BUSINESS LAW FBLA UPDATED CERTIFICATION
TEST PAPER 2026 QUESTIONS WITH ANSWERS
GUARANTEED TO PASS
◉ Agent. Answer: The law of agency is an area of commercial law
dealing with a set of contractual, quasi-contractual and non-contractual
fiduciary relationships that involve a person, called the agent, that is
authorized to act on behalf of another (called the principal) to create
legal relations with a third party.[1] Succinctly, it may be referred to as
the equal relationship between a principal and an agent whereby the
principal, expressly or implicitly, authorizes the agent to work under his
or her control and on his or her behalf. The agent is, thus, required to
negotiate on behalf of the principal or bring him or her and third parties
into contractual relationship. This branch of law separates and regulates
the relationships between:
agents and principals (internal relationship), known as the principal-
agent relationship;
agents and the third parties with whom they deal on their principals'
behalf (external relationship); and
principals and the third parties when the agents deal.
Authority:
,Actual authority can be of two kinds. Either the principal may have
expressly conferred authority on the agent, or authority may be implied.
Authority arises by consensual agreement, and whether it exists is a
question of fact. An agent, as a general rule, is only entitled to indemnity
from the principal if he or she has acted within the scope of her actual
authority, and may be in breach of contract, and liable to a third party for
breach of the implied warranty of authority. In tort, a claimant may not
recover from the principal unless the agent is acting within the scope of
employment.
Express actual authority means an agent has been expressly told he or
she may act on behalf of a principal.
Implied actual authority, also called "usual authority", is authority an
agent has by virtue of being reasonably necessary to carry out his expre
◉ Independent Contractor. Answer: An independent contractor is a
natural person, business, or corporation that provides goods or services
to another entity under terms specified in a contract or within a verbal
agreement. Unlike an employee, an independent contractor does not
work regularly for an employer but works as and when required, during
which time he or she may be subject to law of agency. Independent
contractors are usually paid on a freelance basis. Contractors often work
through a limited company or franchise, which they themselves own, or
may work through an umbrella company.
,◉ Real Estate Broker. Answer: A real estate broker or real estate agent is
a person who acts as an intermediary between sellers and buyers of real
estate/real property and attempts to find sellers who wish to sell and
buyers who wish to buy. In the United States, the relationship was
originally established by reference to the English common law of
agency, with the broker having a fiduciary relationship with his clients.
◉ Bailment. Answer: Bailment describes a legal relationship in common
law where physical possession of personal property, or a chattel, is
transferred from one person (the 'bailor') to another person (the 'bailee')
who subsequently has possession of the property. It arises when a person
gives property to someone else for safekeeping, and is a cause of action
independent of contract or tort.
◉ Trustee. Answer: Trustee (or the holding of a trusteeship) is a legal
term which, in its broadest sense, can refer to any person who holds
property, authority, or a position of trust or responsibility for the benefit
of another, also a trustee can be a person who is allowed to do certain
tasks but not able to gain income.[1] Although the strictest sense of the
term is the holder of property on behalf of a beneficiary,[1] the more
expansive sense encompasses persons who serve, for example, on the
Board of Trustees for an institution that operates for the benefit of the
general public. Also a person in the local government.
◉ Sole Proprietorship. Answer: The vast majority of small businesses
start out as sole proprietorships. These firms are owned by one person,
usually the individual who has day-to-day responsibility for running the
business. Sole proprietorships own all the assets of the business and the
, profits generated by it. They also assume complete responsibility for any
of its liabilities or debts. In the eyes of the law and the public, you are
one in the same with the business.
Advantages of a Sole Proprietorship
• Easiest and least expensive form of ownership to organize.
• Sole proprietors are in complete control, and within the parameters of
the law, may make decisions as they see fit.
• Profits from the business flow-through directly to the owner's personal
tax return.
• The business is easy to dissolve, if desired.
Disadvantages of a Sole Proprietorship
• Sole proprietors have unlimited liability and are legally responsible for
all debts against the business. Their business and personal assets are at
risk.
• May be at a disadvantage in raising funds and are often limited to using
funds from personal savings or consumer loans.
• May have a hard time attracting high-caliber employees, or those that
are motivated by the opportunity to own a part of the business.
• Some employee benefits such as owner's medical insurance premiums
are not directly deductible from business income (only partially as an
adjustment to income).
TEST PAPER 2026 QUESTIONS WITH ANSWERS
GUARANTEED TO PASS
◉ Agent. Answer: The law of agency is an area of commercial law
dealing with a set of contractual, quasi-contractual and non-contractual
fiduciary relationships that involve a person, called the agent, that is
authorized to act on behalf of another (called the principal) to create
legal relations with a third party.[1] Succinctly, it may be referred to as
the equal relationship between a principal and an agent whereby the
principal, expressly or implicitly, authorizes the agent to work under his
or her control and on his or her behalf. The agent is, thus, required to
negotiate on behalf of the principal or bring him or her and third parties
into contractual relationship. This branch of law separates and regulates
the relationships between:
agents and principals (internal relationship), known as the principal-
agent relationship;
agents and the third parties with whom they deal on their principals'
behalf (external relationship); and
principals and the third parties when the agents deal.
Authority:
,Actual authority can be of two kinds. Either the principal may have
expressly conferred authority on the agent, or authority may be implied.
Authority arises by consensual agreement, and whether it exists is a
question of fact. An agent, as a general rule, is only entitled to indemnity
from the principal if he or she has acted within the scope of her actual
authority, and may be in breach of contract, and liable to a third party for
breach of the implied warranty of authority. In tort, a claimant may not
recover from the principal unless the agent is acting within the scope of
employment.
Express actual authority means an agent has been expressly told he or
she may act on behalf of a principal.
Implied actual authority, also called "usual authority", is authority an
agent has by virtue of being reasonably necessary to carry out his expre
◉ Independent Contractor. Answer: An independent contractor is a
natural person, business, or corporation that provides goods or services
to another entity under terms specified in a contract or within a verbal
agreement. Unlike an employee, an independent contractor does not
work regularly for an employer but works as and when required, during
which time he or she may be subject to law of agency. Independent
contractors are usually paid on a freelance basis. Contractors often work
through a limited company or franchise, which they themselves own, or
may work through an umbrella company.
,◉ Real Estate Broker. Answer: A real estate broker or real estate agent is
a person who acts as an intermediary between sellers and buyers of real
estate/real property and attempts to find sellers who wish to sell and
buyers who wish to buy. In the United States, the relationship was
originally established by reference to the English common law of
agency, with the broker having a fiduciary relationship with his clients.
◉ Bailment. Answer: Bailment describes a legal relationship in common
law where physical possession of personal property, or a chattel, is
transferred from one person (the 'bailor') to another person (the 'bailee')
who subsequently has possession of the property. It arises when a person
gives property to someone else for safekeeping, and is a cause of action
independent of contract or tort.
◉ Trustee. Answer: Trustee (or the holding of a trusteeship) is a legal
term which, in its broadest sense, can refer to any person who holds
property, authority, or a position of trust or responsibility for the benefit
of another, also a trustee can be a person who is allowed to do certain
tasks but not able to gain income.[1] Although the strictest sense of the
term is the holder of property on behalf of a beneficiary,[1] the more
expansive sense encompasses persons who serve, for example, on the
Board of Trustees for an institution that operates for the benefit of the
general public. Also a person in the local government.
◉ Sole Proprietorship. Answer: The vast majority of small businesses
start out as sole proprietorships. These firms are owned by one person,
usually the individual who has day-to-day responsibility for running the
business. Sole proprietorships own all the assets of the business and the
, profits generated by it. They also assume complete responsibility for any
of its liabilities or debts. In the eyes of the law and the public, you are
one in the same with the business.
Advantages of a Sole Proprietorship
• Easiest and least expensive form of ownership to organize.
• Sole proprietors are in complete control, and within the parameters of
the law, may make decisions as they see fit.
• Profits from the business flow-through directly to the owner's personal
tax return.
• The business is easy to dissolve, if desired.
Disadvantages of a Sole Proprietorship
• Sole proprietors have unlimited liability and are legally responsible for
all debts against the business. Their business and personal assets are at
risk.
• May be at a disadvantage in raising funds and are often limited to using
funds from personal savings or consumer loans.
• May have a hard time attracting high-caliber employees, or those that
are motivated by the opportunity to own a part of the business.
• Some employee benefits such as owner's medical insurance premiums
are not directly deductible from business income (only partially as an
adjustment to income).
