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57 Cards in this Set
- Front
- Back
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What is agency?
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I. AGENCY is a fiduciary relationship created when 2 parties manifest the intention that the agent will work on the principal’s behalf and subject to the principal’s control.
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what does the formation of an agency relationship require?
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a. Contractual capacity of the principal (but not the agent)
b. Consent of both parties to 1) create and 2) continue the agency relationship c. Oral appointment is okay. Writing is not required unless required by a statute. |
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what duties does the agent owe the principal?
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a. the duty of LOYALTY, which includes avoiding secret profits and avoiding conflict of interest. (remedy: agent holds profits in constructive trust for the principal), obedience to reasonable instructions and reasonable care under the circumstances
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What duties are owed by the principal to the agent?
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reasonable compensation, Indemnification, reimbursement of expenses, and cooperation with the agent’s efforts
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Can an agent bind the principal to a 3rd party?
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a. Generally, an agent acting with any form of authority is capable of binding the principal in contract to a 3rd party.
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Actual authority
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b. Actual authority is what the agent reasonably believed based upon the principal’s statements and conduct.
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When is an agent liable to 3rd parties?
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agent is generally not personally liable to 3rd parties for contracts executed on principal’s behalf, provided that the 3rd party knew agent was acting on behalf of P AND knew the identity of the principal. 1. In both partially/undisclosed, the third party can bind the agent as well, or can bind the principal only.
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Breach of warranty of agency authority
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the agent’s representation to the 3rd party that she is acting on behalf of the principal is deemed a promise or warranty. Breaching = liability.
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Tort liability of a principal
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employers are vicariously liable for torts committed by their employees acting within the scope of employment but not for torts committed by independent contractors. The distinction weighs whether the employer has the right to control the time, place, manner and other details of work. The scope of employment includes conduct at the direction of or motivated by need to serve the employer (detours yes, frolics no, intentional torts no).
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What is a partnership?
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I. Partnership is an association of two or more persons to carry on as co-owners a business for profit. The revised Uniform Partnership Act (RUPA) governs. Each partner is an agent and a principal of every other partner.
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How is a partnership formed?
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Formation occurs when two or more persons (including LLCs) manfiest intent to carry on a business; no formality, explicit statement, writing (w/ Statute of Frauds exception), consideration or filing is necessary. Oral partnership agreements are valid and common.
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How can intent to form a partnership be shown?
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a. Intent can be shown by shared profits, losses, contributions of money or property, agreements as to rights and responsibilities, extensive activity, adoption of a business name, OR failed attempt to create another kind of business.
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How long does a partnership last?
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III. DURATION of an at-will partnership continues as long as the will to do so. It can also be for a definite term or particular undertaking, provided the Statute of Frauds isn’t implicated.
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Partnership property consists of...
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IV. PARTNERSHIP PROPERTY includes all assets titled in the partnership’s name, partnership capital and all property subsequently purchased with that capital. Each partner is entitled to use all partnership property for partnership uses.
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What is partnership interest?
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a. Each partner owns “interest” in distributions of profit during partnership operations or during dissolution.
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Do partners have rights, and if so, what are they?
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V. PARTNERS HAVE RIGHTS/POWERS TO make management decisions, take profits, and receive distrubtions on liquidation after payment of debts and return, access to books and information, and shared losses.
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What duties do partners owe each other?
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Partners owe each other the duty of loyalty, so they must promote the best interests of the partnership, avoid secret profit, and disclose business opportunities to other partners (corporate opportunity doctrine)
Partners owe each other duty of care and must avoid intentional misconduct and knowing violation of the law, and must avoid grossly negligent or reckless conduct. Partners have an obligation to act in good faith and “fair dealing.” |
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Do partners receive a salary?
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Partners are not entitled to salary for services unless mentioned in the partnership agreement
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Are partners liable for another partners' dealings with a third party?
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Partners are agents and co-principals of each other; each can bind the other to third parties in contract and in tort. Contract liability is based on apparent or actual authority. Tort liability is based on respondeat superior, and partners are liable for torts committed by a partner in the ordinary course of business OR w/authority of his co-partners.
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liability of partners
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partners are personally liable for partnership debts, and liability is joint and several. Partners can sue other partners for contribution. Personal partner liability is secondary; partnership assets must first be exhausted.
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What are the four steps to terminate a partnership?
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dissociation, dissolution, winding up, and termination
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Dissociation of partner
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a. DISSOCIATION is a change in the legal relationship of partners, and can occur by express will of any partner, bankruptcy of a partner, death of a partner, or explusion of a partner by the others or by judicial decree. DISSOCIATION can be wrongful if it occurs before the end of a partnership’s definite term or project.
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What are the consequences of being dissociated?
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a dissociated partner has no rights to participate in management, but if the remaining partners continue the business, the dissociated partner is entitled to payment of the value of his partnership interest and to indemnification against future partnership liabilities.
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Dissolution
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b. DISSOLUTION is the 2nd step. In a partnership at will, dissolution occurs upon the occurrence of any dissociation event unless the remaining partners waive dissolution and continue the business. In a definite term partnership, dissolution occurs after death/bankruptcy IF the majority elect dissolution. Dissolution also occurs if all partners agree to end the partnership business or upon expiration of term/undertaking.
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winding up of partnership
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the process of finishing all pending business transactions, which can be initiated by any partner who did not wrongfully dissolve. The winding partner is entitled to renumeration.
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termination
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the completion of the winding up business.
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What is the order in which partnership assets will be distributed?
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Debts to outside creditors first, debts to partners, return of partners’ capital (but not value of labor unless otherwise agreed to) and then profits. This order cannot be changed by agreement.
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What are the differences between a general partnership and a limited liability partnership?
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1. Must file a “statement of qualification” with the Secretary of State. 2. Must identify the partnership as an LLP. 3. Partners are still liable for their own debts and torts, but they are not liable for partnership debts either directly or by contribution or indemnification.
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Limited partnership
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Limited partnership is governed by a statute separate from the general partnership Act. Unlike partnership, there are two classes of partners, general partners and limited partners. General partners manage and are personally liable, while limited partners do not manage and are not personally liable for partnership debts
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Formation of limited partnership
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Formation of a limited partnership requires a “certificate of limited partnership” to be filed; parties who fail to file cannot be limited partners and remain regular partners.
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Rules regarding limited partnership names
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The name of the LP must say “limited partnership” and may not include the name of a limited partner. If your name is in the title, you are personally liable.
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Proper formation of a LLC
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“certificate of formation” must be filed and the name must include LLC.
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What is an LLC agreement?
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Equivalent to corporate bylaws. An LLC agreement is optional and does not need to be filed. It may establish internal rules, including profit allocation, distribution of control, etc.
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Are new LLC members allowed or does it destroy the LLC?
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Unless otherwise specified in the LLC agreement, members can be admitted only by a unanimous vote of other members, no member can withdraw w/o all other members’ agreement, and members may sell or transfer their membership interests. If one does sell/transfer, the seller is dissociated, the buyer has right to profits of seller but no management rights unless others agree, and all remaining members must consent to continue the LLC or it will dissolve in 90 days.
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Liability of LLC members
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LLC is a separate legal entity from its members, who are not liable for LLC obligations unless a court “pierces the veil” by imposing personal liability.
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Management of LLC
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Statutory default to member-managed unless the certificate of formation specifics that LLC will be manager-managed. In member-managed, each member can participate in and be an agent for the business. Manager managed LLCs can select one or more managers, not necessarily members, who are then agents for the business.
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How is voting power distributed in LLC?
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voting power is based on proportion of ownership, not equally among members. $ = control. A majority in interest controls a vote among members.
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What is the governing law for corporations in WA?
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Corporations are governed by the Washington Business Corporations Act.
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May/how can corporate interests be transferred?
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After a corporation issues stock/shares to shareholders, those people may sell or transfer those interests to others. Board of Directors has to authorize the issuance of shares, otherwise that sale is void. The shares must also be issued for sufficient consideration, which is determined by the Board. The Board has the final say on that as long as it acts in good faith. Shares sold at same must be the same price.
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Paying dividends: who has discretion, can it be challenged?
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Payment is largely with the Board’s discretion, and shareholders cannot compel payment unless they can prove the Board withheld a lawful dividend in bad faith. Shareholders also cannot limit payment IF, after payment, corporation can still pay its debts when due and its assets exceed its liabilities.
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Preincorporation liability
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Promoters owe fiduciary duties (full disclosure, promotion of corporation’s interest, and good faith) to each other, to investors, and to the corporation. They are personally liable (and jointly/severally liable if more than one) if they act on behalf of the corporation while knowing it does not yet exist. Promoters have a right to reimbursement against the Corporation for benefits the Corporation received as long as they acted in good faith.
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How is a corporation formed?
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VII. PROPER FORMATION requires that the corporation deliver 1) articles of incorporation (includes incorporators’ names/addresses plus corporation name + corp, inc, company, or limited, classes & # of authorized shares, registered agent/office, # of directors) 2) copy of articles, 3) agents’ consent to act and 4) filing fee to the Secretary of State.
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When is a corporation considered to be in existence?
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VIII. CORPORATE EXISTENCE begins at the close of business on the day of proper filing. Before then, someone will be personally liable for Ks and torts.
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What is the effect of filing errors on a corporation?
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errors are resolved in one of two ways: 1) if Sec of State does not notice error and returns “conformed copy” of articles to incporators, it is conclusive evidence that you are a corporation to 3rd parties. 2) if Sec notices errors, you are not a corp. You must have proper filing.
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What must the corporation do after formation?
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the Corporation must hold a timely organizational meeting within 120 days of filing articles. By the end of that meeting, Corp must name directors & officers, adopt bylaws, and may do other business as long as Corp has issued at least one share of stock.
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What documents must the corporation maintain?
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Corporations must keep current articles/bylaw, shareholder actions, 3 years of financial statements, general written communications to shareholders, and the annual report at its principal office and make them available to shareholders (as a matter of right) for inspection.
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What documents can a shareholder see upon demonstrating a proper purpose?
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all meetings/actions taken theierein; actions outside meetings, including board committee actions, appropriate accounting records, shareholder names and addresses
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What regular duties must a corporation perform to remain in existence?
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PREPARATION OF ANNUAL BALANCE SHEET & INCOME STATEMENT; FILE ANNUAL REPORT, PAY LICENSE FEES, HOLD ANNUAL MEETING
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What are the notice rules regarding corporate meetings?
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Written notice is required to shareholders of record w/in statutory period (not less than 10 days, 20 if fundamental matter, not more than 60 days before meeting). Notice must include time, place and date.
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Who can call a meeting?
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b. The Board, shareholders of at least 10% voting power, or a court can call special meetings. (Court if Board ignored a proper demand or failed to have annual meeting). Notice must include purpose, time/place/date. Fundamental matter? At least 20 days notice.
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What are the consequences of late notice/lack of notice of a meeting?
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Action at a meeting with improper notice is invalid unless notice was waived by attendance or in writing.
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Shareholders' voting rights
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Votes are cumulative unless articles say otherwise. Shareholders can prevail by a plurality unless there are Board-proposed article amendments (2/3 vote) OR fundamental changes (2/3 vote). At meetings, an initial quorum of a majority of shares entitled to vote is required. Physical, virtual or proxy voting is allowed. Voting without a meeting is permissible if there’s unanimous written consent or substantial written consent. Voting agreements are allowed.
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Inspection of books & records
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Shareholders always have this--this right cannot be taken away or limited in the articles of incorporation, but the corp. may charge a reasonable fee for costs of copying.
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What are shareholders' preemptive rights?
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Shareholders are entitled to acquire additional shares of the corporation as issued in order to maintain the same share of ownership percentage. There’s an “opt-out” rule that can be waived (anti-dilution rule).
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What are dissenter's rights?
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The right to vote no on a fundamental corp. change, and to receive payment of the fair value of one’s shares; available when the right to vote on fundamental corp change exists.
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What kind of actions may a shareholder bring?
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Shareholders may sue the corp, officer director or controlling shareholder in a direct action to enforce personal claims, and will receive the benefit directly. Shareholders may also sue in the name of and for the benefit of the corporation (derivative action) for harm to the corporation provided that he first makes demand on the Board. Suits for breach of duty of care/loyalty are derivative in nature.
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What is necessary to hold a Board of Directors meeting? To validate a Board action?
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At meetings, quorum (majority of director slots) is required for the entire meeting, and 2-day written or oral notice is required. Majority vote rules; presence = presumption of Yes vote. Dissent must be made on record AND followed by written notice of dissent. Action without meeting is valid ONLY if there is unanimous written consent.
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