Mac 875 - Agency - Part 2

Front 1

Business Form:

Most businesses are Sole Proprietorships but most revenues are from Corps.

Factors affecting formation choice:
1. _________ - some require formalities
2. _________ - avoid double taxation - flowthroughs can use losses to offset income.
3. ________ - although some creditors make small businesses personally guarantee loans
4. _________
5. _________ - some bus. types don't allow full transfer of management interest.
6. _________ - how does death, bankruptcy, or withdrawal of owner affect business?

Back 1

1. Ease of Formation
2. Taxation
3. External Liability
4. Management & Control
5. Transferability
6. Continuity.

Front 2

UPA: incorporation laws for all states
RUPA: Revised UPA for about 30 states

Forms of Businesses:

1. Sole Proprietorship / General Partnership: one person / mult. people own and controls (*can agree on some other rules than these).

a. formed _________ (also if a person(s) conducts business and doesn't file - this is default)

b. ______ taxation - both; however a _______ may ____ to be taxed as a _______. (This is required if the GP is ______). SP does not have this election.

c. ______ liability - both

d. Unless stated - ________ of the partnership

e. Freely transferable by sole proprietor; _______ transferable by partner, but assignee becomes a partner only if __________.

f. Death of SP dissolves SPship (cannot ____). Under ___, GP dissolved by ____, _____, or ______ of partner. Under ____, these events do not affect continuity.

Back 2

without formality;

flow-through; GP; elect; separate entity; publicly traded;

unlimited liability;

equal rights / control;

financial interest; all partners consent;

will; UPA; death, bankruptcy; withdrawal; RUPA;

Front 3

2. Joint Venture: unincorporated business association of different persons who carry out business ent. for profit - usually short duration (difference from partnership - usually ______). Minute other differences but usually same laws governing partnerships.

3. Limited partnership: consists of at least one ____ partner (unlimited liab., continuity disruptions) and one ____ partner (limited liability, no control interest, no continuity disruptions). Must ______ to become. Can assign financial interest and become ____ partner with consent of all partners.

Back 3

indefinite;

general; limited; file papers w state; limited

Front 4

4. Limited Liability Company: all owners get _____ and _____. May elect to be taxed either way, except public. traded. If LLC has one member, can still choose to tax as sep. entity (unlike SP).

5. LLP: same as GP but no liability for partners.

6. LLLP: Limited Liability Limited Partnership. Gen. Partners can now have unlimited liablity.

7. Corporation: filed with state. Shareholders taxed on corporate earning shared with them (unless eligible for __ corporation).

8. _____ or ______ - fought against prohibition of corporations to own real estate. Can be created w/out formalities. 3 requirements:
1. estate devoted to business
2. each beneficiary has evidence of interest in trust.
3. ____ have the exclusive right to _____ the business __________. (if this not met - beneficiaries personally liable. If bus. trust exist, trustees personally liabile)

Back 4

control and unlimited liability;

S

Business trust; Massachusetts trust; trustees; manage; free of control from beneficiaries.

Front 5

A _______ is a unit capable of possessing legal rights, ownership, suing, etc.. (corporation). A ______ is a group of individuals having no legal existence apart from members.

Back 5

legal entity;

legal aggregate;

Front 6

Partnership:

________ does not apply for the formation of a partnership. However, if you want it to continue for > 1 year, or you want to transfer ___, it must be _____ to be enforceable. To maintain goodwill, a partnership should have a name, but not indicate to the public that they are a _______.

Back 6

Statue of Frauds; real estate; writing; corporation;

Front 7

Tests of Existence: partnership

3 components to partnership:
an _______ of two or more persons, conducting a ________, which they ______.

Association:
the partners must have agreed to become partners and had full capacity.

Business for profit:
_________ of property does not establish a partnership. Also, non-profits _________. ALSO, persons who associate on a temporary basis for financial gain ________.

Co-ownership: a person who receives a share of ______ is presumed to be a partner in the business (not ______ - ie royalties). Must share losses too and have the ___ to ______ business.

Back 7

association; business for profit; co-own;

passive co-ownership; cannot be partnerships; do not have a business;

profits; gross returns; right to control

Front 8

Partnership captial is the amount of $ invested in the business. This represents the partner's ____ in the business.

Partnership property is based on ____ of partner. Three types of partnership property:

1. Property originally bought ___________. (example of confusions?)
2. Property acquired __________
3. Property acquired __________ unless otherwise agreed. Without express agreement, property that is on partnership B/S, is improved by partnership funds, etc.. is considered partnership property.

Back 8

equity; intent;

1. into partnership capital (example: partner allows USE of building, his contribution is the monthly rent, not the building itself).

2. on account of partnership

3. with partnership funds

Front 9

Partner's duties to one another (almost identical to agency):

1. _________ - RUPA: loyalty duty, mostly not to compete, further own interest OVER the partnership (example?). Partners cannot participate in _____ or ______ businesses. If does, must ________ AND _______ for damage from competition. (example of ok behavior?). Upon formation of partnership, _________ exists. Upon termination partner has no fiduciary duty to partnership with respect to __________ (ie. can't use ________). Partnerships can approve act that otherwise violates fiduciary duty if there is a full disclosure.

UPA difference: (fiduciary duty exists upon formation and winding up of partnership).

2. _________ - to partnership agreement and any business decisions made properly by partnership (example?)

3. _________ - less strict than fiduciary duty. Partner owes partnership faithful service _________. (Example?)

Back 9

1. fiduciary duty; ie. retaining a secret discount on oil profits when firm entitled to all; competing; similar; surrender profits; compensate partnership; ie. law partner administers estate - if it doesn't monopolize her time; NO fiduciary duty exists (dealing at arm's length); new business opportunities; confidential information;

2. duty of obedience; ie. part. agrees not to extend credit to customer, partner does anyway, partnership holds partner liable for unpaid debt;

3. duty of care; to the best of his/her ability; ie. partner uses overly complicated bookkeeping system, produces errors, NOT LIABLE to partners.

Front 10

Partner's Rights in a Partnership:

1. _____________
RUPA: A partner does not have ownership in the partnership's property. He/she may only use it for partnership purposes. The interest cannot be _____ or _____, but can be ______ for claims against the partnership.
UPA: partner is _____ in partnership. Can assign if _________. Inheritance by _______.


2. __________ - 2 types _______ - discussed here- and _______. Partners share in profit / losses & right to receive distributions. Partner _____ transfer interest in partn. and it doesn't cause dissolution. Transferee however, not entitled to 1. _______; 2. ____ to transactions; 3. inspection of ________; If there is dissolution, assignee entitled to net proceeds. Assignee may apply for ________. The assigning partner _________ except distributions. Unanimously the other partners can expel a partner for transferring substantial interest, except for security for a loan. Partners can agree to restrict rights of transferability.

Back 10

1. Rights in Specific Partnership Property; transferred or willed; attached; tenant; get all other partners to assign; surviving partners;

2. Partner's Interest in the Partnership - transferable interest and management rights; may; 1. management rights; 2. access; 3. books / records; court ordered dissolution; retains all other rights;

Front 11

Partner's Rights in a Partnership:

2. _____________ (cont'd) - creditor's rights. The partner's transferable interest is subject to claims of individual's creditors, who may obtain a _______ (lien) against the partner's transferable interest. (MAY ALSO do this to a ________ of interest.) The court may at any time order a ______ of the interest at any time & the purchaser at the sale will have same rights as ______. Before foreclosure, interest charged may be redeemed by a. ______, b. ______ with ____ funds. c. ______ with _____ fund and consent of all. Neither receiver of interest nor creditor become a partner. Partner still has management rights until expelled.

Back 11

Partner's Interest in Partnership; charging order; transferee; foreclosure; transferee; a. partner foreclosed; b. other partners with personal funds; c. other partners with partnership funds

Front 12

Partner's Rights in a Partnership:

3. _____________ -

a. PROFITS: the timing of profit distributions is to be decided by a _____ of partners. In absence of an agreement, all partners __________, regardless of _______. This also means each partner is chargeable with _______ the partnership sustains. The proportion of losses is identical to profits, unless otherwise agreed upon. Example?

b. RETURN of ______: Absent agreement, partner not entitled to capital contributions before withdrawal or liquidation.

c. RIGHT to _________ of advances: Partnership must pay back - treated as ___ that accrues interest. Under RUPA, advances _________. Under UPA, advances _________, and _________.

d. RIGHT to ______: unless otherwise agreed, ______ entitled to payment for _______. Even if one partner works harder than rest. Are due compensation for _______ duties.

Back 12

Right to share in distributions

a. majority; share profits equally; capital contributions; equal share of losses; ie. agree to spilt profits 70%, 30%, nothing else. Split losses same way.

b. Capital;

c. Repayment; loan; treated same as other creditors; subordinate to other creditors; above partner's claims of repayment of capital.

d. compensation; no partner; services rendered; winding up;

Front 13

Partner's Rights in a Partnership:

4. _____________ - default - each partner has _________. The ______ governs the actions and decisions of the partnership - if within _________. If not, or if _____ the partnership agreement, then _______ must agree. Large partnerships typically distribute votes in classes (junior, senior, managing).

5. _____________ - ________ - "choice of the person" - which indicates the right one has to choose partners. Default - ___ of partners must agree, but can be changed by agreement.


6. _____________ - partnership must always provide books and records to partners during ________. Former partners have _________, for _________. Partnership may impose a _________. Each partner has right, _______ to any info about partnership reasonably required to perform and _______ any other info about partnership. Partners can sue other partners or partnership itself for relief to enforce partner's rights. Partnership can sue partners for any breach.

Back 13

4. Right to participate in Management; equal rights in management; majority of partners; ordinary course of business; amendment of; all partners;

5. Right to Choose Associates; delectus personae; all;

6. Enforcement Rights; ordinary business hours; same right; time in which they were partners; reasonable charge for labor / time; without demand; on demand;

Front 14

Contracts of a Partnership:

Each partner is __________ - can be sued all at once, or individually. The judgement creditor must first _________ before going after those of partners.

Partner can bind partnership if she has 1. _______, express or implied. or 2. ________. If the act is not apparently for carrying on in the ordinary course of business, then partnership bound only when actual authority exists.

Back 14

joint and severally liable; exhaust partnership assets; 1. actual authority; 2. apparent authority;

Front 15

Actual Express Authority - may be written or oral (in agreement or decided on by majority). However, partner that doesn't have actual authority from ____ partners may not bind partnership in any act that doesn't carry on ______ business. RUPA allows for a filing of a statement of partnership authority, granting or limiting authority in writing. Any of partner can file a statement of _____, thus limiting authority.

Actual Implied Authority: acts that are reasonably deducted from nature of partnership, ie. hiring/firing, purchase property for business, etc..

Back 15

all; ordinary; denial

Front 16

Partnership by Estoppel:

imposes partnership duties & liabilities upon a nonpartner who consents to be represented as a partner. (example?). Must be _____ to the party that justifiably relies. If a nonpartner consents to having his/her name in the firm name / advertisements, he/she is _____________

Back 16

T is represented as a partner at A&Co to S & consents to this. He is not. S extends credit to A&Co. T is liable if A&co doesn't pay. (S must not know that T is not actually a partner).

directly; liable to everyone who relies on this.

Front 17

Tort liability of a partnership:

includes not only negligence, but fraud, defamation, etc, as long as within the course of ordinary business (whole partnership liable). The partner who commits the tort, must _______ the partnership. Cannot be criminally liabile unless participating.

Any factual knowledge to individual partner, the same as notice to the whole partnership.

Incoming partners liability for ______ debts is equal to ________. Liable in full for _____ debts. Example?

Back 17

indemnify

antecedent; capital contributions; subsequent;

A joins firm pays 100. 2 months later dissolved. C lent firm 200 dollars before A joined. Can take capital contribution.

Front 18

Dissociation:

occurs when a partner ceases to be associated with carrying on business. A partner has the _____ to dissociate, but not always the ____ to (could be liable for ________).

Wrongful dissociations:
Dissociation is wrongful in _______ if:
1. partner withdrawals within ___ days of another's dissociation by ____, ____, or _______
2. the partner is _____ by ____ for misconduct.
3. the partner becomes ______
4. partner is entity and is expelled because its termination was willful.
Partnership agreements can modify what is wrongful (except _____ dissociation).

Any of dissociation including withdrawal from a _______, are rightful. After dissociation no management rights, but able to participate in _______ if business dissolves and not ______. Duty not to _____ is terminated immediately. All other duties continue with regard to events before dissociation (unless winding up).

Back 18

power; right; wrongful dissociation;

term partnership; 90; death; bankruptcy; wrongful dissociation; expelled by court; bankrupt; judicial;

partnership at will (indefinite partnership); winding up; wrongful dissociation; compete;

Front 19

Causes of Dissolution:

1. Dissolution by ______. This can be modified by partnership agreements. In a _______, any notice of intent to dissociate will _______. If partner ____ or goes ____, does not dissolve partnership. For term partnerships, no partner has right to dissolve by himself. 3 ways:
1. The ________ (if the partners continue it will evolve into a ______).
2. ____ of the partners agree to dissolve.
3. If a partner dies, goes bank., or wrongfully dissociates, within 90 days, a _____ can wind up business.

2. Dissolution by ______: if it becomes illegal, dissolved. If it becomes legal again within 90 days, no dissolution.

3. Dissolution by ______: partners may apply for dissolution, a court can order if, a. economic purpose frustrated; b. partners have irreconcilable differences; c. other. A transferee can apply for dissolution too. A court can wind up for a partnership at will, or a term partnership, _________.

Back 19

Act of partners; partnership at will; dissolve partnership; dies; bankrupt;
1. term expires; partnership at will;
2. All
3. majority

Operation of law;

Court Order; when the term expires;

Front 20

Effects of Dissolution:

A partnership continues after dissolution after for winding up (terminated after WU competed). However, partners have right to continue business if all agree.

Authority: Upon dissolution, _______ of partners terminate, except for winding up (completing ____, sell assets, pay obligations). Apparent authority exists for other parties who did not have:
a. actual _____
b. actual _____
c. reason _____
d. *constructive notice. within 90 days after filing ________

Liability: Dissolution does ___________. This includes liability to other partners for their share incurred after dissolution. This includes liabilities stemming from apparent / actual authority.

Back 20

actual authority; existing contracts;
a. knowledge;
b. notice;
c. to know;
d. statement of dissolution;

not discharge liabilities of partners

Front 21

The process of liquidation is called ______. Any non-wrongful partner can participate and is due ________. Upon application, judicial supervision can be implemented. Distributions go to creditors first (INCLUDING PARTNER CREDITORS), then partners.

Continuation after dissociation: The dissociated partner remains liable for obligations incurred before the dissociation. The partnership must ____ the _______ interest (agreement can vary these rights). The buyout price is the greater of the _____ asset distributions or the going concern value. The partnership can _____ against the other amounts owed like _________. A partner in a _______, is not entitled to a payment until ________, unless partner can convince court that they can pay without ________.

Back 21

winding up; reasonable compensation; buy out; dissociated partner's; liquidation; net the buy out amount; damages for wrongful dissociation; term partnership; term expires; undue hardship;

Front 22

Dissociated Partner's power to bind partnership:

Dissociated partner's apparent authority continues for _____. Partnership is bound by all acts by diss. partner, if 3rd party reasonably believed that partner had authority and is not deemed to have had ________. Obviously dissociated partner, if improper, has obligation to ____ and ______ (statement of dissociation filed after 90 days).

Dissociate Partner's Liability to 3rd parties:

Partner liable ____ after dissociation for liabilities incurred before dissociation. For those within 2 year window, if liability incurred and 3rd party did not know or was not constructively notified, partner liable.

Back 22

2 years; constructive notice; 3rd party; partnership;

2 years

Front 23

Limited partnership:

MUST be filed with state. Including the _____ of the limited partnership loses limited liability. ________ - if no filing, limited partner is liable. If conducting business, those conduct with lose limited liability. Must contain the words 'limited partnership'. Contributions by limited partner can be cash/valuables & ________ (ie if don't pay, can be sued).

Control - "safe harbor" - Limited partner can conduct these acts without being deemed GP:
1. Being an ______ of LP or GP himself
2. ______ the GP on business
3. acting as a ____ for the LP (agreeing to be responsible for debt).
4. approving fundamental changes to ________
5. bringing a _____ action (suing).

Back 23

name in the title; defective formation; promises / obligations;

employee/agent/contractor;
advising;
surety;
partnership agreement;
derivative;

Front 24

Limited partnership:

Additional LPs / GPs, need written consent of __ partners. GPs have _____ duty to other GPs and LPs. LPs do not.

ANY partner that rightfully has contribution returned to him is still liable for it for _____. ANY partner that wrongfully has contribution returned to him is still liable for it for _____.

Dissolution (other than normal rules):
-Written consent of __________.
-Withdrawal of GP (_____ death, bankruptcy, etc) unless _____ of partners agree to continue.

GPs do winding up, unless they are wrongfully dissociated (then _____).

Back 24

all; fiduciary;

1 year; 6 years;

-all partners (general + limited)
-including; all

Front 25

LLC - ______ - basic contract of LLC (have to use initals in title). This doesn't have to be in writing, but obviously preferable.

Back 25

operating agreement