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Exam Two Study Guide- HughesChapter 33-34 (Agency)-More than half the exam and ALL of the hard questionsChapters 42-43( Employment)Chapters 35-41 (Business Organization)- will include 30/50 questions only from Con-nect Test Bank. Chart on blackboard that has all the types of business organizations and the traits associated with them. Information from these chapters to be studied only in the context of the chart. Chapter 33- Agency formation and dutiesI. Introduction to Agency LawA. Agency- generally defined as a relationship between a principal and an agent. More elaborately defined as “the fiduciary relationship that results from the mani-festation of consent by one person to another that the other shall act in his behalfand subject to his control, and consent by the other so to act”1. Fiduciary- a person who has a duty to act primarily for another person’s bene-fitB. Agency relationship- an agent is authorized to act for and on behalf of the princi-pal who hires the agent to represent himself. C. US companies operating in foreign countries often hire agents in other countries who know the local laws II. Creation of the Agency RelationshipA. Agency relationships- are consensual relationships formed by informal oral agreements or formal written contracts. Two Criteria1. They can be created only for a lawful purpose2. Almost anyone can act as an agent, however, an individual who does not have contractual capacity, such as a minor, cannot hire an agent to make contracts on his behalfB. As long as these two criteria are met, agency relationships can be created on thebasis of any of the following four forms of authority1. By expressed agency or agency by agreement2. By implied authority3. By apparent agency, or agency by estoppel4. By ratificationIII. Four types of agencyA. Expressed Agency (Agency by Agreement)- when parties form an agency rela-tionship by making a written or oral agreement. This is the most common type. If it is written it must meet all the elements of a contract1. Power of attorney- established an agency by agreement that gives an agent authority to sign legal documents on behalf of the principal.a) often given for business and health care purposed. b) An agent cannot make decisions about a principal’s medical care if the principal cannot unless the principal preemptively enacts a durable power of attorney.(1) Durable power of attorney- a written document where the principal ex-presses his wished for an agent’s authority not to be affected by sub-sequent incapacity. B. Agency by Implied Authority- if a homeowner asks a real estate broker to sell his house authority is implied, however implied authority cannot conflict with expressauthorityC. Apparent Agency (Agency by estoppel) - if a principal falsely leads a third party to believe another individual serves as his agent. Can only be created on the actsof the principal, never on the basis of what the purported agent says or does1. Third party must demonstrate the following to be able to make agreements enforceablea) that he reasonably believed, on the basis of the principal’s conduct, that an agency relationship existed. D. Agency by Ratification- if an person misrepresents himself as an agent of an-other the other is not required to uphold the agreement, however if he does, he has accepted the agent and is bout by the contract.1. An individual must misrepresent himself as an agent for another party2. The principal must accept or ratify the unauthorized acta) For ratification to be effective, two additional requirements must be met(1) the principal must ratify the entirety of the agent’s act(2) The principal must have complete knowledge of all material facts re-garding the contractIV. Agency RelationshipsA. Principal- Agent Relationship- typically exists when an employer hires an em-ployee to enter into contracts on its behalf. Most common and basic. Sales clerks.B. Employer- Employee relationship- whenever a employer hires an employee to perform some sort of physical service. Subject to employers control. Generally allemployees are agents of the employerC. Employer- Independent contractor relationship 1. Building contractors, doctors, stockbrokers, and lawyers are all independent contractors. They are also agents, but not employees. But they cannot enter into contracts on behalf of the principal unless the contractor possesses au-thority from the principal. D. Employee or independent contractor?1. employee-employer relationship is subject to workers’ compensation, work-place safety, discrimination, and unemployment statutes while the employer- independent contractor relationship is not. 2. Employees a) do not engage in a distinct occupation or an independently established businessb) Their work is done with supervisionc) Employer supplies toolsd) No specialized skille) employed for a long timef) is a regular part of the employer’s businessg) Regular payments3. Independent Contractor a) engages in a distinct occupation or an independently established busi-nessb) Their work is done without constant supervisionc) Employer does not supply toolsd) Specialized skille) employed for irregular amount of timef) is not a regular part of the employer’s businessg) Payed when job is completeV. Duties of the Agent and the PrincipalA. Principal’s duties to the agent1. The principal owes specific duties to the agent, Failure to fulfill these rights provides the bassi for a tort or contract action against the the principal. a) The duty of compensation- principal must compensate the agent for the services provided unless the partied have agreed the agent will act gratu-itously. Principal must also compensate for any damages incurred within the scope of the agent’s duties. b) Duty of Reimbursement and Indemnification- the principal has a duty to re-imburse or indemnify the agent for any authorized expenditures or any losses the agent incurs in the sources of working on behalf of the princi-pal.c) Duty of Cooperation- must assist the agent in the performance of his du-ties. d) Duty to provide safe working conditions- including equipment and premisesB. Agent’s duty to the Principal- 1. When an agent fails to fulfill his duties to the principal, that failure provides thebasis for a contract or tort action against the agenta) Duty of Loyalty- agent has a responsibility to act in the interest of the prin-cipal. including avoiding conflicts of interest and protecting the principal’s confidentialityb) Duty

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SC ACCT 324 - Exam Two Study Guide

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