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19 Cards in this Set
- Front
- Back
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Sole proprietorship
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Individual who alone owns a company
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Partnerships
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A partnership is an association of two or more persons to carry on as co-owners in a business for profit—UPA § 6(1)
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General Partnerships
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a partnership in which all partners participate fully in running the business and share equally in profits and losses (though the partners’ monetary contributions may vary).
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Limited Partnerships
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a partnership composed of one or more persons who control the business and are personally liable for the partnership’s debts (called general partners), and one or more persons who contribute capital and share profits but who cannot manage the business and are liable only for the amount of their contribution (called limited partners); if limited partner takes control of the business, ie. makes business decisions for the partnership, he becomes a general partner. Holzman v. De Escamilla, p. 197
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Corporations
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A corporation is a company with legal standing separate from its owners that possesses the following attributes:
i. Legal personality—the ability to enter contracts, to be sued, and be part of an agency relationship ii. Limited liability—the device that prevents a creditor from reaching the assets of people who buy shares in a company iii. Liquidity iv. Flexible capital structure v. Must be formally created |
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Limited-liability companies
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between a partnership and a corporation
i. Tax advantages of partnerships ii. Limited liability of corporations iii. Used more and more by small businesses - an alternative to the sole proprietorship |
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Agency
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a. General
i. Agency = “the fiduciary relationship which results from manifestation of consent (of both parties) by one person to another that the other shall act on his behalf and subject to his control (by principal), and consent by the other so to act”—RST § 1 |
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Gorton v. Doty
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teacher lends football coach her car to transport football players to a game then is sued by a player who is injured when the coach get into an accident, lower court finds coach was an agent of the teacher; teacher appeals and loses
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3 Elements of an Agency (see Botticello, p. 37)
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1. principal is the one for whom the action is taken and gives manifestation of consent for action to be taken—RST§1
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3 Elements of Agency
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2. agent consents to perform the act—RST§1
a. general agent—an agent authorized to conduct a series of transactions involving a continuity of service–RST§3 b. special agent—an agent authorized to conduct a single transaction or a series of transactions not involving continuity of service–RST§3 |
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3 Elements of Agency
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3. mutual assent to the principal’s control of the undertaking, see excerpt from RST (3rd) §1
a. “within any relationship of agency the principal initially states what the agent shall and shall not do, in specific or general terms. b. “Additionally, a principal has the right to give interim instructions or directions to the agent once their relationship is established. … c. “A principal's control over an agent will as a practical matter be incomplete because no agent is an automaton who mindlessly but perfectly executes commands. … d. “The power to give interim instructions distinguishes principals in agency relationships from those who contract to receive services provided by persons who are not agents.” |
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ii. Types of Agency Relationships
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2. Employer and Employee
3. Master and servant 4. Creditor and Debtor (if creditor controls the actions of the debtor) a. Creditor becomes a principal at that point at which it assumes de facto control over the conduct of the debtor—RST § 14O b. One who contracts to acquire property from a third person and convey it to another is the agent of the other only if it is agreed that he is to act primarily for the benefit of the other and not for himself.—RST § 14K |
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A Gay Jenson Farms. Co. v. Cargill, Inc.
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when the Warren Co. fails to pay grain farmers, the farmers sue Cargill claiming that Warren was agent for Cargill, which financed Warren, shared its profits, and got first pick of its retail stock; an example of creditor as principal; defendant uses RST § 14K argument: “must be shown that the supplier has an independent business before it can be concluded that he is not an agent,” in other words, only a dependent business can be an agent
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ii. Characteristics of an Agency Relationship
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2. The act need not necessarily be business related
3. The act must but be an affair or business for the principal 4. The parties don’t need to identify their relationship as an agency for one to exist circumstantial evidence which shows a course of dealing and consent from the principal is enough 5. Financial control and influence of one entity over another can create an agency 6. No contract needed to create agency relationship—RST §§ 15, 16 7. No compensation needed to create agency relationship—RST § 16 |
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ii. Fiduciary Duty of Agent to Principal
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1. Care
2. Loyalty a. No kickbacks (Restatement § 388) b. No secret profits from transactions with principal (Restatement § 389) c. No secret profits from use of position (Reading [soldier uses position in military to smuggle goods]) i. Must give profits to principal d. No usurping business opportunities from principal (Singer [auto repair garage]) e. “Grabbing and Leaving” (Town & Country) |
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iii. Other Duties of Agent to Principal
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1. An agent has a duty not to acquire a material benefit from a third party in connection with transaction conducted or other actions taken on behalf of the principal or otherwise through the agent’s use of the agent’s position. RST §8.02
2. Agent’s Duty to Obey Instructions a. An agent has a duty to obey the principal’s reasonable instructions for carrying out the agency business. b. Agents generally have no duty to obey orders to behave illegally or unethically. 3. Agent’s Duty to Act with Care and Skill a. A paid agent must possess and exercise the degree of care and skill that is standard in the locality for the kind of work the agent performs. b. A gratuitous agent need only exercise the care and skill required of nonagents who perform similar gratuitous undertakings. 4. Agent’s Duty to Notify the Principal—An agent must promptly tell the principal of anything within the agent’s knowledge: a. That are reasonably relevant or material to the agency business; or b. That should concern the principal. 5. Duty Not to Solicit Principal’s Customers/Use Customer Info a. “Unless otherwise agreed, after the termination of the agency, the agent … has a duty to the principal not to use … written lists of names … given to him only for the principal’s use …. The agent is entitled to use … the names of the customers retained in his memory….” RST(Second) of Agency § 396(b) |
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iv. Duties of Principal to Agent
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2. Explicit Duties
a. If an agency is formed by contract, the contract normally covers the duties the principal owes to the agent. 3. Implied Duties a. Duty to Compensate Agent i. The agency contract generally controls the compensation the agent is to receive. ii. If there is no contract provision on compensation, a principal is not required to pay for: 1. Undertakings that she did not request. 2. Services to which she did not consent. 3. Tasks that typically are undertaken without pay. |
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iv. Evidence that an Agency exists
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1. One party makes recommendations/give orders, which the second party implements (giving orders/recommendations is evidence of the principal’s assent to the agency)
2. One party’s interference with the other party’s internal affairs 3. A creditor who assumes control of his debtor’s business may become liable as principal for the acts of the debtor in connection with the business—RST §14 O 4. Party with lesser power does little or no business independent of the party with greater authority 5. Relationship benefits authority |
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v. Financing an Agency Agency Costs
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a. Opportunism (high price for work without justification; taking advantage)—defeated by a competitive market
b. Shirking by agents (agent cheating, negligence, oversight, incapacity and even honest mistakes; inefficiency)—an inevitable part of business *Agency costs = Monitoring expenditures by principal + bonding expenditures by agent + Residual Loss (shirking that can’t be prevented) |
