Chapter 1. Sample Assignment

Instructions

Find a sample document or article online related to a main topic in the chapter. In the Discussion Section, respond to two classmates and post the title & link for the sample document or article you found online. Briefly discuss the sample document or article, how it is related to the chapter and why you chose it. IN ADDITION, SUBMIT THE SAME IN THE BOX BELOW.

Chapter one Pages:

Chapter 1. Introduction to Business Organizations and Agency Law organization was unaware of the minister's actions or Propensities, no action will lie for negligent hiring, reten- ton, or supervision of the minister who was deemed to be the organization's agent. Key Features of Agency Relationships formation of agency occurs through agreement (which may be express Agents have actual authority or apparent authority to act for their prin- or implied) or estoppel. cipals. 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. Internet Resources State statutes: www.law.cornell.edu http://lp.findlaw.com Tax information: www.irs.gov General information: www.sba.gov (website of the U.S. Small Business Administration offers excellent information on starting a business) www.nass.org (website of the National Associa- tion of Secretaries of State allows direct linking to each state's secretary of state home page for easy access to forms and general information on business entities; select "Membership" or "Business Services") www.hoovers.com (website offering addresses, phone numbers, and brief capsules on Forms: hundreds of companies doing business in the United States) www.allaboutforms.com www.onecle.com http://lp.findlaw.com e'maniIntroduction to Business Organizations and Agency Law A. Introduction This text will discuss the nine most common ways of doing business in this country. While each type of business structure will be described in detail in the chapters to come, a brief overview follows. Other enterprises, such as joint ventures and nonprofit corporations, will also be discussed in later chapters. 1. Sole Proprietorship In a sole proprietorship, one individual owns all of the business assets and is Sole proprietorship the sole decision-maker. The sole proprietor has unlimited personal liability for Business owned and business obligations, meaning that liability for business debts extends beyond operated by one person business assets to the sole proprietor's personal assets, such as savings accounts, Personal liability furniture, and other personal belongings. Liability extending beyond business assets to personal assets 2. General Partnership In a general partnership, two or more persons co-own all of the business General partnership assets and share decision-making, profits, and losses. All general partners have A voluntary association of unlimited personal liability for the business obligations. two or more persons to carry on a business for profitChapter 1. Introduction to Business Organizations and Agency Lay 3. Limited Partnership B. Consi A limited partnership is managed by one or more general partners, all whom have unlimited personal liability for business obligations, and one or moof services) Limited partnership united partners, who do not manage the business and have no liability beyond the sonally 1 Business created under a amount contributed to the business. state statute in which some 8. partners have unlimited personal liability and other have no liability beyond the 4. Limited Liability Partnership amount contributed to the tion. Code business 2291 This new form of business enterprise alters a basic principle of partnership law. Partners are not liable for the torts or wrongful acts of their co-partners. In go partnership Business entity providing jurisdictions, the partners are not personally liable either for the torts of their partners earne Limited liability numb limited liability for its or for contractual obligations incurred by the entity or other partners. These en corp as a partners are ideally suited for professionals, such as doctors, lawyers, and accountants. 5. Limited Liability Company Limited liability company Another new form of business structure is the limited liability company. In far Business entity providing all states, this business entity provides limited liability for its members whether limited liability for its members obligations arise in tort or contract. These entities may be managed by their ty members or by designated managers. The LLC form is the most popular form of business entity in the United States, dominating even corporations. A new type ra of LLC, the low-profit LLC, engages in profit-making activities to achieve its social goals; profit-making is secondary to its stated social mission. and they slidw .com Business corporation sins andO ewellot warnsvo tends amoo co mitte Legal entity existing under 6. Business Corporation boesocalb ed odds low . anousingrion morgaon hat the authority of the state legislature A business (or for-profit) corporation is an entity created under state statute. This legal entity may own property, enter into contracts, and sue and be sued. Because the business corporation is a "person," it is subject to taxation. In what is referred to as double taxation, its owners, called shareholders, also pay tax on cash distributions made to them. Shareholders are protected from personal liability, and their loss is limited to Benefit corporation their investment in the corporation. Although the shareholders own the corpora- A new hybrid corporation tion, the corporation is managed by its board of directors, who typically appoint that combines profit officers to carry out the directors' policies and goals. making with social good A new form of corporation, the benefit corporation, recognized only since combines profit-making with social good. 2010 but already allowed in more than one-half of U.S. jurisdictions is a hybrid: It Professional corporation Corporation formed by professionals 7. Professional Corporation o contend ath not vailidell lemontag borim Professionals such as doctors, lawyers, and accountants may incorporate to obtain certain tax and other benefits available to business corporations. Corpora- tions that provide personal services (such as consulting, legal, or accountingB. Considerations in Selection of Business Enterprise services) pay a flat tax of 35 percent. Nevertheless, these professionals remain per- sonally liable for their own negligence and the negligence of those they supervise. 8. S Corporation Certain small business corporations are provided relief against double taxa- tion. Called an S corporation after the original subchapter of the Internal Revenue Code providing such relief, the corporation itself does not pay taxes, and all income S corporation earned is passed through to the shareholders. All shareholders (who must not Corporation that passes all income to its shareholders, number more than 100) must agree to the election of S status, and only eligible who pay tax on income corporations may apply for this status. A typical business corporation is referred to as a C corporation to distinguish it from an S corporation. 9. Close Corporation ehcrisis sthi to so bus Close corporations are generally corporations owned by small numbers of Close corporation family members and friends, who are active in operating the business. Only certain Small corporation whose types of corporations can qualify to be treated as close corporations. The share- shareholders are active in holders in a close corporation are allowed more flexibility in operating the corpo- managing the business and ration and usually function without adhering to all of the formalities required of that operates informally other business corporations. PRACTICE TIP It can be difficult to understand the various types of business structures and their features. Consider keeping a "cheat sheet" or index card near your desk on which you describe the most prominent features of each form of entity. After you refer to this several times, you will likely have no difficulty remembering the differences between a general partnership, a limited partnership, and a limited liability partnership. Alternatively, access the site "My Corporation" at www .mycorporation.com and search for "Comparison Chart," or refer to the inside cover of this text for a chart comparing and contrasting business structures. B. Considerations in Selection of Business Enterprise Although a sole proprietorship or other business entity may be ideal for one individual, it may be inadvisable for another. Determining which form of business structure is the most appropriate for a client involves evaluation of a number of factors. The attorney you work with will counsel the client to consider the following factors: . Ease of Formation. The ease with which a business can be formed should be carefully considered. For example, a sole proprietorship is easy and inexpensive to form, whereas a corporation requires compliance with state statutes and can be expensive to form and maintain.Chapter 1. Introduction to Business Organizations and Agency Lay Management. Some individuals prefer to manage their business themselves and others prefer to partner with colleagues to manage the enterprises Ag . ability. The liability an individual faces is one of the most critical fact consider in selecting a form of business enterprise; Some enterprises D. shield the individuals involved from any personal liability, whereas otfes D. expose the business owner to greater risk. Continuity of Existence. Some enterprises, such as corporations, ar Und capable of existing perpetually. Others, such as sole proprietorships, it enter not have such continuity of existence. Thus, consideration should be given anot to the intended duration of the enterprise. it is Transferability. Clients must consider how easy it is to "get into" and obli get out of the business enterprise. It may be difficult to withdraw from a Partnership, but it is usually easy to sell stock and transfer out of a corpo sell ation. If clients foresee a need to liquidate their investment in a business par for cash, they should consider how easy or difficult it will be to transfer into the he and out of the enterprise. Profits and Losses. A sole proprietor retains all business profits, but she is alr also solely liable for all losses. Partners share profits and losses with each th bu other, but some losses suffered by a partner might arise due to another partner's actions. Clients should evaluate the allocation of profits and losses when considering business enterprises. Taxation. Clients should always consider applicable tax requirements. For some, the individual tax rates may be best; for others, the corporate tax rates may yield the best advantages. Many entities afford single or pass- through taxation; corporations are burdened by double taxation. Some proposals for tax reform include imposing taxes on larger non-corporate entities (such as partnerships and LLCs) and on S corporations to ensure greater tax parity among these various entities. Any such changes, however, are likely to be met with vigorous opposition. C. How Business Is Conducted in This Country Many individuals perceive that business in the United States is conducted by huge corporations that affect every aspect of financial growth and development. Most would be surprised to discover that sole proprietorships (businesses conducted by one person) dominate the business landscape. According to the Small Business Administration, more than 70 percent of busi- ness in this country is conducted by sole proprietors. Moreover, nearly 90 percent of all business establishments in the United States employ fewer than 20 employees. Nevertheless, business corporations account for a disproportionately high share of revenue. In 2011, business receipts showed the following approximate amounts: . Sole proprietorships: $1.3 trillion . Partnerships: $6 trillion . Business corporations: $28 trillion were bidT .nobismol to sand 71 .boroblanco Aulozzo 5d See Figure 1-1 for a chart showing where individual employees work.Law Ives, D. Agency in Business Organizations D. Agency in Business Organizations ors ses ers Understanding the concepts of agency is necessary to understand the way business enterprises operate. In brief, an agent is someone who agrees to act for or represent Agent another, called the principal. Because businesses usually act through third parties, One who acts for or tre it is important to determine whether these third parties have the authority to represents another obligate or bind the business and its partners or members. Principal Agency relationships arise in a variety of settings. When an employee of a store The person for whom an sells goods, he does so as the agent of the store owner, the principal. When a agent acts partner in a partnership signs a contract, she may bind the partnership under the principles of agency law. When the president of a corporation signs a lease, he binds the corporation under agency principles. Agency relationships permeate almost all forms of business enterprise. Thus, a thorough understanding of some of the basic principles of agency law is critical to understanding the various forms of business enterprise to be discussed in this book. FIGURE 1-1 Companies Indexed by Numbers of Employees (2012) (In thousands) Companies with Companies with Companies with between 100 and between 20 and 99 over 500 499 employees, employees, employees, 83,423, 1.5% 494, 170, 8.6% 18,219, 0.3% Companies with under 20 employees, 5,130,348, 89.6% Chodies mont ssil gabdig bomiyemuncy Source: U.S. Census Bureau, www.census.govChapter 1. Introduction to Business Organizations and Agency Lay 1. Formation of Agency Relationship D. There are two primary ways in which an agency relationship can be created. Agreement. Most agency relationships are created by mutual agreement: party agrees to act for the other, either orally or in writing. For example, if a hope owner decides to sell her home and lists it with a real estate agency, the parties we set forth their relationship and duties in a written agreement. An agreement Ill Express agency Which one party agrees to act for the other is an express agency, whether it " An agency agreement, written or oral written or oral. Agency relationships can also be implied. For example, individuals who work. in small retail shops seldom have written agreements detailing their duties. Yet tik acts they perform on behalf of their employers (ordering goods, accepting returne selling goods) bind their employers, the principals. These are examples of implies Implied agency agency; there is no formal agreement, yet the parties' words, conduct, or pride An agency relationship in dealings show the existence of their agency relationship. which there is no express agreement, but the parties' Estoppel. Sometimes an agency relationship arises because it would be inequi- words, conduct, or prior table to allow the principal to deny the relationship. Thus, if a principal creates the dealings show the existence reasonable impression that another is authorized to act for the principal, an agency of their agency relationship by estoppel has been created, and the principal is precluded or estopped from Agency by estoppel denying the existence of the agency relationship. An agency arising from acts that lead others to believe an agency relationship exists 2. Authority of Agents Often a third party desires to hold a principal liable for the acts of an agent. A principal may attempt to avoid liability by distancing herself from the agent's acts and claiming the agent had no authority to act for the principal. Generally, the third party will allege that the agent had the authority to act for the principal and thus the agent's acts bind the principal. An agent has the ability to bind the principal in three ways: by being granted actual authority to do an act, by apparent authority, or through ratification. Express authority Actual authority granted by Actual Authority. Generally, a person may properly appoint another to perform one to another, in writing any act he could perform. Thus, a principal may grant actual authority to an agent or orally to act for him. This actual authority can be express or implied. Express authority may be given in writing or orally and refers to those acts the principal specifically Implied authority Power to perform acts directs the agent to perform. An agent also has implied authority to perform acts customarily performed by customarily performed by an agent or those acts that are reasonably necessary to agents allow the agent to perform her duties. For example, a manager hired by a restaurant has not only the express authority to do acts directed by the restaurant's owner, but Apparent authority has the implied authority to do any acts reasonably necessary to operate the res- Authority that arises taurant, such as hiring and firing employees, ordering supplies, and giving free through words or conduct meals to unhappy customers. of principal leading others to believe agent has authority to act for principal Apparent Authority. Apparent authority arises when by his conduct, a principal causes a third person reasonably to believe the agent has the authority to act for the principal. Assume that an employee always accompanies her employer, the ownerLaw D. Agency in Business Organizations 7 of a dress shop, to New York City to the annual fashion shows to order new fashions for the shop. If one year only the employee attends and orders the new stock, the store owner would be bound to pay for the employee's orders because the store owner's previous conduct reasonably led others to believe the employee had the authority to make orders. The store owner will be precluded or estopped from asserting that the employee, her agent, lacked authority to make orders and is thus bound by the agent's conduct. As discussed below, the principal may always ratify previous action by the agent and thereby become obligated by the agent's actions, whether authorized or not. Ratified Authority. Even if an agent has neither express nor implied authority to perform an act, the principal can nevertheless ratify or accept the agent's act and Ratification thereby become obligated by the agent's actions. For example, assume Candy has Acceptance of an act retained a real estate agent to sell her house. If the real estate agent has been instructed to present no offer to Candy for her house under $300,000, and yet presents an offer to Candy for $290,000, which Candy accepts, Candy has ratified this unauthorized act by her agent. Ratification thus occurs when the principal accepts the agent's act even though the agent had no authority to do the act or the act exceeded the scope of the agent's authority. 3. Duties of Agents and Principals An agency relationship creates fiduciary duties between the principal and the Fiduciary duties agent. The principal places trust and confidence in the agent and owes duties of Duty to act in utmost good good faith and fair dealing to the agent, and the agent similarly owes the utmost faith and fair dealing duty of good faith, candor, and fair dealing to the principal. Other duties also arise from the agency relationship. Agent's Duties. Generally an agent owes four duties to her principal: . Performance. An agent must perform the work or duties required by the now principal, whether set forth in a written agreement, included in an oral suchi agreement, or implied from the nature of the agency relationship. The laborh agent must perform these duties with reasonable diligence and due care. . Notification. An agent must disclose all information relating to the agency quig s to her principal. An agent selling a house for home owners may not decide for herself, "This offer is so low I won't bother telling the owners about it." quoting the shadions In agency law, it is presumed the principal knows all that the agent knows. . Loyalty. The agent must act solely for the benefit of the principal and may not engage in any transaction that would be detrimental to the principal or that would conflict with the principal's interest. Thus, generally, an attor- ney may not represent both the plaintiff and the defendant in a lawsuit unless each party consents. Accounting. An agent must account to the principal for all money or Mastig property paid out or received on the principal's behalf. The principal's 101 bon funds must be maintained separately from the agent's; the funds may w.bert not be commingled. noge art8 Chapter 1. Introduction to Business Organizations and Agency La Principal's Duties. Principals owe three duties to their agents: Case Compensation. Principals must pay agents forest services. If no fir. mut pensation is agreed upon, the agent is entitled to compensation jed reas age reasonable and customary amount. imbursement and Indemnification. The principal faust, reimburse th ter built for costs and expenses incurred on the principal's behalf. the Aample, employers routinely reimburse employees for their trapt CAPenses incurred on behalf of the employer. The principal is also general quired to indemnify or compensate the agent for liability incurred by thy agent while performing duties for the principal. The agent will not ne misconduct , but the indemnified for fraud or for reckless or willfu sent will be indemnified for acts directed or authorized by the principal Cooperation. The principal must not hinder the agent in the performance other duties. This duty to cooperate includes a duty to provide the agent with what she will need to perform duties, such as a credit card, an office necessary equipment, and so forth. Dee 101 cha. 4. Liability for Agent's Torts An agent is liable for her own torts or civil wrongs. Such torts might include assault, battery, negligence, fraud, or malpractice. The question often arises whether the principal is liable for torts committed by the agent. The general rule is that a principal is liable for the torts of his agent committed in the course and scope of the agency. However, if the agent is on a "frolic" or "d r "detour," or performing a personal endeavor, the principal is not liable. Thus, a trucking company may be liable for accidents caused by its drivers while they are y are performing their duties for their employer-principal. On the other hand, if a driver leaves his designated route to visit a friend and in the course of this visit causes an accident, the employer-principal will likely not be held liable because the employee-agent was engaged in activities on his own behalf. Respondeat superior Liability imposed on This liability theory is called respondeat superior (literally, "let the master employers for acts of answer") and results in liability being imposed on the employer-principal even employees though she did not actually commit the wrong. This doctrine imposes vicarious Vicarious liability liability on the employer-principal, meaning that liability is imposed without Liability imposed on one for regard to actual fault. another's acts, without regard to actual fault Employer-principals may also be liable for failure to supervise an employee prop- erly, for improper selection of an employee (as is the case when an employer hires an obviously unqualified employee), or for wrongful retention of an employee (as is the case when the employer does not terminate employment although grounds for ter- mination exist, such as acts of violence and threats by the employee). 5. Termination of Agency romance yrsq doss assimil Agency relationships may be terminated when the stated time period expires if the agreement provides a period of duration (such as a six-month listing period for a real estate agent), when the purposes of the agency have been accomplished, byLaw Case Illustration: Assault as Outside the Scope of Employment ed mutual agreement, by death or bankruptcy of either party, or by either party by a reasonable notice to the other. Upon termination of the agency relationship, the agent no longer has any authority to bind the principal. If no stated period for termination exists, the agency relationship will expire after a reasonable time. 6. Agency in Business Relationships This overview of the relationship, duties, and obligations of agents and prin- cipals is fundamental to an understanding of many forms of business enterprise. For example, you will see in Chapter Two that a sole proprietor is vicariously liable for the acts of her employees. In Chapter Three, you will see that any partner in a general partnership has the ability to sign contracts, hire employees, and perform other acts; and these acts bind the other partners and the partnership. You will learn that directors and officers are agents of a corporation and thus owe fiduciary duties to the corporation. alogis E. Role of Paralegal suros ar ni bonimmos gos bra ends ? lungs Before a business is formed, the role of a paralegal will likely be limited to research- ing various types of business entities, gathering forms and fee schedules from secretaries of state so that forms will be ready for preparation once the client and attorney determine the appropriate form of entity for the client, collecting tax forms, and interviewing clients to gather some initial information from them as to their business needs and goals. Case Illustration Assault as Outside the Scope of Employment Case Name: N.H. v. Presbyterian Church (U.S.A.), 998 P.2d 592 (Okla. 1999 Facts: Minor children who were sexually abused by a Presbyterian minister brought an action against the national religious organization that employed him under theories of respon deat superior and negligent hiring, retention, or supervision. The lower courts granted judgment for the national no asluegre organization. Holding: Affirmed. Although there are exceptions, an assault on a third person is generally not within the scope of employ- ment. No reasonable person would conclude that the minister's sexual misconduct was within the scope of employment or in furtherance of the national organization's business. Moreover, because the national Presbyterian