Chapter 8 - Principal / Agent Relationships and
After completing this lesson, the required reading, and the assignments,
learners will be able to:
1. Describe the different types of agency relationships and the duties and liabilities
of agents and principals.
2. List the characteristics of the various forms of business organizations.
3. Discuss the key legal attributes of partnerships.
4. Explain the concepts of personal liability and partnership responsibility for torts
5. Detail the special characteristics of partnerships, limited partnerships, limited
liability partnerships, and limited liability limited partnerships.
Creation of Agency Relationships
In all likelihood, all of you are or have been an
at some point in your lives. Those
of you who are employees are agents - the work you do is on behalf of your
. Your book discusses the difference between a
(not 007!). For purposes of this class, I will usually say
for general agent and
for special agent because those are the
most common types of each of those agents.
A general agent is typically one who performs a wide range of duties for the principal
and uses his own discretion in a variety of areas. For instance, my former husband
hires a manager to manage each of the stores his family owns here in Boise (Tates
Rents). Each manager has a wide range of authority - ordering parts, hiring / firing
employees, purchasing new equipment (at least small items) etc., although the owners
make major decisions about the direction the company should take, large equipment
purchases, etc. Contrast those manager/employees to an independent contractor, such
as a plumber. Imagine that your 15-year old son turned the heat off in your house
before you left for a winter vacation. When you return, you discover your pipes have
frozen and burst. You need a plumber immediately! When you (the principal) call the
plumber (the agent, an independent contractor), who decides when he will arrive?
Typically, the plumber works you into his schedule, not vice versa. When he arrives at
your house, do you specify which tools he should use? Which parts he should use to
repair your pipes? The method he should use? No. Independent contractors make
those types of decisions themselves. An independent contractor, such as the plumber
in this hypothetical, generally owns his own business. The principal typically does not
supervise the independent contractor, who is usually hired to complete only one task.
is important to know the difference between a general agent and an independent
contractor, as you'll see below.