Business Organizations

Business Organizations - Business Organizations Professor...

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Business Organizations Professor Perino I. GENERAL INTRODUCTION A. Business Organizations: A business organization is an organization which does not rely solely on market transactions and self-performed labor. This usually means that there are co-owners or employees. B. Ways to Structure an Investment 1. sole proprietorship: one person owns, operates, has all responsibilities and collects all profits. Often a sole proprietorship is not a business organization at all, it simply consists of one individual running a business solely through market transactions and self- performed labor. 2. Implicit Team: Two businesses which remain separate entities but work together. 3. Explicit Team: Two businesses which remain separate entities but enter into a contract to work together. a. discrete contract: a contract which tries to anticipate all possible future disputes b. relational contract: a contract which does not try to anticipate future disputes but provides a mechanism for dealing with them when they arise. 4. Form a Firm a. corporation b. limited liability company c. general partnership d. limited liability partnership C. Factors to Consider in Deciding How to Structure Your Investment 1. Transaction Costs: The costs of getting things done (lawyers fees etc.) a. Bounded Rationality: the limits of what you know, inability to predict the future etc. b. Opportunism: an individual pursuing selfish interests at the expense of those with whom they deal c. Team-specific Investment: an asset which has a lesser value if used outside the team. 2. Expected Return: Possible Return X Probability = Expected Return 3. Tax Consequences 4. Limited Liability II. A. Definition of Agency: Restatement of Agency §1: Agency is a fiduciary relationship created by a manifestation of mutual consent that the one shall act on the others behalf and subject to his control . B. Fiduciary Duty: Agents do not have the natural incentive to act with the businesses long term success in mind, but agents are necessary to a business organization, fiduciary duty is an attempt to deal with this problem. 1. Relationship between agent and principle 1
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a. Restatement of Agency § 13: An agent owes a fiduciary duty with respect to matters within the scope of the agency. b. §387: The agent has a duty to act solely for the benefit of the principle in all matters related to the agency c. § 393: The agent has a duty to not compete with the principle in any matter relating to the agency. d. § 396: After termination of the agency, the agent 1. has no duty not to compete 2. has a duty to not use or disclose to third persons trade secrets and other confidential information obtained solely for the principals use or acquired in violation of a duty. The agent may use/disclose general information including
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Business Organizations - Business Organizations Professor...

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