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Legal Issues; Final Research Team B Paper

University of Phoenix

BUS415 Business Law


Table of Contents


I. Agency Law

A. Agency Relationships

B. Agent Business Duties

C. Agreement Termination

D. Liability

E. Employment Relationship

II. Business Entities

A. Entity Options

B. Sole Proprietorship

C. General Partnership

D. Limited Partner

E. “C” Corporation

F. “S” Corporation

G. Limited Liability

III. E-Business

A. Electronic Business

B. Supply Chain

C. B2B Supply Chain


In the current global way of doing business today, companies starting out must understand the choices they have such as duties and liabilities involved in Agency Law, the business entity they choose. In today’s market, the company must embrace the Internet using e-business. Agency Law is the relation between agents, principal, and third parties and is an important aspect of conducting business to ensure success. An assigned person acting as an agent should be aware of the potential to create third party liability for which they may be responsible. If an agent breaches his duties, it can result in liability to the principal. The business entity chosen by a company plays a big role in maintaining a strong business. There are several business entities that will be discussed in this paper along with the tax liabilities involved in the different types. In addition, Team B will discuss the electronic business and the value chain, or supply chain. The business-to-business supply chain will be discussed showing the advantages of dealing with higher volumes for business transactions, as compared to the business-to-consumers marketing strategy.

Agency Law

Agency Relationships

When forming an agency relationship there will be an appointed person called the agent whom will act for the benefit of, and under the direction of, another (the principal). Business agency relationships typically develop through an agreed contract by two parties and occur in varying styles. Agency law focuses on the relationships between principals, agents and third parties. Agents work with these parties on behalf of the principals. Agency law has developed over the years and primarily derives from common law (Cheeseman, 2004).

Creation, duties, termination, and liabilities are the four unique sections of agency law in business. Creation of agency relationships in business is formed through a contractual agreement between the principal and agent, and typically results in agent compensation. Some business agency relationships are formed even when both parties do not intend on creating an agency relationship. For example, if a franchise’s advertising and marketing is controlled from the parent company to a point where the franchise’s sales are affected then an agency relationship exists between the franchise (agent) and the parent company (principal), even when the relationship is not expressed.

Agent Business Duties

Business duties of an agent to the principal typically derive from a written or oral contract or common law. The business agency relationships consist of five basic common law duties: duty of loyalty, duty to obey instructions, duty to exercise care and skills, duty to communicate information, and duty to account for funds and property (Cheeseman). Of the five common law duties, the most important common law duty an agent owes the principal is the fiduciary duty of loyalty. The duty of loyalty ensures that the agent is trustworthy and is always acting in the best interest of the principal. The other four duties are equally as important to the relationship between principal and agent, and build upon the importance of loyalty.

Agreement Termination

Business agency agreements typically have specific language surrounding when or how the agency is to end the relationship. Some terminations are based on a specific period such as a one-year contract between a company (principal) and a vendor (agent). Other terminations are written to expire once a project is completed. When a business contract does not specify an expiration time, the agency automatically ends when the results that the agency was created for has been reached. Agency at-will terminations can occur at any time between the two parties. Business relationships between employers (principal) and employees (agent) are eligible for at-will termination. At-will terminations are governed and cannot be based on race, color, sex, religion, national origin, or age. Most international business agencies do not participate in at-will terminations, and require reasonable notice and some sort of severance pay for terminating the relationship.


The liability of the agency extends past the principal and agent involved in business relationships. For example, an agent may involve a third person whom may become affected by the decisions of the agent, and is acting on behalf of the principal. Misrepresentations, actions of subagents, and agent’s knowledge and skillfulness are areas where agency liability can affect a business relationship. Actual authority may be expressed or implied, in which true authority is granted, by the principal to the agent. Expressed authority occurs when the principal specifically discloses the extent of the agent’s power. An administrative assistant may express authority to approve certain invoices on behalf of the actual principal or agent. A more generalized authority is applied authority, which allows the agent the authority to do whatever is reasonably necessary.




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