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59 Cards in this Set
- Front
- Back
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What is an agency and how is it formed?
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Agency is a fiduciary relationship that arises when A acts on behalf of P and is subject to P's control, and this relationship is based on an agreement by both.
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What is a co-agent?
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has an agency relationship with the same P and may be appointed either by the P or by another A who has authority from the P to appoint.
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What is a principal?
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a person who controls OR has the right to control the physical conduct of the agent in the performance of the service.
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What are the 2 types of authority that an agent may have?
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1. Actual Authority: A reasonably believes she has authority based on the P's manifestation [can be either express or implied]
2. Apparent Authority: 3rd party reasonably believes that A has authority to act on behalf of the P based on manifestations from P. |
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Can you have apparent authority without actual authority?
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Yes. It is possible to have apparent authority without actual authority. In this situation a K will not be voided unless the 3rd party have knowledge that the A had no actual authority.
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How do you terminate apparent authority?
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termination of the actual authority does not automatically terminate the apparent authority. Apparent authority only ends when it is NO LONGER REASONABLE for the 3rd party to believe that the A is acting with actual authority.
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What is the difference between an employer-employee relation ship and an independent contractor?
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the E-E relationship is marked by the ability to control the physical conduct of the employee [P & A relationship] the more control, the more it looks like an E-E.
An IC is acting on his own behalf under an K, and is not controlled by the other person. |
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What is a Partnership?
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an association of 2 or more people who carry on as co-owners in a business for profit, whether they intended to form a partnership or not--unless specifically agreed that they are not a partnership.
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Some characteristics of a Partnership:
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1. every partner is an agent of the partnership.
2.partners are jointly and severally liable to third parties for any debt. [this liability can not be K out of, it is non-waivable] 3. Default Rule: partners share the losses equally and split profits. [this can be K to be different] |
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What is a Sole Proprietorship?
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business owned by a single individual. Owner is personally liable for all business organizations b/c there is no separation b/w the owner and the business. [as the business grows so does the risk]
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What is a General Partnership?
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default form for businesses that are owned by more than one person. It does not need to be expressly created; an oral agreement to share profits is enough to establish a general partnership even if the initial financial contributions are not equal.
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How do you dissociate from a General Partnership?
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a partner may dissolve the partnership at any time by giving written notice to the other partners, but if it violates the partnership agreement, he may be held liable for damages.
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What are some characteristics of an Limited Partnership (LP)?
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1. has at least one general partner and one limited partner.
2. the limited partner has a limited ability to run the business. 3. can only be formed by filing a certificate [same for LLP, LLLP, & LLC]. 4. the LP can have a corporate general partner |
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When is a limited partner in an LP liable?
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A limited partner is not liable for the obligations of an LP unless he is a general partner OR participates in the control of the business.
When he does take control he is only liable to those persons who reasonably believe that he is a general partner b/c of his conduct. |
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What can a limited partner in an LP do without being considered to be "participating in control of the business" and open themselves to liability?
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They may:
1. consult with or advise the general partner. 2. attend meetings, 3. propose, approve, disapprove by voting for dissolution, admission/removal of a partner, or change in the nature of the business. |
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Why make a Limited Partnership?
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created when partners are willing to invest the necessary capital in exchange for a share of the profits, but unwilling to assume the risk of personal liability for debts
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How do you withdraw from an LP?
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1. Unlike a partnership, the money invested in an LP MUST REMAIN FOR A SPECIFIC TERM;
2. during that time a partner may sell his interest to a 3rd party; 3. if there is no specification of how and when a partner may withdraw, they may withdraw after a 6 mo notice to the LP |
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What are some characteristics about Corporations?
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1. must have at least 1 shareholder
2. liability is limited 3. three levels of mgmt. [Shareholders, Board of Directors, and Officers-a person could be all three] 4. Must file Articles of Incorporation 5. can be taxed singly (S-Corp) or Doubly (C-Corp) |
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What is the tax implication of a C-Corp?
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Double tax: When income is received by the Corp., it's subject to a tax. Then, when there is a distribution of dividends to shareholders their earnings are taxed again
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What is the tax benefit of an S-Corp, and what are the criteria to claim this statutus?
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1. Single tax: only the shareholders are taxed.
2. must be less than 100 shareholders [therefore can't be publicly traded]; only one class of stock; can't have a corporate shareholder |
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AB partnership does not do well and they end up defaulting on their loans. Who can the bank go after to collect?
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Because of Joint and several liability in a partnership, the bank can either go after A or B or both. But, before they can do that they must first go after the partnership assets in an effort to recover. In order to recover partner assets their must first be a judgment against the partner.
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Agent tells Principal that she is an expert in negotiating real estate transactions. Principal whispers into Agent's ear at party that principal wants Agent to negotiate the sale of Green Acres Farm. Agent negotiates the sale of Green Acres Farm for the Principal. Is Principal bound on the sale?
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NO –
P will be liable only on its authorized K. in this case, b/c K involved conveyance of interest in land, the express authority must be in writing |
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Charles owns an antique store. A shipment of antique clocks arrives from London. Charles tells his employee Dufus not to sell a special grandfather clock. Charles goes to lunch. Dufus sells the clock. Is Charles bound on the sales contract?
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YES –
RULE – Principal will be liable on its authorized contracts In this case, there was no actual express or implied authority to sell the clock, because the Principal said not to sell the clock EXCEPTION– Nonetheless, there was apparent authority b/c – Principal has cloaked agent with the appearance of authority AND the third party purchaser may rely reasonably on that authority when entering the shop to buy the clock |
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For many years, Agnes has sold goods as Priscilla's agent. Priscilla finds out, however, that Agnes has been stealing money from her. Priscilla terminates Agnes. Agnes continues selling to customers and runs away with their money. Is Priscilla bound?
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YES
RULE – Principal will be liable only for its authorized contracts. In this case, actual express and implied authority has been terminated. Nonetheless, apparent authority lingers because the principal has cloaked the agent with lingering appearance of authority AND customers who have relied on that authority in the past may reasonably rely on that authority UNTIL they receive notice of termination |
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Paula convinced her friend Peter to start a sailing school, and agreed to lend Peter money to purchase a boat for that purpose. At a party, Paula told a wealthy friend: "My partner Peter and I are starting a sailing school and we need a boat." The wealthy friend offered to sell Paula and Peter a boat, and agreed to allow Peter to take it for a test ride the next day. Later that night, however, Peter and Paula fight and decide to drop the sailing school idea. The next day Peter takes the boat for a ride and destroys the boat. May wealthy friend sue Paula for the loss of the boat?
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rule – “As a rule, general partners are liable for all partnership obligations, including co-partners torts.”
“In this case, however, Paula and Peter never formed a general partnership b/c there’s was a lending arrangement not based on a sharing of profits exception – However, under partnership by estoppel, Paula has represented to the tort victim that she is a partner in a partnership with Peter. conclusion – Therefore, paula will be liable as if she were a general partner and … liable, liable, liable” |
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John buys a car in John's own name with John's money which John uses in partnership business. John dies. Does John's spouse Yoko get the car or is it a specific asset of the partnership?
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In this case, because John bought the car with his own money, it is his own car and therefore he may freely transfer the car to Yoko through inheritance
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A, B, and C agree to contribute money and share profits 60-30-10. How do they vote?
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1/3 + 1/3 + 1/3 ~ one partner one vote
Absent another agreement, partners are entitled to equal control of the partnership |
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A and B are partners. A works 96 hours a week. B sleeps all day. Does A get any salary?
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Absent an agreement, partners get NO SALARY.
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(1) A and B dissolve the AyeBee Partnership. In winding up, they liquidate the partnership assets and have a total of $1 million to distribute. How should that amount be distributed, if (1) the partnership owes $600,000 to trade creditors; (2) Partner A loaned the partnership $100,000; and (3) Partner B made capital contributions of $200,000?
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CR – 600
A loans – 100 B capital – 200 A&B – 100 – split 50 + 50 |
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B injured someone (tort). B is personally liable but the the liability also extends to the partnership. However is A also personally liable?
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Yes. Anything that is chargeable to the partnership, both partners are jointly and severally liable for. Once the partnership becomes liable for the tort, both partners have to bear that liability as well. Of course, the creditor would have to seek partnership assets before seeking individual partner assets.
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An act of a partner in carrying on in the ordinary course of business of partnership will bind partners unless________.
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1. the partner had no actual authority
AND 2. no apparent authority [the 3rd party knew that the partner lacked auth or received notification to that fact |
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What is a statement of partnership authority?
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allows the partners to say to the public who has authority and how much [specifies the authority that has been given and to what partner]
However, just filing the SPA does not serve as constructive notice to a 3rd party for the purposes of terminating apparent authority [EXCEPTION--REAL ESTATE TRANSACTIONS] |
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Why is an appropriation of a partnership opportunity bad?
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Each partner has a fiduciary duty and a duty of loyalty to the business. Appropriation means that one has taken an opportunity for their own use without notifying the other partners of the opportunity...
partners have a legal duty to disclose full and truthful info that affects the partnership, not to compete with the partnership [RUPA states that it is ok for partners to look out for their own interests--RUPA 103 has non-waivable provisions] |
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What are three types of financial statements used in business?
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1. Balance sheet;
2. income statement [Profit/Loss Statement]; 3. Capital Account [only for partnerships] |
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what is a balance sheet?
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shows the economic status of a business at a certain point in time
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What is an Income Statement?
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shows how much profit or loss over a given time period
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What is a Capital Account?
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what a partner's ownership interest in the partnership is during a given point in time. It shows how much each partner is entitled to receive if the partnership is to terminate at a given point in time.
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What is the basic formula to determiine equity or assets?
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assets - liability=equity; OR assets=liability + equity
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What are the 4 basic ingredients to a capital account?
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1. Contributions;
2. Share of Profits; 3. Share of Losses; 4. Distribution |
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How can a partner withdraw under UPA v. RUPA?
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UPA-- when a partner leaves, that is the end of one legal partnership and the beginning of a new one. A partnership is not a seperate entity but ajoinder of the partners.
RUPA-- when a partner withdraws from a partnership, that does not cause a dissolution but a disassociation because the partnership is a separate entity rather than an aggregate. the Partnership remains in tact UPA & RUPA-- can have either a continuation of the business or a winding-up/liquidation. There may be an agreement as to what will happen under these circumstances. |
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What are the causes of a Dissolution/Disassociation?
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1. express will of any partner: can either be in violation of the agreement or not, but they can still end it, they just might have a penalty.
2. Death 3. Bankruptcy of a partner or partnership 4. End of partnership term/specific undertaking 5. Court decree |
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What are some reasons that a court might order a dissolution (UPA)/disassociation(RUPA)?
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1. partner delared insane
2. partner incapable of performing his duty under the K 3. guilty conduct that prejudically affects the partnership 4. partner willfully breaches the K 5. business can only be cared on at a loss. |
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In the partnership of ABC, partner A dies. what will happen to the business?
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RUPA--this would only be a disassociation of A, but there would be a continuance of business. The old partnership would end but a new one would begin between B & C [there is no mention of death causing dissolution under RUPA]. A's estate would just be bought out by the other two partners.
UPA--this would cause a dissolution because the UPA specifically names death as a means of terminating a partnership agreement and the business. |
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Does a dissolution of a partnership absolve a partner from liable that exsits at the time he left the partnership?
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No, absent an agreement to discharge him of existing liability between himself, the partnership creditor, and the person/partnership continuing the business. The act of dissolution does not by itself absolve a partner of liability that existed at the time of the dissolution.
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What factors determine whether a disassociating partner still has liability for post-dissociation obligations?
[RUPA 703] |
1. If the obligation arose w/in 2 yrs of the dissociation, then there could be liability on the part of the dissociating partner, IF
2. the creditor reasonably believed that the dissociated partner is still a partner at the time the obligation incurs. Dissociating partner does not have to be involved in the transaction; just some indication that he is still a partner [reasonable belief]. This can be cut off by giving notice to 3rd party creditors that the dissociated partner is no longer a partner. |
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Are new partners liable for to existing obligations of the partnership prior to his addition?
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Yes. When a person is admitted as a partner into an existing partnership, he is liable for all the obligations of the partnership arising before his admission as though he had been a partner when such obligations were incurred. BUT, not personally liable...only liable to the extent of the partnership property [new partners have limited liability to pre-existing obligations].
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What MUST the Articles of Incorporation include generally?
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1. name of corp [must be distinguishable from other corps already on record]
2. number of shares of stock that can be issued 3. Registered agent's name & address 4. Incorporator's name and address |
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What MUST the Articles of Incorporation include in MD under s2-104?
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1.Corp name,
2. Principle office address, 3. Incorporator's name, address, and verification that they are 18+ 4. Resident agent's name and address 5. Corp's purpose or a statement that it may engage in any lawful business 6. Authorization of number of stock shares 7. number and names of people that will serve as the initial directors [at least one] |
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After recordation of the Articles of Incorporation, what is the next step which must be taken to effect a corporation?
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an "Organizational meeting" must be held where the directors:
1. adopt bylaws, AND 2. elect officers such as president, secretary, treasurer, etc |
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What is the Doctrine of Ultra Vires?
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"beyond the powers"; acts attempted by a corporation that are beyond the scope of that corporation's powers under its Articles of Incorporation or its bylaws. Therefore such acts are void or voidable b/c the company could not make such contracts
**This has been limited for policy reasons. |
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In what situations may the Ultra Vires Doctrine be used?
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1. shareholder v. corporation: to enjoin a corp from doing an act. NBCA 3.04(b)(1)/ MD 3.04(b)(1)-3.04(c)
2. Corporation v. director/officer 3. Atty general tries to have the corporation dissolved. |
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May corporations make charitable contributions?
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Yes. Under 3.02(13) & 2-103(13), and corp may make a charitable contribution if authorized by the BoD. In Md, there is an added requirement that the contribution be reasonable.
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What is a close corporation?
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a corp with the following traits:
1. a small number of stockholders; 2. the lack of any ready market for the corp's stock; 3. substantial participation by the majority stockholders in the management, direction and operations of the corporation |
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What is the Business Judgment Rule (BJR)?
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provides that a substantively-unwise decision by a director or officer will not by itself constitute a lack of due care. the BJR saves many actions from being held to be violations of the duty of care.
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What are the three requirements that must be satisfied to benefit from the BJR?
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1. there must not have been any self-dealing [there will be no protection if the director had an interest in the action]
2. Informed Decision [director must have gathered at least a reasonable amount of information about the decision before he makes it] 3. "Rational" Decision [must have rationally believed that his BJ was in the corp's best interest; court will not look at 20/20 hindsight when determining if the decision was rational] |
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What are some exceptions to the BJR?
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1. Illegality [the action taken cannot have violated any criminal statute];
2. Pursuit of "social goals" [SOME COURTS will find that the BJR cannot be used if the director was trying to further his own social or political goals (sounds like self-dealing basically)] |
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A director of Corp A induces the corp to purchase Blackacre from him at an inflated price. If taken to court will the director be found to have violated his duty to the corp?
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Maybe. He violated his duty of loyalty to the corp by making a self-interested transaction. Had he sold the property at the FMV then the court would likely have not found this to be a violation because it would have been a fair transaction. However, it is likely that the purchase of land had to be ratified by the BoD so if the court finds that inflated price wasn't so egregious that no ordinary business man of sound mind would have ratified it, they may find that there was no violation.
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What are 3 ways that a proponent of a "self-dealing" transaction can likely avoid invalidation of the action?
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1. approval by a majority of disinterested directors, after full disclosure;
2. ratification by shareholders after full disclosure; 3. showing that the transaction was fair when it was made. |
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Who is a disinterested director?
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Someone without interest in the action. A director has interest if:
1. he or an immediate family member of his family has a financial interest in the transaction; OR 2. he or his family member has a relationship with the other party to the transaction that would reasonably be expected to affect his judgment about the transaction. |
