Business Law Questions - Essay Example

? Business Law Questions Number Question1: “Basic agency law principle can be used by a good plaintiff’slawyer to achieve comparable results to ‘alter ego’ judicial theories in most ‘pcv” situations.” Critically discuss and evaluate this statement. The law of agency can be construed by a sharp attorney representing a plaintiff to support a transfer the ownership of a property in question to the agent in a similar way as alter ego theories. Basically, the agency law in PCV situations involves an array of agreements that bring together the agent, and the principal in which case the former becomes mandated under the law to assume the responsibilities of the latter to formalize a legitimate agreement to work with a third party (Steinberg, 2012). Under such a scenario, the agent automatically assumes the principal’s role, thus can enter into business deals and negotiation with third parties. According to Steinberg (2012), the agency law guides the operation of agents and the third parties whom they have business dealings with; and provides for principals to play a second fiddle to the agents when the latter acts on their behalf. The reciprocal privileges and responsibility between signatory parties to a contract mirrors business and legal practicalities. A business proprietor usually relies on a worker or another individual to operate an enterprise. When dealing with a corporation, which generally is a conjured legal entity, human agents take precedence. In such a case the principal is required by the law, through the agreement signed by the agent to play a second fiddle in the running of the business or being held responsible in case of any liability. An agent’s lawyer can therefore argue that the law grants the agent sweeping powers to execute his or her role within the jurisdiction of the organization to exercise his or her will. When an agent legally assumes control of the business, a third party may entrust his or her details and deals with the agent and enter into an agreement with the principal’s representative if he or she introduces himself so (Brams, 1999). And owing to the technicalities witnessed by those who would want to corroborate the identity and or authority of the agent, most of third parties often show willingness to work with the agent and disregard any other party regardless of their superiority. It is in such a scenario, the corporation can be deemed as the “alter ego” of the agent. Agency powers The law of agency provides the agent with three legal milestones that whoever occupies the position can tacitly exploit to his or her advantage. First, the agency enjoys actual authority. Actual authority which is enjoyed by the plaintiff often arises in two ways: either where the principal expressly confers power on the agent, or where the authority is implied (Brams, 1999). Authority is a product of consensus, and its implementation is usually based on fact. Therefore, the law of agency grants the agent protection from the principal, especially where the former has acted within the agency’s mandate, as provided for under implied powers. Secondly, implied actual authority, or the usual authority, refers to powers that an agent enjoys by virtue of being fairly necessary to exercise his or her express authority. Implied actual authority can be assumed by the agent owing to his or her role as the principal’s proxy (Steinberg, 2012). In a nutshell, in any case the agent makes a decision regarding the business they have assumed control of, the decision is deemed binding and the principal will be expected to comply with the agent’s move. Such a scenario makes the property in the hands of the agent an alter ego of himself or herself. Question 2: Hypothetically, starting from a blank state legislative slate, the only form of business organization that would be needed today would be the Limited Liability Company form. Analyze and critique this statement. A limited liability company (LLC), is a corporate structure that integrates the pass-through taxation features of a sole-proprietorship or a partnership with the corporation’s limited liability privileges. These qualities make LLC to be at odds with “harsh” contemporary tort law stipulating the liability of enterprises to risks. Steinberg (2012) argues that the widespread establishment of LLC regulations has been a much-expected development in Business law. Because an LLC can offer shareholders free-hand in case of liability; enable them to evade harsh taxation laws, and enjoy better organizational evolution than a corporation or a limited partnership, Brams (1999), notes that it is apparent that the business is set to become popular in the future. Steinberg (2012) compares LLC with more conventional business forms and indicates why the business is such a better choice for investment. Previously, investors who were keen on taking part in organizational leadership to succeed in pass-through taxation policies were primarily limited to adopt the partnership structure, an option requiring partners to carry the burden of personal liability for the commitments of the organization. However, under LLC, investing partners have the leeway to avoid harsh laws and limit their liability to the percentage of their original venture. Whereas, in limited partnerships, members may forfeit their limited liability if they took part in the management of the business, LLC members have the leeway to exercise organizational control. Blurred Impact of LLC on society According to Steinberg (2012), the new business structure may be an imperative option for investors; however, its effects on the general society remain unclear, perhaps because states usually impose fewer regulations on them. Notably, such businesses effectively limit federal tax levied on corporate entities by allowing a greater number of them to attain the goals of corporate status without being obligated to remit the taxes, which are often mandatory for such entities. This development is usually realized without the much hyped debate that accompanies high profile legislations receive, and as such, the businesses are more likely to stay out of public scrutiny. As partnerships increasingly adopt LLC statuses, and as newly registered businesses join the fold, the number of shareholders who are cushioned by limited liability will increase (Steinberg, 2012). This brings into fore the debate on the desirability of LLCs. Corporate limited liability enables businesses to spread some of their risks to outside forces. It also provides room for business organizations to take part in risky practices, deliberately and driven by the fact, although the absolute gains in the business will trickle down to partners, the risks of failure can be shared among partners, whose loss is limited to their original investment. Moreover, as creditors debtors’ losses are often reduced to the amount of money they borrowed, those affected by the developments in the corporation, usually have their damages prospectively unlimited (Brams, 1999). According to Steinberg (2012), LLCs are an acceptable form of investment as it limits investor liabilities. This is unusual considering the fact that there have been extensive arguments and counterarguments about corporate limited liability. It is also startling considering the fact that there have been increasing cases of courts lifting the corporate veil. It is notable, though, that LLCs are similar to close corporations, in the sense that the latter can be run by investors who enjoy limited liability benefits. Yet businesses with close corporation qualities have been the target of most state legislations and policy regulations. The close scrutiny of close corporations has resulted in courts holding shareholders personally liable for the risks bedeviling such businesses. The uneasiness of investors with limited liability within the context of close corporation should serve as an indicator for caution, regarding to passing over of limited liability to another group of executives owning the business, such as LLC partners. However, LLCs are better because they limit liabilities extended to members and can easily operate in the current environment where tort law limits the scope and operations of companies. Question 3: In terms of the closely-held enterprise and the allocation and maintenance of control, we spent considerable time discussing the centrality of major contracts such as the partnership agreement, operating agreement and shareholder agreement. However, for the closely-held corporation, in most cases, for purposes of allocating and maintaining control, one needs only the relevant corporation statute, the articles of incorporation, the corporate bylaws and the share certificates. Analyze and critique the foregoing sentence. On the one hand, closely-held enterprises have unique features which define their context of allocation and management. The existence of the "prudent investor" policy in most states provides for the inclusion of special investments into the fiduciary, such as special purpose limited partnerships, risk arbitrage, hedge funds, and venture capital (Steinberg, 2012). Closely-held businesses define parameters of risk in an entirely different way as compared to closely-held corporations hence the need for implementation of more regulations, which are aimed at safeguarding the interests of the inventors. Closely-held enterprises are trickier to run. For instance, determining the value of assets usually involve issues such as bankruptcies, liquidations, demise of the proprietor or a shareholder and forced sales, which are basically challenging. Special assets in most of closely-held businesses have two characteristics in common. These assets have an entirely limited or no significant market, thus they exist in very illiquid form, and smaller shareholders have minimum or no influence over the basic property of the entity. The lacking state of liquidity alongside issues of minimal control transform these assets into largely risky investments compared to assets whose shares can be put up for trading on stock exchange (Steinberg, 2012). Moreover, the lack of public knowledge on closely-held business assets requires painstakingly proactive monitoring systems by the fiduciary to stem any cases of impropriety. On the other hand, closely-held companies are firms whose operations and managerial decisions are controlled by a small team of shareholders. Most of companies in the United States exist in this form. These companies vary from those that are publicly traded, in which possession is broadly expanded and the company is run by a professional team of executives. Most of these companies belong to families. According to Brams (1999), family-owned companies are defined as those businesses where the connection between the social unit and the company is premised upon mutual factors and are driven by the aspirations and goals of the family. According to Steinberg (2012) families owning closely held companies have fewer restrictions, and as such, they can decide the fate of the business with relative ease. Closely-held companies do not need to conform to Securities and Exchange Commission regulations which guide the liberal trade of traded shares, thus they tend to be free from hostile takeovers. Most of closely-held companies remain in the hands of a limited number of shareholders, or even just a sole proprietor, therefore in case of any risks, the public will escape unscathed. Additionally, unlike in closely-held enterprises, compelled by the law and ethics to prioritize the interests of the shareholders by ensuring that profits are maximized, in closely held corporations, shareholders can decide to sacrifice profitability, and engage in charity work. This unique way of operation and the internalization of the risks within the family shareholders calls for a more slacken approach to dealing with closely-held companies as opposed to closely-held enterprise. In contrast, closely-held enterprises, business operations carry huge risks to the public; however those operations often remain out of public limelight. In a nutshell, whereas, a few closely-held enterprises exist past three generations of ownership, most of such businesses cave in before they attain the status. Their failure can be attributed to several factors which range from poor management, to personal technicalities, to economic crises (Brams, 1999). In light of these risks, regulatory bodies often impose harsh penalties on such businesses in order to cushion the investors from losses. Closely-held companies are spared of most of these restrictions, mainly because the businesses are controlled by families or individuals, and as such the public is not expected to suffer from any risks should they collapse or face economic difficulty. Question 4: “As ‘fiduciary duty’ legal status is a construct of ‘equity’, this is an inefficient legal construct that ought to be left to statutes and contracts.” Critically evaluate this statement. A fiduciary duty binds parties in a contract to act in their best interest, thus guarantees equity (Steinberg, 2012). Fiduciary is a legal construct that ensures the agent is extremely faithful to the principal, the party to whom he or she owes the responsibility. The agent is not expected to prioritize his individual interests. This implies that the agent must not take advantage of his or her new position without the consent of the principal. In most jurisdictions, fiduciary is perhaps the most imperative legal philosophy within the context of equity. For instance, in Western countries, judicature laws brought together the juries of equity and the common law courts and culminated in the philosophy of fiduciary responsibility becoming a key aspect of the courts dealing with common law cases. There are two main reasons as to why the fiduciary duty may not be effectively taken care of under equity laws. First, fiduciary duty leans more on common law that civil law. This implies that by codifying fiduciary duty in equity laws, regular constitutional amendments may be necessary in order to ensure that court decisions and contracts are in line with the changing trends in society. Societies usually have unique features which dictate their identity with regard to social and legal issues. This implies that, though predominant qualities exist, there are other secondary cultural ideologies that define human interactions, though to a lesser extent. This kind of diversity exists in each society and results in changes and mergers of social trends, and relations (Steinberg, 2012). Even though, it is arguably incorrect to reason that societies have witnessed a linear kind of evolution that is in line with their dominant social relations, from class to agreement to fiduciary ties, transformations in the main relations can be easily discernible. In light of the diversity in cultural relations, a fiduciary duty effectively reflects these transformations in societal organization. Thus, the importance to recognize and build up a distinct structure of fiduciary law is mainly driven by the notion that different societies are undergoing evolution into one developed around fiduciary relations to guarantee justice. The structure of law governing fiduciary affairs is largely malleable to social changes in society and thus codified equity laws may prove ineffective. Secondly, when implementing a fiduciary duty, equity is often premised upon unique and arguably firmer criteria that describe the agent’s actions than the equivalent tortuous responsibility of concern under common law. The complexity of how the agent should carry themselves often vary from one case to another, and as such codifying the fiduciary under equity laws may require a lot of effort to take care of the unique cases where the concept is required (Steinberg, 2012). For instance, it is common knowledge that the fiduciary has an obligation not to engage in a case where an individual’s welfare and the fiduciary duty clash; a responsibility not to be involved in a case where his or her fiduciary duty contradicts with another fiduciary responsibility, and an agent’s duty to refrain from benefitting by virtue of a fiduciary position devoid of the principal’s consent. Fiduciary relationships arise in a number of legal scenarios: agreements, trusts and selection of corporate directors, and wills among other places. This makes it difficult to codify the rules guiding the various processes and implement them to the letter. In a nutshell, the fiduciary duty is a form of equity for all time. This is because fiduciary relations are very complex and responsive to social changes, and thus if taken care of under equity laws, the end result could be a counterproductive scenario where a new society is being governed by outdated laws, mainly because legal amendments are usually difficult to implement form time to time. References Brams, J.B. (1999). Franchising Law Symposium: Article: Franchisor Liability: Drafting Around the Problems with Franchisor Control. Oklahoma City University Law Review, 24(65), 1-8. Steinberg, M.I. (2012). Developments in Business Law and Policy. New York: University Readers. Read More