Agency and Partnership

Question 1

Formation by contract

Answer 1

Agency relationship is usually created through contract

Question 2

The agent’s duties

Answer 2

-must perform functions set out in agreement
-owes duty of reasonable care to principal
-must not go against specific instructions
-cannot delegate responsibility without consent

Question 3

Fiduciary Duty

Answer 3

-agent is obligated to act in the best interests of the principal
-must turn over money to the principal
-agent cannot compete with principal
-agent cannot profit at principals expense

Question 4

Principal’s duties

Answer 4

-must honour contract terms (pay a reasonable amount for service, reimburse for reasonable work expenses)

Question 5

Termination of agent’s authority

Answer 5

-death of principal
-bankruptcy of principal
-dissolution of principal corporation
-mental incompetence of principal
-by mutual agreement

Question 6

What is a sole proprietorship

Answer 6

An individual carrying on business alone

Question 7

What is a partnership

Answer 7

Two or more people carrying on business together for the purpose of making a profit

Question 8

Pros of a sole proprietorship

Answer 8

-easy setup
-total control
-direct access to profits

Question 9

Cons of a sole proprietorship

Answer 9

-unlimited personal liability for debts
-no separate legal entity
-limited grown potential

Question 10

Rules for partners

Answer 10

-profits and losses are shared equally
-partners expenses are reimbursed
-no salaries are paid to partners
-unanimous agreement is needed for major changes
-must have access to records

Question 11

Liabilities of agency for partners

Answer 11

-partners are agents of each other
-all partners are liable for the conduct of other partners in business-related activities

Question 12

Unlimited liability for partners

Answer 12

-personal assets may be used to satisfy claims
-a third party can collect from any partner
-retiring partners are still responsible for existing liabilities

Question 13

Advantages of a partnership

Answer 13

-less costly to form and operate
-unanimous consent provides protection to individual partners

Question 14

Dissolution of partnership

Answer 14

-by notice, death, bankruptcy, or insolvency of a partner
-fixed-term expiry of partnership
-request to the court

Question 15

Limited partners

Answer 15

-only liable to the extent of their investment
-they cannot take part in the control of the business
-registration is required for a limited partner

Question 16

Joint ventures

Answer 16

Occurs when two or more individuals/corporations want to collaborate on a project