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50 Cards in this Set
- Front
- Back
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Employees who deal with 3rd parties are generally considered |
agents. |
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Independent Contractors |
often are agents of those who hire them, BUT theydo not have control over the details oftheir physical performance. The boss ofan independent contractor can tell them WHAT to do, but not HOW they do it,essentially. |
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Employee or Independent Contractor? What’s the difference? |
The more control that an employer has over thework being done, the more likely that the person is an employee. |
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Agency Formation |
Must be Consent, Control, but NOTConsideration—you can have gratuitous agency relationships. |
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Agency By Agreement |
the common form of agency. Normally an agency is formed by an ExpressAgreement between the Principal and the Agent, either in writing orverbally. HOWEVER, the agreement can alsobe IMPLIED by the conduct of the parties. |
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Agent’s Duties |
Agent is a fiduciary of the principal, becauseprincipal has given agent power to act on his behalf; special trust, thereforespecial duties |
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Agent's duties: Care/Performance |
the agent must use Reasonable Care, Diligence,and Skill, meaning that of a reasonable person under similar circumstances,UNLESS the agent purports to have special skills (realtor, CPA, etc.) in whichcase it is the reasonable care, diligence, and skill of that sort ofprofessional |
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Agent's duties: Loyalty 1. Confidentiality 2. Undivided LOyalty |
agent MUST act SOLELY for the principal’sbenefit, not his own benefit or that of another person 1. Confidentiality—can’t disclose information or knowledge gained throughthe agency relationship, and can’t use it for your own advantage. NOTE: this fiduciary duty persists during AND after the agency. 2. Undivided Loyalty—problems with doing business with your principal ortrying to act for two principals. It’srisky but OK, IF the agent discloses this to the principal(s) and the principal(s)agree to it. Dual agency is common inreal estate, but law requires that disclosure and acceptance of dual agency bein writing for real estate. |
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Agent's duties: Disclosure/Notification |
agent has the duty to keep principal informed ofall matters that relate to the agency. Notice given to an agent is Notice given to the principal. Obvious reasons. |
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Principal’s Duties to Agent Compensation Cooperation Reimbursement &Indemnification |
a principal must pay an agent for servicesrendered, UNLESS agent is acting gratuitously Youhave to help, or at least, permit, the agent to do his job/duties, and you, asprincipal, MUST NOT do anything to hinder or prevent performance of thoseduties. A principal must reimburse an agent for moneyspent at the principal’s request OR for necessary expenses. A principal must also indemnify the agent forliability incurred because of AUTHORIZED acts (but not crimes). |
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Scope of an Agent’s Authority: Express, Implied, Apparent/Estoppel, andEmergency |
Express--Authority is explicitly granted toagent Implied--agent’s authority is IMPLIED; can beinferred from the position/job. Apparent Authority--an agent has apparentauthority wherever a principal, whether by word, conduct, or inaction, causes athird party to REASONABLY believe that an agent has authority, even though theagent does not have it. |
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Liability Issues -who is liable to third parties for an agent’scontracts, torts, or crimes CONTRACT |
Partially Disclosed Principal--the third party knowsthat the agent is an agent for someone, but not for whom, i.e., the principalis unknown Inthis situation, the principal is liable, and generally the agent is liable ASWELL Undisclosed Principal--the third party does not know that there is a principal, and is UNAWAREthat the agent is acting in an agency capacity when the contract is made. The principal is liable AND the agent isliable |
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Liability Issues -who is liable to third parties for an agent’s contracts, torts, or crimes TORTS |
Liability for an agent’s NEGLIGENCE Respondeat Superior--Latin for you’reresponsible for your employees screw-ups. An employer is liable for harm caused, whether negligently or intentionally, to a third party by an EMPLOYEEacting within the scope of employment, with no regard to the employer’s faultor lack thereof. Intentional Torts--principal is NOT liable, UNLESS the employee wasmotivated, in part, by a desire to help the principal, OR the conduct wasREASONABLY foreseeable. INDEPENDENT CONTRACTORS--employers are NOT liablefor harm done to a third party by the tortious conduct of an independentcontractor UNLESS it involves ultrahazardous activity with strict liability. |
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NEGLIGENT HIRING |
principal is liable for the physical torts of anindependent contractor ONLY IF the principal was negligent in hiring ORsupervising him. |
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Terminating an Agency mutual Agreement Termination by One Party |
mutualAgreement--I hate you, you hate me, let’s stop working together. Parties can cancel an agency situation bymutual agreement. Termination by One Party--NOTE: a party always has the POWER to terminate anagency relationship, but NOT always the RIGHT to do so, and lacking the right,can be liable for breach of contract. |
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Terminating an Agency some things terminate an agency relationship Operation of Law |
Death,
Insanity Bankrupcy of the principal terminates the agency |
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STARTING A BUSINESS Sole Proprietorships |
Sole Proprietorships—the most basic form. A. Plusses—Easy to set up, the sole proprietortakes all profits, easy to figure out taxes. Lots of flexibility. B. Minuses—Unlimited personal liability for theowner; more difficult to raise capital. Harder to borrow money, can’t issue stock,bonds, etc. When the owner dies, thebusiness dies. |
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STARTING A BUSINESS Partnerships |
result from an agreement, usually express,usually in writing, but not necessarily so, between 2 or more people to run abusiness for profit. A. Essential Elements of a Partnership -Sharing of profits and losses -Equalmanagement rights (everyone is a general partner) |
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How to Form a Partnership |
Partnership Agreement—can be oral, written ORimplied by conduct. DOES NOT HAVE TO BE AN EXPRESSAGREEMENT. |
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Partnership Operation PartnerRights
management Profit and loss Compensation |
Management—in a general partnership, allpartners have equal voices in management, with one partner getting onevote. Simple majority rule
Profitsand Losses— shared equally UNLESS the agreement saysdifferently.
Compensation—No compensation, per se. Doing the partnership business ISthe duty of each partner, therefore nocompensation except through profits.
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Dutiesand Liabilities of Partners Fiduciary Duties
Loyalty Care Authority |
Loyalty—a partner must account to the firm forany profits or benefits from the conduct of the business or use of the firm’sproperty. Can’t compete with the firm ordeal with it as if it were an adverse business.
ii. Care—partners must avoid knowing violations of the law
Authority—each partner is an agent of the partnership as regards itsregular business.
Liability—each partners is JOINTLY and SEVERALLYliable for ALL partnership obligations, including contracts and torts
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What Happens after a Dissociation |
a. Partner--his right to participate in the firm’s business affairsends. His duty of loyalty ends, otherthan confidentiality. His duty of careends regarding any future activities of the firm, but it is still there forprior acts. b. Partnership--Assuming that the dissociationis not wrongful, the partner’s interest in the firm must be purchased. The partnership should notify creditors, andothers, of a partner’s dissociation from the firm to avoid liability forapparent authority for any acts of the former partner thereafter. F. Termination--anything that screws up the partnershipthat results in an inability to carry on the partnership business. 1. Dissolution--terminates the right of thepartnership to exist as an ongoing business, but not until it winds up its affair |
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Winding Up the Business Asset Distribution |
2. WindingUp the Business--collecting the partnership’s assets, paying debts, giving anaccounting to the partners, and distributing any remaining assets. The firm DOES NOT do any new business. Asset Distribution--Priority ofdistribution: 1) payment of debts; andthen 2) return of the capital contributions and distribution of profits, ifany, to the partners. |
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Limited Liability Partnerships (LLP) Liability
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Limited Liability Partnerships (LLP)--has the taxbenefits of a partnership, while limiting the personal liability of partnersfor the malfeasances of other partners. LLP Liability--under the UPA, partners in anLLP are exempt from personal liability for ANY partnership obligation, whetherfrom contract issues or tort. Supervising Partner’s Liability--the partnerwho commits the wrongful act is personally liable for the results, AND so isthe partner who supervised the party who committed the act, such as anon-partner employee. |
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. LimitedPartnerships |
LPs MUST have at least one general partner andone or more limited partners. Only general partners are active in management,and only general partners are liable for partnership debt beyond their capitalinvestment.. Limited liability for thelimited partners. |
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Formation of LP |
It is aformal proceeding, must be at least two people: one or more general partners and one or more limited partners, and aformal certificate of limited partnership must be filed with the State,normally the Secretary of State’s office. |
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Rights of Limited Partners |
same as general partners, save that they can’tactively manage the firm, but can still vote on some fundamental matters |
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. Liabilities of Limited Partners |
To Creditors--a limited partner is only liableto the extent of his capital contribution to the LP. |
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Limited Partners involved in Management results in |
results in personal liability for partnership debt, at least if creditors were aware of such participation. |
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What could general partners do that would result in Dissolution of LLP? Limited? |
GeneralPartners--death, retirement, mental incompetence of a general partner dissolvesthe firm, UNLESS the other general partners, if any, continue the firm. Bankruptcy of a general partner dissolves thefirm, as does illegality
LimitedPartners--nothing they do dissolves the firm: not death, not personal bankruptcy, not insanity.o:p><Ɖ |
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Limited Liability Limited Partnerships (LLLP) |
like an LP, save that ALL partners in an LLLP havelimited liability up to their capital contribution to the firm. |
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Limited Liability Companies (LLC) Offer a limited liability like a... Can be taxed like X or Y |
offers limited liability like a corporation, butcan be taxed as either a corporation or a partnership. Courts can “pierce the veil” of LLC limitedliability. To form an LLC, must filearticles of organization with the State. An LLC is a citizen of EVERY state of which its members are citizens |
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LimitedLiability Companies (LLC)- advantages |
Advantages--taxed like a partnership UNLESS itchooses to be taxed as a corporation; Limited Liability, like a corporation, BUT courts can “pierce the veil”of the LLC and hold members liable for the firms obligations |
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LLCManagement
normally member-managed, UNLESS article of organization specifyotherwise.
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a. MemberManaged LLC--all members participate in management.
b. Manager-Managed LLC--members pick a group ofpersons to manage the firm. That groupDOES NOT have to be composed of members. The managers have FIDCUCIARY Duties of Loyalty and Care to the LLC andto its members. |
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Professional Corporations (PC) |
-PC is liable for an individual’smistake, but the other “innocent” professionals aren’t personally liable. -MUST ALL BE MEMBERS OF THE SAME PROFESSION. |
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Corporations advantages |
Limited liability; easier to raise capital—stockissuance, bonds; easyto transfer shares; perpetual existence (if desired); can do virtually anything |
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Corporations cons |
A lot of effort to set up; costs more to start;double taxation— corporate incomeand dividends. |
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Close Corporations & advantages |
used to mean a small privately heldcorporation. NOT PUBLICLY TRADED. Advantages—flexibility vs. regular corp.; canrestrict transfer of shareRlj |
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“S” corporations—an IRS creation |
Limited Liability of corporations and tax status of partnerships, BUT have to complywith IRS requirements to qualify |
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How to Incorporate |
Where? You can incorporate a business in any of the 50 states. No requirement that you have to pick aparticular one, so this is a major decisions. A corporation is a citizen of the state where itincorporates, i.e, a “domestic” corporation. EVERYWHERE else, it is treated as a “foreign” corporation. NOTE: you can only incorporate a company in one state, though you can dobusiness everywhere. |
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Incorporation Gone Wrong--uh oh. |
A. Whatcould happen if incorporation is done improperly? Shareholders could end up personally liablefor “corporate” obligations. |
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Piercing the Corporate Veil |
limited liability is one of the big attractionsof the corporate form of business. Butthe so-called “corporate veil” protecting SHAREHOLDERS from liability can bebreached under certain circumstances If a court decides to pierce the corporate veil,the SHAREHOLDERS are personally liable for corporate debts |
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Courts can pierce the corporate veil if: |
A. Statutory corporate formalities aren’t followed. Got to do what the law requires. B The corporation is set up in such a fashionas to never make a profit or to be always insolvent orundercapitalized. C. Personal and corporate interests arecommingled to such a degree that the corporation has no real separateidentity. D. A party is misled or deceived into dealingwith the corporation rather than an individual. |
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. CorporateOfficers and Executives--they are agents of the corporation.--handle the daily business |
1. Qualifications? Whatever the firmwants them to have, unless specifiedin the articles of incorporation or the by-laws. Can be both an officer AND a director |
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Fiduciary Duties Apply to directors AND to officers--they arefiduciaries oF thecorporation. Duty of Loyalty |
Duty ofLoyalty--first loyalty is to the corporation. Can’t use corporate fundsfor personal use/gain or abuse confidential corporate information. They cant: compete, usurp, conflicting interest, insider trading, screw minority interest shareholders |
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Business Judgment Rule |
prevents disgruntled shareholders from suingdirectors and officers every time a business decision doesn’t pan out THIS DOES NOT PREVENT LAWSUITS, AS ANYONE CAN FILEA LAWSUIT, BUT IT PROVIDES AN AFFIRMATIVE DEFENSE |
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Shareholder Rights |
lots, most of which we don’t have to worry about |
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DERIVATIVE SUITe='mjlj |
if the directors fail to sue in the name of thecorporation to fix a legal injury, such as a breach of contract or tort, theshareholders can sue on behalf of the corporation |
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Right To Protection of Minority Shareholders |
any one shareholder or group of shareholders whoown enough stock to control a corporation (doesn’t actually require majority ofshares), owe FIDUCIARY DUTIES to the minority shareholders. That is, they can’t use their control overthe corporation to screw the other shareholders |
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2. Shareholder Liability |
b. Piercing the corporate veil—discussed above. |
