Agency and Partnership - Ramsey

Question 1

What is an agency relationship and how is an agency relationship created?

Answer 1

An agency is the fiduciary relation which results when one person manifests an intent that another person act on his behalf and both parties consent to the agreement.

Question 2

When is a principal contractually bound to the acts of the agent?

Answer 2

When the agent acted with actual or apparent authority, or when ratification is present. Exception: If principal is undisclosed or partially disclosed, the agent will also be liable on the K (but principal is still liable too).

Question 3

Actual authority

Answer 3

Authority that the agent reasonably thinks he possesses based on the principal’s dealings with him. Actual authority can be express or implied from the actions of the principal.

Question 4

Apparent authority

Answer 4

Arises when the principal “holds out” the agent as having certain authority, causing third parties to reasonably believe the agent has such authority. Can also be established through an agent’s title or position.

Question 5

General partner liability

Answer 5

All partners are jointly and severally liable for all obligations of the partnership.

Question 6

What are an agent’s fiduciary duties?

Answer 6

Owed to the principal and they are the duty of care and duty of loyalty.

Question 7

Duty of care

Answer 7

Duty to carry out her agency with reasonable care.

Question 8

Duty of loyalty

Answer 8

Duty to put the principal’s interests first/treat principal fairly.

Question 9

Liability of principal for torts of agent

Answer 9

Aka respondeat superior or vicarious liability. A master is liable for torts committed by a servant within the scope of the servant’s employment. The master and the servant are both jointly and severally liable. A principal is not liable for torts committed by an independent contractor in connection with his work.

Question 10

How do you tell the difference between a servant or independent contractor?

Answer 10

If a person is subject to the control of another as to the MEANS used to achieve a particular result, he is a servant. If a person is subject to the control of another as to his RESULTS ONLY (but not how to achieve those results), he is an independent contractor.

Question 11

When will intentional torts be viewed as within the scope of employment?

Answer 11

Generally, an employer is not liable for the intentional torts of an employee because intentional torts are outside the scope of employment. Intentional torts will be viewed as within the scope of employment if the conduct is: (1) natural from the nature of the job; (2) motivated to serve the employer; or (3) specifically authorized or ratified by the employer.

Question 12

Direct liability in torts

Answer 12

Every person is liable for his own torts. Thus, a master is liable for his own negligence if he fails to properly train or supervise employees, or fails to check an employee’s criminal record or job history. So a master can be found not vicariously liable for an employee’s negligence but can be directly liable for its own negligence in failing to check the driving record of its delivery person for example if that was the issue. Exam tip: Always discuss both direct and vicarious theories of master liability.

Question 13

When is a partnership formed?

Answer 13

When two or more people associate to carry on as co-owners a business for profit.

Subjective intent is irrelevant and no state filing or other formalities are required.

Question 14

When is a person presumed to be a partner?

Answer 14

A person who receives a share of the profits from a business is presumed to be a partner.

Question 15

Who is an agent of a partnership?

Answer 15

Each partner is an agent of the partnership for the purpose of its business and therefore can bind the partnership to a contract.

Question 16

How is voting done in a general partnership?

Answer 16

Decisions regarding matters within the ordinary course of the partnership business require a majority vote of the partners.

Matters outside of the ordinary course of business require the consent of all partners.

Question 17

How are profits and losses shared in a general partnership?

Answer 17

Unless otherwise agreed, profits are split equally among the partners. Losses follow profits, but profits do not follow losses.

Question 18

What is the liability to third parties in a partnership?

Answer 18

Just like principal liability under agency law. So you can be bound in contracts and torts through the same avenues as a principal and agent.

Every partner is an agent of the partnership.

Each partner is jointly and severally liable for all of the obligations of the partnership. But the plaintiff must first exhaust partnership resources before seeking to collect from an individual partner’s assets.

Question 19

What are the fiduciary duties partners owe?

Answer 19

Partners in general partnerships owe fiduciary duties of loyalty and care to eachother AND to the partnership. They also owe a statutory duty of disclosure.

Note that the duty of care here requires each partner to refrain from engaging in grossly negligent or reckless conduct.

A partnership agreement cannot eliminate the duties of loyalty or care, but it can eliminate the duty of disclosure.

Question 20

When is property considered partnership property?

Answer 20

It is partnership property if it is acquired in the partnership’s name or in a partner’s name where it is apparent from the document that she is acting for a partnership. It is presumed to be partnership property if partnership funds are used.

It is presumed to be a partner’s property if acquired in her name without partnership funds and there is no sign that she is acting for a partnership.

Question 21

Tell me about a partner’s ownership interest in the partnership.

Answer 21

A partner’s ownership interest is called his “partnership interest.”

The partnership interest is personal property of the partner, and is comprised of management rights and financial rights. Unless otherwise agreed, a partner cannot unilaterally transfer his management rights (everyone has to agree) but a partner can unilaterally transfer his financial rights.

Question 22

What are the two forms of partnership?

Answer 22

An “at-will partnership” (default form) is one where the partners have not agreed to remain partners until the expiration of a definite term or the completion of a particular undertaking.

A “term partnership” is where the partners have agreed, explicitly or implicitly, to remain partners for a definte term or until the completeion of a particular undertaking.

Question 23

What must happen when a partner dissociates from a partnership?

Answer 23

(1) Partnership is dissolved and the business is wound up. This means that the partnership business will be liquidated (sold off).
(2) The partnership continues in existence with the dissociated partner becoming entitled to a buyout of his partnership interest.

When a partner dissociates by express will in an at-will partnership, the partnership is dissolved and its business must be wound up.

Question 24

What’s the priority of distribution when a partnership dissolves?

Answer 24

(1) All creditors (outside and inside)
(2) Repay all capital contributions paid into the partnership by partners
(3) Profits or losses, if any

Question 25

What’s a limited partnership and how do you form it?

Answer 25

An LP is a partnership with at least one general partner and at least one limited partner.

To form, file a public document with the secretary of state including (1) the name of the LP including the phrase limited partnership or the abbreviation, (2) the name and address of the agent for service of process, and (3) the name and address of each general partner. If you don’t file, you’re just a general partnership.

Unless otherwise agreed, distributions are made in proportion to the value of each partners’ contribution to the LP.

A limited partner has no liability for the LP’s obligations. The only thing that can be lost is the limited partner’s investment.

Question 26

What’s a limited liability partnership?

Answer 26

A general partnership where all of the partners have limited liability.

To form you file a public document with the secretary of state (remember to make sure you use “limited liability partnership” or “LLP”).

A partner in an LLP is not personally liable for the obligations of the LLP, whether arising in tort, contract, or otherwise.

Question 27

What is a LLC?

Answer 27

A limited liability COMPANY. It’s a hybrid between a corporation and a partnership in which the owners (called MEMBERS) have limited liability as well as the benefits of partnership tax treatment.

Per usual, file a public document with the secretary of state including “LLC” at the very least.

Profits and losses allocated on the basis of contributions. Big perk is they’re taxed on a “pass-through” basis so they avoid “double taxation.”