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Bar prep > Agency and Business Orgs > Flashcards

Agency and Business Orgs Flashcards

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1
Q

How is an agency created

A

1) consent by the principal and agent that the agent will act for the principal’s benefit; and
2) the agent is subject to the principal’s control

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2
Q

A principal is not liable for an independent contactor’s torts unless:

A

1) The duty is nondelegable, OR
2) The independent contractor is held out as an agent and a third party relied (estoppel)

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3
Q

When is a principal liable for contracts entered into by an agent?

A

So long as the agent had authority
-actual authority (express or implied)
-apparent authority

Even if the agent does not have authority the principal can ratify the acts of the ageny by expressly or impliedly affirming or accepting the benefit of it, so long as he knew the material facts and had the capacity

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4
Q

What are the different types of authority?

A

-Express actual authority: The agent is expressly gien authority to act for the principle
-Implied actual authortity: The principal’s conduct led the agent to believe it has authority
-Apparent authority: The person dealing with the agent reasonably believes in the agent’s authority AND the principal’s act or negelct generated the belief

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5
Q

What is inherent agency power?

Has not been tested since 2005

A

Inherent agency power is found when the agent violates orders but does so “in the principal’s interests” and is “trusted and controlled” by the principal.

*Eliminated by the 3rd restatement

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6
Q

When is an agent liable for contracts?

A
  • Disclosed principal: If the agent did not have authority
  • Undisclosed principlal: At the 3rd party’s election
  • Unidentified or partially disclosed: Principal may be liable with the agent

If the agent acts beyong his authority, the principal may sue the agent for breaching the contract

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7
Q

When is a principal liable for an agent’s torts?

A
  1. Vicarious liability
  2. Direct Liability: A principal is directly liable for his own negligence if he negligently failed to hire, fire, or supervise an agent
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8
Q

Vicarious liability for agent/employee torts

A

The employer is liable in tort if the agent/employee (SMI)
1. Was acting in the scope of employment
2. made a minor deviation from employement OR
3. committed an intentional tort (BAN)
* For the principal’s benefit
* the principal authorized it
* arose naturally due to the nature of employment

When info or notice is communicated to an agent the principal is deemed to have received that info if it is material to the ageny’s duty to the principal

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9
Q

Duties owed by an agent

A
  • duty of care
  • duty to obey instructions
  • duty of loyalty (not to engage in self-dealing, taking an opportunity that belongs to the principal, or making a profit w/o disclosue)
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10
Q

How is a partnership formed?

A

The association of two or more persons to carry on as co-owners of a business for profit

Co-ownership is evidenced by the sharing of profit and losses

Pofit sharing creates a presumption that the person is a partner is a business unless the profits were received in payment. Other indicia are contributing capital, mutual agency, a partnership agreement, filing a cert. of the business, a common interest in the capital

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11
Q

Rights a duties of partners in a partnership

A
  • Partners have equal rights to comanage ordinary affairs
  • profits are shared equally
  • there is no right to compensation
  • each partner has the ability to bind the partnership (every partner is an agent of the partnership)
  • parties can be liable by estoppel

A majority vote is needed for ordinary matters

An affirmate vote or consent of all partners is needed for extraordianry matters

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12
Q

Liability of partners

In general partnerships

A
  • Partners are jointly and severally liable
  • incoming partners are not liable for prior debts
  • outgoing partners are personally liable to creditors unless released (liable for future debts until actual notice of their dissociation is given to creditors

All partners are liable for obligations that occur duing the winding up of the partnership

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13
Q

Collecting from a partnership

A
  1. claimaint must obtain a judgment
  2. claimant must collect from partnership asset
  3. claimant may then go after partners individually
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14
Q

Fiduciary duties

partnership

A
  1. duty of loyalty (not to usurp corporate opportunities for personal advantage, self dealing, can’t compete)
  2. duty of care (act with ordinary care)
  3. duty to account (every partner must account for any profit and hold and profits as trustee for the partnership)

The duty of care and loyalty run to both the partnership and the other partners

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15
Q

Dissolution of a partnership

A
  1. dissociation
    * death, end of definite term, partner’s expulsion, bankruptcy, illegality, court decree, withdrawal
  2. winding up (distribution of partnership assets, TLCP)
    * third party creditors
    * partners are paid back for loans
    * partners are paid back for capital contributions
    * partners are paid any profits
  3. termination
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16
Q

Rightful vs wrongful withdrawal

partnership

A
  • rightful withdrawal
    -If one rightfully withdraws, winding up occurs and the partner can participate
  • wrongful withdrawal
    -the other partnes can choose not to wind up and instead buy the share of the partner who wrongfully withdrew
    -can’t participate in the dissolution/winding up
17
Q

Creditor rights

Partnership

A
  • If the creditor has a claim against a partner, the creditor can get an interest in the partnership
    -Profits, no management rights
  • if a creditor has a claim against the partnership, the creditor can try to collect from individual partners
    -must have a judgment against the individuals personally
18
Q

Partnership property

A
  • must be used for partnership purposes
  • to determine whether property is owned by the partnership look to
    -whether it was cquired w/partnership funds
    -use and upkeep
    -agreement
    -title
19
Q

LLP

A
  • formation: must register with the state by filing statement of qualification
  • liability: no partner is personally liable for obligations of the partnership
  • limited liability doesn’t apply to anything that happened prior to the statment of qualification being filed

Limited Liability Partnership

20
Q

Limited Partnership

LP

A
  • formation: file a certificate with the state and pay a fee (must include names of all general partners)
  • liability: a limited partner’s liability is limited to capital contributions unless they take part in control; general partners are liable for all LP obligations
  • rights:
    -right to take part in control of the partnership (may forfeit their limited status by controlling)
    -right to obtain records
    -right to pursue a derivative claim
  • duties: loyalty, care, account
21
Q

how is a corporation started?

A
  • articles of incorporation must be executed by one or more incorporators and submitted to the secretary of state (and select directors)
22
Q

what must be included in the articles of incorporation?

A
  • articles must include the name of the corp; the names and addresses of incorporators; and the authorized stock, number of shares per class, and any voting rights or preferences of the class
  • articles may include:
    1. the effective date of the corp
    2. limitation’s on director liability (raincoat provisions)
    -limits director liability unless the director: intentionally inflicts harm on the corp; intentionally violates the law; or recieves a financial benefit he was not entitled to
    3. purpose of the corp
    4. bylaws
  • how the corp is governed internally
  • shareholders can amend or repeal board approved bylaws
23
Q

what happens if the articles of incorporation are not filed properly?

A
  • if there was no good faith attempt to file and one knows he is not acting as a corp
  • if there has been a good faith attempt
    -two doctrines
    1. de facto incorporation (abolished by MBCA): individuals acting on behalf ofthe corp are not liable if there wa a good faith attempt to comply with the incorporation statute
    2. corporation by estoppel: a 3rd party who believed it was contracting with a corp cannot later deny the validity of the corp
24
Q

liability on preincorporation contracts

A
  • a corporation is not liable for preincorporation contracts unless the corp ratifies
    -express or implied
  • promoters are personally liable and subsequent adoption by the corp does not relieve liability
    -liability ends when there is a novation or a release by the 3rd party
25
Q

board meetings: directors

voting

A
  • board of directors need quorom to act (majority of directors present)
  • only a majority of the quorom is needed to pass a resolution
  • the board may act if there is unanimous written consent
  • board members can meet by phone but all participating directors have to be able to hear each other simultaneously
  • notice is not required
    -only for special meetings = two days notice and time, location, date
26
Q

duty of care

A
  • apply the business judgment rule!
  • there is a presumption that “in making a business decision, the directors acted on an informed basis, in good faith, and with the honest belief that the action taken was in the best interest of the company”
  • must be informed to the exten that they reasonably believe is appropriate
  • a party claiming the duty was breached has the burden of proof

applies to members of llcs

27
Q

duty of loyalty

A
  • a director must act in good faith with a reasonable belief that what he does is in the corp’s best interest
  • comes up in 3 ways (BCC)
    1. Both sides: director is on both sides of a transaction
    -the director has a material financial interest in a K as well as knowlege of that interest
    2. Competes with the corp
    3. Corporate opportunity
    -duty to not usurp a corporate opportunity unless there consent by the board
  • defenses
    1. approval by disinterested directors
    -discloses his interest, plays no part in deliberations or vote, and discloses all material info
    2. approval by disinterested shareholders
    3. the transaction is establised to have been fair to the corp at the time of committment
  • can be waived in an LLC operating agreement

do NOT apply the bjr

applies to members of LLCs

28
Q

duty in case of insolvency

A
  • no distribution may be made if the corp is insolvent or the distribution would render the corp insolvent
  • test:
    1. equity insolvency test: the corp is not able to pay its debts as they become due in the usual course of business
    2. balance sheet test: corp’s total assets are less than the sum of its total liabilities
29
Q

shareholder voting of directors

A
  • plurality: top vote-getter win whether they receive the majority of votes or not
  • straight voting: a shareholder may vote the # of shares he owns for as many people as there are directors to be elected
  • cumulative: shareholder can add his votes together
30
Q

how do shareholders remove directors?

A
  • by vote
    -a majority of the shares entitled to vote must vote to remove
    -shareholders may enter a voting agreement (must be in writing and signed)
  • judicial removal
    -court will order removal if
    1. the director engaged in fraudulent conduct with respect to the corp or its shareholders, grossly abused its position of dirctor, or intentionally inflicted harm on the corp; AND
    2. removal would be in the best interest of the corp

The board may not remove directors

If cumulative voting is authorized a director may not be removed if the number of votes sufficient to elect him is voted against his removal.

31
Q

indemnifying a director (or officer) for a lawsuit

A
  • if the director is liable for breach of loyalty, if receiving a financial benefit to which he was not entitled, or if he is liable to the corp = prohibited
  • if the director is successful on the merits = required
  • if there is a settlement so long as the director acted in good faith with a reasonable belief she was acting in the company’s best interest = permitted

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