Chapter 54 Small Business Organizations and Agency, Condensed

Learning Objectives

After reading this chapter, you should understand the following:

  1. Various ways in which a small business may legally organize itself
  2. The liability rules associated with small business forms
  3. Ways to maintain a liability shield
  4. How to create agency relationships
  5. The liability rules that are created in agency relationships

One of the major decisions involved in starting, or growing, a business is how to legally structure the business entity. If one does nothing, then a sole proprietorship is created. This has great flexibility but unlimited personal liability. If one starts a business with another, but takes no legal steps, a general partnership has been created. Again, this offers unlimited personal liability. In contrast, creating a business entity like an LLC takes little effort and offers the owner protection against lawsuits.

Once a business has been created, often other people must accomplish tasks for the business. This invokes an area of law called "agency", which governs actions one does on behalf of another, subject to their control. We will learn, for instance, when a business may find itself responsible for the torts of its employees.

This chapter offers a condensed version of Chapters 38 through 42, inclusive. If you wish to explore an area in greater detail, many of these issues are treated much more extensively in those chapters.