Business law principles and applications

Rocking the Boat

An agent is a person acting on behalf of the interests of another person or organization. "A person authorized to act for and under the direction of another person when dealing with third parties….An agent can enter into binding agreements on the principal's behalf and may even create liability for the principal if the agent causes harm while carrying out his or her duties" (Agent, 2013, Nolo). In the instance of Melinda, Melinda believed she was acting on behalf of the cruise line and simply performing the necessary duties of her job. Given that Melinda put the purchase on her credit card, however, it is unclear that the terms of her agency were such that she would be allowed to do so with the expectation of reimbursement. The reaction of the company implies that she was expected to go through specific channels and to not do so leaves her liable for the charges, given that the company cannot expect employees to be reimbursed for every non-approved purchase they make ostensibly on behalf of the company. Regardless, reimbursement policies must be clarified in the company literature and the fact that the employee acted in good faith should be taken into consideration.

As Steven was an employee of Duchess Cruise Lines, the company would be legally liable for the actions of its employees while on the job. "Under a legal doctrine sometimes referred to as 'respondeat superior' (Latin for 'Let the superior answer'), an employer is legally responsible for the actions of its employees. However, this rule applies only if the employee is acting within the course and scope of employment. In other words, the employer will generally be liable if the employee was doing his or her job, carrying out company business, or otherwise acting on the employer's behalf when the incident took place" (Employer liability for an employee's bad acts, 2013, Nolo). Steve would likely be considered a case of 'negligent hiring,' particularly if he had a history of drinking on the job. This underlines the importance of doing extensive, appropriate background checks on employees. However, in contrast, Paul was not an authorized agent or an official employee, even though he purported to be one. The company would not be liable for his actions.

Q2.A sweet business idea

Given that Dan and Carla wish to retain control over the evolution of their relatively young business, becoming a 'traditional' corporation is not feasible. A publically-traded company sells shares to stockholders, who then gain proportional ownership in the company. Also, their earnings would be 'taxed twice' -- given that corporations are fictional persons under the law, the earnings of Edible Expressions would be taxed as income, along with the salary Dan and Carla paid to themselves. Incorporating can also be expensive because of the red tape and bureaucracy involved.

However, a sole or joint proprietorship, while relatively simple to open because of the straightforward tax policies regarding such entities, leaves the earnings of the owner or owners liable for the losses of the business, which would be extremely unwise given that so many businesses fail during their early years. Also, this could leave Carla's brother and sister-in-law and even their daughter liability for the business' debts, if they are all partners. One way to deal with this problem is to create a limited partnership. "In limited partnerships (LPs), at least one of the owners is considered a 'general' partner who makes business decisions and is personally liable for business debts. But LPs also have at least one 'limited' partner who invests money in the business but has minimal control over daily business decisions and operations. The advantage for these limited partners is that they are not personally liable for business debts" (Limited partnerships and limited liability partnerships, 2013, Nolo).