents Contracting General rule: agent is not liable to third parties if they acted within apparent or actual authority scope –However, the agent is contractually liable if they are working for a nondisclosed/ partially disclosed principal Tort Liability – agents are liable for their torts Criminal liability – agents are liable for their own criminal conduct

6. Liability of Principals Direct liability – liable for their own negligent or criminal behavior Vicarious Liability –Respondeat superior – liable for acts done by agent if the acts were within the agent’s scope of authority Independent Contractors – generally not liable for acts of independent contractors.

7. Partnerships A partnership is an association of two or more persons who agree to carry on as co- owners a business for profit. Becker Convisor Fall 2003 –Joint venture only includes a single purpose or transaction Partnerships may be sued and the partners are generally personally liable for debts of the partnership

8. Partnerships Continued Profits and losses are shared equally unless the partnership agreement specifies otherwise Partnership agreement may be express or implied Agency law governs the actions of partners and their employees

9. Ending a Partnership Must Have Dissolution, Winding Up to make up a Complete Termination First, must have dissolution and dissolution occurs when –Definite period has lapsed –Partnership at will and one of the partners gives notice that he/she wants to withdraw –Partners agree to dissolve –Purpose of partnership has been accomplished. –Operation of law: death of a partner, bankruptcy, or illegal purpose –Court Order

10. Winding Up Winding up occurs when the partnership concludes its unfinished business and converts its assets to cash. If both winding up and dissolution do not occur the termination of the partnership may not be complete –Why is this important?

11. Advantages and Disadvantages Major Advantages: –Allows for formation with relative ease –Profits only taxed once –Losses passed through Major Disadvantage: –Liability for partners

12. Other Forms of Partnerships Limited Partnership – made up of general partners and limited partners –General partner has management responsibility and is fully liable –Limited partner has no management authority and has limited liability. Limited Liability Partnerships – have to register entity –Allows for all partners to have limited liability

13. Corporations and Sole Proprietorships Sole Proprietorship – owner is the business and reports and the income/loss on his tax return –Advantage is the ease of formation and the fact that you don’t have to listen to anyone else –Disadvantages – responsible for all losses and liability and limited capital

14. Corporations Creature of state law –Delaware is where most corporation are incorporated Three parties –Directors who are elected by shareholders to oversee the corporation’s affairs –Managers/Officers – hired by the directors to run the day to day operations –Shareholders – the investors

15. Advantages and Disadvantages Advantages –Ongoing entity –Easy to raise capital –Limited liability for investors Disadvantages –Double taxation of profits –Have to file with state

16. S Corporations Requirements –Must be domestic –Shareholders must be individuals and not corporations –75 or fewer shareholders who are not aliens –Only one class of stock Benefits – allowed to report income on personal tax returns. Disadvantages – limited ability to accumulate more capital. Limited Liability Corporations – have to file but get the tax benefits of an S corp without requirements.