MGMT 254 Final Exam Purdue questions with complete verified solutions already graded A+

principal

-one who is ultimately the party of the contract

-often don't have time to complete all acts

-can be: LLCs, corporations, partnerships, people

agent

-one who acts on principal's behalf

-must have contractual capacity

-must have legal purpose

law of agency

Principal -> agent -> third party

example of law of agency

real estate:

want to sell your house, hire real estate agent to deal with third parties

agency contracts

-sometimes the agency relationship is based on a contract

-can be expressed or implied

-the contract appoints an agent by the principal

-"employer" must have legal capacity but agent doesn't have to

-no consideration required

employment relationships

-master/servant

-principal/agent

-principal/independent contractor

master/servant relationship (employer/employee)

right to:

-hire, suspend, or dismiss

-to have particular person do work

principal/agent relationship

-owner delegates authority to agent to manage business

ex. car salesmen/(buyer)

-express/implied

-agent can sign on behalf of principal

principal/independent contractor relationship

-profession or trade

-uses own place and equipment/tools

-payment of wages to own employees

-payment to contractor done with no taxes withheld

-principals do not have the right to control them in the performance of their work

Classification of Agents

-Special agent: authorized by the principal to handle a definite business transaction

-General Agent: authorized to transact all affairs in connection with a particular type of of business (ex: manager of a store)

-Universal Agent: authorized to perform all acts that can be lawfully delegated to a representative (ex: if person leaves for service, filler person has full authority in their position)

Authorization by Appointment

Usual method of creating an agency is by express authorization (appointed to act on behalf of another)

Authorization by Conduct

Agency created by conduct creates apparent authority

ex: company make person look like manager even though they aren't, but third party believes that they are

(rusty stucco case)

power of attorney (general)

gives someone the authority to act as their agent to do things on their behalf

-attorney in fact

ex. parent/child

lawyer/client

art dealer/artist

trustee/benefactor

agency by ratification

-agency exceeds both actual and apparent authority

-the principal is not bound but still may ratify:

---by intentionally expressing the ratification

Scope of Agent's Authority

Express Authority: given when the principal tells the agent to perform a certain act

Incidental Authority: Authority to perform acts reasonably necessary to execute express authority (ex: P tells you to go buy some goods but doesn't give you money, can assume you are to put on company card)

Customary Authority: Implied authority to do acts that usually accompany authorized transactions (ex: issue receipts)

Apparent Authority: Occurs when principal's words or conduct leads a third person to believe the person has authority and the third person relies on the appearance

agents duties

duty of:

-performance and obedience (lawfully act)

-information (keep P informed)

-reasonable care

-accountability (turn in receipts)

-loyalty

duty of performance

-must be legal

-must be cautious and use skill

-failure to perform (BREACH)

duty of obedience

-obey all lawful instructions of principal

duty of notification

-maintain information of all transactions

-keep principal informed of all facts (try to)

duty of accountability

-maintain accounting of all transactions undertaken on behalf of principal (turn in receipts)

duty of loyalty

-an agent's duty not to act adversely to the interests of the principal

(follow the principal's wishes)

NO DUAL AGENCY

-cannot meet a duty of loyalty of 2 parties w/ conflicting interest (both parties must be aware if trying to do this)

usurping opportunity

agent cannot usurp (take advantage of) an opportunity

self dealing

prohibited from undisclosed self-dealing w/ principal

misuse of confidential information

can't disclose or use private info outside of agency relationships

competing with the principal

prohibited, no competition allowed

principals duties

duty of:

-compensation

-reimbursement (paid back)

-indemnification (reimburse for any losses agent may suffer)

-cooperation (cooperate w agent, don't interfere w their duties)

-provide safe working conditions

termination

-mutual agreement

-lapse of reasonable time

-purpose achieved

-the occurrence of a specific event

-operation of law:

----death, insanity, bankruptcy, impossible to perform, or war

termination: NOTICE TO THE THIRD PARTIES

-people who dealt w agent (actual notice)

-knowledge of agency (constructive notice)

types of liability to third parties

-fully disclosed agency

-partially disclosed agency

-undisclosed agency

fully disclosed agency

-3rd party knows the agent is acting as an agent for a principal

-identity of principal

-principal is liable

-agent is not liable

partially disclosed agency

-agent reveals he has a principal

-principal + agent liable

undisclosed agency

agent pretends to be acting for himself

both are liable

tort liability/ vicarious liability

respondeat superior

-nature of an act

-act must be committed in the "course of employment" for the principal to be liable

sole proprietorship

most common business entity in the U.S.

sole proprietorship pros

-no organizational fees

-have absolute control

-retain profits

-taxed as personal income

sole proprietorship cons

-unlimited personal liability

-limited investment capital

-termination at death

General partnership

the pooling of capital resources, 2 or more individuals whose goal is to make a profit

Partnership advantages

Allows individuals to pool resources and conduct business without the requirements of a formal structure

Partnership disadvantages

Unlimited personal liablilty for partners, uncertain duration since dissolved by the death of a partner

LLC and LLP

LLC: Remedies unlimited personal liability of partnership (must have LLC in your name)

Corporation + Partnership

LLP: Shields innocent partners from personal liability beyond their investment (must put LLP in your name)

partnership interest

intangible interest (no physical presence)

-every partner has equal rights

duties of a partnership

same as under agency

duty of:

-performance

-obedience

-notification

-accountability

-loyalty

order of payment of debts

1. outside creditors

2.partnership creditors

3. capital investments

4. income (retained earnings)

tax consequences of a partnership

not taxed

Limited Partnership (LP)

-participate in profit but not in daily activities

--1+ general partner

--1+ limited partner

--must file a certificate with the state & "LP" must be I your name

ex. Lucy's Dressings LP

corporations

-exist to make a profit and are created by gov grant

-an artificial being, viewed as a person by law

-separate and distinct from persons who own the

Corporation Advantages

-Investor risk limited to capital investment

-Ability to raise large amounts of capital

-Separate legal entity with perpetual life

Corporation Disadvantages

-double taxation

-cost of setup much higher than other forms

-must file reports annually

Classifications of Corporations

Private Business Corporation- in business for profit

ex. Ford Inc.

Publicly Traded Corporation-stock publicly traded for investments, SEC regulated

Close Corporations- shares are limited to a small group of people

Non-Profit Corporations-charitable, educational, civic or quasi public purpose organizations

Municipal Corporation- local government

Public Benefit Corporation- have a purpose/job

ex. rebuild state street, create a nature sanctuary for the city

Domestic Corporations- organized in a particular state

tax issues: S corp vs C corp

S Corp:

- tax pass through

-limited # of shareholders

-single class of stock

-no stock options

C Corp:

-taxes paid by C Corp

-unlimited shareholders

-multiple stock classes

-flexible stock options

Joint Venture

Relationship to share profits and losses equally for a dingle business undertaking. Generally subject to partnership laws.

ex: pharmaceutical companies

Cooperatives

Incorporated Cooperatives: Statutes generally provide excess payments over cost are refunded to members based on amount of business

Antitrust law Exemption: Seller's cooperative is a violation of antitrust laws. Selling activities of farmers are exempt if cooperatives do not conspire to fix prices.

attorney in fact

agent authorized to act for another under a power of attorney

torts and crimes

agents are liable for harm caused to third parties by the agents' fraudulent, intentional, or negligent acts

vicarious liability

imposing liability for the fault of another

Respondeat Superior

doctrine that the principal or employer is vicariously liable for the unauthorized torts committed by an agent or employee while acting within the scope of the agency or the course of the employment, respectively

soliciting agent vs contracting agent

soliciting-

--salesperson

contracting-

--agent with authority to make contracts, person with whom the buyer deals

dissolution by decree of court

insanity, incapacity, misconduct, impracticability, lack of success, equitable circumstances

franchise

privilege or authorization to engage in a particular activity within a specific geographic area

ex. government franchise to operate a taxi company in a specific city

Franchising is a method of doing business, not a form of business organization.

3 types of franchises

1. Manufacturing: Manufacture and sell products under the trademark (coca cola syrup)

2. Service: Renders service to customers under the terms of the agreement (drain cleaning)

3. Distribution: Products sold to franchise then resold to customers (Exon mobil)

Franchise Rule of FTC

Federal Trade Commission (FTC) rule requiring detailed disclosures and prohibiting certain practices (14 days before signing agreement or making any payment)

unincorporated association

combination of 2 or more persons for the furtherance of a common nonprofit purpose

ex: little league team

Existence of a partnership

sharing profits/losses

contribution of skill/labor

fixed payment

gross returns

charging order

order by a court, after a business partner's personal assets are exhausted, requiring that the partner's share of the profits be paid to a creditor until the debt is discharged

suretyship

a partner has no implied authority to bind the firm by contracts of surety, guarantee, or indemnity for purposes other than firm business