Legal Aspects of Business

This article explores the legal aspects of business, specifically focusing on agency relationships. It defines agency relationships and discusses their key features. It also explains the different types of agents authority and provides examples of case laws in the agency law. The article emphasizes the importance of legal aspects in the agency business and highlights the legal framework for agency relationships in the UK.

Legal Aspects of
Business

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................2
Define agency relationship and its key features.....................................................................2
Different types of agents authority.........................................................................................3
Case laws in the agency law...................................................................................................4
CONCLUSION ...............................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
Establishment of a business unit needs to be formed in legal manner by using all the rules
and regulations that provides legal existence of a business. A business can be formed in number
of ways that possess legal existence in the eyes of law. Legal aspects are defined as the science
and philosophy of the law that leads to implication of the principal of laws over all the business
operations. Legal aspects are the inseparable part of a business environment as they provides the
legal framework of the UK in various business operations are conducted. Through legal aspects a
well defined legal structure that provides policy framework and the mind set of the governmental
structure of the country in relation to businesses is provided (Aithal, Shailashree and Kumar,
2015). Legal aspects of a country ensures that every business is the country is functioning as per
the statutory framework provided in the country. Application of legal aspects is when made in
the agency business that it provides rules and regulations that guides agency business. Apparent
authority is one of the important served in the legal system of agency relationship. It is a
situation in which third party involved in the transaction reasonably believes with action or
words of principal that agency still exists. When the act is performed by agent then in that case
principal will be responsible for all the acts performed by agent in agency capacity.
Agency relationship is governed through well defined formal legal structure and among
agent and principal this relationship is governed through contract or agreement. When legal
aspects are used in the agency relationship then it leads to provide a well defined principles
through which agency relationship is governed. Apparent authority is one of the important term
that is introduced in the legal system of agency to protect third party from fraud and
manipulation done by principal or agent (Joy-Perez and Scissors, 2018). A set of rules and
regulations becomes a guide for the business organisations and helps in performing business
activities in the uncertain environment. Apparent authority is created when there is no expressed
or implied authority is provided to agent to perform an activity which is performed. Global
expansion of business made it very important to introduce some legal aspects in agency business
as business is expanded through agents in different nations. In this project legal aspects of UK
will be considered in relation to agency relationship and all the regulations will be elaborated in
detailed form.
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MAIN BODY
Define agency relationship and its key features
Agency relationship is a undoubting relationship in which one person named as principal
trusted other person named as agent to perform activities that are allowed by principal on his or
her behalf. In this relationship principal possess all the controlling power to guide and control act
of agent (Plomaritou and Papadopoulos, 2017). In agency relationship there are three different
types of relationship exists one if among agent and principal, second is among agent and third
party and third relationship is that of third party and principal. Some of the key features that
makes this relationship competent and effective and these features are elaborated as follows-
Source: Agency Relationship, 2019
Presence of agent and principal: This is one of the most important requirement to
create agency relationship. Their must be principal who guides agent to perform defined
activities and control all operations. Agent must be present their so that activities can be
performed on behalf (Agency Relationship, 2019).
Fiduciary Relationship: Relationship among agent and principal needs to be fiduciary
which means both of the possess faith in each other. Principal must trust act of agent and agent
needs to follow guidance of principal.
Competent individuals: While forming agency relationship both agent and principal
must be competent to contract and no discretion must be made by legal announcement to not to
be appointed as principal and agent.
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Illustration 1: Agency Relationship, 2019

Agency document: Agency document that legalise the existence of the relationship must
be present in 0oral, written or in implied form.
Different types of agents authority
Agents authority is defined as powers and rights that are provided to an agent by
principal while performing all the activities on behalf of principal. When agents are provided
with authority then clarity in relation to rights and responsibilities possessed by them is accessed
while performing each activity (Roome and Louche, 2016). Different types of agents authority in
agency relationship is described as follows-
Actual Authority: It is referred to specific power that is provided to agent in particular
form by principal while activities on behalf of principal is performed by agent. Actual authority
is provided by principal in actual form with expressed or implied form. Actual authority defined
all the powers and responsibilities that lied with agent while acting on behalf of agent. Any task
performed out of actual authority then agent can not held principal liable for those acts. In
expressed authority agents are provided with all the authorisation power in oral and written form.
This form of authority is provided in detailed and described manner and it is easy to understand
what powers agent possess in agency relationship (Schaltegger and Wagner, 2017). Implied
authority is referred as act of agent which is reasonably incidental and necessary while
performing duties as an agent. For example- purchase is an expressed authority and negotiating
while purchasing is an implied authority.
Apparent Authority: This authority is referred to a particular situation where third party
involved in the transaction believes that authority to agent is provided by principal. This believe
is generated due to some actions and through some words of principal. When transaction is
completed the principal will be held liable for all the acts performed by agent in good faith. A
principal needs to expressibly convey to third party when no more agency relationship exist
among them. Act of agent with apparent authority leads to bound actions of agent and principal.
Event when the principal do not possess expressed and implied authority then also agent can held
principal liable for the act performed (Schaltegger, Lüdeke-Freund and Hansen, 2016). Apparent
authority is established in the legal system of agency relationship to protect third party form
fraud and misrepresentations made by principal and agent while entering into any transaction.
When agency relationship do not exist then it must be communicated to third party if it is not
done then it will leads to generation of agency by estoppel. In this one person acts in such
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manner that other believes that third person was authorised to act on the behalf into the
transaction. Some of the essential elements that are required to establish apparent authority are as
follows-
No other authority: Existence of no other authority is required to create apparent
authority. Which means that agent must so not possess any authority to act in certain manner in
relation to a particular task (Singh and Singh, 2015).
Principals activity: Apparent authority is created only when principal through actions or
through words makes third party believes that agent possess all the rights and responsibilities
required to enter into defined transaction.
Relation of utmost good faith: While performing activities or task it is very important
that principal and agent possess trust and no activity is performed with an intention to fraud or
misrepresentation with third party.
When all the elements will be present while entering into a transaction by agent with
principal then it will be appropriate to create apparent authority (Von Lampe, 2015).
Case laws in the agency law
There are number case cases that are turned as landmark verdict and used as reference to
resolve various issues in the agency relationship some of these cases are as follows-
Freeman and Lockyer v Buckhurst park Properties [1964], this is a case which
involves the issue regarding liability of principal for act of agent. Here, director of a Buckhurst,
agent, commissioned Freeman and Lockyer as architects were involved in Buckhurst Park Estate
Project. Director acted on behalf of the organisation and later Buckhurst refuses to pay invoice
claiming that director was not authorised for the same. In this case organisation was held liable
for act of director as agent. This liability was created on the fact that director do not possess any
actual authority but it is an apparent authority (Freeman and Lockyer v Buckhurst park
Properties, 1964). Pre conditions to create apparent authority is to make a representation was
their by appointing as a director. Other individuals involved in the transaction relied on the
representation made by the organisation. This transaction changes the position of that
commissioned person. All the criteria for establishing apparent authority is complete so company
will be held liable for act of director.
In another case Hely-Hutchinson v Brayhead Ltd [1968] an issue arises regarding
whether it is an actual authority or an apparent authority. Hely-Hutchinson injected money in
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own electronics business. This investment was indemnified by Mr. Richards on behalf of
Brayhead Ltd. Mr. Richards was serving as a managing director of the company and also
engaged as chairman (Hely-Hutchinson v Brayhead Ltd, 2012). Brayhead Ltd purchased the
electronics business and still it went to liquidation. Now issue arises that did Mr. Richards is
liable to provide indemnity. It was decided by judge that Mr. Richards working as a managing
director possess actual authority to all the acts performed in his capacity otherwise limited. So,
Mr. Richards possess actual authority to indemnify.
In East Asia Company Ltd v PT Satria Tirtatama Energindo [2019], this is a case
regarding the principal of apparent authority. The issue involved here is that directors of the two
organisations entered into an agreement to sale share of on organisation. The other director in the
case agreed to purchase the shares on the specified amount. Now the issue that has raised here
under regarding the authority that is possessed by director for sale and purchase of the share of
organisation. When the case was filled in the court the court of appeal provides judgement that
director did not have the apparent authority to enter into a share sale agreement (East Asia
Company Ltd v PT Satria Tirtatama Energindo, 2019). This was contained within a heads of
agreement document, on companies behalf. In such cases, the board accepted that in order to rely
on the apparent authority of a director, the third party must made the reasonable inquiries that a
reasonable person would have made in order to verify directors authority.
The one of the most important case that sets landmark to decide the kind of authority
provided to an agent for performance. In Rama Corp Ltd v Proved Tin and General
Investments Ltd [1952], the plantiff contracted with the defendant co and gave a cheque under
the contract. The director could have been authorised but in fact was not. The plaintiff had not
read articles. The director misappropriated the cheques and plaintiff sued. In this case the
requirements to establish apparent authority was established. First requirement is the
representation which represents that principal provides authority for the same. Second
requirement to establish apparent authority reliance on the representation is necessary. Third and
the last requirement to establish apparent authority is that third party has altered his position by
reliance on the representation (Rama Corp Ltd v Proved Tin and General Investments Ltd, 2016).
When in the present case the whole three scenarios was applied then results provides that
director was not liable as he was outside his authority.
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The statement which reflects that apparent authority negatives the existence of actual
authority is a form of estoppel. In the real world aid through establishing estoppel can not be
called unless there are three ingredients present in the authority these three ingredients are
representation, reliance on representation and in the last alteration in position resulting from such
reliance. The above case laws helps in deciding and judging the requirement for establishing
authority in agency relationship. When decisions of the cases are applied in the real world
situation then it become easy to decide agency relationship and also cases are resolved in more
frequent and appropriate manner.
CONCLUSION
From the above report based on legal aspects in agency relationship it has been concluded
that implementing legal and structured laws in business is one of the important activity for
developing more secured business environment in the country. Legal system helps in
establishing a well defined structure in which all the activities are performed based on
regulations and chances of manipulation is minimised to some extent. When business
environment become complex and due to globalisation business is expanded to international
level then in terms to agency business it becomes important to develop agency laws. Businesses
that are performed through involvement of agents at national and international level all the
activities are guided through agency relationship. As per law there are some essential features
that are required to establish agency relationship. When these essential features are available in
the relationship then principal provides authority to agent in actual form or it can be apparent
authority. When authority is provided in actual form then for act of agent that is performed in
good faith principal will be held liable. When no actual authority is provided then in that case
first elements of apparent authorities is identified and when they are present then only principal
can be held liable for agents acts. Apparent authority leads to generation of principal of estoppal
and this is important in the competitive business environment where chances of fraud an
misrepresentation is high. There are number of case laws that are discussed in the project which
helps in establish rules and regulation for agency business. Any case that arises in relation to
agency will be judged on the agency law and also reference to the previous case laws is also
used. Verdict that are very important are termed as the laws in agency business and these legal
aspects helps in establishing a well defined legal business structure governing agency business in
UK.
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REFERENCES
Books and Journals
Aithal, P. S., Shailashree, V. and Kumar, P. M., 2015. A new ABCD technique to analyze
business models & concepts. International Journal of Management, IT and
Engineering. 5(4). pp.409-423.
Joy-Perez, C. and Scissors, D., 2018. The Chinese State Funds Belt and Road but Does Not Have
Trillions to Spare. AEI Paper & Studies, p.1f.
Plomaritou, E. and Papadopoulos, A., 2017. Shipbroking and chartering practice. Informa Law
from Routledge.
Roome, N. and Louche, C., 2016. Journeying toward business models for sustainability: A
conceptual model found inside the black box of organisational
transformation. Organization & Environment. 29(1). pp.11-35.
Schaltegger, S. and Wagner, M., 2017. Managing the business case for sustainability: The
integration of social, environmental and economic performance. Routledge.
Schaltegger, S., Lüdeke-Freund, F. and Hansen, E. G., 2016. Business models for sustainability:
A co-evolutionary analysis of sustainable entrepreneurship, innovation, and
transformation. Organization & Environment. 29(3). pp.264-289.
Singh, S. and Singh, N., 2015, October. Internet of Things (IoT): Security challenges, business
opportunities & reference architecture for E-commerce. In 2015 International
Conference on Green Computing and Internet of Things (ICGCIoT) (pp. 1577-1581).
IEEE.
Von Lampe, K., 2015. Organized crime: analyzing illegal activities, criminal structures, and
extra-legal governance. Sage Publications.
Online
Agency Relationship. 2019. [Online]. Available through:
<https://www.britannica.com/topic/agency-law>
Freeman and Lockyer v Buckhurst park Properties. 1964. [Online]. Available through:
<https://www.aiaworldwide.com/international-accountant/editors-blog/quick-look-
%E2%80%A6-freeman-lockyer-v-buckhurst-park-properties>
Hely-Hutchinson v Brayhead Ltd. 2012. [Online]. Available through:
<https://crunchcaselaws.wordpress.com/2019/01/23/hely-hutchinson-v-brayhead-ltd-
1967-1-qb-549/>
East Asia Company Ltd v PT Satria Tirtatama Energindo. 2019. [Online]. Available through:
<https://www.lexology.com/library/detail.aspx?g=5e50af46-4c55-4cde-8654-
65f8a71d09fa>
Rama Corp Ltd v Proved Tin and General Investments Ltd. 2016. [Online]. Available through:
<https://global.oup.com/uk/orc/law/company/baskind_concentrate3e/resources/
problem/ch13/>
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