University Finance: Departmental Liability Reduction Report

This report addresses departmental potential liability reduction, focusing on agency relationships and piercing the corporate veil within a financial context. It defines key terms like 'agency relationship,' 'agent,' and 'principal,' outlining their respective duties and authorities. The report identifies agency relationships within a financial department, suggesting training methods such as programmed instruction, job shadowing, and mentoring, and regulatory protocols to minimize liability. It then explores piercing the corporate veil, considering factors like taxation, liability, and risk, and identifies potential activities that could lead to it. The report proposes training methods to prevent such occurrences, focusing on separating business and personal assets, along with compliance and flexibility protocols to mitigate liability. References from various legal and business sources support the analysis.

DEPARTMENTAL POTENTIAL LIABILITY REDUCTION REPORT
Assumptions of Report: [copy the assumptions from Weeks 1 and 2, with any corrections or
further explanations made in light of feedback]
Purpose of the Report/Assignment: [copy the text from this section from Weeks 1 and 2, with
any corrections or further explanations made in light of feedback]
WEEK THREE MATERIAL:
I. Agency Relationship:
A. Definitions/Descriptions:
1. An agency relationship can be defined as a business relationship
between an organization and individuals (LawTeacher, 2019).
2. An agent is recognized as a person, who has been sanctioned to act on
the behalf of the principle (UCIT, 2019). The major duties of an agent
include the duty of obedience, diligence, inform good conduct,
account, and fiduciary duty (Cengage, 2010).
3. A principal is a person, who authorizes various individuals/agents to
work in his or her behalf (UCIT, 2019). The duties of a principal
encompass compensation, indemnification, reimbursement, and
avoiding tort while operating a business (Cengage, 2010).
4. An agent has certain authorities to act in support of a principal, which
includes expressing authority, lingering implied authority, and
apparent authority (Pearson Education, 2019).
5. The principle’s responsibilities towards the third person are that he/she
must be apparently authorized and can raise power against agency
relation because he/she is not dependent on apparent authority (US
Legal, Inc, 2016).
B. Identification of Agency Relationship Questions Relevant to Department:
With respect to the financial department, the shareholders can be considered
to be principal, wherein the managers are the agents. Simultaneously, debt-
holders are also perceived as principal and the managers are the agents.
However, most of the potential decisions are taken by the shareholders.
C. Suggested Training Methods Related to Agency Relationships to Reduce
Behavior That Might Create Liability: With the purpose of reducing
behaviors, which can lead to creating liabilities, training needs to be given to
the employees. This includes specific training methods such as programmed
instruction, team-training, job shadowing, and mentoring and apprenticeship.
Most of these training have been incorporated by the managers with the help
of key people of the organization (Martin, Kolomitro, & Lam, 2016).

D. Suggested Protocols Related to Agency Relationships to Minimize
Potential Liability: The organization must implement regulatory protocols,
wherein specific behaviors of principal towards the agents will be developed
to enhance business relationship. At the same time, proper compliance as well
as flexibility of agents in working sector can minimize the potential liability.
Most importantly, the decision of employee’s recruitment and work
integration can reduce the issue (Chopra & Singh, 2011).
II. Piercing the Corporate Veil & factors Relevant to Choosing a Form of
Business:
A. Definitions/Descriptions:
1. For choosing a form of business, the factors to be considered are
taxation, liability, risk, management, continuity, transferability, expenses,
and formality (U.S. Small Business Administration, 2014).
2. The types of the business entities are Sole Proprietorship, General
Partnership, and Limited Partnership: In a sole proprietorship, the liability
is full to the owner, whereas other two entries have partial liability
(Washington State Department of Revenue and its Licensors, 2011).
3. Piercing the Corporate veil can be defined as a limited liability,
which has been provided by the court to each principal and agents (Legal
Information Institute, n.d).
4. Piercing the corporate veil can be referred to as a circumstance in
which a court segregate a liability and holds a director or shareholder, which
are personally liable for corporation’s debts (Globe Business Media
Group,2019).
B. Identification of The Types of Activities by Members of Your Department
Might Lead to Piercing the Corporate Veil: For the purpose of preventing
piercing of corporate veil, my department must select a good policy to
establish a proper working environment. Simultaneously, ‘Fairness and
Efficiency Considerations’, ‘Opportunism and the Cost of Credit’, and
controlling ‘Tort Creditors’ can prevent the effect of Piercing the Corporate
Veil (Peterson, 2018).
C. Suggested Training Methods to Reduce Behavior That Might provide
Grounds for Piercing the Corporate Veil: The various grounds for piercing
the corporate veil are fraud, avoiding legal restrictions, failure to maintain
fiduciary duty, and agency. For reducing the behaviors related to the ground
of piercing, the suggested training can focus on separating business and
personal assets and ‘observing corporate formalities (Kowalski, 2019).
D. Suggested Protocols to Minimize Potential LiabilityThrough Piercing the
Corporate Veil: For minimizing potential liability through piercing the
corporate veil, the compliance and flexibility protocols can be suggested here.

It helps in maintaining entry and exiting of principles and agents (Chopra &
Singh, 2011).

References
Chopra, A. K. & Singh, M. P. (2011). Multiagent systems. MIT Press, 1-39.
Cengage (2010). Chapter 29: Relationship of principal and agent. Retrieved February 22, 2019,
from http://www.cengage.com/resource_uploads/downloads/0324786603_238101.pdf
Globe Business Media Group (2019). The five most common ways to pierce the corporate veil
and impose personal liability for corporate debts. Retrieved February 22, 2019, from
https://www.lexology.com/library/detail.aspx?g=4ff8ebf0-4bca-426e-8273-
758140f6d0eb
Knutsson, P. (2017). Piercing the corporate veil Limits of limited liability. Faculty of Law
Stockholm University, 5-52.
Kowalski, R. (2019). Corporate veil piercing: How to avoid it. Retrieved February 22, 2019, from
https://www.myusacorporation.com/articles/how-to-avoid-piercing-the-corporate-veil
LawTeacher. (2019). Defining the agency relationship. Retrieved February 22, 2019, from
https://www.lawteacher.net/free-law-essays/commercial-law/defining-the-agency-
relationship-commercial-law-essay.php
Legal Information Institute, (n.d). Piercing the corporate veil. Retrieved February 22, 2019, from
https://www.law.cornell.edu/wex/piercing_the_corporate_veil
Martin, B. O., Kolomitro, K., & Lam, T. C. M. (2016). Training methods: A review and analysis.
Human Resource Development Review, 13(1), 11–35.
Pearson Education,.(2019). Understanding insurance law for the life and health insurance license
exam. Retrieved February 22, 2019, from
http://www.pearsonitcertification.com/articles/article.aspx?p=415191 \
Peterson, C. W. (2018). Piercing the corporate veil by tort creditors. Journal of Business &
Technology Law, 13(1), 63-95.
U.S. Small Business Administration. (2014). Organizational types and considerations for a small
business. Participant Guide, 1-21.
UCIT. (2019). Chapter 16 agency. Retrieved February 22, 2019, from
http://homepages.uc.edu/~stedmabn/Chapter16.pdf
US Legal, Inc. (2016). Rights, duties, and liabilities between principal and third parties.
Retrieved February 22, 2019, from https://agency.uslegal.com/rights-duties-and-
liabilities-between-principal-and-third-parties/
Washington State Department of Revenue and its Licensors. (2011). Types of business
structures. Retrieved February 22, 2019, from
https://bls.dor.wa.gov/ownershipstructures.aspx