Business Associations Outline
I. Agency
a. Any time you have someone acting for you on your behalf, you have agency (any employee, etc.)
b. Agent = fiduciary relationship that arises when one person (“principal”) manifests assent to another person (“agent”) that the agent shall act on the principal’s behalf and subject to the principal’s control, and the agent manifests assent or otherwise consents so to act
c. Formed by mutual consent (both sides must agree); need not be in writing – could be words, writing, or conduct (exception: when it cannot be terminated – agency coupled w/ an interest)
d. Agent has duties to the Principal, and Principal has duties to the Agent
i. Principal must compensate Agent for reasonable costs/expenses (e.g. Agent placing an ad in paper) but agents do NOT have to be compensated
e. Types of Authority
i. Actual Authority – at time of taking action that has legal consequences for the principal; this is REAL authority – “you can sell car, not house”
1. Two Types: (a) Express Actual Authority – when P actually tells you to do something; (b) Implied Actual Authority – what A reasonably believes has the power to do (A deciding to place an ad in the paper to sell the car)
2. Termination of Actual Authority – either party can terminate by letting other side know (must have notice!)
3. Most Agency problems arise b/w the P and the third party (newspaper wants money for the ad, or person who bought the car)
4. If A had Actual Authority, then the P is bound by A’s act (A must act w/in the scope of his authority)
a. When an agent represents that he has Actual Authority, he will be held liable under an implied warranty (Barrett buys a Ferrari for Bill Gates)
ii. Apparent Authority – where P interacts w/ a 3rd party and created an impression, and it could reasonably be believed, the P will be bound (e.g. when Bill Gates calls up and states person like Barrett will pick up car)
1. P must create impression A has authority – A cannot create Apparent Authority by telling 3rd party they have authority – 3rd party must reasonably believe
a. Look to course of dealing b/w 3rd party and the Principal – if A is just lying to the 3rd, no Apparent Authority
b. Look to the reasonable belief of the 3rd party – liability will go back to the P (must be traceable to P’s actions or words)
2. Exception – if in place of authority (president of Exxon, tells someone you are president) – will create apparent authority – president can be an A on behalf of Exxon
3. Termination of Apparent Authority – when 3rd parties belief is no longer reasonable
f. Different Kinds
i. Co-Agents – two or more agents representing one principal
ii.
anty of authority); (b) if principal undisclosed (purchasing property in own name for a P) – 3rd party does not know who he is dealing w/; (c) unidentified (3rd party knows you are an agent, but not for whom) – 3rd party does not know who he is dealing w/; OR (d) 3rd Party can sue either the P (on actual authority) or A, but NOT both
2. Torts – always liable for own torts
ii. To the Principal – for Breaching duty to P, including acting outside actual authority
j. Agents have a duty to report what they know to the principal
i. Principal deemed to know what agent knows (exception: agent acting adversely to the principal)
II. Federal Income Taxation (In General and for Entities) – [Income = Revenue – Expenses] – can deduct pretty much all expenses as a business
a. Basics of Tax System
i. United States Tax System = graduated system (we all don’t pay the same tax rate on the money we make; never have less money for making more money)
1. Effective Tax Rate = the actual percentage you pay to the IRS; actual overall rate
