1.

Agency
a. Relationship with workers and people hired
b. Bus. Operate through agents
c. The agency relationship is consensual and representative
d. Parties agree: agent will represent principal under their direction and
control
e. Agreement can be express or implied
2. To form lawful agency:
a. Agreement must specify legal acts for agent to perform creating
fiduciary duty to the principal
i. To act with utmost good faith, candor, confidence and trust
with the best interest for the person the duty is owed
3. Termination of agency agreement if:
a. Arties agree
b. Fulfillment of purpose
c. Principal terminates agents authority
d. Agent resigns
e. Automatically by operation of law
i. Agent dies
ii. Either party insane
iii. Principal bankrupt (only if bankruptcy affects agency)
iv. Change in law makes agency illegal
4. Responsibility for independent contractors:
a. Principals who hire independent contractors are liable if contract was
authorized
b. Person who hired ind. Contractor generally not responsible to 3
rd

parties for ind. Contractors wrongdoings except:
i. If ind. Contractor hired to commit crime
ii. Hiring party sees ind. Contractor do wrong and doesnt stop it
iii. Fails to adequately supervise ind. Contractor
iv. Hiring party negligent in selecting ind. Contractor
5. Duties of agent to principals:
a. Faithful service (duty of good faith)
b. To be loyal and protect principals best interest
c. Keep personal funds separate from principal funds
d. Duty to perform any obligations specified in contract
6. Duties of principal to agent:
a. Deal with agent fairly and good faith
b. Comply with express and implied terms of contract
c. Compensate per agreement
d. Continue employment for time specified
7. Liability for contracts:
a. An agent can negotiate and sign a contract on behalf of the principal
b. Prime issue for consideration is whether the principal authorized the
agent to enter the contract and whether the principals identity is
revealed to third party
8. Actual authority: authority principal grants to agent establishing limits of
what agent should do in their duties
9. Express authority: principal informs agent that agent has authority to engage
in a specific act or particular task
10. Incidental authority: agent given brief explanation of his or her authority, or
given objective to accomplish on behalf of the principal
11. Implied authority: based on agents position in past dealings between agent
and the party
12. Ratification authority: agent does something unauthorized at the time and
then principal approves it later
13. Emergency authority: agent can respond to emergencies even though how to
respond was never discussed with principal
14. Apparent authority: principal creates appearance that agency exists and
agent has certain powers
15. Authority by estoppel: prevents principal from denying agents authority (aka
ostensible authority)
16. Types of principals:
a. Disclosed: agent discloses that they are representing principal
b. Undisclosed: principals existence and identity unknown to the third
party at time of contract
c. Unidentified principal: existence is known to third party but identity
is not known when agent and third party interact
17. Contracts between principal and agent:
a. Agency relationship consensual and doesnt have to be based on
contract
b. If it is a contract: both agent and principal have to give up
consideration
c. Statute of frauds applies and written evidence is required for
contract to be enforceable
18. Covenants not to compete in employment contracts:
a. Agent wont work for competing firm (in the contract)
b. Contract may say:
i. Agent will not moonlight with competition
ii. Agent wont compete with principal after relationship is
terminated
c. Covenant illegal if court says that its against public policy
d. Time and area of covenant specifications must be reasonable
depending on type of employment and must be reasonable in area or
distance specified
19. Liability for torts
a. Vicarious liability: legal responsibility for the wrong committed by
another person- or employers liability for employees wrongdoings
b. Respondeat superior: employer pays for torts committed by employee
in the course and scope of employees job
i. Applies only to employees
ii. Does not apply to independent contractors
iii. Does not make employer insurer for employees every act
20. Negligent hiring
a. Careful selection of employees important
b. Employer can be liable for negligent hiring if careless in hiring process
c. Negligent hiring is assumes thatif company had investigated applicant
they would have known of their conduct
d. Employer owes a duty to customers and to the public when hiring
21. Indemnification
a. When employer pays 3
rd
person under respondeat superior, the
employer can get indemnification, or repaid, from the employee
b. Sometimes employee can be liable if committing a tort but then they
maybe can get indemnification from employer
c. Under restatement employee can get indemnification if at the
direction of employer they commit a tort but employee believes it is
not a tort
22. Employees torts ask:
a. Was person acting as employee?
b. Did employee commit a tort?
c. Was employee acting within scope of employment?
d. Is employee entitled to indemnification from employer?
e. Is employer entitled to indemnification from employee?
23. Sole proprietorship
a. Simplist business form- owned and operated by one person
b. Easy to form and operate
c. No state filing except may need city license or professional license
d. Cons: no one to contribute knowledge, expertise, or capital
e. Easy to terminate: when proprieter dies or is incapacitated
24. Fictitious name:
a. d/b/a doing business as
b. fictitious name: must be registered with state or local officials b/c
does not disclose surname of owner
25. Partnership:
a. Many professionals (dr.s lawyers accountants) use partnerships
because they cant incorporate under some laws
b. Association of 2 or more people to carry out business as co-owners for
profit
c. Wider financial base, more expertise
d. Con: not as perpetual as a corporation partners face unlimited
personal liability for business related conduct (just like proprietor)
e. Law on partnerships is most in state statutes
f. Controlling partnership law in US is in Uniform Parnership Act (UPA)
the revised Uniform Partnership Act (RUPA) or state statutes
g. In Illinois: Revised Uniform Partnership Act (RUPA)
26. General partnership:
a. If agreement is silent, parties will look to the state partnership act
b. Rules unless agreement is different:
c. Each partner has equal voice I management
d. each partner equal share of profits without regard to capital
contribution
e. each partner shares losses
f. books of partnership kept at centeral office of business
27. Taxation of partnership and dissolution
a. Pass through taxation: partnership not taxed, but individuals are
taxed based on receipts of firm
b. Each partner taxed on their share whether profits distributed to them
or not
c. Under RUPA entry or exit of partners does not dissolve the business
d. Partnerships dissolve when:
i. Purpose complete
ii. Term is over
iii. No longer profitable
iv. Unlawful to continue business
v. Partners want to dissolve firm
e. When partners have trouble getting along they can petition court to
dissolve partnership
28. Limited partnership:
a. 2 or more levels or types of partners
b. must have at least 1 general partner and one limited partner
c. same liability as in general partnerships
d. a limited partner furnishes funds or assets and whose liability is
restricted to the funds provided
e. more formal than general
f. created by filing with sec of state
g. Uniform Limited Partnership Act (2001) ULP made changes to prior
uniform acts:
i. Exit of limited partner doesnt dissolve partnership
ii. Limited partners are protected from obligations based on
status
iii. Partnership can use limited partners name as name of
partnership
29. LLP- Limited liability partnerships
a. All partners are general partners but personal assets protected from
liability against partnership
b. Unlimited liability for own wrongdoings and limited liability for
wrongdoings of others
c. Most states require registration with the state
30. LLLP- Limited liability limited partnership:
a. Limited liability with general partners who serve as managers and
limited partners who serve as investors
b. All partners have limited liability and creditors collect from
partnership assets
c. Under Uniform Limited Partnership Act 2001 ULP limited
partnerships can be LLLPs by stating it in the agreement and
certificate they file
31. Partnerships by estoppel:
a. Third person dealing with someone who claims to be partner and isnt
may proceed against the partnership and the alleged partner
b. Also called implied partnership
c. To use partnership by estoppel third party must show:
i. Someone who isnt a partner was held out to be a partner by
the firm
ii. Third person reasonably relied on the holding out
iii. Third person will be harmed if liability is not imposed
32. Corporations
a. In US Corporation is an artificial person under the statutes of the state
b. Enjoys most of the rights possessed by natural people
c. Advantages:
i. Insulation from liability
ii. Centralization of management functions
iii. Continuity of existence
iv. Free transferability of shares
33. Corporation Formation process
a. Take necessary steps like: hiring corporate attorney, leasing office,
and procuring subscribers
b. First need to file articles of incorporation with secretary of state
c. Once filed and pay all filing fees, the state issues a formal certificate of
incorporation
d. After this is filed the state will not interfere with its grant of power to
the corporation
34. Taxation of corporations:
a. Separate entities for federal income tax purposes
b. Corporation pays taxes on its earned income
c. When income is earned it is distributed to shareholders in the form of
dividends, and shareholders have taxable income
i. Called double taxation
d. Regular corporations are called C corporations for Subchapter C of the
internal revenue code
e. Subchapter S- provides tax relief by providing pass through taxation
f. To be subchapter S business must be:
i. Domestic small business
ii. Have only 1 class of stock
iii. Have 100 or fewer shareholders
iv. Have nonresident alien sareholders
v. Have the consent of all the shareholders
vi. Not exceed the maximum allowable passive investment income
35. Disregarding the corporate entity
a. Shareholders enjoy limited liability
b. Because corp is separate entity the law wont normally focus on who
owns the corp, unless they need to serve justice
36. Operation of a corporation:
a. Corp. actions are governed by:
i. The corporation code of the state of incorporation
ii. The articles of incorporation
iii. And the bylaws
b. Corporate management:
i. Officers responsible for day to day operations and board of
directors responsible for overall policies
ii. Managers answer to shareholders
iii. Shareholders have indirect control through the election of
directors
iv. Sale of corporate stock is regulated by federal and state
securities law
c. Corporate shareholders:
i. Own business by purchasing shares but they dont manage
business
ii. They delegate business to the board of directors, who give
duties to the officers
iii. Shareholders control- the more they own the more power they
have
1. Common stock: shareholders receive dividends, to vote
on coporate issues, and to receive property upon
liquidation of corporation
2. Preferred stock: includes priority with dividends, voting
or liquidation rights
d. Corporate shareholders;
i. Dividends: cash, property or other shares the board of
directors declares as payment to shareholders
ii. Corporation may be required to have annual meeting of
shareholders and the board can call special meetings of the
shareholders
iii. Shareholders meetings cant take place without a quorum
iv. Shareholders can participate in meetings, vote on matters and
inspect corporate books and records
v. They can also transfer their shares to someone else by gift or
sale
37. Fiduciary duties owed to the corporation
a. Directors officers and controlling shareholders owe duty to the corp.
and sometimes shareholders and creditors
i. The duty of obedience
ii. Duty of diligence
iii. Duty of loyalty
b. Business judgment rule: the law excuses the conduct if the director or
officer made the error in good faith and without clear and gorss
negligence
c. Business opportunity doctrine: forbids directors, officers and
controlling shareholders from diverting to themselves business deals
or potential deals that in fairness or in justice belong to the
corporation
d. Conflict of interest: when a director officer or controlling shareholder
personally contracts with the corporation
38. Limited liability companies (LLC)
a. Purpose: provide limited liability for all investors (called members)
b. Each members liability is limited to their capital investment plus
additional capital contributions promised to make
c. Many states require articles of organization with the state, and must
have Limited liability company, limited company or LLC or LC in the
name of the business
d. Organizers decide if managed by members or by managers
e. Under IRS regulations unless deemed a corporation it can elect pass
through taxation
f. Cons of LLC: new form of business
g. LLCs are governed by operating agreement
i. Organizers will decide if:
1. At will LLC
2. A term LLC
3. Or perpetual LLC
h. Series limited liability company