A Business Organizations outline with a great deal of coverage of agency and partnerships.
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An agent acts on behalf of a principal, and can bind the principal to contracts. Additionally, if the principal-agent relationship is also a master-servant relationship (the master tells the servant what to do and how to act), the master is liable for the servant's torts.
An independent contractor contracts to accomplish a result for an employer, and does not become a principal acting on behalf of the principal.
Pennsylvania Tire: if this is a principal-agent relationship, creditors can get at the tires in Martin's store. If it's not then Pennsylvania is not liable for Martin's debts and can take back the tires. Court found that Martin's store was an independent store, or organization across markets, and that no principal-agent relationship existed. A company store, or an organization within a firm, would have given rise to a principal-agent relationship.
An organization within a firm gives the principal greater control at the retail level, greater profit potential, and greater market penetration. It also carries greater risk (liable for retailer's debts) and the retailer has less incentive to increase sales because he's just an employee, not getting a percentage of sales. An organization across markets gives the distributor less control and profit, creates another level of administration (the retailer), but is less risky.
Planning Within a firm, deal the local manager's salary, benefits, job duties, and duration. Across markets, deal prices, discounts, credit, exclusivity, return policy, duration of relationship, and control (to assure quality and warranty).
ELEMENTS OF PRINCIPAL-AGENT RELATIONSHIP
An agency relationship results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other to so act. The agreement does not need consideration. The doctrine behind agency law is that if the principal is going to get the economic benefits of its relationship with an agent, then it must accept the economic obligations.
The relationship is contractual. Although many times the agency agreement is written down, sometimes it's oral, and sometimes the relationship is implied based on the parties conduct.