Business Organization

Front 1

Agency

Back 1

The relationship which results in the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control by the other so to act.

Front 2

What must you have for an agency?

Back 2

Two consents and one control

Front 3

What are the 2 ways to prove agency?

Back 3

Direct or circumstantial evidence

Front 4

What are the 2 defenses to agency?

Back 4

Debtor/creditor

Buyer/supplier

Front 5

Implied Authority

Back 5

is actual authority that is circumstantially prove which the principal actually intended the agent to possess and include such powers as are practically necessary to carry out the duties delegated.

Front 6

Apparent Authority

Back 6

Not actual authority, but is the authority the agent is held out by the principal as possessing.

Front 7

When does an agent have apparent authority?

Back 7

when the principal acts in such a manner as would lead a reasonably prudent person to suppose the agent had the authority he purports to exercise.

Front 8

Liability of Undisclosed Principal

Back 8

An undisclosed principal is subject to liability to a third party who is justifiably induced to make a detrimental change in position by an agent acting on the principal's behalf and without actual authority if the principal, having notice of the agent's conduct and that it might induce others to change their positions, did not take reasonable steps to notify them of the facts.

Front 9

What must you have for liability of undisclosed principal?

Back 9

1) Justifiable inducement

2) Principal does not follow though

Front 10

Ratification

Back 10

1) The affirmance by a person of a prior act which did not bind him but which was done or professed done on his account.

2) Requires acceptance of the results of the act with an intent to ratify, and with full knowledge of all the material circumstances.

Front 11

When do you use Ratification?

Back 11

When you can't tell if an agency exists.

Front 12

Agent Independent Contractor

Back 12

A person consents to act on behalf of the principal but is not subject to principal's control.

Front 13

Non-Agent Independent Contractor

Back 13

Operates independently and simply enters into arms-length transactions with others.

Front 14

Is it possible to have both an Agent and Non-Agent independent contractor?

Back 14

Yes, especially in franchises

Front 15

How do you determine if an IC is an agent or non-agent?

Back 15

Must use a balancing test to see if they have or do not have control over what the issue is.

Front 16

What is the test for actual agent?

Back 16

If, in principal effect, the franchise agreement goes beyond the state of setting standards, and allocates the franchisor the right to exercise control over the daily operations of the franchise, and agency exists.

Front 17

What is the test for apparent agency?

Back 17

One who represents that the other is his servant or other agent and thereby causes a third person to justifiably rely upon the case or skill of such apparent agent is subject to liability to the third person for harm causes by the lack of case or skill of the one appearing to be a servant or other agent as if he were such.

Front 18

T or F: An employee is always an agent..

Back 18

True

Front 19

Once discovered there is an agency what must next be determined?

Back 19

If the act was within the scope of authority

Front 20

When is a servant's conduct not within the scope of authority?

Back 20

When it is too little actuated to serve the master.

Front 21

What 5 factors must be considered to determine if the purpose or intent of the servant was to serve the master or himself?

Back 21

1) Time, place, and Purpose

2) Similar to other acts?

3) Commonly performed?

4) Does it depart from normal process?

5) Would the employer reasonably expect the act?

Front 22

Normally a principal of an IC is not strictly liable for the negligence of the IC unless ___(3)____.

Back 22

1) There is control over the IC

2) The IC is incompetent

3) Nuisance Per Se

Front 23

When is Nuisance Per Se used?

Back 23

When there is an ultra-hazardous activity

Front 24

Fiduciary duty in Agency

Back 24

There is a general duty of full disclosure respecting matters affecting the principal's interest and a general prohibition against using the fiduciary relationship to benefit his personal interest, except with the full knowledge and consent of the principal.

Front 25

Partnerships

Back 25

Partnerships are entities consisting of two or more people acting as co-owners of a business for profit.

Front 26

What is the Rule for determining a Partnership?

Back 26

1) Must be prima-facie evidence of profit sharing

2) Day to day operations must be proportionally shared.

Front 27

What are the factors in determining if there is a partnership? (7)

Back 27

1) Do the parties intend to form a partnership?

2) Is there a right to share profit?

3) Is there an obligation to share losses?

4) What is the ownership and control of the partnership

5) What is the community of power in administration of the business?

6) What is the conduct of the parties to 3rd parties?

7) What are the rights of the parties on dissolution?

Front 28

Are partners liable for the debts of their partners?

Back 28

Yes

Front 29

Rule §404 of Fiduciary Duties: What fiduciary duties does one partner owe to the other?

Back 29

Duty of loyalty and duty of care

Front 30

§404: What is the duty of care and loyalty (6)?

Back 30

1) account for money

2) do not damage the partnership

3) do not compete with the partnership

4) do not act with gross negligence

5) Must act in good faith and fair dealing

6) Can not act in a way that benefits only one partner's own interest.

Front 31

Rights of Partners in Management (3)

Back 31

1) Partnership Property Rights

2) Disagreements

3) Rights to Dissolution

Front 32

Partnership Property Rights (2)

Back 32

1) Rights are to the partnership not the owners of the partnership

2) Each partners interest is the profits made from the partnership, not the partnership

Front 33

Disagreement

Back 33

Any difference arising as to ordinary matters connected with the partnership business may be decided by a majority of the partners.

If there is only two, no action can take place unless both agree

Front 34

Right to Dissolution -- A partner is disassociated from a partnership upon the occurrence of what?

Back 34

Through application of the partnership or other partner judicial process:

1) The partner engaged wrongful conduct that adversely and material affected the partnership business

2) The partner engaged in conduct relating to the partnership business which make it not reasonable practicable to carry on with the business in partnership with the partner.

Front 35

What is required to form a corporation?

Back 35

1) Must file under corporate statute

2) must have articles of incorporation

3) Must have bylaws

Front 36

What is required in the articles of incorporation?

Back 36

1) Name of the corporation including "Inc." or " Co."

2) Maximum authorized shares

3) Registered Agent

Front 37

Corporations consist of what 3 things?

Back 37

1) Officers

2) Board of Directors

3) Shareholders

Front 38

What are the powers of the board of directors (4)?

Back 38

1) Holds all the power

2) Retains the fiduciary duties

3) retain rights to declare dividend and

4) manage the corp.

Front 39

Are shareholders liable for the actions of the corporation?

Back 39

No

Front 40

When are shareholders liable for the debt of the corporation?

Back 40

1) If the commit fraud

2) Treat the corporation as some sort of vehicle for there own purpose?

3) Or they are the alter-ego of the corp.

Front 41

What is the test for piecing the corporate veil?

Back 41

1) Look for unity of ownership (i.e. Multiple corps under the same roof. Same phone numbers, staff, co-mingling funds.

2) Fraud (ie: using funds for personal use) or Promoting injustice (i.e. Personal enrichment at the plaintiffs expense)

Front 42

What are the 4 rights of shareholders?

Back 42

1) Right to buy/own/sell their shares

2) Right to get notice of shareholder meetings

3) Right to vote

4) Adopted by laws (which can be delegated to the BOD)

Shareholders have no right to manage the corp.

Front 43

What is a derivative action?

Back 43

An action where the shareholder takes the place of the corporation to bring suit against the BOD or Officers.

Different from Direct Action, where Shareholder is representing himself and not the corp.

Front 44

In some jurisdictions what must the plaintiff provide to bring a derivative action?

Back 44

Bond -- A reasonable deposit for attorney's fees

Front 45

What is the point of the bond in derivative actions?

Back 45

Prevented small shareholders from holding the BOD hostage with frugal lawsuits in order to get a large settlement in place of an expensive lawsuit.

Front 46

What is the plaintiff required to show when filing a derivative actions?

Back 46

1) Must allege a claim ( usually a tort claim)

2) Must show that he made a demand against the BOD or, in accordance with the Delaware rule, show that the demand would be futile.

Front 47

What is the Business judgement rule?

Back 47

There is a presumption that in making a business decision, the directors of a corporation acted on an informed basis, in good faith, and in the honest belief that the action taken was in the best interest of the company.

Front 48

What are the possible violations of the duty of good faith (3)?

Back 48

1) Subjective Bad faith (specific intent to do harm)

2) Lack of due care (action taken by gross negligence)

3) Conscious Disregard of Duty

Front 49

What are the 3 indicators of Conscious Disregard of duty?

Back 49

1) Intentional acts with a purpose other than that of advancing the best interest of the corporation

2) Acts with the intent to violate applicable law

3) Intentionally fails to act in the face of known duty to act

Front 50

What are the 2 violations of oversight?

Back 50

1) A sustained systematic failure of oversight. In other words: Failure to attempt to assure a reasonable information and reporting system exists. Use business judgment rule to evaluate this.

2) Have a system but consciously fail to use it.

Front 51

What is the standard of the duty of care?

Back 51

Making an informed decision that a reasonably prudent business person would make.

Front 52

With regard to the Duty of care, what is the right of the shareholder?

Back 52

Shareholders have the right to expect that directors will exercise supervision and control over the policies and practices of the corporation.

Front 53

What is the purpose of the Duty of Loyalty?

Back 53

Evaluates self-interest: Its object is to avoid the possibility of fraud and to avoid the temptation of self interest and obliterate divided loyalties which may creep into a fiduciary relationship.

Business judgement rule will yield to the duty of loyalty.

Front 54

Doctrine of Corporate Opportunity

Back 54

If there is an offer presented to the BOD or Officers that is of the nature of the line of business of the company, and the company has the ability to take advantage of the opportunity, the BOD cannot except the offer.

Front 55

What are the 4 elements to analyze the Doctrine of Corporate Opportunity

Back 55

1) Is the offer in the line of business of the corp.

2) Is the offer financially capable of exploiting

3) is there a cognizable expectation that they would exploit?

4) Is there a conflict between the BOD taking advantage and not the company?

Front 56

Intrinsic Fairness standard

Back 56

A standard of intrinsic fairness will be applied in any self-dealing transaction by a parent corporation whose majority ownership places a fiduciary duty upon the parent corp, but the transaction only be self dealing if the transaction is to the detriment of the shareholders.

Front 57

What is the legislative response to Van Gorkem

Back 57

Any corp may include in is certificate of incorporation a provision eliminating or limiting the person liability of a director to the corp. or its stockholders for monetary damages for breach of fiduciary duty as director, provided that such a provision shall not eliminate or limit the liability of the director for 1) any breach of the directors duty of loyalty, 2) for acts or commission not in good faith or which involve intentional misconduct or a knowing violation of the law, and 3) for any transaction from which the director derived an improper personal benefit.

Front 58

What are the 4 elements to determine the fairness of a transaction?

Back 58

1) Timing

2) Initiation

3) negotiation

4) Structure of the transaction

Front 59

What are the defenses against the intrinsic fairness standard?

Back 59

Ratification: 1) if the board gave notice of a corp. opportunity they notified the company; or 2) if the board told the company before and they chose not to take advantage of the opportunity then 3) burden shifts to the objecting shareholder to show that the vote or transaction was not fair.

Front 60

What is required to start an LLC?

Back 60

1) Statute

2) Operating Agreement

(If there is no specific operating agreement, follow the rules for corp.