Agency Law And Business Entities Essay

2434 words - 10 pages

Franchise, sole proprietorship or corporation: which do I choose? There are many business entities to choose from when starting and operating a business. How does one choose the best fit for their goals and the goals of their new business? Well to answer these questions we must discuss the various business entities as well as laws that govern many aspects of business interactions with individuals and specifically with other businesses. These laws are referred to as agency laws.Barnes, Dwarkin, and Richards (2003) stated Agency law addresses three basic but fundamental questions:1.What duties do a principal and an agent owe each other?2.What is the liability of the principal and the agent on contracts made by the agent?3.When is the principle liable for the torts of the agent?Answering these questions is critical for clarity in business transactions that occur between two entities. These are the cornerstones on which the business world is built upon. Without these guiding principles many obligations to either the agent or the principal may go unfulfilled. The days of a handshake and a promise are over. The business environment relies heavily on such duties to run successful and profitable operations.Owning a business, organization or franchise is not as simple as one might assume. There are many things to consider when opening a business - the first and most important choice to make is what form of business - or what type of business entity - the company will take. There are approximately six forms of business entities that are most commonly undertaken and these are: sole proprietorships, limited and general partnerships, publicly held or close corporations, limited liability companies (LLCs), limited liability partnerships (LLPs), and franchises.A sole proprietorship is a business that is owned by one person only and is considered to be his personal property. The owner may hire and pay employees, but the financial and taxable duties and responsibilities as well as income derived from the business belong entirely to the owner.A general partnership is a business run by two individuals and the responsibilities and income derived from the conducting of business belong equally to both partners. In a general partnership, neither partner is entitled to be paid for their work performed and any losses sustained are equally shared amongst the partners - regardless of how much individual investment into the business either partner contributed. A limited partnership allows a general partnership to act more like a corporation by allowing outside investors invest in the business and share in the business profits without risking any more than they have invested.A corporation is different than a sole proprietorship or a partnership in that the business - or corporation - is considered legally separate from its owners (or the shareholders). The corporation is considered its own legal entity and the losses sustained by the company belong to the corporation -...

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