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Homework answers / question archive / What are the differences among the following relationships: employer-employee, employer-independent contractor, and principal-agent? What is “at-will employment?   Employer-employee (master-servant) - The servant is an employee whose conduct is controlled by the employer

What are the differences among the following relationships: employer-employee, employer-independent contractor, and principal-agent? What is “at-will employment?   Employer-employee (master-servant) - The servant is an employee whose conduct is controlled by the employer


  1. What are the differences among the following relationships: employer-employee, employer-independent contractor, and principal-agent? What is “at-will employment?


Employer-employee (master-servant) - The servant is an employee whose conduct is controlled by the employer. A servant can also be an agent.


Agent-principal – Agent acts on behalf of or for the principal, with a degree of personal discretion.


Employer-independent contractor - An independent contractor is not an employee, and the employer does not control the details of the independent contractor's performance. The contractor is usually not an agent.


At-will employment - You can be dismissed by an employer at any time.


  1. What is meant by respondeat superior and when does it apply?


Respondeat superior (let the master answer) – common-law doctrine that makes an employer liable for the actions of an employee when the actions take place within the scope of employment. This rule also means that employers may be liable for torts of employees that can be attributed to negligent hiring or supervision.


  1. What is the difference between actual and apparent authority of an agent? What is express authority? What is implied authority? What duties do principals and agents owe each other?


Actual authority - sometimes called real authority, given by the principal to the agent. Actual authority can come from express and implied authority.


Apparent authority – A principal can be bound by unauthorized acts of an agent who appears to have authority to act. apparent authority arises when the principal creates an appearance of authority in an agent that leads a third party to conclude reasonably that the agent has authority to act for the principal.


Express authority - express is based on oral or written instructions given by the principal to an agent. Suppose the owner of an apt complex hires a leasing agent and tells him to rent apartments at a certain price. The agent now has express authority to rent the apartments as instructed.


Implied authority - Often, when an agent receives express authority, he also receives implied authority to do whatever is reasonable to carry out the agency purpose. Suppose a landowner authorizes a real estate agent to find a buyer for some acreage. The landowner does not describe to the agent every step that could be taken. Even though the parties may not discuss their matter, the agent would have implied authority to post a "for sale" sign, advertise the property, etc., and other normal business practices unless instructed not to do so by the principal.

Principal’s duties to an agent:

  • duty to cooperate
  • duty to compensate
  • duty to reimburse
  • duty to indemnify (pay for damages or insure the agent against losses suffered while undertaking authorized transactions)


Agent’s duties to principal:

  • fiduciary - the agent occupies a position of trust, honesty, and confidence for the principal.
  • duty of loyalty
  • duty of obedience and performance
  • reasonable care
  • duty to account (for funds and property of his principal that have been entrusted to him or come into his possession)
  • duty to inform


  1. What is meant by “discrimination” and when is it illegal?


Title VII of the 1964 Civil Rights Act:

  • amended in 1972
  • Title VII makes it illegal for an employer of fifteen or more workers:
    (1) to fail or refuse to hire or to discharge any individual, or otherwise to discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment; or
    (2) to limit, segregate, or classify his employees or applicants for employment in any way which would deprive or tend to deprive any individual of employment opportunities or otherwise adversely affect his status as an employee because of such individual's race, color, religion, sex, or national origin.


Protected Classes:

Title VII requires equal employment opportunity regardless of race, color, religion, sex, or national origin. Congress sought to protect certain classes of people who had a history of discriminatory treatment in employment relationships.

Race, color, national origin, religion, and sex are the characteristics that determine protected classes for purposes of Title VII coverage.


Race - Reverse discrimination - preferential treatment to members of protected classes - is illegal, but if minorities or women are underrepresented in a certain job category, it is legal for an employer to see that more minorities or women are hired to increase their share of the jobs.


Color - Under Title VII, the term color refers generally to discrimination claims based on shade of skin. A small number of discrimination cases are in this category only, some brought by dark-skinned blacks against light-skinned blacks. Another example would be for a department store to refuse to hire a Hispanic woman to work at a cosmetics counter because they would prefer to have a blue- eyed blonde with light skin in that position.

National Origin - Discrimination has been held to exist where a person has a physical, cultural, or speech characteristic of a national origin group. Hispanics bring most suits under this category.


            Religion - includes all aspects of religious observances and practices.


Sex - Pregnancy Discrimination, Sexual Harassment.


Age - prohibits discrimination in employment against persons on the basis of age for persons over age 40. All employers who have 20 or more employees must comply.


  1. What are the differences among the following types of business organizations: sole proprietorship, partnership, corporation (“C” corporations and “S” corporations), limited partnership, and limited liability company?


Sole proprietorship - A person doing business for himself or herself is a sole proprietor; the business organization is a sole proprietorship. It is the oldest and simplest form of business organization.
The proprietor generally owns all or most of the business property and is responsible for the control, liabilities, and management of the business.
In a sole proprietorship, legally and practically, the owner is the business; capital comes from the owner’s own resources or is borrowed with the owner as debtor.
Perhaps the two greatest disadvantages of the sole proprietorship are the fact that limited alternatives exist for raising capital and the owner is personally liable for all business debts. Because the profits of the business are taxed to the owner personally, a tax return in the business’s name is not required so long as records of income and expenses are kept. The operational and record-keeping formalities of the business are at the owner’s discretion as long as various taxing and licensing authorities are satisfied.

Partnership - an association of two or more persons to carry on a business as co-owners for a profit. The partners or, more accurately, general partners, share control over the business’s operations and profits. Many attorneys, doctors, accountants, and retail stores are organized as partnerships. A “person” who is a partner in a partnership may be another partnership, a corporation, or some other entity.
At common law, a partnership was not treated as an independent legal entity.
State law now provides that, for many purposes, a partnership may be treated as an independent, legal entity. Thus, a partnership may sue or be sued and collect judgments in its own name. There are many forms of partnerships, including joint ventures.
Partnerships may be informal, and some come about by oral agreement; but courts prefer to follow documentary evidence of a partnership to make sure the parties have followed the requirements of state law.



Limited partnership - is a business organization made up of two or more persons (partners) who have entered into an agreement to carry on a business venture for a profit. Unlike in a general partnership, however, not all partners in a limited partnership have the right to participate in the management of the enterprise and not all are liable for partnership debts.
A limited partnership has at least one general partner and one or more limited partners. The general partners in a limited partnership are treated in the same manner as are partners in a general partnership. They have responsibility for managing the business and are personally liable to the partnership’s creditors.

In case of bankruptcy, the limited partner receives their shares of the profits and contribution first before other partners.
Limited partners are not liable for the debts or torts of the LP beyond their capital contributions. Limited partners lose their limited liability and become general partners if they take an active role in managing the business.

Corporation - an artificial person, or legal entity, created under state law.
A corporation’s articles of incorporation, along with an application, must be filed with the appropriate state office (usually the Secretary of State), along with payment of a fee.

The articles of incorporation usually provide the following:

  • Name and address of the corporation
  • Name and address of the corporation’s registered agent
  • Purpose of the business
  • The class(es) of stock to be issued and their par value
  • Names and addresses of the incorporators ?

After reviewing the corporation’s application for completeness, the state issues a certificate of incorporation. The incorporators then hold their first formal organizational meeting. At that meeting, the incorporators elect a board of directors, enact the corporation’s bylaws, and issue the corporation’s stock.
The corporation is a legal entity with rights and responsibilities separate from the owners. It is recognized under both federal and state law as a “person.”
A corporation consists of three major groups: the shareholders, the board of directors, and the managers.

  • Shareholders - own the corporation. Evidence of ownership is in the number of shares issued to various parties, which is now an electronic record rather than physical stock certificates. The shareholders are not responsible for managing the corporation and, indeed, are not allowed to exercise day-to-day control. Instead, shareholders elect the board of directors and vote only on matters that change the corporation’s structure or existence (such as a merger with another firm or an amendment to the corporation’s articles of incorporation).
    The shareholder has no legal relationship with creditors of the corporation.


  • Board of directors - the governing committee of a corporation, is specified in the articles of incorporation or chosen by the incorporators at the first corporate meeting.
    The directors must meet at least once a year and keep records of meetings or the corporate status may be lost.
    The board is the principal of a corporation; that is, on behalf of the corporation, it sets corporate policy and decides corporate business, such as the sale of assets, entrance into new product lines, major financing decisions, and appointment of corporate officers.


  • Managers - The corporation’s board of directors hires managers to run the business. The extent of managerial control and the compensation enjoyed by managers are matters of contract and agency law between the board and the managers. Once hired, managers have the same broad duties of care and loyalty as the directors.

C-corporation - Disadvantage: double taxation. Pay federals taxes and then income taxes paid by shareholders. Advantage: limited liability


S-corporation -  C corporations can elect, with the Internal Revenue Service, to be classified as an S corporation. Such corporations may have only one class of stock and may not have more than 100 shareholders.
The S corporation does not pay taxes, so it is like a partnership for tax purposes.

Limited liability company (LLC) - treat like a corporation for liability purposes but like a partnership for federal tax purpose. (partnership pays no income tax on income but pass the income through partner who pay tax on the share of partnership income. 
LLC DOES NOT allowed perpetual life.

Articles of organization, which is similar to a corporation’s articles of incorporation and contains basic information:

  • Company name (must include “Limited Liability Company” or “LLC”)
  • Address of the company or its registered agent
  • Whether the LLC is to be managed by its members or by a manager
  • Names and addresses of company members
  • Date (or event) upon which the company will be dissolved, if any
  • Whether any members are to be liable for company debts


  1. What is meant by “corporate formalities” and why are they important? What does it mean to “pierce the corporate veil”?


The court disregards the corporate entity by finding that the entity is a sham and that the owner(s) actually operate the business as a proprietorship or partnership.

The court can then impose liability on shareholders in instances of fraud, undercapitalization, or failure to follow corporate formalities.


  1. What are the differences in Chapters 7, 11, and 13 in bankruptcy law? What courts have bankruptcy jurisdiction?


Chapter 7 (page 359):

Before 2005 bankruptcy law, chapter 7 is commonly used. 
Chapter 7 means liquidation and fair distribution of the debtor's non-exempt assets to the creditors. Liquidating bankruptcy under Chapter 7 is available for businesses, but only individuals can use Chapter 7 to obtain discharge.
Most Chapter 7 bankruptcies are voluntary bankruptcies filed by the debtors.

A petition is filed with the bankruptcy court, which may be the federal district court or a federal bankruptcy court.

The filing is a statement of the financial affairs of the debtor, including a listing of all assets and liabilities, using specific forms.


The petition provides the following:

• Statement of the financial affairs of the debtor
• List of all creditors and their addresses, with amounts owed
• List of properties owned by debtor
• Statement of current income and expenses of debtor


Chapter 11 (page 362):

Applies to businesses that wish to remain in operation and not be liquidated. Many businesses are worth more if they can be kept alive, generating revenue, than if they are liquidated when debts are greater than assets.

Although Chapter 11 has been used to restructure some multibillion-dollar businesses, such as in the airline, asbestos, and automobile industries, most companies that file have assets worth less than $1 million.


Chapter 13 (page 359):

There is only a voluntary option under Chapter 13, which is filed like a Chapter 7 bankruptcy, and it is available only for individuals. Because a sole proprietorship is a business owned by an individual, it may be handled un- der the Chapter 13 option.
debtor filed a plan to pay debt in 5 years under installment repayment plan.
debtor keeps the estate's property and shares administration of the bankrupt estate with a court-appointed trustee.

The trustee collects income from the debtor and makes payments to creditors as called for by the plan that was approved by the bankruptcy court. The trustee is there to make sure that payments are made and to approve any changes in the debt and credit position of the debtor.

Unlike Chapter 7, the debts of the bankrupt party are not discharged.


The federal district courts have original and exclusive jurisdiction over all cases arising under the bankruptcy code and bankruptcy cases cannot be filed in state court. Each of the 94 federal judicial districts handles bankruptcy matters.



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