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ADMS 2610 Study Guide - Final Guide: Limited Liability Partnership, Public Company Accounting Oversight Board, Bailment


Department
Administrative Studies
Course Code
ADMS 2610
Professor
Robert Levine
Study Guide
Final

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LAW OF AGENCY CH 15
This law is concerned with the relationship that arises when a person either
expressly or impliedly used the services of another to carry out a specific task on
his behalf.
Most usually needed for negotiating but also. (Lawyers, real-estate) etc.
The law of agency has its roots in the law relating to: Tort, contract, quasi-
contract, and equity.
If the act of an agent is done, the act will bind the principal. Once the agreement
is executed, the agent drops from the transaction, and has neither rights nor
liabilities under it.
Principal is deemed to know everything the agent knows from third party.
Principal: The person on whose behalf an agent acts
Agent: The employed to act on behalf of another.
Agency by Express Agreement: An Agency relationship established by an express oral
or written agreement Terms and conditions are set out in a document for future
references.
Agency by Conduct/ (by estoppel): An agency relationship inferred from the actions of
a principal. Cannot be later denied is a third party relies on the representation.
oThe Authority of the Agent would not be real but apparent, but the binding effect
of his actions would be real. The failure to act by the principal (informing third
party that the agent has no authority) would bind him to the agent’s actions.
Apparent Authority: The ability of an agent to bind the principal where the principal
has not notified third parties of the restricted or terminated authority of the agent.
- Ex. A retailer has the implied authority to sell goods in his possession.
Agency by Operation of Law: (of necessity) Agency that may rise in certain
circumstances out of necessity where it is not possible to obtain the get the principal’s
authority to act:
- Rare thanks to technology (limited)
- A shipmaster sells the cargo in an emergency, even without authorization.
Principal/Agent is a relationship of utmost faith.
If agent benefits from the third party and does not inform the principal, he may
not be entitled to claim his commission.
- Sometimes principals may want to take advantage of a contract even though the
agent had no authority. To accept the contract, principal has to Ratify in order
to be bound
- Generally applies to corporations rather than individuals.

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- The Subject matter of contract must be something the principal had the capacity
of doing when it was signed, and at the time of ratification must be made
within reasonable time Conduct can also bind Accepting benefits.
Disclosed Agency: Agent must notify 3rd party he is acting as an agent [Mary Smith
per (per procurationem) Jane Doe]
- If Principal does not whish to have his name disclosed, agent can use his.
Fictitious Agency: liability would fall onto agent if the contract was on behalf of fictitious
or non-existent agent. (Can lead to fraud if purposely done)
3rd party can sue either the principal or agent, but Not Both.
False statement by mistake made by agent, can excuse the 3rd party on basis of
innocent misrepresentation
Principal’s bankruptcy may render agent liable to pay damages to 3rd party
LAW OF SOLE PROPRIETORSHIP AND PARTNERSHIP CH 16
Sole Proprietorship: Sole owner is responsible for management, debts and liabilities
Need not be registered in most provinces
Advantages: Easy to get started, requires little cash, high degree of flexibility.
- There is no legal entity between the person and the business which can lead to
huge tax advantages.
- Registration/licensing can be completed online (Municipal license) Essentially
needed to provide creditors with info about the business.
- You can deduct business expenses from other sources of revenue, if you run
business from home you can a portion of your home expenses such as telephone,
hydro, mortgage and insurance (usually 10%)
Disadvantages: Has unlimited liability to the business activities
- Limitation of ability to raise capital without putting your house up for collateral,
(you can protect the home by placing it in your partners name and buy insurance
to cover most eventualities, and skill limitation
Partnership: Legal relationship between two or more persons to carry on business with
view to profit. Must consist of at least 2 parties (Partnership Act)
Partners have an obligation of strict liability to 3rd parties injured by the
partnership, including its employees
Started with merchants who banded together for protection against thieves
Ex, Social clubs, charitable organizations are not partnerships.
If parties have contributed capital and have participated in management, such
actions would indicate a partnership.
Lending institutions are more willing to extend credit to partnerships than to sole
Partnership vs. Co-ownership:

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Partnership is a contractual relationship while Co can arise in many ways Ex,
succession and inheritance of property.
Partnership is based on mutual trust; Co can be alienable without consent of the
other Co-owner.
Co is agent of himself, while partner is agent of other partners
Partnership is subject to Partner Act, so operations and dissolution are regulated
by it. Co may be dissolved or terminated under the legislation’s procedures
Under the Act, new partners are not liable for previous debts, unless he desires to.
Joint and several Liability: One partners actions or statements create liabilities for all
partners.
Majority of partners may not expel another partner If they whish to, they must
terminate partnership.
Partner may not engage in other business similar to the one he is part of, without
consent of other partners. If doing so without consent, any profits earned in the
competing business could be claimed be the partnership.
Once notice of dissolution is given, the assets of the firm must be liquidated, and
the share ratably for capital contributes must be determined Shares are given
only after assets are sold.
Whether for dissolution or retirement of one party, customers must be informed at
all time.
If one partner is insolvent, the remaining partners are liable for the debt.
Limited Partnership (Societé en comandite): A partner who may not actively
participate in the management of the firm, but has limited liabilities Relinquish their
ability to manage the business in exchange for limited liability from debts. (Usually for
bigger businesses)
Such investments are considered as “income trust” given special tax advantages
May not withdraw capital invested until dissolution
Every limited partnership must have a one or more general partners (full partner)
Limited Liability Partnership (LLP): A partnership where partners are liable for
general debts and liabilities of the firm, but not for the negligence of other partners. (And
staff they directly supervise and control) To protect himself a partner should maintain
his own Errors and Omissions’ Insurance to cover liabilities Ex. lawyers and accountants
Joint Venture: A business relationship between corporations. Good for Taxation
Income Tax Act wants income earned by a partnership “flows through” the
partnership without taxation. It is split up and divided among partners, then, it is
taxed according to tax rate applicable to them.
CORPORATION LAW CH 17
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