This paper provides a structured reference guide to foundational business law terminology drawn from Bouchoux's Business Organizations for Paralegals. It defines and distinguishes major business entity types — including sole proprietorships, general and limited partnerships, LLCs, and various corporate forms — and outlines the key factors to consider when selecting a business structure. The paper then covers the law of agency in detail, defining agency relationship types, authority categories, fiduciary duties, and the mutual obligations of principals and agents. It concludes with definitions of tort-related concepts such as respondeat superior, vicarious liability, and the independent contractor distinction.
Sole proprietorship: In a sole proprietorship, one person owns all of the business assets and is the sole decision maker. The sole proprietor has unlimited personal liability for business debts, and all profits and losses pass through the business to the owner (Bouchoux, 2007).
General partnership: In a general partnership, two or more people co-own all business assets and share decision-making power. Each partner has unlimited personal liability for business debts and may be subject to pass-through taxation (Bouchoux, 2007).
Limited partnership: In a limited partnership, one or more general partners have unlimited personal liability for business debts and obligations, but limited partners do not manage or control the enterprise and are only liable up to the amount of their investment in the company. Limited partnerships must be created in accordance with state laws (Bouchoux, 2007).
Registered Limited Liability Partnership: Partners in this type of partnership are not liable for the torts or misconduct of their partners. It combines features of a partnership and a corporation and must be established according to applicable state laws (Bouchoux, 2007).
Limited Liability Company (LLC): A registered limited liability company combines the features of a partnership and a corporation. Owners have limited liability, it has pass-through taxation, and it must be established in compliance with applicable state statutes (Bouchoux, 2007).
Business corporation: A business corporation is a for-profit entity created by state law. It is a fictional person that may own property, sue and be sued, and is subject to taxation. Shareholders own stock in the company, and their liability is limited to the value of the stock they own (Bouchoux, 2007).
Professional corporation: A professional corporation is a corporation formed by professionals such as doctors, lawyers, accountants, and engineers. While it may provide some of the benefits of a business corporation, the important distinction is that these individuals remain personally liable for their own negligence and for the negligence of their employees (Bouchoux, 2007).
S Corporation: S corporations are small business corporations that are exempt from double taxation because income is subject to pass-through taxation. S corporations must comply with IRS regulations, cannot have more than 100 shareholders, and all shareholders must agree to S status (Bouchoux, 2007).
Close corporation: A close corporation is a corporation owned by a limited number of individuals, usually family members and friends. Shareholders are actively involved in operating the business and have more flexibility than in a traditional corporate structure (Bouchoux, 2007).
There are various factors to consider when selecting a business enterprise. Each is explored below (Bouchoux, 2007).
Ease of formation: One factor in choosing what type of company to form is how easy it is to establish. Some business structures are sufficiently difficult and expensive to form that they are impractical for small companies (Bouchoux, 2007).
Management: When determining the type of business enterprise, a person must consider how much control they want over the company. Generally, the greater the personal control, the greater the personal liability (Bouchoux, 2007).
Liability and financial risk: Financial exposure is a critical factor when forming a business enterprise. Clients must be informed of the potential liability consequences of each type of business structure (Bouchoux, 2007).
Continuity of existence: Some types of business enterprises, such as corporations, can continue in perpetuity, while others are limited to the lifetime of the founder. The desired duration of the enterprise is therefore an important consideration (Bouchoux, 2007).
Transferability: When forming a business with other people, clients should consider how easy it would be to exit the arrangement in the future. General partnerships are more difficult to transfer than ownership interests in a corporation (Bouchoux, 2007).
Profits and losses: Different business entities distribute profits and losses to their owners in different ways. Sole proprietors are responsible for all losses and entitled to all profits. While partnerships minimize potential losses, they also introduce additional avenues for liability (Bouchoux, 2007).
Taxation: Individual and corporate tax rates must be considered for those seeking to establish a business entity, as the appropriate structure will vary depending on the tax circumstances of the owners (Bouchoux, 2007).
Agency relationship: An agency relationship is created when one person acts as the agent for another person or for a business, such that the agent's actions create liabilities for the principal (Bouchoux, 2007).
Express agency: Express agency is established through an agreement that defines the rights and duties of both parties. It can be established through written or oral agreements (Bouchoux, 2007).
Implied agency: Agency can be implied as well as express. Implied agency occurs when there is no formal agreement between the parties, but their conduct establishes an agency relationship (Bouchoux, 2007).
Agency by estoppel: Agency by estoppel occurs when it would be inequitable to allow one party to deny the existence of an agency relationship. An example arises when a business has an employee or intern who acts in a manner that a customer could reasonably believe was within the scope of that person's authority (Bouchoux, 2007).
"How agency relationships are created and classified"
"Express, implied, apparent, and ratified authority"
"Mutual obligations between agents and principals"
"Respondeat superior, vicarious liability, and contractor status"
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