BTC1110 Lecture Notes - Lecture 9: Real Estate Broker, Sole Proprietorship, Legal Fiction
PARTNERSHIP LAW
• The two most common kinds of business organisations: partnerships and corporations and
agency principles that affect them both
• The choices and central feature of each business organisation:
- Agency – acting through another person
- Sole trader – going it alone
- Trust – holding property on anothers behalf
- Partnership – sharing the pain and the gain
- Corporation – the legal fiction that rules the business world
Comparisons:
Agency:
• A person who acts in the name of and on behalf of another
• All commercial activity relies on agency - one of the genuine cornerstones of business activity
• Examples
- Real estate agent acting as a vendor, a person who buys goods or services on behalf of
another person
- A sales assistant in McDonald's who sells burgers to customers
• In relation to p'ships: agency principles are so much a part of the way p'ships work that they
are regarded as a branch of agency law
- One difference - each partner is both an agent and a principal of the others
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- Partners can bind each other and be bound by the actions of their partners
- The fidicuairy obligations that the charaterise the duty and agent owes to a principle
flow both ways
• In relation to corporations: it is a legal entity
- Inevitably has to work through agents such as its directors, officers and employees
Sole Trader:
• The simplest form of business organisations: one individual doing business on his/her own
• Most common form of business organisation - does NOTgenerate revenue of the other
organisations
• Advantages:
- Simple and inexpensive
- Easy to dissolve
- Lower compliance costs and regulatory considerations
- Taxation is personal
- Trader has total contraol and management rights
- Entitled to all the net profits
• Disadvantages:
- Unlimited personal liability for the debts of business - exposed
- No inherent continuity or succession (e.g. if trader dies)
- Often difficult for trader to borrow money
Trust
• Created when one person (settlor) transfers legal ownership of property to another person
(trustee) with instructions that the property is to be administered for the benefit of another
(the beneficiary)
• Essence of a trust is constant
• 391
• Advantages:
- Not a separate legal entity
- Use of corporate trustee enables business to trade under limited liability (i.e.
beneficiaries not personally liable for debts)
• Disadvantages:
- Complex structure that requires considerable work
- Ongoing accounting and taxation complexities
- Trust is taxed if profits generated by business are not distributed
- Trustee has significant responsibilities - can be held accountable by the beneficiaries
Partnership
• Consists of two or more individuals in a business together
• e.g. family café business, big legal/accounting firm
• Advantages
- Inexpensive to establish and dissolve
- Less regulatory and compliance costs than corporations
- Greater potential to obtain loans
• Disadvantages
- Partners at risk of personal liability for the debts of the firm
- Life of a partnership is limited
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find more resources at oneclass.com
Corporation
• Most powerful and valuable form of business organisation
• e.g. $2 shelf corporations, publicly listed corporations worth trillions
• Advantages
- Limited liability of the owners (shareholders)
- Perpetual succession - ownership of public company can change but he corporation
goes on until it is deregistered
- Greater opportunity to raise capital, particularly with public corporation
• Disadvantages:
- More closely regulated with much greater disclosure rules
- Greater organisational responsibilities
- Management has significant statutory duties with serious sanction for a failure to
comply
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Partnership law: the two most common kinds of business organisations: partnerships and corporations and agency principles that affect them both, the choices and central feature of each business organisation: Partnership (cid:858)sharing the pain and the gain(cid:859) Corporation (cid:858)the legal fiction that rules the business world(cid:859) Agency: a person who acts in the name of and on behalf of another, all commercial activity relies on agency - one of the genuine cornerstones of business activity, examples. Real estate agent acting as a vendor, a person who buys goods or services on behalf of another person. A sales assistant in mcdonald"s who sells burgers to customers: in relation to p"ships: agency principles are so much a part of the way p"ships work that they are regarded as a branch of agency law. One difference - each partner is both an agent and a principal of the others. Partners can bind each other and be bound by the actions of their partners.