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75 Cards in this Set
- Front
- Back
- 3rd side (hint)
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How is actual authority created in an agent?
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1. Express: P tells A to act on his behalf
2.Implied: P's conduct leads A to believe he has authority |
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What is apparent authority?
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1. Substitute for actual authority
2. When P leads 3rd party to believe A has authority |
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Principal - Agent duties
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P: Must pay, reimburse, and indemnify A
A: Owes fiduciary duties of loyalty, care, & obedience |
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3rd party - Principal duties
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1. P always liable to 3rd Party
2. 3rd Party liable to P unless Pis undisclosed and A has "special skills" |
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3rd party - Agent duties
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1. 3rd party not liable to A unless agency was irrevocable
2. Agent not liable to 3rd party unless P is unknown or A misrepresented authority |
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What are indicia of master / servant relationship?
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1. Right to control manner of work
2. employer supplies tools / workplace 3. Employment is long term 4. Little skill is required 5. Work is part of employers regular business 6. Wage (as opposed to per-job payment) |
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What is the difference between ratification and adoption?
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Ratification: (retroactive)
1. P knows all material facts of A's contract 2. P accepts entire transaction 3. P has capacity at time of ratification and original contract Adoption: (not retroactive) 1. P accepts contract but lacks any element of ratification |
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What is a general partnership?
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Association of two or more persons to carry on a business for profit as co-owners.
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What are factors indicating a general partnership?
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1. The right to control or bind the business
2. Profit sharing |
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How is a Joint Venture different from a partnership?
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JV is based on express agreement as to losses.
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How to determine when property belongs to partnership
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1. Definitely does: Acquired in P-ship name or indication in purchase that it is for P-ship
2. Rebuttable presumption: Acquired with P-ship funds |
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What are a partners interests in the P-ship?
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1. Control (non-transferable)
2. Share of profits (transferable) 3. P-ship property (only for P-ship purposes) |
Note: if a partner expends personal assets on account of the P-ship, he has the right to seek indemnification.
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How are P-ship profits split?
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Unless Otherwise Agreed: Equally. They don't follow capital contribution by default.
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How are P-ship losses split?
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UOA: Losses follow profits.
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Can one partner limit another partner's liability to 3rd party by agreement?
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No. The P-ship cannont limit the rights of a 3rd party, though the agreement would stand as between the partners.
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What compensation is a partner entitled to for operating the partnership?
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UOA: None.
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How is the control of the P-ship apportioned?
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Management: UOA, equal rights.
Ordinary business: UOA, according to proportional interest in P-ship. |
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What are the duties of a partner?
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Owes fiduciary duties to the P-ship:
1. Care - ordinarily prudent person 2. Loyalty - (e.g., can't usurp P-ship opportunity) 3. Good faith 4. Disclosure - P must render reasonably full info about P-ship on request. |
These duties cannot be eliminated by agreement but they can be limited.
NOTE: These are the same duties a director has to his corp. |
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What is required to admit a new P to P-ship?
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Unanimous consent of the P's.
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What is a new P liable for when admitted to a P-ship?
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1. Pre-admission obligations: Only to extent of capital contribution.
2. Post-admission: Personally liable. |
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How does liability flow from P to P-ship?
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1. Agency by actual authority: from vote, agreement, or statute.
2. Agency by apparent authority: by P's title or P-ship conduct. 3. W/o authority: by ratification or adoption. 4. Conveyance of P-ship real property w/o authority: BFP will win, other grantee must return property. 5. Tort: B/c P is a co-owner, tort liability attaches if tort committed in OCB. |
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How does liability flow from P-ship to P?
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P's are jointly & severally liable for P-ship obligations after P-ship resources are exhausted.
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How does liability flow from LLP to P?
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1. P's own negligence: liable
2. Other P's contract: not personally liable 3. Other P's tort: Liable only if P involved, supervising, or reckless in occurrence of tort. |
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How is LLP formed?
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1. Register w/ SoS & pay $200/partner annually.
2. Name must indicate limited liability status ("LLP" is fine) 3. Purchase $100k in liability insurance or segregate $100k in cash. |
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How does a P withdraw?
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1. Notice of intent to withdraw
2. Occurrence of agreed event which terminates P status 3. P's death, bankruptcy, expulsion, or incapacity 4. Appointment of trustee / receiver / liquidator. 5. Termination of partner that is a biz org. 6. Redemption by P-ship of a transferee's interest. |
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What is the liability of a withdrawn partner?
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1. To existing creditor: unless released by that creditor
2. To subsequent creds: if they believed he was still a P 3. To other P's: if the withdrawal was wrongful. |
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What is the authority of a withdrawn P?
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Apparent authority for up to one year after withdrawal.
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What events will wind up a P-ship.
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1. If business becomes illegal
2. Sale of all assets outside OCB 3. Judicial decree 4. Purpose or period accomplished 5. Agreement of all P's (unless P-ship at will, them majority) |
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How are P-ship assets distributed upon winding up?
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1. To creditors: P creds are equal to all other creds. Creds take pro rata if not enough $ to satisfy them.
2. To P's for what is in their capital accounts. |
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What is an LP?
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P-ship with one or more General P's and one or more Limited P's.
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How is an LP formed?
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1. File certificate of formation w/ SoS.
2. Name must indicate limited liability (Limited or Ltd.) 3. Must have a written LP agreement |
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What is the liability in an LP?
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1. GP's: Personal liability
2. LP's: Liable up to capital contribution |
GP can avoid personal liability by registering LP as LLP. This creates an LLLP.
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What determines LP / GP status?
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1. Agreement
2. Control of LP-ship 3. Apparent authority |
Statutory safe harbors to "control':
1. employment by LP-ship 2. advisory role in LP-ship 3. guarantor of LP-ship |
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How are LP assets distributed upon winding up?
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1. Creditors
2. Capital to LP's 3. Profits per LP-ship agreement |
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What is an LLC?
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Organization of one or more managers and one or more members with flexible management structure, limited liability, and pass through taxation
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How is LLC formed?
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1. File certificate of formation w/ SoS
2. Pay fee 3. Name must include LLC or LC |
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How are profits / losses apportioned?
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In proportion to capital contribution, UOA.
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What is the liability for member / manager of LLC?
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No vicarious liability for own actions w/ authority or other's actions at all.
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How is a corp formed?
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Organizer executes certificate of formation and delivers it to the SoS. Corp then holds an organizational meeting.
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What must be included in the certificate of formation?
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1. Name of corp
2. Name & address of each organizer 3. Number of initial directors 4. Name & address of each director 5. Name & address of registered agent 6. Statement of purpose 7. Capital structure |
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What are the rules governing corporate bylaws?
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1. Formation: by board at organizational meeting
2. Repeal / amendment: BoD or s/h 3. Conflict w/ certificate of formation: cert controls except as to # of BoD |
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What are the rules concerning issuance of stock?
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1. Only apply to a corp which is selling its own stock.
2. Subscription (agreement to buy stock): If pre-incorporation, irrevocable for 6 months. If post-incorporation, irrevocable once accepted by corp 3. Consideration: Any benefit to corp at or above par value. 4. Treasury stock: Reacquired stock is treated as authorized, unissued, no-par stock. 5. Pre-emptive right: right granted to s/h by certificate to maintain % ownership when new stock issued. |
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What are the rules governing the BoD?
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1. Number: one or more adult persons
2. Election; S/h elect BoD at annual board meeting 3. Early removal: maj vote by s/h |
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How does BoD take action?
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1. Unanimous written consent
2. Vote at valid board meeting |
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What are the rules for a valid board meeting?
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Notice:
1. None for regular meetings. 2. Must state time and place for special meeting. Voting: 1. No director proxies 2. No director voting agreements. 3. Quorum - must have maj of all directors |
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What is the role of the BoD?
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1. Manages the business of the corp in a supervisory capacity.
2. EXCEPTIONS: Close corporation, s/h agreement, committee of directors |
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What are the duties of a BoD?
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CARE:
1. D must avoid malfeasance, misfeasance outside of Business Judgment Rule, and imprudent nonfeasance 2. Burden on plaintiff 3. Prudent person standard LOYALTY: 1. D must act in good faith for corp's best interest 2. Burden on defendant |
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What is the Business Judgment Rule?
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A court will not second guess a business decision if it was made in good faith, was informed, and had a rational basis.
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What are scenarios implicating the duty of loyalty (conflict of interest)?
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1. Interested D transaction: deal between corp and D. Deal set aside unless D show deal fair to corp when approved OR material facts were disclosed and approval had by maj of s/h or disinterested D's
2. Competing venture: D cannot compete w/ corp w/o approval of disinterested D's. 3. Corp opportunity: D cannot usurp opportunity he knows corp would be interested in until BoD rejects it. |
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What corp actions put liability on the D's who participate in them?
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1. Ultra vires acts
2. Loans to executives of public corps 3. Improper distributions |
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What are the rights / duties of corp officers?
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1. Same care and loyalty duties as directors.
2. Act as agents of the corp 3. Must have at least a prez and secretary |
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When is indemnification of D/O prohibited?
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If the D/O is held liable for willful or intentional misconduct in performing a duty to the corp.
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When is indemnification of D/O required?
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If the D/O wins judgment of the entire case on merits or technical grounds.
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When is indemnification of D/O permitted, but not required?
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When D/O doesn't prevail on whole case, but is not held liable for willful / intentional misconduct in performing a duty to the corp.
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Settlement is a common example.
In the case of liability to corp or for improper benefit, indemnity limited to costs. |
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When is D/o ineligible for indemnity?
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If maj of disinterested D's, s/h, or counsel finds that action not in good faith pursuit of corp's best interest.
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What is the difference in management of regular corp and close corp?
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Regular corp: BoD manages
Close corp: BoD, managing s/h, or any person may manage. Can be changed by s/h agreement. |
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What are the requirements of a close corp?
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1. Few s/h
2. Not publicly traded |
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When can s/h be liable for corp acts / debts?
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Court may Pierce the Corporate Veil and hold s/h personally liable if s/h abused privilege of incorporation and fairness requires piercing
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This may be done for fraud, inequitable actions by corp, or clear under-capitalization.
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What is a s/h derivative suit?
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A suit where a s/h seeks to enforce a claim the corp could have brought on own behalf.
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Who gets the award of a derivative suit?
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1. Corp gets compensation
2. S/h gets costs and atty's fees |
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What are the requirements to bring a s/h derivative suit?
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1. S/h must have owned stock at the time the claim arose.
2. S/h must fairly and adequately represent corp's interest 3. S/h must have made a written demand that BoD bring suit 4. Corp must be joined as party in the suit 5. Settlement/dismissal only w/ court approval |
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Which s/h can vote?
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The record s/h at the record date except executor of deceased s/h or valid proxy may vote in place of s/h.
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What is a proxy?
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Writing signed by record s/h directed to secretary of corp authorizing another to vote his shares.
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Note: Revocable unless coupled with an interest beyond the voting rights
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How can s/h's aggregate their votes?
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Voting trust:
1. Written trust agreement controlling how shares voted 2. Copy to corp 3. Transfer of legal title to shares to trustee 4. Original s/h gets trust certificate and retains all rights to shares except vote Vote Pooling Agreement 1. In writing 2. Copied to corp 3. For proper s/h purpose |
NOTE: Director cannot have voting agreements.
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How can s/h's act?
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1.Unanimous consent in writing & signed by holders of all voting shares
2. Vote at annual meeting 3. Vote at special meeting called by BoD, prez, 10% of s/h, or anyone so permitted in certificate. |
Must have 10 - 60 day notice of meeting or 21 - 60 day notice if fundamental change being considered.
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What is an effective s/h vote?
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1. Maj vote after quorum established.
2. Cumulative voting may be permitted for director election. |
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What are the types stock for dividend payment?
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1. Preferred participating: Gets paid first as preferred, then again as participating in common dividend.
2. Preferred: Gets paid first at its "preference value". 3. Commom: paid the dividend leftovers. 4. Cumulative: Dividend value multiplied by number of years for which no dividend issued (plus current year). |
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What funds can be used to pay dividend?
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Only surplus. Stated capital (par value of issued shares) cannot be distributed as dividends.
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How can a corporation make a fundamental change?
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1. BoD takes action adopting fundamental change.
2. Board submits proposal to s/h 3. Change approved by 2/3 of s/h 4. Record of the change delivered to SoS |
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What are examples of fundamental changes?
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1. Amendment of certificate of formation
2. Merger 3. Conversion to another form of business organization 4. Transfer of all corporate assets not in OCB or share exchange 5. Termination of corporation |
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When may a s/h have dissenting right of appraisal and how is it employed?
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1. Only in close corp: merger, sale of shares in share exchange, transfer of substantially all assets, conversion.
2. Before s/h vote: file w/ corp notice of objection and intent to demand appraisal 3. At s/h vote: abstain or vote against change 4. After vote: w/in 20 days demand to be bought out |
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How can certificate of title be amended?
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1. BoD acts
2. S/h approval 3. If amendment affects class of s/h, then 2/3 of that class and 2/3 of voting shares must approve 4. Delivery of amendment to SoS |
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How can corp be merged w/ another corp?
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1. BoD action by both
2. S/h approval by both 3. No approval required if merger is of 90% subsidiary to its parent (short-form merger) 4. Deliver certificate of merger to SoS 5. Dissenting s/h may have right of appraisal. |
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When is involuntary termination called for?
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1. AG sues for fraudulent incorporation, ultra vires, misrepresentation in required report, or public interest.
2. Unsecured creditors sue in equity or for insolvency 3. Failure to pay taxes, maintain agent, or submit required reports |
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What is the winding up process?
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1. Gather all assets
2. Liquidate 3. Pay ceditors 4. Distribute remainder to s/h pro rata or by preference 5. Claims arising prior to winding up are viable for 3 years |
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