Legal Issues – Business Law

A principal is the party who employs another person to act on his or her behalf; an agent is a party who agrees to act on behalf of another. In order for the agent to successfully fulfill their tasks for their principal’s they have duties that they are expected to fulfill. The duty to obey instructions, to act with skill, loyalty, protects information, to notify and give information and to be accountable for their actions.

An agency is the principal-agent relationship, which are formed by the mutual consent of a principal (employer) and an agent (employee). Agency Law is a large body of common law, which is a mixture of contract law and tort law that governs the agency (Cheesemen, 2004). This law separates and regulates the relationships between agents and principals, agents and third parties and principals and third parties. An agency law exists because it is impossible for one person to travel everywhere to negotiate all transactions to maintain and grow the business. With the many travels there are relationships that are established and maintained.


There are two types of relationships that exists in a business environment; Employment Relationships that are initiated with the hiring of an employee or a contractor. The other relationships are Agency Relationships that make the contracts binding between the principal and the third party. Three kinds of Employment Relationships are used in a business environment; Employer-Employee Relationships, which initiate when an employer hires an employee to perform physical duties that are assigned. This gives the right to control the physical conduct of the employee to the employer.

The employee can only become an agent when the employer empowers him or her to enter into contracts on the employer’s behalf. Principal-Agent Relationships are formed when an employer hires an employee and gives that employee authority to act and sign contracts on his or her behalf. This means that the employee can only have authority to enter into contracts that are based on their particular position and makes the employee the agent of his employer. Principal-Independent Contractor Relationships are formed when the business hires outside contractors to perform certain tasks. The business has no control over the details of the independent contractor’s conduct. These outsiders are known as independent contractors unless they are known as a professional, such as a doctor or lawyer, then they are considered a professional agent (Cheeseman, 2004).

Agency Relationships are contracts that are binding between the principal and the third party. There are four types of agencies; express, implied, apparent, and agency by ratification. Express agency is the most common form and gives the agent authority to contract or act on the principal’s behalf. Both parties expressly agreed to enter into an agency agreement with each other. Implied agency is created when the principal and the agent do not agree to create an agency between them. The authority is implied from the conduct of the parties, their actions are bound to the contract.

Apparent Agency is created when a principal creates the appearance of an agency that does not exist. The authority is created when the principal leads a third party into believing that the agent has authority. The last relationship is known as agency by ratification this happens when a person misrepresents themselves as another’s agent or the principal accepts an unauthorized act (Cheeseman, 2004). Relationships are set up to protect the business organization, regardless of size and type. Sole Proprietorship

Sole proprietorships are the simplest form of business organization (Cheesman, 2004). In a sole proprietorship one single individual owns and operates the business and is not considered and employee of the business, rather a self-employed individual. Sole proprietorships are the most common form of business organization in the United States (Cheeseman, 2004). A sole proprietorship is an inexpensive way to become the owner of a small business. In a sole proprietorship the owner makes all decisions involving the business and has access to all profits made by the business. A major downside to sole proprietorships is the personal liability, which can be unlimited in some cases. For tax purposes a sole proprietor and the owner are treated as one. General Partnership

A business must meet four criteria to qualify as a general partnership under the Uniform Partnership Act (UPA) (Cheeseman, 2004). The first requirement is the business is owned and operated by two or more individuals. The Second requirement is that the business must continue over a period of time. A single transaction is not acceptable and would not qualify as a general partnership. The third requirement is co-ownership; the partners must share the business’s profits and share management responsibility (Cheeseman, 2004). The last requirement is the business is profit motive. In some cases businesses will not make a profit; however, having a profit motive will qualify them as a partnership. Limited partnership

Limited partnerships are made up of two types of partners. The first is a general partner; the general partner invests capital, manages the business, and is liable for partnership debts (Cheeseman, 2004). The second is a limited partner; the limited partner invests capital but does not participate in management and is not liable for the partnerships debts (Cheeseman, 2004). Limited partnerships are common when individuals are investing in real estate.

A limited partnership has not limits to the number of limited or general partners; however, there must be a minimum of one limited and one general partner. A person may also be a limited and general partner in the same limited partnership (Cheeseman, 2004). Limited liability partnerships (LLPs) are mainly used by business professional like lawyers, physicians and accountants. The limited liability partnerships are a new form of partnerships which limit the liability of the partners (Cheeseman, 2004). C Corporation

The main advantage to a regular corporation is that the personal liability is limited and protects the individual from being personally liable for the debts. The assets and liabilities belong to the corporation. A regular corporation is considered a separate entity from those who own or operate by purchasing common shares of stock. Articles of incorporation are the documents that illustrate the formation of the corporation and are required to be filed with the state.

The income generated by the corporation is paid to the shareholders in the form of dividends. A positive aspect of a C corporation is that they can have an unlimited number of shareholders, unlike S corporations who are limited. Being incorporated allows for certain business expenses to be written off when it comes to tax time. A major disadvantage of being incorporated is the possibility of double taxation. S Corporation

S corporations another type of corporation in which liability is limited. S corporations have all the same benefits of C corporations. The business owners must pay taxes in the same manner as sole proprietors and partners. In 1982, Congress enacted the Subchapter S Revision Act. The act divided all corporations into two groups: S Corporations, which are those that elect to be taxed under Subchapter, and C Corporations, which are all other corporations [26 U.S.C.§§ 6242 et seq.] (Cheeseman, 2004). S corporations do not pay federal income tax at the corporate level, this eliminate double taxation.

A major downside to S corporations is that shareholders are required to pay their share of income tax on the corporation’s income no matter what. S corporations can have no more than 75 shareholders and one class of stock and may not own than 80% of another corporation (Cheeseman, 2004). Another restriction to S corporations is that all shareholders must be citizens or permanent residents of the United States. Professional Corporation

A professional corporation is used for certain occupations. Attorneys, accountants, dentists and physicians incorporate their practice through a professional corporation. Each individual is required to be licensed in the particular practice they are involved in. “The abbreviations P.C. (Professional Corporation), S.C. (Service Corporation) and P.A. (Professional Association) often identify professional corporations (Cheeseman, 2004).” Professionals use a professional corporation to limit the liability of each individual associated with the practice.

Each business entity provides different attributes depending on the type of business the individual wishes to open. Any individual looking to open a business should fully understand each business entity type and what they provide. Liability is a major concern for business owners, knowing the type of business entity and which to choose will ensure the success and protection of the business.

Global Issues and Ethics in E-BusinessIn order to create an effective e-business, it is imperative to create a legal policy. In conjunction with any legal policy, a company should incorporate ethical standards for all employees in the course of all business transactions and decisions. By utilizing ethical business practices, online business will be considered above reproach, as ethics are a step above what the law requires. The dictionary describes ethics as “the discipline dealing with what is good and bad and with moral duty and obligation” (Merriam-Webster, 2008).” While the Internet is no longer a newborn, it remains an industry in its infancy.

Like every baby, its first steps are tentative and unsure. Mistakes are made and falls are many. The companies that are being born within this new technology are focusing on the opportunities and possibilities; perforce, often they are less concerned, than more established, brick and mortar businesses, with legal and ethical practices. Nevertheless, the decisions that they are making and the practices that they are adopting have a tremendous impact on the world around them (Maury & Kleiner, 2002). As regulatory boards and online businesses self-regulate and begin to develop laws on how to control the Internet market, many companies are faced with the question of laws versus ethics in conducting business online. An Evaluation of Laws and Regulations Affecting E-Commerce

There are many different countries engaged in e-commerce with equally as many sovereign legal systems that govern e-commerce in the world market. The Internet is another, more available, entrant into the world market. The global effect internet popularity creates is encouraging disparate countries to see the need of implementing world trade and online regulations. There are diverse issues, as well, that the Internet presents to each country; however, the most important issues for U.S. e-businesses and the U.S. major global trading partners includes online contracts, privacy concerns, intellectual property, deceptive practices, security, and dispute resolution issues. Privacy Issues

E-commerce sites in the U.S., must post a public policy notice concerning the privacy practice on the site. The agreement, or a separate policy statement, should disclose to what extent the site collects information on users, the type of information collected, whether the individual user can be identified, what the information collected is used for, who has access to the information, whether the information is sold or otherwise made available to third parties and how the user can restrict the use of the information (Balough, 2008).

On November 12, 1999 the United States Congress passed the Gramm-Leach-Bliley (GLB) Act. The Gramm-Leach-Bliley Act limits when a financial institution may disclose non-public information about consumers. As a result of the extremely broad definition for what constitutes a financial institution under the Federal Trade Commission’s regulations that implement GLB, many types of businesses engaged in the extension of credit to consumers, are covered by the privacy notice, opt-out, and disclosure requirements. The GLB Act primarily covers actions by U.S. e-businesses within the U.S.; however, U.S. e-businesses must be compliant with privacy restrictions applicable to their E.U. divisions and consumers. Security Challenges

Security is often a topic included within all the governing bodies and regulations stated above. For instance, the HIPA Act has regulations primarily with regard to privacy issues; yet, within such an issue, lays the requirement for companies to secure any data they hold. Security could be the most vital, live-or-die mechanism for most e-businesses. It is strange therefore, that security has been left principally to the realm of self-regulation. Conversely, leaving security measures for companies to create and implement under the one requirement that data must be secured, does not stifle innovation, as possibly more laws could. Intellectual Property Protections

There are four well recognized types of intellectual property rights: copyrights, trademarks, patents and trade secrets. Copyrights are given for material on a website, and as such, that material may not be modified, published, transmitted, reproduced, posted or displayed in any media, including but not limited to electronic, print, mechanical and photocopying, other than for the personal use of the user while he or she visits or operates the site. Copyrights do not protect against someone else independently authoring the same or similar work. The use of trademarks, logos and/or service marks is also restricted unless license has been granted.

The use is limited to downloading for personal use while visiting the web site. The Lanham Act currently protects trademarks within the U.S.; although with the application of a broader definition of commerce which includes foreign nations, the Lanham Act has been noted as applying to suits between online businesses, with parties from the U.S. and a foreign nation (Popov, 2005). There is some controversy regarding the U.S. and its respect for international laws regarding trademarks. In a fast paced, opportunistic environment of today, a patent is, more than ever, the most effective protection against theft of invention.

The value of a patent in many ways depends on how well it holds up in litigation for infringement and validity purposes. Choosing whether or not to patent is another factor to consider in enabling the online business. Analyzing Ethical Principles and E-Commerce

As the Internet expands to areas of social, political, and personal life, and as its technological capabilities expand, the problem of Internet ethics will become ever more central, perhaps even more so than in “ordinary” life. The potential for ethical abuse grows with increased global use, as well as with technological power. The issue of ethics in relation to the Internet presents many diverse challenges, due to the numerous possibilities for misuse and abuse of the technology and of the human relations and communications it encourages. Conclusion

In concluding this report on legal issues it is found that regardless of the type of business or the location. Whether the business organization exist on the internet or in a city, or if it is a major corporation or a small e-commerce business there are so many law’s that are set up to protect the organizations and their staff. Realizing the many types of organizations there could be and the type of set up they have, whether it is a proprietorship, partnership, corporation, or globally located. All businesses need to establish their own set of standardized laws to help maintain and grow their organization.

ReferenceCheeseman, Henry R. (2004, 2001, 1998, 1995, 1992). Business Law: legal, e-commerce, ethical, and international environments (5th Ed.). Upper Saddle River, New Jersey: Pearson Education, Inc. (2007). Types of business entities: Advantages and disadvantages. Retrieved March 12, 2008, from (2007). Types of Corporations, C Corp vs. S Corp: Retrieved March 13, 2008, from Maury, M. D., & Kleiner, D. S. (2002). E-commerce, ethical commerce? Journal of Business Ethics. Retrieved March 12, 2007, from the Proquest database: Merriam-Webster Online Dictionary. (2008). Ethics. Retrieved March 12, 2007 from Popov, A. (May 2005). The Extraterritorial Reach of the Lanham Act over Trademarks on the Internet. Retrieved on March 12, 2008, from the EBSCOhost database.