Study Guide for Business Organizations for Paralegals

Chapter One: Introduction to Business Organizations and Agency Law

Key Types of Business Enterprise

  • Sole Proprietorships

    • Definition: A business owned and operated by one person.

  • General Partnerships

    • Definition: A business co-owned by two or more persons.

  • Limited Partnerships

    • Definition: A business created under a state statute in which some partners have limited liability.

  • Limited Liability Partnerships (LLPs)

    • Definition: A business entity providing limited liability for its partners.

  • Limited Liability Companies (LLCs)

    • Definition: A business providing limited liability and pass-through tax status for its members.

  • Business Corporations

    • Definition: A legal entity existing under the authority of the state legislature.

  • Professional Corporations

    • Definition: Corporations formed by professionals such as doctors, lawyers, accountants, and engineers.

  • S Corporations

    • Definition: Corporations that pass through all income to their shareholders, who pay tax on income received.

  • Close Corporations

    • Definition: Small corporations whose shareholders are active in managing the business and that operate informally.

Benefit Corporation

  • Definition: A new form of corporation recognized only since 2010 and already allowed in more than one-half of U.S. jurisdictions.

    • Feature: It is a hybrid that combines profit-making with social good.

Considerations in Selecting a Business Enterprise

  • Ease of Formation: How simple it is to create the business entity.

  • Management: Structure and process of managing the business.

  • Liability and Financial Risk: Risk involved for owners based on the type of business.

  • Continuity of Existence: The ability of the business to continue existing despite changes in ownership.

  • Transferability: Ease with which ownership interests can be transferred to others.

  • Profits and Losses: How profits and losses are distributed among owners.

  • Taxation: Tax implications based on the structure of the business.

Agency Relationships

  • Agent: One who acts for or represents another.

  • Principal: The person for whom an agent acts.

Duties Owed in Agency Relationships

  • Duties Owed by Agent:

    • Performance: Duty to perform their required tasks.

    • Notification: Duty to inform the principal of any relevant information.

    • Loyalty: Duty to act in the best interests of the principal.

    • Accounting of Profits: Duty to keep track of any profits generated on behalf of the principal.

  • Duties Owed by Principal:

    • Compensation: Obligation to pay the agent as agreed.

    • Reimbursement and Indemnification: Duty to reimburse the agent for expenses incurred while performing tasks.

    • Cooperation: Duty to assist the agent in performing their tasks.

Key Features of Agency Relationships

  • Formation of Agency: Happens through express agreement, implied agreement, or estoppel.

  • Types of Authority:

    • Actual Authority: Can be express or implied.

    • Apparent Authority: Authority perceived by others to be held by the agent.

  • Fiduciary Duties: Agents owe fiduciary duties of care and loyalty to their principals.

Liability in Agency Relationships

  • Agent's Liability: Agents are liable for their own torts.

  • Principal's Liability: Principals are liable for an agent’s torts and acts committed in the course and scope of the agency.

  • Contractual Liability: Agents are liable on contracts made for partially disclosed principals and undisclosed principals but not on contracts made on behalf of disclosed principals.