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103 Cards in this Set
- Front
- Back
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What is a sole proprietorship? |
A sole proprietorship is when an individual owns and operates a business. The owner is personally liable for all of the debts of the sole proprietorship. There is no buffer between the individual and the general public, as there would be with a shareholder corporation. |
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What does an owner of a sole proprietorship sell when he sells his assets? |
He is not selling just one asset but instead he is selling each individual asset of the sole proprietorship. |
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What happens when the owner of the sole proprietorship dies? |
If the owner of a sole proprietorship dies, that sole proprietorship ends. All that is left are assets and obligations. |
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What are the elements of an agency relationship? |
1. Manifestation of consent by the principal;
2. Acceptance of authority by agent; 3. Control exerted b the principal over the agent. |
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Can an agency relationship occur without consideration. |
Yes, an agency relationship can be gratuitous. |
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What are some exceptions to an agency relationship being formed consensually? |
1. Statutory agency: Most states have adopted statutes that appoint the secretary of state as an agent for the service of process on non-resident motorists and foreign corporations doing business with the state. 2. Equitable Estoppel: If the principal causes a third person to believe that another is his agent, and the third person relies to his detriment upon the apparent agency, the princpal will be estopped to deny it. 3. Ratification: similarly, if the principal accepts the benefits from the act of one purporting to be his agent with full knowledge of all material facts, his retention of the benefits will create an agency by ratification. |
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Who can a principal appoint has his agent? |
A principal can generally appoint an agent to perform any act that he could perform on his own. He cannot appoint a person that requires the principal's service; to do an act that is illegal or contrary to PP; or if the principal is a minor. |
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What is the role of the agent? |
The agent is authorized to perform legal acts for and in place of the principal, and has the powr to affect the legal relation between the principal and 3rd persons. |
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What is a subagency? |
Since agency is a fiduciary relationship, the agent must personally perform those duties requiring discretion and judgment. Unless the agent has authority to delegate his duties to a third person, the person performing the agent's duties becomes the agent of the agent, and not the agent of the principal and is not liable for the acts of the subagent. |
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How is an employee (servant) found? |
A servant is one in which the master employs the servant to perform physical acts with little or no discretion by the servant as to the manner in which the work is to be performed. The master has the right to control the physical acts of the servant. |
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What is the doctrine of respondeat superior? |
The doctrine states that since the master has the right to control the manner in which the work is performed, he shall be held vicariously liable for any injuries to third parties caused by the servant's negligent performance of his work. |
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How is an independent contractor classified? |
If the principal does not have the right to exercise control over the physical activities over one performing services on his behalf, such an agent is an independent contractor and not a servant. Because he is not in control of the actions of the independent contractor he will generally not be liable for his actions. |
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What are the duties and liabilities of an agent? |
1. Duty as fiduciary to act with utmost good faith and loyalty; 2. Duty to act solely for the benefit of principal's interests; 3. Duty to refrain from secret profiting; 4. Duty to disclose agency fully 5. Duty to obey instructions and act as authorized; 6. Duty to exercise reasonable care and dilligence; 7. Duty to safeguard trade secrets; 8. Duty not to compete 9. Duty to compensate for services |
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What is the workshop rule? |
If an agent is employed to do research or develop new ideas any inventions or patents belong to the principal. |
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How does someone prove if an agent is not acting under reasonable care, skill and dilligence in performing his duties? |
To hold the agent liable for breach of this duty in carrying out a promised act courts look to whether: 1. a promise or conduct indicating an assumption of a duty to undertake the act; 2. with knowledge that the principal will rely on the promise to act, and either a. in a misfeasance case, affirmative conduct by the agent, b. in a nonfeasance case, detrimental reliance by the principal or an increased risk of harm because of a failure to act. |
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What are the duties and liabilities of the Principal? |
The principal has a contractual duty to pay the agent the compensation agreed upon for the performance of his services. The principal must reimburse the agent for any advances and idemnify him for all losses incurred in the proper performance of his agency duties. |
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What is the quantum meruit rule? |
When there is no express agreement to compensate the agent for his services, the court will permit the agent to recover the reasonable value of his services in quantum meruit in the absence of circumstances clearly showing that the agent intended to act gratuitously. |
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What is actual authority? |
The principal will be bound by the authorized agents of his agent. Authority that is directly granted or conferred upon the agent in explicity terms. |
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What is apparent authority? |
Authority that, while not expressly given, the principal will be bound by the unauthorized acts of his agent in those situations where it reasonably appears to the party dealing with the agent that he has the authority to act. |
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Special Agents vs. General agents |
It is necessary to distinguish between special and general agents. The principal is only liable for acts within the actual authority of a special agent while the principal will be liable for all acts within the usual and ordinary scope of the business in which the agent is employed or within the scope of the apparent authority of the agent. Thus, the liability for unauthorized acts rests on the third party when dealing with special agents and rests on the principal when the agent is a general agent. |
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What is a special agent? |
A special agent is one who is authorized to perform one or more specified acts in pursuance of particular instructions or within restrictions necessarily implied from the act to be done. The principal is not bound by the acts of a special agent if he exceeds the limits of his actual authority. It is the duty of every person who deals with a special agent to ascertain the extent of his authority and unless this is done, the person will deal with a special agent at his peril. |
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What is a general agent? |
One who is authorized to transact all of the principal's business, or all his business of some particular kind or at some particular place. |
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What are ways that an agent could be liable to a 3rd party? |
As an a party to the contract; implied warrant of authority; and Tortious activity by agent. |
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When is the agent a party to the contract? |
Generally, an agent is not a party to a contract. There are some exceptions though: 1. Nondisclosure of the existence of the principal; 2. Agent makes himself a party to K; 3. Agent agrees to be bound by the K. |
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What is the implied warranty of authority? |
When an agent purposts to act on behalf of a principal, he impliedly represents to the third party that he has an existing principal and that he been authorized by the principal to conduct the particular transaction on the principal's behalf. So the agent purports: 1. There is a principal with contractual capacity; 2. That the agent is authorized to conduct the transaction; 3. and express warranties. |
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How is an agent liable to a third party for tortious activity by an agent? |
An agent who commits a tort is subject to liability in tort to any injured third party. And an agent may agree, through his contract of agency or through custom, usage, and prior course of dealings with his principal, to assume personal liability. |
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When does the principal have knowledge of the agent's action or personal knowledge? |
1. Notice to or knowledge of an agent while acting within the scope of his authority and with reference to matters over which his authority extends is notice to or knowledge of his principal. 2. Where the agent is acting on his own behalf or adverse to the interests of his principal, any knowledge acquired by the agent will not be imputed to the principal. If the agent or attorney in his course of business as an agent for a 3rd party should obtain knowledge from which a trust arises, and subsequently becomes the agent or attorney for a new principal, the agent's previous knowledge will not be imputed to the new principal. |
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What is a disclosed agency? |
Where the agent dealing with the third party discloses his representative capacity and the identity of his principal, the agency is said to be disclosed, and unless the agent makes some personal promise to perform, he is not a party to the contract. |
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What is an undisclosed agency? (same for a partially disclosed agency) |
An undisclosed agency is where the agent does not disclose either that he is acting in a representative capacity or the identity of his principal, the agency is said to be undisclosed. |
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What are the general rules in regards to the agents methods of executing written instruments? |
1. The agent must sign in a manner that clearly shows he is acting in a representative capacity. However, where the agent shigns his name to the K and after his name adds word words such as President, VP, manager, etc. the courts usually hold that these words are not evidence that he was signing in a representative capacity. 2. The agent must fully disclose the identity of the principal. Thus, where the agent signs the trade name of a partnership or company, many courts have held the agent liable under the K because the principal was undisclosed. |
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What is ratification? |
When an agent or apparent agent purports to act on behalf of a principal, but such act is outside the scope of his authority, the principal may by words or conduct affirm the unauthorized act. |
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What are the elements of ratification? |
1. An unauthorized act performed by an individual for and on behalf of another and not on account of himself; 2. knowledge of all material facts by person to be charged with the unauthorized act; and 3. acceptance of benefits of the unauthorized act by person to be charged with the act. |
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What is the general rule of termination of an agency? |
Generally, anyone has the power to terminate the agency, but that does not mean you have the right to terminate. |
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Notice to 3rd parties? |
A principal needs to give notice to 3rd parties of the termination of an agency, any agreements entered into are valid until notice to 3rd parties has been given. |
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What is the doctrine of respondeat superior? |
Under the doctrine, the master is vicariously liable for the tortious physical acts of his servant done within the scope of his employment. First need to decide whether the agent is an employee or ind. contractor then look if the agent is an employee, whether the tortious activity was done in the course of employment. |
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What is the fellow servant rule? |
The fellow servant rule is when your ee injures another ee during the scope of employment. The injured ee cannot state a claim against the er. |
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What is the borrowed servant doctrine? |
An ee generally employed by the general employer may be loaned to the special er in such a manner that the special er may become liable for the acts of the borrowed servant under the doctrine of respondeat superior. Look to who's business is being futhered by the employee at the time of the tort, and whic er had control and whether it was in the scope of business of the special er. |
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What is the dual servant rule? |
The dual servant rule is when the employee is performing services for both er's at the time of the incident, the court may impose liability on both principals. |
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What are the exceptions to the general rule that the principal is not liable for the actions of a ind. contractor? |
1. Where the K requires the performance of work that is inherently dangerous; 2. Where a party is by law or K charged with a specific duty of care; 3. Where the act will create a nuisance 4. Where the act to be performed will probably cause injury to others unless due precaution is taken to avoid harm; 5. Where the act to be performed is illegal; and 6. Where the act is a non-deligable duty. |
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Is a principal liable for non-physical torts of the agent? |
Yes, a principal will generally be liable for the non-physical torts of his agent committed within the scope of the agent's authority. |
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What is the definition of a partnership? |
1. An association 2. of two or more persons 3. to carry on as co-owners 4. a business 5. for profit. |
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What is an association? |
An association is a voluntary, contractual relationship. So the parties freely enter into the association (voluntary) and they agree to carry on as co-owners a business for profit. |
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What is a person? |
A person is any person with contractual capacity can become a partner. So, individuals, partnerships, corporations, and other associations can join a partnership. |
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What does to carry on as co-owners mean? |
Meaning that there are a community of interests in the business. Each party has a right to particpate in the management and conduct of the partnership business, to share in profits, etc. |
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What is a business? |
A business is every trade, occupation or profession. |
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What does it mean to be for-profit? |
A sharing of profits is prima facie evidence of the existence of a partnership. Therefore cannot be a non-profit association. |
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Is it necessary that the parties voluntarily enter into an association? |
Yes, but it is not necessary that they create a partnership.
It is their legal intent of the parties by conduct and not their subjective intent. |
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Is a written partnership agreement required? |
No a written partnership agreement is not necessarily required for the creation of a partnership. |
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Is sharing profits prima facie evidence of intent? |
The receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the business. Exceptions include repayment for a debt, wages of an employee, rent, as an annuity of a deceased partner, or interest in a loan. |
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Can a partnership be created by estoppel? |
Where a person represents himself or consents to another representing hi as a partner in an existing or apparent partnership and a third person extends credit to the actual or apparent partnership, such person will be estopped to deny the relationship. |
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Is a parntership treated as a separate entity for purposes of federal income tax? |
No, it is not treated as a separate entity. the partnership is only required to file an information return indicating the profits received by the partners. The profits are taxed as the individual income of the partners and partnership losses are treated as the individual losses of the partners. |
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Is a decision by a partner binding on all other partners? |
Yes. Unless it is an assignment for the benefit of creditors, disposition of good will, prevention of ordinary operation of business, confession of judgment, or submission of partnership claim or liability to arbitration. Any partner may sell or purchase partnership property. |
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How are partners treated for tortious conduct of another partner? |
The partners are jointly and severally liable for losses resulting from the tortious conduct of a partner or his breach of trust. |
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How are partners treated for other debts and obligations of the partnership? |
The partners are jointly liable for all other debts and obligations of the partnership. |
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What is the effect of judgment against one partner? |
Where a creditor has obtained a judgment against one of the partners, he may attach the individual assets of the partner to satisfy the entire amount of the partnership debt. However, where a partner is compelled to satisfy the partership obligation out of his personal assets, he is entitled to contribution from his copartners. |
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What is the liability for a dormant or secret partner? |
The dormant or secret partner is ound by activities of his co-partners of the partnership business. |
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What is the liability of a new partner for pre-existing obligations? |
They are individually liable for obligations incurred prior to partnership. |
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What is the liability of a retired or deceased partner? |
They are liable for obligations incurred while they were a partner of the firm. |
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What is the effect of dissolution? |
There is no effect on the existing liabilities of partners. It terminates the actual authorty of partners but they may still have apparent authority. |
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What are the relationships between Partners? |
There is a fiduciary relationship with the utmost good faith and loyalty, a duty to turn over profits arising within scope of partnership, duty to avoid competing or acting adversely to partnership's interests, account for loss, damage, or misuse of partnership property. Absent an agreement partners have a right to share equally in the profits, share losses in proportion to share of profits, right to equal voice in management, no right to compensation beyond share of profits, right to indemnification for expenses or liabilities, right to interest on payments or advances, right to repayment for contributions, no person may become partner without unanimous consent of all partnrs, right of access to books and records, right to full disclosure, right to terminate beyond a fixed term. |
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What is partnership property? |
All property originally brought into the partnership stock or subsequently acquired by purchase or otherwise, on account of the partnership is partnership property. |
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Why is it important to distinguish between partnership property and property of partners? |
Property that is owned by the partnership cannot be attacked by the personal creditors of each individual partner. Property that is owned by partners can be attacked by creditors of the partnership. |
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How are the partnership rights classified in a partnership? |
The property rights of a partner are (1) his rights in specific partnership property, 2. his interest in the partnership itself, and 3. his right to participate in the management of the property. |
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What is dissolution? |
Dissolution is a change in the relation of the partners caused by any partner ceasing to be associated in the carrying on of partnership business. |
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What is the winding up period? |
The winding up period is the period between dissolution and termination. It involves completing contractual obligations, collecting outstanding debts, liquidating partnership assets, paying partnership liabilities, and distributing surplus to partners. |
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Once a partnership starts winding up can it revoke and continue as a partnership? |
Yes, by agreement, or expulsion of a partner. |
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How is property distributed during dissolution? |
1. Liabilities owed to creditors other than partners; 2. liabilities owing to partners other than for capital and profits; 3. owing to partners in respect of capital 4. owing to partners in respect of profits. |
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What is a LLP? |
A LLP is not created in the common law, but it is a creature of statute. It generally insulates a limited partner from personal liability for: debts, obligations and liabilites of the partnership and other partners, whether arising in tort or contract. |
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What is required for a limited partnership? |
There needs to be atleast one general partner along with limited partners. |
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Who is liable in a limited partnership? |
Generally only the general partner is liable unless the limited partner serves as a general partner or exercises too much control in the conduct of the business. |
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What is the nature of the corporation as an entity? |
The corporation is a distinct legal entity, it is an artificial person that is separate from its shareholders. The acts are through its agents and the acts of the corporation are generally not attributable to its shareholders. |
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When does a corporation "pierce the corporate veil"? FLUU COOP |
Look to a set of factors: Fraudulent representation by corporation shareholders or directors; Lack of corporate records; Undercapitalization - unreasonably small capital or not enough for the corporation to do its business; Use of the corporation to promote fraud, injustice or illegal activities; Commingling of assets and affairs (if the court cannot tell where one ends and other begins, it will not require third parties to do so): failure to observe required corporate formalities (meetings, minutes, etc.); Other shareholder acts or conduct ignoring, controlling, or manipulating the corporate form; Payment by the corporation of individual obligations. |
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What is a promoter? |
A promoter is an individual who is the architect of the business. |
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What is an incorporator? |
An incorporator is an individual with a limited statutory role. |
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What is a shareholder? |
They are owners or investors that vote for directors. |
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What is a director? |
A member of the board; overarching control of the business; boards acts collectively, so no authority for a director acting alone. |
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What is an officer? |
Key agent of the corporation; CEO, CTO, CFO, VP, etc. |
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How is a corporation formed? |
The incorporator files the articles of incorporation with the security of state. Usually done online. Once that is done, the corporation must use the word corporation, incorporated, company, or limited or an abbreviation of these words in its name. Then the commencement of the corporate existence has to begin. Then there has to be and adoption of bylaws and an organizational meeting. From there there is an issuance of shares. |
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What is a de jure corporation? |
A de jure corporation is one that was set up correctly. |
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What is a de facto corporation? |
A de facto corporation is one where limited liability is still recgonized if there was a good faith effort to incorporate under a statute authorizing incorporation and if there had been actual use of corporate powers. |
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What is a corporation by estoppel? |
Doctrine recognized limited liability in such an instance if there had been a good faith effort to incorporate under a statute authorizing incorporation and if there had been actual use of corporate powers. |
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What is a pre-incorporation contract? |
Prior to delivery of the articles to the SoS, one or more persons may enter into what is called a subscription agreement whereby they promise to purchase for stated consideration a certain number of shares of the corporation. |
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What may a corporation receive as consideration for its shares? |
A corporation may receive pretyt much anything as long as the board of directors agree that the consideration is adequate. |
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What is the term of art used when the consideration called for by the Board is received and shares are given in return? |
Shares are "validly issued, fully paid and nonassessable." Meaning the board authorizes them, the consideration was received, and there is no future liability for shareholders to pay cash to corporation on account of shares. |
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What is the waterfall? |
When a corporation winds up, it must pay off senior classes in full before more junior classes may be paid off. They are paid off in this order: 1. Creditors of the corporation; 2. Preferred Shareholders (in order of priority); then 3. Common shareholders. |
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What are the key elements defining a series or class of shares? |
1. right to vote 2. right to dividends 3. right to preferences upon liquidation |
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What are the most common types of share types? |
There most common shares are preferred shares and common shares. Common shares have the right to vote while preferred shares have the right to get paid first, but don't have the right to vote. |
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Who may be deemed a promoter? |
A person may be deemed a promoter if he ats as a moving force behind a corporation before its existence commences by finding share subscribers and entering into contracts on behalf of the corporation to be formed. |
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When is a corporation liable for the promoter's contracts? |
The corporation is not liable for contracts entered into by the promoter on behalf of the corporation to be formed unless the corporation, after its existence commences, accepts or adopts the contract. Promoter is not liable to a contract unless he makes himself a party to the K. |
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What is the fiduciary duty of a promoter? |
In any transaction which the promoter enters into with the corporation to be formed the Promoter owes it the same kind of fiduciary duty of loyaty as a director does to a corporation. Promoter must disclose his involvement in the transaction fully to the subscribers. |
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What is the concept of ultra vires? |
Ultra vire is when an agent undertakes an action on behalf of the corporation that the corporation is not empowered to undertake. The combination today of most corporations having very broad corporate purposes and powers means the incidence of ultra vires acts is very low. |
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What is the concept of corporate waste? |
Corporate waste is when the company has the technical power to do some act, but there is no good reason to do so. Historically arises in three situations: 1. Charitable contributions by the corporation; 2. use of corporate assets for a non-corporate purpose; 3. executive compensation. Executive compensation is the place where this is most brought up. |
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What is the consequences of an ultra vires act? |
In general, validity of corporate act itself may not be challegned as ultra vires. (This means that the ultra vires doctrine may not be asserted as a defense to nonperformane of an ultra vires contract either by corporation or by the other party to the contract.) However, a corp's power to act may be challenged in 3 contexts: 1. In a proceeding by a shareholder of the corporation to enjoin the ultra vires act. (injunction) 2. An action by the corporation against the fiduciary for misconduct; 3. Action by the attorney general for dissolution for abuse of authority. |
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What is the role of shareholders? |
The role of shareholders is to elect directors, vote on extraordinary matters, and ratification of interested director or officer transactions. |
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What is an annual meeting? |
An annual meeting must be held at a time and place stated in or fixed in accordance with the bylaws. |
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What is a special meeting?
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A special meeting may be called by the BoD, by the person or persons authorized to call such a meeting in the articles or bylaws. |
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What is an action without a meeting?
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An action without a meeting is a shareholder action taken without a meeting if written consent of the shareholders is obtained. The written consent need only be signed by the same number of votes requried at a meeting of all shareholders entitled to vote. |
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What is straight voting? |
Straight voting is when each share is entitled to one vote. |
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What is cumulative voting? |
All shareholders are entitled to cumulate their votes for directors. shareholder can multiply the number of votes the are entitled to cast by the number of directors for whom they are entitled to vote and cast the product for a single candidate or to o/w distribute the product. |
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What is a proxy? |
A proxy is an agency relationship which a shareholder is entitled to vote appoints an agent by means of an appointment form evidenceing the agent's authority to vote the shareholder's shares. Presumed to be effective for 11 months unless a different period is specified or the proxy is revoked earlier. |
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What is a voting agreement? |
A voting agreement is when a group of shareholders enter into a K with each other agreeing to vote their shares in a partiular way. |
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What is a voting trust? |
A voting trust is a group of shareholders who enter into an agreement in writing with a trustee which vests title to the shareholders' shares in the trustee but which provides that all dividends and other distribution be passed through to the shareholders. |
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Can their be restrictions on ownership or transfers? |
The AIC or bylaws may provide for a restriction as to whom the corporation will transfer registered ownership of shares. Some mehtods used are options, buy-sell agreements, and rights of first refusal. |
