Agency in the Alternatives: Common-Law Perspectives on Binding the Firm

Abstract

This chapter in a forthcoming book examines the external aspects of agency law in the context of unincorporated firms, that is, the capacity of actors associated a firm to bind it to the legal consequences of interactions with third parties. The chapter focuses in particular on the impact of acts done by a representative for which the representative lacked actual authority. The chapter differentiates the terminology and concepts associated with partnership law from the common law of agency, in particular, a partner's capacity to bind the firm albeit the partner lacks actual authority, which the chapter terms the partner's "positional power." Turning to LLCs, the chapter argues that basic agency issues are muddled, due in part to a historically explicable overhang of partnership concepts and terminology --- since obviated by changes in tax law --- and that the muddle most significantly (and surprisingly) affects LLCs organized under the Delaware LLC statute. The chapter demonstrates that such confusion is not inevitably and that, short of formal changes in statutory text, judicial decisions and an arguable consensus among expert lawyers may mitigate the confusion.

Keywords: agency, partnerships, LLCs, apparent authority, actual authority, agency power

JEL Classification: K10, K20, K22, K29