Wk 7 - Agency & Business Structures

Question 1

Agent

Answer 1

A person acting on behalf of another
It is common for business deals to be negotiated not by the parties directly but by other people acting on behalf of the parties

Question 2

Who acts for the principal?

Answer 2

An agent

Question 3

Agent liability

Answer 3

If the agent is working within the scope of their authority, the resulting contract or other legal relationship is between the principal and the third party, and the agent incurs no personal liability

Question 4

There are 5 main ways in which an agent can be authorised to act on behalf of a principle. What are the four we cover?

Answer 4

Express actual authority
Implied actual authority
Apparent authority
Authority if ratification

Question 5

Express actual authority

Answer 5

The principal can expressly authorise the agent to act on the principal’s behalf

Question 6

Implied actual authority

Answer 6

The agent assumes they can do something they haven’t straight up been told so they can continue the job they have been told. E.g. run out of eftpos paper, assume I can leave the bakery without a server to go borrow some from the corner store

Question 7

Apparent authority

Answer 7

If the agent acts on behalf of the principal:

1. Third party didn’t know the agent didn’t have actual authority
2. Principal ‘held out’ the agent as having authority to act on the principal’s behalf; e.g. appointing the agent to a particular position
3. Third party relied upon that holding out and reasonably assumed the agent had actual authority

Question 8

Authority by ratification

Answer 8

Even if agent acts without actual or apparent authority it is still possible for the principal, upon later learning of the agent’s action, to ratify that action by authorising it retrospectively
As long as the principal ratifies the agent’s act within a reasonable time of the act, it is as if the agent was acting with the princiapl’s authority at the time

Question 9

Agent’s duties

Answer 9

Owes to principal:
. Duty to follow instructions
. Duty to communicate
. Duty to act personally
. Duty of care (carry out instructions with due care and skill)
. Duty to act in best interests of principal 
.. avoid conflict of interest
.. not receive a secret commission
. Duty of confidentiality 
. Duty to account

Question 10

Conflicts of interests

Answer 10

Agent should not put themselves in a position where the best interests of the principal are in conflict with the agent’s own personal interests. If there is such conflict of interest, agent must disclose with principal

Question 11

Secret commission

Answer 11

Payment made by third party to agent without principal’s knowledge and permission and intended to induce the agent for acting on behalf of the princiapl in a way that favours the third party

Question 12

Remuneration

Answer 12

May be a flat fee, a commission based upon the application of a formula to a transaction amount, or some other arrangement

Question 13

Indemnity

Answer 13

All agents are entitled to be reimbursed by the principal for payments made, expenses incurred and liabilities assumed while carrying out principal’s instructions

Question 14

Liability of the agent

Answer 14

Any deal negotiated by the agent on behalf of the principal us between the principal and the third party - agent is merely an intermediary and is not personally liable

Question 15

An agent will be personally liable to the 3rd party where:

Answer 15

. Intentional liability
. Undisclosed principal
. Breach of warranty and authority

Question 16

Breach of warranty and authority of agent:

Answer 16

1. The agent claimed they were making the contract on behalf of the principal
2. Agent did jot in fact have authority to act on behalf of the principal
3. Third party relied upon the agent’s representation, and would not have entered into the contract in the absence of the representation

Question 17

Concluding the agency - termination

Answer 17

. Agent completes tasks they were appointed by the principal to complete
. Duration of the appointment established by the principal (if any) expires
. Principal and agent agree to terminate the relationship
. Principal dismisses the agent because they have breached the contract between them or breached any of the duties owed by the agent to the principal
. Principal revokes/limits authority of agent to act on their behalf

Question 18

Business structures

Answer 18

Sole trader
Partnership
Trust
Company

Question 19

Sole trader

Answer 19

. May engage employees but are the sole owner of the business
. Has sole responsibility for raising the funds to start the business
. Has sole control over the operation of the business
. Is entitled to all of the profits of the business

Question 20

Advantages and disadvantages of sole trader

Answer 20

Adv.
Very little formalities to comply with
Full ownership means the owner makes all decisions and gets all profits

Disadv.
Personally liable for any business debts (unlimited liability)
Limited sources of capital
One person may not have all the skills needed to be successful

Question 21

Partnership

Answer 21

A person is a partner in a partnership if they and at least one other person directly own and operate a business together
Partners generally have mutual agency
Each partner is both principal and agent
This means each parner is liable for the actions, contracts and debts of other partners
Not a separate legal entity
Each partner has unlimited personal liability for the debts of the partnership - mutual liability
Relationship between partners is a contractual one

Question 22

Partnership vs joint ventures

Answer 22

A JV is a contract between two or more parties to cooperate in some project or undertaking. Members of a JV are not partners and do not have mutual liability

Question 23

Partnership agreement:

Answer 23

Names of partners and name of partnership
Nature of the business
Term of the partnership
Each partner's contribution
Sharing of profits and losses
Authority of partners
Decision-making
Duties and obligations
Admitting new partners
Withdrawal or death of a partner
Dispute resolution

Question 24

Advantages and disadvantages of partnership

Answer 24

Adv.
Few formalities - ease and low cost of formation
More people to contribute ideas, skills and capital
Privacy - partnerships do not have to be registered with any government authority

Disadv.
Unlimited personal liability
Lack total control as an owner
Mutual agency combined with unlimited liability, makes it important to only be a partner with people you trust

Question 25

Company

Answer 25

An artificial legal person seperare from its owners and able to make contracts, own property and be a party to litigation in its own name
Must have:
At least one shareholder
At least one director, responsible for managing company’s business

Question 26

A company is its own separate legal personality:

Answer 26

Can incur debts in its own name
Can hold property in its own name
Can be the plaintiff/defendant in legal proceedings
Continues unchanged even if the owners sell it to another person
Can enter into legal relationships with owners

Question 27

Companies have limited liability

Answer 27

Owners are not liable for any debts or other obligations of the company beyond the subscription price of their shares

Question 28

Company type

Answer 28

Small proprietary company
Proprietary
company
Large proprietary company
Company
Listed public company
Public
Company
Unlisted public company

Question 29

Company (pty ltd)

Answer 29

Private/proprietary company is a privately owned company with less than 50 non-employee shareholders and is prohibited from selling its shares to the public
Only requires one director
Possible to have director and shareholder to be same person

Question 30

Company (ltd)

Answer 30

Public company
Can be listed on the stock exchange or can be unlisted
Must hold annual general meeting every year
Must have at least 3 directors

Question 31

Company advantages and disadvantages

Answer 31

Adv.
Separate legal entity
Limited liability
Perpetual succession (unlimited life)
More sources of capital
Expert managers to run the business
Shares can be transferred (especially in public company)

Disadv.
Costs of establishment and ongoing fees - can be expensive
Limited rights as an owner
Onerous administrative requirements
Lack of privacy due to reporting and disclosure requirements to government
Legal responsibilities imposed on company directors

Question 32

Trust

Answer 32

Arises whenever a person (individual or corporation), called the trustee, owns property for the benefit of one or more other people, called the beneficiaries
Not a seperate legal entity
Trustee is legal owner of the trust property and beneficiaries are the equitable owners
Trust property can be a single asset or an entire business
Person who sets up trust us called settler
Trustee can be a company
Trustee may or may not be one of the beneficiaries
Terms of the trust may be set out in writing in a trust deed