Legal & Ethical Environments Of Business

Sample Solution

   

An agency relationship is created when one person (the principal) consents to another person (the agent) acting on his behalf, subject to the P's control, and the A agrees to do so. The agent has the authority to act on behalf of the principal and to bind the principal to contracts.

There are three ways to create an agency relationship:

• Express agreement: The principal and the agent explicitly agree that the agent will act on behalf of the principal. This agreement can be made orally or in writing.

Full Answer Section

   

• Implied agreement: The principal and the agent implicitly agree that the agent will act on behalf of the principal. This can happen through the conduct of the parties or through the circumstances of the situation.
• Ratification: The principal ratifies the actions of the agent after the fact. This means that the principal retroactively approves of the agent's actions and agrees to be bound by them.

Once an agency relationship is created, the agent has certain duties to the principal. These duties include:

• Fiduciary duty: The agent must act in the best interests of the principal. This means that the agent must not put their own interests ahead of the principal's interests.
• Duty of obedience: The agent must obey the reasonable instructions of the principal.
• Duty of care: The agent must exercise reasonable care in performing their duties.
• Duty of loyalty: The agent must not compete with the principal or act in a way that is harmful to the principal's interests.

The principal also has certain duties to the agent. These duties include:

• Duty to compensate: The principal must compensate the agent for their services.
• Duty to indemnify: The principal must reimburse the agent for any losses that the agent incurs while acting on behalf of the principal.
• Duty to cooperate: The principal must cooperate with the agent in performing their duties.

Limited Partnerships A limited partnership is a type of partnership in which there are two types of partners: general partners and limited partners. General partners have unlimited liability for the debts of the partnership, while limited partners have limited liability. To create a limited partnership, the partners must file a certificate of limited partnership with the state. The certificate must include the name of the partnership, the names of the general partners, and the name of the registered agent. The general partners manage the partnership and are responsible for its debts. The limited partners do not participate in management and their liability is limited to the amount of their investment in the partnership. Limited partnerships are often used to raise capital for businesses. The limited partners provide the capital, while the general partners manage the business. Insider Trading and Short Swing Profits Insider trading is the buying or selling of a security based on material nonpublic information. Material nonpublic information is information that could affect the price of a security if it were known to the public. Short swing profits are profits that are made by buying and selling a security within a six-month period. Insider trading and short swing profits are both illegal. Insider trading is illegal because it gives the insider an unfair advantage over other investors. Short swing profits are illegal because they are made by taking advantage of the lack of knowledge of other investors. The Securities and Exchange Commission (SEC) enforces the laws against insider trading and short swing profits. The SEC can bring civil charges against individuals who violate these laws. The SEC can also bring criminal charges against individuals who violate these laws.