Law 301 Before the midterm Flashcards
Who can be principal?
1- Any one who has the legal capacity to perform an act may be a principal.
2- and able to empower an agent to carry out the act and act on behalf him.
- examples: Persons, corprations, non-profit organization, and governmental agencies may all be principals and appoint agents
Principal-Agent
- The agency concept?
1- Fiduciary relationship between two parties in which one (the ‘agent’) is under the control of (is obligated to) the other (the ‘principal’) .
2- The agent is authorized by the principal to perform certain acts, for and on behalf of the principal.
3- The principal is bound by the acts of the agent, performed in carrying out entrusted duties and within the scope of agent’s authority.
4- An agency can be created by (1) express agreement, whether oral or written, (2) implication, based on the custom or practice of the trade, or (3) conduct of the principal. Under the legal doctrine of estoppels, the principal is prohibited from denying the existence of a properly constituted agency.
General agent
1- Thegeneral agentpossesses the authority to carry out a broad range of transactions in the name and on behalf of the principal.
2- The general agent may be the manager of a business or may have a more limited but nevertheless ongoing role.
3- the general agent has authority to alter the principal’s legal relationships with third parties. One who is designated a general agent has the authority to act in any way required by the principal’s business.
4- To restrict the general agent’s authority, the principal must spell out the limitations explicitly, and even so the principal may be liable for any of the agent’s acts in excess of his authority.
5- Normally, the general agent is a business agent, but there are circumstances under which an individual may appoint a general agent for personal
Special agent
Thespecial agentis one who has authority to act only in a specifically designated set of transactions.
- For example, a real estate broker is usually a special agent hired to find a buyer for the principal’s land. Suppose Sam, the seller, appoints an agent Alberta to find a buyer for his property.
- Alberta’s commission depends on the selling price, which, Sam states in a letter to her, “in any event may be no less than $150,000.” If Alberta locates a buyer, Bob, who agrees to purchase the property for $160,000, her signature on the contract of sale will not bind Sam. As a special agent, Alberta had authority only to find a buyer; she had no authority to sign the contract.
Creation of the principal – agent relations
Explain by Ratification
1- whereby acts are done by one person on behalf of another but without his knowledge or authority, he may elect to ratify or to disown the acts.
2- If he ratifies them, the same effects will follow as if they had been performed by his authority.
3- This means that one of the two situations must exist before agency by ratification can arise.
4- This can be created either an agent who was duly appointed has exceeded his authority or a person who has no authority to act for the principal has acted as if he has the authority.
5- The principal can either reject the contract since he has not authorized it or accept the contract made. Once accepted, the contract is known as ratification.
elect
Creation of the principal – agent relations
Explain by Necessity (In An Emergency)
1- An agent has authority, in an emergency; to do all such acts for the purpose of protecting his principal from loss as would be done by a person of ordinary prudence, in his own case, under similar circumstances.
2- This is created when a person is entrusted with another’s property and it becomes necessary to do something to preserve that property although he has no express authority to do so. There must be already some existing contractual relationship between the principal & the person who acts on his behalf. There three condition whereby it may be created if the conditions are fulfilled.
3- There are it must be impossible for the agent to get the principal’s instruction, the agent’s action is necessary and agent of necessity has acted in good faith.
Choosing the right form of business ownership is important because?
- The form of ownership you choose will determine how your business is organized, how the money that flows in and out of your business is handled, and How your business is taxed.
Form of Business Ownership Choices:
There are essentially four forms of business ownership
the sole proprietorship,
the partnership,
thecorporation
the cooperative.
The Sole Proprietorship?
1- A sole proprietorship, also known as the sole trader or simply a proprietorship, is a type of enterprise that is owned and run by one natural person and in which there is no legal distinction between the owner and the business entity. The owner is in direct control of all elements and is legally accountable for the finances of such business and this may include debts, loans, loss, etc.
2- The sole trader receives all profits (subject to tax specific to the business) and has unlimited liability for all losses and debts. Every asset of the business is owned by the proprietor and all debts of the business are the proprietor’s. It is a “sole” proprietorship in contrast with partnerships (which have at least two owners).
3- A sole proprietor may use a trade name or business name other than his, her, or its legal name. They may have to legally trademark their business name if it differs from their own legal name, the process varies depending upon country of residence.
The Sole Proprietorship (Advantages & Disadvantages )?
Advantages
1- Easiest and most inexpensiveto set up.
2- Owner solely controls the business.
3- tax reporting is simple(does not require a separatecorporate tax return).
Disadvantages
1- Unlimited personal liability asthere is no separationbetween the business and the owner.
2- Can be hard to raise capital viadebt orequity financing (banks are reluctant to lend to sole proprietorships and there are no shares to sell to equity investors).
3- Difficult to sell.
A partnership
A partnership is an arrangement where parties, known as partners, agree to cooperate to advance their mutual interests. The partners in a partnership may be individuals, businesses, interest-based organizations, schools, governments or combinations.
- Organizations may partner to increase the likelihood of each achieving their mission and to amplify their reach.
- A partnership may result in issuing and holding equity or may be only governed by a contract.
How can Partnership agreements can be formed
In the following areas:
1- Business: two or more companies join forces in a joint venture or a consortium to i) work on a project (eg industrial or research project) which would be too heavy or too risky for a single entity, ii) join forces to Have a strong position on the market, iii) comply with specific regulation (eg in some emerging countries, foreigners can only invest in the form of partnerships with local entrepreneurs). In this case, the alliance may be structured in a process comparable to a Mergers & Acquisitions transaction.
2- Politics (or geopolitics): In what is usually called an alliance, Governments may partner to achieve their national interests, sometimes against allied Governments holding conflicts interests, as occurred during World War II and the Cold War.
3- Knowledge: In education, accreditation agencies incrementally evaluate schools, or universities, by the level and quality of their partnerships with local or international peers and a variety of other entities across societal sectors.
4- Individual: Some partnerships occur at personal levels, such as when two or more individuals agree to domicile together, while other partners are not only personal, but private, known only to the involved parties.
Types of Partnerships that should be considered?
1- General Partnership
Partners divide responsibility for management and liability, as well as the shares of profit or loss according to their internal agreement. Equal shares are assumed unless there is a written agreement that states differently.
2- Limited Partnership and Partnership with Limited Liability
“Limited” means that most of the partners have limited liability (to the extent of their investment) as well as limited input regarding management decisions, which generally encourages investors for short term projects, or for investing in capital assets. This form of ownership is not often used for operating retail or service businesses. Forming a limited partnership is more complex and formal than that of a general partnership.
3- Joint Venture
Acts like a general partnership, but is clearly for a limited period of time or a single project. If the partners in a joint venture repeat the activity, they will be recognized as an ongoing partnership and will have to file as such, and distribute accumulated partnership assets upon dissolution of the entity.
What is a ‘Corporation’?
- A corporation is a legal entity that is separate and distinct from its owners.
- Corporations enjoy most of the rights and responsibilities that an individual possesses; that is, a corporation has the right to enter into contracts, loan and borrow money, sue and be sued, hire employees, own assets and pay taxes.
- It is often referred to as a “legal person.”
In another words : - A corporation is a company or group of people authorized to act as a single entity (legally person) and recognized as such in law.
Profit Corporation
- A profit corporation is a business structure that affords particular liability and tax benefits to its shareholders.
- The owners of a corporation are called shareholders; the day-to-day operations of the corporation are managed by the director(s) and any appointed officer(s).
Profit Corporation Types
1- General Corporations
- The general corporation is a standard corporation. it is the most common type of corporate structure. A general corporation is one that is a completely separate legal entity owned by stockholders. There is no limit to the number of the stockholders that are protected from any creditors of the corporation. Instead, the personal liability of a stockholder is usually limited to the amount of investment that was made in the corporation.
- (ADVs)There are many benefits to forming a general corporation. The main benefits include personal protection from debt and liabilities of the corporation, the corporation can outlive the life of its owners, and there are certain benefits that are tax-free. Additionally, transfer of ownership can be done through the sale of stock and ownership does not necessarily need to change the management of the corporation.
2- Close Corporations :
- A close corporation is corporation, which provided certain conditions be met, may dispense with the formality of having decisions approved by both shareholders and corporate directors.
Close corporations are ideally suited for small businesses where the people who own the corporation’s stock also run the business.
- Close corporations have no more than 35 shareholders and none of the corporation’s shares will be publicly traded.
All management decisions are made by the shareholders and are typically the people who are in charge of running the business.
- As a close corporation that chooses to dispense with the board of directors, you will be required to name the individual(s) in whom the powers of the directors have been bestowed; this, unfortunately, may be a shareholder who does not wish their name to be listed in a public registry.
Profit Corporation Sub-Types?
- Professional Corporations:
A general or close corporation may also choose to be a professional corporation, therebyallowing certain professionals such as health care, financial, legal, and real estate appraisers to operate as a corporation. Only licensed professionals may incorporate as a professional corporation. - Benefit Corporations:
A general or close corporation also may choose to be a benefit corporation, thereby allowing a profit corporation to combine a social mission with that of its financial goals.
The benefit corporation is an option for both new and existing for-profit corporations.
Workers Cooperative Corporations
A corporation self-managed by its workers. Any profit corporation may elect to be governed as a worker cooperative corporation
Nonprofit corporation?
- A Nonprofit corporation is a special type of corporation that has been organized to meet specific tax-exempt purposes.
- To qualify for Nonprofit status, your corporation must be formed to benefit:
(1) the public,
(2) a specific group of individuals, or
(3) the membership of the Nonprofit. - Examples of Nonprofits include: religious organizations, charitable organizations, political organizations.
