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Agency and Partnership Flashcards

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1
Q

Acts of a partner after the dissolution of a partnership

A
  • A partnership will be bound by a partner’s post-dissolution act if the act was appropriate for WINDING UP the business
  • A partnership will be bound by a partner’s post-dissolution act EVEN if it was not appropriate for winding up if
    1. The third party with whom the partner dealt did not have notice of the dissolution of the partnership
    2. The act would have bound the partnership before dissolution (apparent or actual authority)
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2
Q

Actual authority

A

ACTUAL authority: authority agent reasonably thinks she possesses based on principal’s dealings with her.

  • PRINCIPAL’S manifestation (words/actions) –> would a reasonable AGENT think they are authorized to act?
  • Express: oral / written
  • Implied: actions (e.g., acquiescence, customs, necessary tasks)
  • Must exist when agent ENTERS into contract / at time of TRANSACTION
  • Binds principal
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3
Q

Agency

A

Created when one person (PRINCIPAL) manifests an INTENT that another person (the AGENT) act on his behalf and both parties CONSENT to the agreement.

  • The FIDUCIARY relation results from the manifestation of consent by one person to another, that the other shall act on his behalf, and subject to this control, and consent by the other so to act
  • Agent, principal
    1. Consent (both parties)
  • Express
  • Conduct
    2. On behalf of: agent must be acting PRIMARILY for the benefit of the principal, rather than the agent / 3d party
  • Agent = fiduciary
    3. Control: agent must act subject to the principal’s control
  • Degree of control is not very high; enough that principal has specified task, even if not in detail…
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4
Q

** Analysis for Agent Binding Principal

A
  1. Actual authority?
  2. Apparent authority?
  3. Ratification?
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5
Q

** Analysis for agent entering into a contract

A
  1. Authority?
  2. Ratification?
  3. Estoppel?
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6
Q

Apparent Authority

A

** What happened between the principal and the third party? What did they do to indicate that the agent had authority?

PRINCIPAL holds out another as possessing another and a third party is reasonably lead to believe that authority exists

  • PRINCIPAL’s MANIFESTATION (words/conduct) would lead reasonable THIRD PARTY to believe agent has authority
  • Protects innocent 3d parties against principals holding out people as agent
  • Does not require actual authority (i.e., the agent need not think he has authority)
  • Binds principal
  • Cannot be created unilaterally by agent / other actor…must be through PRINCIPAL
  • What are the INDUSTRY NORMS? Informs what is REASONABLE
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7
Q

** Are partners also agents?

A

Yes, each partners is an agent of the partnership for the purpose of its business

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8
Q

Are partnership interests transferrable?

A

Yes, a partner has a transferrable interest in thte PROFITS and LOSSES of the partnership and ther right to recieve DISTRIBUTIONS

  • Considered personalty, may be transferred voluntarily or involuntarily at any time
  • Transfer creates in transferee a right to receive distributions to which the transferror would otherwise be entitled

** TRANSFEE DOES NOT BECOME A PARTNER BY VIRTUE OF THE TRANSFER! Absent an agreement by the other partner(s)

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9
Q

Capacity

A
  • Principal must have contractual capacity.
  • Agent does not need to! They are just a go-between, can be a child, etc.
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10
Q

** Compensation for agency

A

Unless otherwise agreed upon, agent is entitled to reasonable compensation

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11
Q

Consideration

A

Not required to form an agency relationship.
- Agent can do so gratuitously

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12
Q

** Creation of the agency relationship

A

Requires -

  1. Capacity
  2. Consent (both parties)
  3. Writing, if required by SOF
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13
Q

** Death in agency

A

Death terminates an agency unless it is irrevocable

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14
Q

Dissociation

A

A withdrawal of a PARTNER from the partnership, i.e., by partner ceasing to be associated with the carrying on of a business.

  • DISSOCIATION BY EXPRESS WILL: giving NOTICE of his desire to leave is an event of dissociation; automatically triggers dissolution…
  • Expelled
  • Dying
  • Declaring bankruptcy
  • Agreed upon event
  • Appointment of a receiver
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15
Q

Dissolution of the partnership / Consequences of dissolution

A
  1. AT-WILL Partnership: dissolved when a partner NOTIFIES the partnership of his intent to withdraw
    - Business must be wound up
  2. Term partnership: only if w/in 90 days after dissociation 1/2 of remaining partners agree to wind up
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16
Q

** Estoppel

A

Can be raised when the PRINCIPAL creates the appeareance than an employee-employer relationship exists and a third party relies on that relationship

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17
Q

Finances in limited partnership

A

Profits: Distribution made on basis of contributions (cf. general, equal)

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18
Q

Financial rights of partnership

A

Default rules
1. Unless otherwise agreed, profits are shared EQUALLY among partners by number. Ownership stake doesn’t matter. And losses are shared in the same manner as profit splitting (losses follow profits, but not vice versa)
Profits > Losses
Losses ≠ Profits
- If losses are agreed on, profits will still be shared equally

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19
Q

Independant Contractor

A

Person who contracts with another to do something for him, but is not controlled by the other re: physical conduct of undertaking

  • Merely specified task to be performed
  • Controlled in RESULTS only, not in how to achieve those results
  • P is not liable for torts
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20
Q

Indicia of partnership

A
  1. Share of profits is to repay a debt, is as compensation, etc. (≠)
  2. Share of the profts, presumed to be a partner
  3. Extent of parties’ activity in enterprise, supports partnership
  4. Absence of an agreement to share losses may be evidence that parties did not intend to form a partnership
  5. Length of time profit sharing (for duration of business?)
  6. Share of losses
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21
Q

** Is a new partner is liable for obligations that pre-dated her admission into the partnership?

A

No!

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22
Q

** Is the agent liable on a contract?

A

Bound unless principal’s existence and identity are disclosed

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23
Q

Liabilities of the partners

A

Jointly and severally liable for all obligations of partnership, regardless of tort / contract

  • Plaintiff must first exhaust partnerSHIP resources before seeking from individual partner. Partner is essentially a guarantor.
  • Where one partner parts, entitled to indemnification / pro rata contribution
  • Partners can limit liability amongst themselves, but not against 3d parties (unless agreed to)
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24
Q

Liability for partnership debt

A

Each partner is jointly and severally liable for partnership obligations

  • Where one partner pays the entire amount, can get pro-rata contribution from other partner(s)
  • In the absence of agreement, partners share profits EQUALLY and losses are split in the same way as profits
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25
Q

Liability in a partnership to third party - Contract

A

A partnership is liable for ALL CONTRACTS entered into by a partner in the SCOPE of the partnership business or with ACTUAL or APPARENT authority of the partnership.

Actual authority: authority the a partner reasonably believes he has based on the communications between the partnership and the partner. Can come from -

  1. Partnership agreement
  2. Vote of the partners
    - Majority vote: authorize ordinary business
    - Unanimous vote: extraordinary acts
  3. Partnership files a STATEMENT OF PARTNERSHIP AUTHORITY with the SoS / also with COUNTY for real property transfers
    - Transactions involving real property: binding on 3d parties if statement is recorded in the county where the property is located; 3d parties are benefitted by filed grants of authority, burdened by filed restrictions on authority
    - Transactions NOT involving real property: binding on the partnership unless the third party has actual knowledge that the partner lacked authority. Restrictions on partner authority in the statement are NOT binding on 3d parties. 3d parties only have notice of filed grants of AUTHORITY, not restrictions. 3d parties are benefitted by filed grants and are not burdened by restrictions. Only actual knowledge burdens them.
  • STATUTORY Apparent Authority: by statute, partner is an agent of the partnership, and that partner has apparent authority to bind partnership to transactions in ordinary course of business, unless 3d party aware that lacks authority. Cannot contract out of it (as with anything that impacts rights of 3d parties)
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26
Q

Liability in a partnership to third party - Tort

A

Partnership is liable for injury caused to a person as a result of the tortious conduct of a partner (or employee)

  1. Acting in the ORDINARY COURSE of business of the partnership or
  2. With AUTHORITY of the partnership (intentional torts, acting on behalf)
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27
Q

Liability in LP

A
  • General partners are liable for the obligations of the limited partnership; investment + personal assets
  • Limited partner is not personally liable; can only lose value of their INVESTMENTS.
  • Always liable for your own torts
  • General partners owe fiduciary duties (those with management rights)…same as in general partnership
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28
Q

** Liability of a partner in an LLP

A

Not personally liable, including for torts of a co-partner

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29
Q

Liability of admitted partner

A

** Requires unanimous vote
Not personally liable for partnership obligations that arose before his admission

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30
Q

** Liability of incoming v. outgoing partners

A

An outgoing partner generally REMAINS liable for ALL partnership obligations incfcured while they were partner

Incoming partner generally has no liability for obligations incurred before they became partners

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31
Q

Limited partnership

A

Partnership with at least one general partner and at least one limited partner
Must file a CERTIFICATE of limited partnership with SoS
- Certificate requires minimal information…details are in partnership agreements, which are private. Names of partners, address, agent of service.
- Cf. general partnership, nothing to file
- NAME must contain Limited Partnership, LP…alert the public to limited nature

If they don’t comply with statute, they are just a GENERAL partner

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32
Q

LLP, RLLP

A

General partnership where all of the partners have limited liability

  • Must file statement of qualification with SoS (name of partnership, election of LLP, date)
  • Must have LLP of some form in name to give public notice
  • Partner is not personally liable
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33
Q

Management of LPs

A

Managed by GENERAL partners. Each GP has equal rights in management. Vote of majority is necessary for ordinary business activities. LPs have no management rights, unless granted by partnership agreement

  • LPs basically just give money
  • Vote of ALL partners, including LPs may be required for extraordinary votes
34
Q

** Partners’ agency

A

Partners are AGENTS of the partnership. As such, they have APPARENT authority to bind the partnership in any contract within the scope of partnership business
- If outside scope, need actual authority

35
Q

Partnership

A

Two or more persons associate to carry on as co-owners a business for profit, regardless whether or not they subjectively intend to

  • Courts may inquire into their intent to associate in this way…not about their intent to be a partnership
  • No formalities required
  • General partnership
36
Q

Partnership agreement

A

Can contract around basically all statutory provisions
- Can be written, oral, or implied (by conduct)

37
Q

** Partnership intent

A

Did the parties intend to carry on as co-owners a business for profit?

38
Q

Partnership property - Common Law

A
  1. Acquisition of the property with partnership funds
  2. Use of the property by the parternship
  3. Entry of the property in the parternship books as a partnership asset
  4. A close relationship between property and the business operations of the partnership
  5. Improvement of the property with partnership funds
  6. Maintenance of the property with partnership funds
39
Q

** Partnership property - RUPA

A

If titled in the partnership name, partnership property

Titled in the name of one of the partners with indication that it is partnership property, then yes

If purchased with partnership funds, rebuttable presumption

If none of the above, rebuttably presumed not to be

40
Q

Ratification

A

Even if agent had NO AUTHORITY at time of transaction, P will still be bound if P ratifies after the transaction
- Substitute for pre-transaction authority…after the fact actual authority
- Express: oral/written, e.g. board resolution
2. Implied: P accepts benefits of contract
REQUIRES
1. P have knowledge of ALL material facts re: contract
2. P must accept ENTIRE transaction (not partial)
3. Cannot be used to alter the rights of intervening parties

41
Q

** Recover assets from individual partners

A
  1. Must secure a judgment against both the partnership and the individual partners
  2. Must go after partnership assets first before going after individual partners
42
Q

Rights in partnership property

A

Rights are completely unrestricted for partnership over partnership property

  • Partner is NOT a co-owner of ship property, no interest in property
  • Can only use for personal purposes with partnership consent
  • Partner owns “partnership interest” in partnership
    1. Management rights
    2. Financial rights (profit distribution)
  • Unless otherwise agreed, cannot unilaterally transfer management rights to create new parter (needs unanimous vote)
  • Can unilaterally transfer financial rights, unless otherwise agreed. Transferee is not a partner, just gets profits. Transferor is still partner, retains management rights.
  • Since you’re liable for debts of partnership, need control over who the partners are.
43
Q

** Rights of Partners

A
  1. Management: default, equally
  2. Distributions: default, equally
  3. Renumeration: no right expect for winding up
  4. Indemnification: expenses incurred obo partnership
  5. Contribution: paid more than fair share for partnership liability
  6. Inspection: inspect and copy partnership books
  7. Lawsuits: sue and be sued
44
Q

Advantages of LLPs and LLCs

A

Best for closely held business

45
Q

Borrowed servant

A

An employer may lend the servants of an employee to another. If employee commits torts in loaned role…whoever has CONTROL over servant.

  • Joint and severally liable
  • Usually retained by loaning party
46
Q

Buyout

A

If not dissolution…
If dissociation was wrongful, damages offset from buyout price
- Still liable for pre-dissociation partnership obligations
- Post assoc w/in 2 years of dissociation assuming dissolution has not occurred. Can file public statement of dissociation (90 days) or let creditors know directly.
- Still has apparent authority for 2 yrs. Partnership can take same steps as above

47
Q

Consequences of dissociation

A
  1. PartnerSHIP is dissolved, can compel that business must be wound up. Liquidated.
  2. Ship will continue with the dissociated partner being entitled of buyout.
48
Q

Direct liability

A

Every person is liable for their own torts.

  • A master is liable for his own negligence if he fails to properly train, hire employees
  • Cf. vicarious liability (scope of employment)
49
Q

Dissociation in LLC

A

Member leaves LLC.
- Has power to dissociate at any time by expressly withdrawing as member (see events for partnership)

50
Q

Dissolution of an LLC

A

Events causing dissolution:
- Event that operating agreement states causes dissolution
- Consent of all of the members
- Passage of 90 consecutive days during which LLC has no members
Judicial dissolution:
1. Conduct of all / most of LLC’s activities unlawful
2. Not reasonably practicable to carry on in conformity with cert / operating agreement
3. Members acting / will act illegally
4. The controlling members have acted or are acting in a manner that is oppressive and is or was directly harmful to the member applying for dissolution

51
Q

Does association raise to level of partnership?

A
  1. SHARING PROFITS! Person who receives share is presumed to be a partner UNLESS you received those profits as a payment of a debt, wages, rent, interest, etc.
    - Profit sharing goes on indefinitely
    - Sharing of GROSS
    - Rebuttable with evidence of lack of CO-OWNER status, e.g., not sharing losses, not exercising control. Totality of circumstances.
    - RETURNS/REVENUE does not by itself does NOT itself make a partner!
  2. Right to participate in CONTROL of the business, even if control is never exercised
52
Q

Duties of the Agent to the Principal

A

Fiduciary Duties
- Even unpaid, owes duties

53
Q

Duty of disclosure

A

A partner has the duty to provide COMPLETE and ACCURATE information concerning the partnership.

  • Statutory, not fiduciary
  • Each partner / the partnership shall furnish
    1. WITHOUT demand: any information re: the partnership’s business and affairs reasonably required for the proper exercise of the partner’s rights and duties
    2. ON demand: any other information
54
Q

Factors for servant v. idep

A

Right to control manner/method control task

  • Skill required; great skill, IC
  • Tools / facility: supplied by P, employee
  • Period of employment: indefinite/long, employee
  • Paid on time, employee. Job, IC.
  • Business purpose: act in furtherance of P’s business, employee.
  • Person with distinct business more likely to be IC
55
Q

Fiduciary duties of partners

A

Have duty to fellow partners INDIVIDUALLY and to the PARTNERSHIP

  • Duty of loyalty
    1. Account to the partnership for any benefit derived
    2. Refrain from dealing with partnership in the conduct of business / adverse party
    3. Refrain from competing with the partnership
  • Duty of care: each partner must refrain from engaging in GROSSLY NEGLIGENT or RECKLESS conduct, intentional misconduct, or knowing violation of law
56
Q

Fiduciary duty

A

Highest duty; think solely / principally about fiduciary’s interest. Agent must treat principal fairly.

  1. Duty of care: carry out her agency with reasonable care, sliding scale depending on agent’s special skills
  2. Duty of Loyalty:
    - Accounting for profits while carrying out instructions
    - Act solely for the benefit of the principal, not himself / third party. No self-dealing.
    - Refrain from dealing with principal as adverse party, acting on behalf of adverse party.
    - Agent may not compete with principal re: subject matter of agency
    - May not use principal’s property (including info) for agent’s own purposes / 3d party
  3. Duty of obedience: agent must obey reasonable directions of principal
    - May be part of duty of loyalty
57
Q

Formation of partnership

A

Does not require writing, but SOF might

58
Q

Forms of LLC

A

Member-managed LLC
Manager-managed LLC: members do not have management rights, tasked to the managers (may or may not be members)
- Fiduciary duties attach to those with management powers, to LLC and to its members
- Duties of care: business judgment rule; must act reasonably. not liable for negligence. But liable for gross negligence and up (common law)
- Duties of loyalty: fairness

59
Q

Is a principal liable to a 3d party on a contract entered into by a 3d party?

A

Yes, if agent had actual or apparent authority. Or, if principal ratified the contract later.

60
Q

Kinds of partnerships

A
  1. At will (default)
  2. Term: definite term / completion of undertaking
61
Q

Lingering apparent authority

A

Can linger after actual authority ends

  • E.g., agent has been fired, but 3d parties are not aware
  • To cut off apparent authority, need to inform 3d parties, can be difficult
62
Q

LLC

A

Limited Liability COMPANY

  • Not a corporation
  • Members (owners) have limited liability + partnership tax benefits
  • Separate legal entity distinct from members
  • File articles / cert of organization with SoS (like all other limited entities) [minimal info, registered agent, names, registered office]
  • Should indicate it is an LLC in the name
  • Details are in the operating agreement / LLC agreement.
  • Managed by all members. Other management agreements can be made, as specified in operating agreement. Majority vote required to approve ordinary business decisions, unanimous votes for extraordinary agreements
  • Profits/losses on basis of contribution
  • Members are generally not personally liable for LLCs obligations (limited). Can only lose amount of investments. Liable for own torts.
63
Q

Master

A

Principal who employs agent for service and has right to control the PHYSICAL conduct of the agent in performance of service
- Liable for TORTS committed by servant in SCOPE of employment; joint and severally liable with servant

64
Q

Partnership by estoppel

A

You’re not a partner in fact, but you hold yourself out to the world as if you were a partner / let other people do so and relies on

  • Protect reasonable RELIANCE by 3d parties
  • C.f. partnership in fact..
  • Joint and severally liable with person who held out as partner
65
Q

Power of position

A

If the PRINCIPAL gives an agent a TITLE… may confer actual and apparent authority (if 3d party knows about title)
- Reasonable to think agent can act within the bounds of that title unless told otherwise

66
Q

Principal’s Duty to Agent

A

NOT fiduciary in nature; mere common law obligations

  • Indemnify / reimburse agent for accrued costs
  • Compensate the agent (unless stated otherwise)
67
Q

Priority of distribution

A
  1. Creditors (outside and inside/creditors who loaned $ to firm)
  2. Capital contributions that partners made
  3. Rest is profit/loss…
68
Q

Remedies for breach of fiduciary duty

A
  • Damages caused by breach
  • Disgorgement of profits (equity)
69
Q

Right to wind up

A

Partners who have not wrongully dissoc.
- Retain apparent auth even after event requiring winding up. Can protect by notifying .

70
Q

Scope of employment

A
  1. Conduct of kind that agent was hired to perform
  2. Tort occurred on the job? (Minor deviation, detour, still in scope. Frolic, outside scope.
  3. actuated at least in part to benefit P?
    - Not liable for INTENTIONAL torts of employee…typically outside the scope of employment unless job does require commission of intentional torts (natural from job, motivated to serve employer, ratified or authorized by employer)
71
Q

Servant

A

aka Employee; agent employed by a master and subject to the physical control of the master

  • Controlled in MEANS of accomplishing a task / how it needs to be done
  • E.g. using certain tools, working in certain locations
  • Joint and severally liable for torts
72
Q

Statement of partnership authority

A

Can be filed with SoS and County. Gives constructive notice that partners cannot transact in REAL PROPERTY to 3d parties.

73
Q

Statutory default rules for partnership

A
  1. A partnership is a legal ENTITY distinct from its partner
  2. Unless otherwise agreed, all partners have equal rights in management of business and equal votes (1 partner, 1 vote…ownership stake does not matter)
    - Can contract out by giving a different voting scheme
    - Decisions for ordinary course: majority vote
    - Outside: consent of all partners (incl. amending partnership agreement)
  3. No right to salary or other compensation.
    - Unless otherwise agreed, partners get no comp.
    - Default: entitled to profit distribution
74
Q

Taxation of an LLC

A
  • Partnerships and LLCs are taxed on a “pass-through basis.” There is no entity level tax. Reported on owners’ individual tax returns, proportionate to ownership interest, regardless of whether it is paid out to members.
  • Corporation is double taxed: pays taxes on its income. If corporation then distributes remaining profits to shareholders (dividend); shareholders are taxed as income for the dividend
75
Q

Transferrability for LLC

A

Financial yes, management no. Follows partnership “pick your partner” rule. Need unanimity to admit someone.

76
Q

When is principal bound by agent’s action?

A
  • Actual authority, apparent authority, ratification –> P is liable, Agent is not
  • If principal is UNDISCLOSED (i.e., 3d pty does not know A is acting for P), or PARTIALLY disclosed (3d party knows that A is acting for P, but does not know P’s identity)…Agent is ALSO liable! Along with P
77
Q

Winding up

A
  • Sell off assets
  • Pay off partnership liabilities
  • If assets insufficient, partners must contribute in accordance with loss shares.
  • Extra money paid out in accordance with profit shares.
78
Q

Writing

A

Agency law does not require a writing, but the SOF may.

  • Equal dignities rule
  • Required for contracts that fall within statute of frauds / agency agreement itself would fall within SOF
  • “MYLEGS”; e.g., contract for an agency for a term of years, convey real property
79
Q

Wrongful dissociation

A

A breach of express term in partnership agreement; before term of partnership

  • Liable to ship for any damages cause by dissociation
  • Can always dissociate…but you may be liable in damages
80
Q

** Termination of agency

A

TERMINATED

  • After a specified time / event / reasonable time
  • Change of circumstances
  • Agent’s breach of duty
  • Unilateral act of principal / agent
  • Death / incapacity of either principal or agent, if agent has notice

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