Forms of Business

Organization

Franchises are contractual relationships. Every business has to operate in one of these forms.

Sole Proprietorships
- proprietor and business is one in the same thing.

Partnerships
- Better in numbers
- More money, more resources etc.
- Split the profits, so you don’t loose everything if shit hits the fan
- Partners and business are one in the same thing
- Couldn’t undertake large commercial projects

Corporations
- People are legally different from the business
- Debt of the business is debt of the corporations
- Limited liability- lose only what you put in.
 Agency

Agency results in a legally binding

agreement between the Principal
and the 3rd Party.

Agency is an exception to the

doctrine of privity.
 Agency

Agency
PRINCIPAL Agreement AGENT

Main Negotiations
Contract

3RD PARTY
 Agency

Agents may be:

• Employees
• Partners
• Independent Contractors
 Agency

Agency is usually created by contract

The “agency agreement” may cover:

• the scope of authority
• the duties to be performed
• the fees to be paid
 Agency

Actual authority is the authority

the agent actually has.
- If the agent acts within their authority – actual or apparent, the contract is legal.

Apparent authority is the authority

the agent appears to have.
- They will have this apparent authority based on the words of the principal
- Principal is based on the institution/ head who gives the agent the authority
- Agent can/cannot have the actual authority, but if they say they have apparent authority,
despite anything, they will be liable.
- Limit of apparent authority – what a reasonable person would conclude from the
perspective of the third party.
 Agency

Apparent authority comes from

the words or deeds of the principal
(not the agent).
 Ratification

If an agent exceeds her authority,

the principal can “ratify” or adopt
the agreement.

Ratification may occur by conduct.

 Unnamed Principal

If the principal is unnamed, then

the agent has no apparent
authority.
- Accepted outside the authority does not need to be ratified.
 Undisclosed Principal

If the principal is undisclosed, then

the contractual relationship is
between the agent and the 3rd
party.
- Principal is undisclosed as the 3 rd party didn’t even know there was a principle in the
matter
- To protect yourself, you should have asked for the money upfront- cause the risk is on
the agent!
 Agency - Duties

Duties of the Agent:

• Fiduciary (best interests, etc.)

- Act in the best interest of the principal, even if it harms the agent.
- Agent has to act honestly and in good faith, and have shaddy ish going on.

• Duty of Care (act reasonably)

- Duty to act as a reasonable person would in similar circumstances

• Contractual (honour the contract)

- Between the agent and the principal – employment contract?
 Agency - Duties

Duties of the Principal:

• Contractual (honour the contract,

pay the agreed upon fees, etc.)
 Vicarious Liability

Principals are vicariously liable for:

• agents who are employees acting
in the scope of their employment
• agents who are acting in the scope
of the agency duties
• sometimes, fraud, theft, etc.
 Partnership

Two or more people carrying on

business together for profit.
 Partnership

Factors relevant in determining

whether a partnership exists:
1. the sharing of profits/losses
Sharing profits is not partnerships – its is just a profit sharing

2. the sharing of decision making

3. the sharing of capital
- 1/3 no partnership
- 2/3 uncertain
- 3/3 Partnership
 Partnership

Default rules amongst partners:

• Partners are equal
• Every partner may manage
• No remuneration for managing
• Unanimous consent for new partners
• No expulsion of partners
• Death or insolvency dissolves the PP
 Partnership

Rules regarding dealings between the

partners and others:
• Every partner is an agent of the
partnership
• Every partner is jointly and severally
(independently) liable for the debts of
the partnership
 Partnership

Partnership is a form of business

organization based on agency.
 Limited Liability Partnership

Innocent partners are not personally

responsible for the negligence of
another partner.
- Applies only to lawyers and accountants – this is because they work in the relationship of trusts
and confidence, and they should be personally liable for any crap.

- Tax partner in one area is not involved with the screw up of another partner, the partner will not be
personally liable, through the LLP
 Limited Partnership

Consist of a General Partner and one or

more Limited Partners.

Limited partners enjoy limited liability

provided they do not participate in
managing the partnership business.
- LP instead of corporation – tax benefits

- High income investors – as it is taxed differently

- No concern for limited liability