T12: Business structures Flashcards
Sole proprietorship
business conducted by a natural person
Structures based on artificial persons
Corporations> separate legal personality Salomon v Salman > company, incorporated society> corporations under special statute
Key features of company
Separation of ownership and control
shareholders, directors, limited liability, separate entity, perpetual succession, act through human agents
Structures based on contract
Partnership, joint ventures, franchises> unincorporated structure and is not a legal person
Partnership
Formal agreement may not be required, thus may exist without the parties knowing.
Features:
Liability of partners is unlimited, meaning that each partner is personally liable for the debts of the partnership
partners are jointly and severally liable
each partner is an agent of there other partners
dissolution
limited parntership
only contribute capital and liable for amount of capital
Joint ventures
different businesses combine to undertake a particular project
Fiduciary obligations owed by each partner
unlimited liability of each partner
Franchises
created when a franchisor contracts to allow a franchisee to use a business reputation, management system or marketing methodology that the franchisor has developed
Franchisee
separate legal liabilities from franchisor
Must follow franchisors system exactly
benefits from bulk purchasing power of system
dependent on franchisor for updating system but must make changes required by franchisor
Trading trust
Settlor> set up trust and terms
Trustee> simil to directors of company
Beneficiary> similar to the shareholders of the company
Determinants of business structures
Cost and time > companies are cheaper and faster to set up, partnerships don’t need any setting up
Liability> especially regarding personal assets of its participants arising out of or being protected by a particular structure
needs of a particular business and flexibility which a particular structure affords the business
Ease of transferring interests in the business to another
Tax advantages of particular structures
Agent
Authorized to act on behalf of principal, thus owes fiduciary obligations to the principal
Able to bring principal into legal relations with a third party
principal will be liable for agents acts where they have been authorized
Knowledge of the agent is imputed to the principal
Actual Authority
Actual Authority> where authority has been actually granted to agent either expressly “ you are hereby authorized to buy and sell cars on my behalf” or impliedly “whatever is necessary for or ordinarily incidental to the effective execution of his express authority in the usual way”
Apparent Authority
Where authority not actually granted to agent by the principal permits the agent to appear to have authority
3 requirements
1) representation that the agent had authority to enter the contract on behalf of the principal
2. representation must be made by someone with actual authority to make it
3. Third party was induced by the representation to enter the contract
Liability of principal and agent
P Liable> P should be liable under contract if made on his/her behalf by the agent; provided the agent had authority
Agent> not personally liable under contract unless agent has expressly accepted personal liability> if agent makes contract without authority, then agent may be liable to 3rd party for damages
if agent engaged in misleading and deceptive conducts then also may be sued by 3rd party
