Three kinds of authority
| Type | Source |
|---|---|
| Actual express | Principal's words — spoken or written |
| Actual implied | Reasonably necessary to carry out express authority, or customary for the position |
| Apparent | The principal's conduct causes a third party to reasonably believe authority exists |
IMPORTANT: Apparent authority comes from the principal's manifestations to the third party — never from the agent's own claims. That's why an agent who says "I have authority" creates none. Apparent authority can survive termination of actual authority until third parties get proper notice.
Duties
- Agent owes the principal: loyalty, obedience, reasonable care, accounting, notification
- Principal owes the agent: compensation, reimbursement, indemnification, cooperation
Business entity comparison
| Entity | Owner liability | Federal tax treatment (default) |
|---|---|---|
| Sole proprietorship | Unlimited personal | Schedule C — no separate entity |
| General partnership | Unlimited, joint and several | Flow-through (Form 1065) |
| Limited partnership | General partner unlimited; limited partners limited to investment | Flow-through |
| LLP | Partners shielded from other partners' malpractice | Flow-through |
| LLC | Limited for all members | Single member → disregarded; multi-member → partnership; may elect corporate treatment |
| C corporation | Limited | Entity-level tax, then dividends taxed again |
| S corporation | Limited | Flow-through (Form 1120-S), with eligibility restrictions |
EXAM TIP: A limited partner who takes part in control of the business risks losing limited liability protection to third parties who reasonably believed the limited partner was a general partner.