Scenario: Starting a company. My product is a software platform that integrates

Question

Scenario:

Starting a company. My product is a software platform that integrates a wide range of media devices, including laptop computers, desktop computers, digital video recorders, and cell phones. My initial market is the student body at your university. At some point, hopefully sooner rather than later, I plan to go public with an IPO and then to buy a yacht and take off for the South Pacific. With these issues in mind, I need to answer for yourself, and potential investors, the following questions:

What is an agency relationship? When you first begin operations, assuming you are the only employee and only your money is invested in the business, would any agency conflicts exist? Explain your answer

2 .If you expanded and hired additional people to help you, might that give rise to agency problems

Explanation / Answer

1. An agency relationship is one in which one person works for another for a fee. The person who hires is called the principal and the person who is hired is the agent. Assuming you are the only employee and only your money is invested in business, the principal and the agent is one and the same, i.e. you yourself. In such cases, you would strive to work for the benefit of the principal i.e. you.

2. If you expand and hire additional people to help you, such people would become your agents working for the benefit of the principal. In such cases, there could arise some conflicts:

a) The agent may hold out to be the principal: In some cases, the agent would make a third party believe that he is the principal and the third party would transact with you under a misconception.

b) Fees: Agents are hired for a fee. Sometimes, in the quest for their individual profiteering, they might enter into transactions which might be disadvantageous to the principal or the organisation as a whole.

c) Actions of the agent are binding on the principal: This is one of the most serious conflicts because, the agent transacting on your behalf, will make you liable for his actions and you cannot pretend ignorance.

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.