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117 Cards in this Set

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Agency
1. Principal: ind. w/ legal capacity to take action

2. Agent: any person can be empowered to act, either by actual or apparent authority, as an agent

3. Third party
Gordon v. Doty
PERMISSION TO DRIVE ONE'S VEHICLE CREATES AN AGENCY RELATIONSHIP

An agency rel. results from one person's consent that another will act on his behalf and subject to his control, and the other person's consent so to act
Jenson Farms v. Cargill
A CREDITOR WHO CONTROLS ITS DEBTOR'S BUSINESS OPERATIONS IS LIABLE FOR THE DEBTOR'S DEBTS

A creditor that assumes control of its debtor's biz may become liable as principal for the debtor's acts in connection w/ the biz
Agency Elements
1. Manifestation of assent by principal that the agent act

2. Agent has to manifes assent on behalf of principal

3. Manifestation of assent has to indicate that agent will act on behalf of principal's behalf

4. Agent acts subsequent to principal's control
Actual Authority
focuses on manifestations from the PRINCIPAL TO THE AGENT & AGENT'S REASONABLE BELIEF
Implied Authoruty
Actions specifically designated, or incidentally or implied, to achieve objectives
- i.e. manager of restaurant: What would a reasonable person believe that implied or incidental authorty would be interpreted as?
Incidental Authority
Focuses on the REASONABLE BELIEF OF THE AGENT.

Principal expects or intends authority w/o actually saying so

May arise from custom, pattern of conduct btw parties, etc.
Manifestation of Assent
spoken, written by act, or silence
Termination of acutal authority
Once given, it can be terminated

Authority is automatically terminated upon agent's or principal's death
Apparent Authority
focuses on manifestations from PRINCIPAL TO 3D PARTY

Indicates apparent authority is the power held by an agent/actor to affect a principal's legal relations w/ 3d parties

Look at 3D PARTY'S REASONABLE BELIEF!! Was the belief traveable to the principal's manifestations?
Mill St Church v. Hogan
CONTINUOUS PAST AUTHORIZED ACTS SUFFICIENTLY CONFER IMPLIED AUTHORITY ON AN AGENT

Implied authority is actual authority that the principal intended the agent to possess and includes such powers as are practically necessary to carry out the delegated duties.
Lind v. Schenley Industries
SALES MANAGER HAS APPARENT AUTHORITY TO PFFER PAY INCREASES WHEN CHARAGED W/ TRANSFERING INFO AMONG EXECUTIVES

Apparent authority need not be authority actually given to an agent as long as the principal's manifestations lead 3d parties to reasonably believe that the agent possess authority to act on the principal's behalf.
Inherent Agency Power
Alternative to actual or apparent authority.

Power of an agent not derived from apparent authority, but solely from the agency relaionship and existing solely for the PROTECTION OF 3D PARTIES HARMED BY OR DEALING W/ a servant or other agent
Watteau v. Fenwick
UNDISCLOSED TAVERN OWNER IS LIABLE FOR HIS AGENT'S DEBTS TO BE OWED TO AN UNKNWING CIGAR VENDOR

When a principal is undisclosed to 3d parties, the actions taken by an agent in furtherance of the principal's usual and ordinary biz binds the principal
Ratification
Often reliec on where there is no actual or apparent authority on behalf of the agent to act for the principal, and subject to the principal's control
Ratification
A person's binding adoption of an act already complete but either not done in a way that originally produced a legal obligation or done by a 3d party having at the time NO AUTHORITY to act as the person's agent

Affirmance can be:
1. Express
2. Implied by acceptance
3. Implied by inaction/silence
4. Affirmed by brining a lawsuit to enforce part of the K
Ratification Elements (5)
1. Act of ratification by either manifesting assent, or by conduct that justifies a reas. assumption that the person consents

2. Act had to be ratifiable: when the act was done, that act had to be done or puported to be done on bhelaf of the principal

3. Person ratifying has capacity to ratify: person may ratify act ONLY IF the person existed at the time of the act AND had legal capacitites

4. Ratification must be timely

5. Ratification encompasses the act in its entirety: can't ratify only the parts you like best - must ratify the entire act!
Botticello v. Stefanovicz
RECEIPT OF RENT $ UNDER A LEASE W/ AN OPTION TO PURCHASE DOESN'T CONSTITUTE RATIFICATION OF THE LEASE

Ratification requires affirmance by a person w/ full knowledge of the material terms of a prior act which did not bind him, but which was done or prefessedly done on his account
Estoppel
Applies when there is NO PRINCIPAL b/c there is NO AGENCY RELATIONSHIP.

A bar that prevents one from asserting a claim or right that contradicts what one has said or done before or what has been legally est. as true.

The Principal creates an appearance of authority in purported agent, & 3d party acts in reliance on appearance of authority.

Principal is bound even though no authority and no ratification.
Estoppel: Focus on 3d party
Elements -
Must find:
1. Justifiable Inducement
2. Detrimental change to position
3. 3d party has to believe that the transaction is on behalf or on the purported principal's account
Estoppel: Focus on Principal or Purported Principal
Elements -
1. Eiter prove that this purported principal either intentionally or carelessly caused such belief to 3d party or had notice to the 3d party

Purported principal didn't take reasonable steps to notify them of the fact
Estoppel: Analysis
1. FOcuse on what the 3 party must find

2. FOcus on the principal
Liability of Principal:
General Rules
1. If the agenthad actual or apparent authority, then the principal is ALWAYS LIABLE
Liability of Agent:
General Rules
1. Agent is liable UNLESS the agent took steps to disclose the fact that the agent is an agent for a specific principal
Disclosed Principal
A principal whose ID is revealed by the agent to a 3d party

A disclosed principal ios ALWAYS liable on a K entered into by the agent w/ the principal's authority, but the agent is usually NOT liable.
Undisclosed Principal
A principal whose ID is kept secret by the agent.

An undisclosed prinipal and the agent are both liable on a K entered into by the agent w/o the principal's authority
Unidentified Principal
A principal whose existence, but not actual ID, is revealed by the agent to a 3d party
When a principal doesn't exist or lacks capacity
1. When there;s a promoter for a limited liability entity that hasn't yet been formed, but the promoter enters a lease and other Ks to move the entity along to get it up & running

2. Unless a 3d party agrees otherwise, than a person who makes a K w/ a 3d party becomes a party to the K if the purported agent knows of has reason to know....
- if agent knew entity was not uet in existence, the agent is liable
Implied Warranty of Authority
When an agent indicates to a 3d party that they have authority to do something, they are giving an implied warranty of authority and it can be another ground to hold the agent liable
Vicarious Liability
Addresses liability when an agent has committed a tort in determining if the principal is liable
2 ways a principal can be held liable
1. Direct Liability
2. Vicarious Liability

TEST: Loo at control and balance againt TOC to determine if there is an EE (lawyer no an EE of client)
Direct Liability
Principal is liable when:
1. Neg. hiring/supervision
2. Improper/ambiguous order
3. Lack of supervision
4. Permitting/failing to prevent neg. or tortious conduct
Vicarious Liability
Liability that a supervisory, i.e. emplopyer, bears for the actionable conduct of a subordiante or associate because of the relationship btw the 2 parties
Test to demonstrate EE was acting w/in scope of employment: Rest 3d
EE acts w/in scope of employment when:

1. Performing work assigned by employer
2. Subject to ER's control

NOT w/in scope when:
1. Independent, couse of conduct that doesn't serve any purpose to the ER
Test to demonstrate EE was acting w/in scope of employment: Rest 2d
EE acts w/in scope of employment when:

1. Performing work assigned by employer
2. Subject to ER's control
3. Time
4. Place

NOT w/in scope when:
1. Independent, couse of conduct that doesn't serve any purpose to
Principal Liability when Agent is involved in a Violent/Criminal Act
TEST:
Is there a departure from employment as opposed to escalation of the normal course of the employee?
Agent's Fiduciary Duty - General Rule
1. Loyalty: act solely for the benefit of principal in all matters connected w/ agency
2. Keep principal informed
3. Do not commingle funds
4. Obey instructions
5. AGeny may NOT compete during agency relationship, but once terminate, can compete unless there is an enforceable covenant not to compete
Readem v. Regem
A SERGEANT MUST SURRENDER ILLEFAL BRIBES RECEIVED B/C OF HIS EMPLOYMENT POSITION

A servant is accountable to his master for profits he obtains b/c of his position, if the servan takes advantafe of his position and violates his duty of good faith and honesty to make the profit for himself.
General Auto v. Singer
D IS LIABLE TO HIS EMPLOYER FOR PROFITS DERIVED FROM AN UNDISCLOSED COMPETING BUSINESS

An agent owes his principal the duty of godd faith and loyalty not to act adversely to his principal's biz interests in the furtherance of his own
EXCEPTION to Agent's Fidcuciary Duties
If the agent discloses all facts & acts in good faith, AND the principal consents
Partnership
An association w. 2 or more persons to carry on as co-owners for a biz for profit
Ptshp Formation
1. Demonstrated by control, sharing of profits, contributions of cash or property or services, etc.

2. Agmt may be written, oral, or implied

3, Need not necessarily contemplate froming a ptshp: they;re easy to form!

4. Presumption on the forming of a ptshp
Elements alluding to ptshp control (Fenwick)
1. Mutual control

2. right to share profits

3. contribution
Rebuttal of Presumption of Ptshp by:
1. Repayment of debt
2. Services of ind. contractor or employment
3. Rent
4. Health of retirement benefit
5. Interest on a loan
Fiduciary Duties of Partners
The only fidcuiary duty a partner ower tp the partnership and other partners are the duty of loyalty & duty of care

A duty of good faith and fair dealing is also owed
Duty of Loyalty (PTHSP)
1. Account to the ptshp & hold for it any property, profit, or benefit derived by the partner in conduct, including the appropriation of a ptshp opportunity

2. Don't deal an interest adverse to ptshp

3. Don't compete w/ ptshp
Duty of Care (PTSHP)
1. Lmited to not enegaging in grossly negligent or reckless conduct, intentional misconduct or a knowing violation of law
PTSHP Property
1. Prop acquired by a ptshp is property of the ptshp, not the partners individually

2. Partner is not a co-owner of ptshp property and has no itnerest that can be transferred

3. A ptshp is an entity distinct from its partners

4. Partner may use/possess ptshp propery ONLY on behalf of the ptshp

5. Property is presumed to be ptshp property if purchased w/ ptshp assets

6. Prop acquired in the name of 1 partner w/o an indication that it's in the name of the ptshp, & w/o ptshp assets, is presumed to be SEPARARTE property even if used by the ptshp

7. The only property interest of a partner is the partner's share of profits/losses and distributions

8. Entitites are persons and can hold title to propert
Contributions, Profits, Distributions in a PTSHP
1. Each partner is deemed to have a capital account that is credited w/ an amount equal to the anount the partner contributed to the ptshp plus the value of other property contributed: keeps track of what the partner is entitled to & can take out of ptshp

2. Each partner is entiteld to an equal share of ptshp profits & is chargeable w/ a propertionate share of ptshp losses: ptshp profits are paid when partners agree to distribute/allow a draw on their capitol accounts

3. Partner is NOT entitled to payment for services performed for the ptshp EXCEPT in winding up the biz of the ptshp: assumes that partners share an equal interest & that their efforts will be compensated by the profits of the ptshp
PTSHP Management
1. In the absence of an agmt to the contrary, all partners have EQUAL RIGHTS in the MANAGEMENT of the ptshp

2. Any difference arising as to ordinary matters connected w/ the biz may be decided by a MAJORITY OF PARTNERS: an act OUTSIDE THE ORDINARY COURSE OF BIZ & AM'S TO PTAHP AGREEMENT may be completed only with the consent of all partners

3. Each partner is an agent or the ptshp: an act of a partner carrying on in the ordinary course of biz binds the partnership UNLESS the partner had no authority to act & the 3d party knew that

4. Ptshp may file a stmt of ptshp authority which may state the authority or limitation of some or all of the partners to enter into transaction on behalf of the ptshp
PTHSP Liability to 3d Parties
1. Liable for loss or injury cause as a result of a partner's wrongful act/omission while acting in the ORD. SCOPE OF BIZ

2. Reimburse a partner for payments made

3. Indemnify partner for liabilities incurred by the partner in the ord. crse of biz

4. Unless otherwise provided, partners are JOINTLY & SEVERALLY LIABLE

5. Partner may sue & be sued in the name of the ptshp

6. An action may be brought against the ptsho & any/all partners in the same action or in separate actions

7. Judg. against a ptsho is not itself a jdgmt against a partner
Creditors & Ptshp Liability
Creditor can't levy against a partner's asserts based on a claim against ptshp UNLESS partner is personally liable AND:
1. jdgmt based on the same claim against the ptshp
2. ptshp is a debtor in bankruptcy
3. partner has agreed the creditor need not exhaust all ptshp assets
4. liability imposed by law/contract independent of existence of ptshp
Liability of Partners in LLP's
Not liable for debts, obligations, or liabilitites chargeable to the LLP whether arising in tort, contract, or otherwise

EXCEPTION: LLP partner is liable for his own neg., worongful act, or misconduct
Events causing PTSHP Dissociation
1. Notice of express will to withdraw
2. An event agreed to in the patshp agmt as causing dissociation
3. Partner's expulsion pursuant to the pthsp agmt
4. Partner's expulsion by unanimous vote of other partners if...
5. Partner expelled by judicial determination...
6. Partner died
7. Appontment of guardian or conservator for partner
8. Judicial determination that partner is incapable of performing duties
PTSHP Dissociation: General Rule
Partner has the power to dissocate at ANY TIME, rightfully or wrongfully, by express will
Partner's Wrongful Dissociation if:
1. Breach of an express provision in agmt
2. B/f expiration of the term or completion o fthe undertaking in a TERM PTSHP:
-w/d by express will (UNLESS w/in 90 days if a parnter's death or wrongful dissociation)
-expelled by jidical determination
-bankrupt
Liability of Partner's Wrongful Dissociation:
Liable to the ptshp for damages caused by the wrongful dissociation, in addition to other obligations of the partner
PTSHP Dissociation w/ Dissolution
1. If partner is dissociated w/o resulting in a dissolution & winding up, the ptshp shall buy that parnter's interest

2. Price of buyout is determed by the distributable amount if, on date of dissociation, the partner's assers were sold at a price equal to the greater of the liquidation value or the entire biz as a going concern: partner mud demand payment & paid w/in 120 days, or go to court!
3. damages for wrongful dissociation & other liabilities are offset against buy out price
TERM PTSHP: wrongful dissociation
Withdrawl is ALWAYS wrongful

partner is not entitled to buyout until the term is finished UNLESS he can prove that the buyout will not cause undue hardship to pthsp
PTSHP DIssolution for AT-WILL PTHSP
Always have the right to withdrawal & when you do so, it's NOT wrongful

You are entitled to be paid the value of your ptshp interst: paid the greater of the going concern value or the liquidation vlaue ONLY IF the other partners keep the ptshp going
PTSHP DISSOLUTION FOR AT-TERM PTSHP
May be dissolve & wound up ONLY IF:
1. w/in 90 days of death or wrongful dissociation, the express will of at least hald of the remaining partners is to wind up
2. espress will of ALL partners to wind up
3. Expiration of the term or completion of undertaking
PTSHP Dissolution: generally
May be dissolve & wound up ONLY IF:
1. An event agreed to in the ptshp agmt to cause the winding up of the biz occurs
2. An event makes it unlawful for all/most of biz to continue
3. On application of a partner, judicial determination that:
-economic purpose is frustrated
-another partner has engaged in conduct not reasonably practical to carry on w/ that partner
-no otherwise reas. practicable to carry on in conformity w/ agmt
4. Ptshp continues after dissolution ONLY for the purposes of winding up
Ownership of PTSHP:
1. Partners are the owners
What rights do partners have?
1. Participate in mgmt: who to hire/fire,when to borrow $
2. PTSHP is still a sep. entity: respect the separteness
3. PTSHP interest is not freely transferable: requires a unanimous vote to allow a new partner in
4. RIght of transferable interest: can transfer only the right to receive distributions you might otherwise receive from the entity, but doesn't include right to vote
5. NO RIGHT to demand your invesment out of the ptshp while a partner: can get it back upon dissolution
Voting Rights of Partners:
Generally, majority of partners have to approve, but some topics require UNANIMOUS CONSENT, including:
1. Amendment to agmt
2. Admission of new partner
3. Anything outside the ordinary course of biz
4. All partners have actual & apparent authority to bind a ptshp in the ord. crse. of biz
Tort Liability of a PTSHP: General Rule
Respondeat Superior/ Vicarious Liability under Agency law is applicable
Tort Liability of a PTSHP: UPA
Ptshp is liable for the torts & other actionable conduct of any partner who is acting in the ORDINARY COURSE OF BIZ
PTSHP Fidcuiary Duty under UPA
Duty of care & loyalty is lower than a puntilliyo
Indemnification by a PTSHP
Partner is entitled to be indemnified by the Partnership:
1. One is always liable for your own neg.
2. As long as my neg. as a partner was in the ordinary course of biz, the ptshp MUST indemnify (reimburse) me
3. Normally, can;t collect against partner unless first tried to collect against the ptshp
Corporation - Definition
An entity having authority under law to act as a single person distinct from SH who own it and having rights to iisue stock & exist indefinetely
Corp. General Characteristics
1. 1+ investors
2. Continuous
3. Centralized Mgmt: B/D can only act as a group
4. Limited Liabiliry
5. Free transfer of interest
Shareholders General Characteristics
1. Limited right to vote
2. right to distributions
3. If dissolved, entitled to whatever is left after creditors
4. Every share of stock of a class has the same rights
5. Limited liability
Corp: Articles of Incorporation
1. Must set forth any classes of shares & the # of shares of each class that the corp. may issue
2. AOI must authorize:
-1 or more classes of shares that have unlimited voting rights; AND
- 1 or more classes of share that together are entiteld to receive the net assets upon dissolution
3. AOI may authorize more than 1 class of shares
-may include limited/ nonvoting shares
-may be redeemable or convertible
Shareholder Votes
1. Unless otherwise provided, each outstanding share, regardless of class, is entitled to one vote on each matter voted on at a SH's meeting

2. Only shares are entitled to vote
Types of Stock
1. Common: shares that represent the portion of the value & appreciation of the corporation

2. Preferred: shares represent X amound of dollars & there is no right to be paid more than "X" upon dissolution
Types of Dividends
1. Cumulative: entitled to certain % every year from time stock was purchased & b/f common stockholders are paid

2. Noncumulative: preferred stockholders must be paid b/f common stockholders are paid, any year dividened is paid
Policy for Limited Liability (corp's)
1. SH don't manage so not liable for poor decisions

2. Capital markets would stop working w/o limited liability
Corporation Formation
1. Unless otherwise stated, the copr. begins when articles of incorporation are filed w/ Secretaru of State

2. Articles must set forth:
-Corp. name
-# of shares authorized to issue
-St. address & name of registered agent
-Name & address of incorporators

3. Articles may set forth:
- initial directors
-provisions re: purpose, mgmt, powers of corp...

4. Atty may file the articles as an "incorporators" w/o liability

5. Incoporator/Dir. must call meeting to adopt bylaws after incorporating
Statutory Close Corporation
1. Can be elected to limit transferability & to expand/limit powers of mgmt

2. Best to create SCC w/ one/few familes to maintain control

3. SCC only available for corp. w/ 25 or fewer SH
Promoter Liability - Corp.
1. ANyone purporting to act on behalf of the corp & knows it's not incorporated, are LIABLE for liabilites created while so acting

2. Where a party has contracted w/ what he acknowledges to be a corp., he is estopped from denying the existence or the legal validity if such corp if no harm results from enforcing the K
Piercing the Corporate Veil
2 Requirements:
1. Such unity of interest and ownership that the separate personalitites of the corp & ind. (or other corp.) no longer exist

2. Circs such that adherence to the fiction of sep. corp. existence would sanction a fraud or promote injustice
-"Promote injustice" requires showing that some "wrong" beyond a creditor's inability to collect would result
Factors include Piercing the Corporate Veil:
1. Failure to comply w/ corp. formalities
2. Commingling of assets
3. Undercapitialization
4. 1 corp. treating the assets of another copr. as its own
Board of Directors: General Characteristics
1. Each corp. must have a B/D
2. There must be one or more ind's serving on a board, specified in the articles of incorp.
3. Typical term for board is one year, unless corp. chooses to stagger terms
4. Decision made by Board should be the collective decisions of the Board
- Dir. can't act alone in decision making
5. Dirs meet in mtgs, but they can meet in any manner in which the means of communication allows them to be simultaneously heard
-Dirs must give notice of hearing
-In order to call mtg, must be a quorum
6. If all dirs vote affirmatively on a resolution, that resolution can direct an officer to take an act
7. Board can act thru committes
B/D Duty of Care
1. Each dir shall act in good faith & in a manner that the dir reas. believes to be in the best interest of the corp

2. Articles of incopr. can insulate dirs from liability for everything BUY:
-Breaching the duty of loyalty
-Intentionally inflicting harm on corp/SH
- Violaing ss 8.33
- Intentionally violating a crim law

3. B/D shall inform themseleves in a reasonable manner when making decisions & overseeing the corp
- When reliance is warranted /reas., a dir is entitled to rely on officers, experts, attys, accountants, committees
Business Judgment Rule
1. The presumption that in making biz decisions not involving direct self-interest or self-dealing, corp. dirs act on an informed basis, in good faith, and in the hoest belief that their actions are in the corp's best interst

2. Rule shields dirs & officers from liability for unprofitable or harmful corp. transactions if the transactions were made in good faith, with due care, and w/in the dirs or officers authority

3. No protection for dirs who have made an unintelligent or unadvised judgment

4. Won't excuse total neg, crim conduct, bad faith, fraud or eggregious conduct
Business Judgment Rule Policy
Courts don't have the business expertise to determine whether general mgmt principles applied by a business were right or wrong
Standard for BJR
1. Gross Negligence

2. Board must gather all material info. reas. available to them
BJR Reubttable Presumption
Dir is acting in good faith & w/ best intersts of the corp in mind
Shareholder Derivative Actions
1. Derivative claim acts as monitoring device on director action since SH can't directly impact actions
Permissive Indemnification
Except as otherwise provided, a corp. MAY indemnify an ind. who is a party to a preoceeding b/c he is a dir against liability incurred in the proceeding if:
1. Dir conducted himself in good faith
2. Dir reas. believed that his conduct in his official capacity was in the best interest of the corporation
3. In all other cases, his conduct was at least not opposed to the best interest of the corp.
Director's Conflicting Interest:
1. Dir or related person was involved in a transaction w/ the corp, which is materially and financially significant

2. If there was a conflicting interest, it will NOT give rise to a claim for legal or equitingle relief if:
-After full disclosure, the trans was apprued by a maj. of disinterested qualified dirs
- trans was approved by a maj. of disinterested SH
- Judge concludes the action was fair
Liability in a Derivative Action
1. If found liable, you can't indemnify against the judgment

2. Corp has to indemnify a dir who is WHOLLY SUCCESSFUL on the merits

3. If no judgment, then corp. can permissively indemnify dir. for legal fees only
Mandatory Indemnification
A corp shall indemnify a dir who was wholly successful on the merits or otherwise, in the defenst of any proceeding to which he was a party b/c he was a dir of the corp.
Duty of Loyalty: Interested Directors
SH can bring a derivative suit if they find there has been a breach of the duty of loyalty
Corporation Voting & Control
1. A corp. must hold an annual meeting of SH, at which time directors must be elected
2. All SHs entitled to vote must be given notice of the annual meeting
3. Every share is entitled to 1 vote, unless otherwise provided
4. A SH vote can't be upheld unless a quorom of those shares exists w/ respect to that matter
5. Dirs are elected by a pluarlity of the cotes cast by the shares entitled to vote in the election at a mty at which a qurorm is present
Shareholder Agreements
1. SHs can contract to vote in any manner they determine

2. SHs can't agree to restrict directors voting & control
-EXCEPTION: Agmts are binding if unanimous

3. SH agmt can elimiate B/D, govern distributions, est. dir/officers
-Alt.: Statutory Close Corp.

4.Employment Agmts: help guarantee minority SH a salary w/o imposing on Board's duties
Abuse of Control in Close Corp.
1. SHs in a close copr owe one another a duty of the utmost good faith & loyalty

2. TEST:
- Can the controlling group demonstrate a leg. biz purpose for its action?
-If so, can the minority demonstrate that the same legitimate obj. could have been achieved thru a less harmful course of action?
Limited Liability Companies General Characteristics
1. 1+ investors
2. Limited liability
3. Choose whether freely transferable
4. Choose term or at will
5. Choose mgmt
LLC Mgmt
1. Manager managed: managers act on behalf of LLC & members are NOT agents

2 Member managed: all members are agents of LLC & can act on its behalf
LLC Operating Agmt
1. Members/managers determine rules btw each other after articles of org. are filed

2. If member managed, operating agmt will look lke a ptshp agmt
-distributions must be equal
-members have equal rights to manage
-decisions must be made by majority
SH MBCA Default rules (2):
1. SH don't have premptive rights: can change it & give SH preemptive rights

2. No cumulative voting: cumulative voting protects minority SH
Ownership of Corp.
1. SH are the owners
Rights of SH of Corp.
1. Directors are the managers & often hire officers to carry out their duties

2. Vote on electing dir

3.vote on sig. change in structure of corp.

4.Right to improve am's of AOI

5. Right to improve sale of substantial assets of corp's

6. NO RIGHT to vote on dividends

7. In a closely-held corp, often SH elect themselves to be a manager
Transferability of Corp. Ownership Interests
1. Shares of stock/interests are feely transferable: don't need consent of other SH or mgmt
Ownership of LLC
1. Members are the owners
Rights of Members of LLC
1. Have a chode of either mgmt by member or mgmtm by manager
Transferability of Members' Ownership Interest
1. Looks more like a ptshp: interests are NOT freely transferable

2. Unanimous consent required for admission of a new member to the LLC
Distributional Interests of LLC
1. Trnsfer only the RIGHT to receive distrubutions you'd receive from entity, b ut doesn't include the right to vote
Single Enterprise Theory
Whether an injured person can sue the related enetites b/c they should be treated as a single entity?

TEST:
1. Instrumentalitites?
2. Agents?
3. Alter Egos?
4. Undercapitalized?
Piercing the Coproate Veil Definition
Judicial act of imposing personal liability on otherwise immunce corporate officers, dirs, and SH for the corp's worngful acts
Test for Piercing the Corporate Veil
1. Corp has to be like the alter ego or the instrumenality of the agent of the owner

2. Once it's est. that it's an alter ego or instrumentality, must meet the 2d test:
-Corp. has to have been used to further fraud or injustice, or wrongful conduct
When SH can get $ back
1. Can sell shares & get $ back from purchaser
2. SH can negotiate w/ corp
SH Agreement
SHs can invade territory of dirs under a SH Agmt:

1. SH may gain rights to participate in mgmt
2. Absent this agmt, domain of SHs is very small
LLC Management Default Rule
Member managed

If member, managed, each member is just like a partner & has authority to bind LLC in the ord. course of biz
v.
Manager managed, where members give up their mgmg rights & their right to bind the LLC (managee alone can bind)
Direct Action of Shareholders
1. Sh claim against another SH

2. Who was directly harmed?
Shares of Stock in a Corp.
1. No right to receive a dividened on common shares: Dirs decide baded on profit when & how much dividen to issue

2. Can create a class of share, commonly done in a preferred stock: corp. must pay dividened as long as they have $ to pay obligation
Preferred Stock
1. Must be paid upon liquidation b/c common stock: if at the end of the corp's term that decides to dissolve, it must first pay the preffered SH any cumulative dividends