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Bar Exam > Agency, Partnership and Corps > Flashcards

Agency, Partnership and Corps Flashcards

1
Q

What are the two key requirements for an agency relationship?

A
  1. Consent by both the principal and the agent that the agent will act for the principal’s benefit. 2. The agent is subject to the principal’s control.
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2
Q

How can authority to act for the principal terminate?

A

Authority can terminate through various means, including the principal manifesting a desire to discontinue the relationship.

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3
Q

What binds a principal on a contract entered into by an agent?

A

The principal is bound if the agent had authority to enter into the contract.

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4
Q

What are the two types of authority tested in Agency and Partnership questions?

A

Actual authority and apparent authority.

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5
Q

Define actual authority.

A

Actual authority can be express or implied, where the agent is expressly given authority or believes it has authority based on the principal’s conduct.

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6
Q

What is implied authority?

A

Implied authority is present when the principal’s conduct leads the agent to believe it has authority.

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7
Q

What are the elements of apparent authority?

A
  1. The person dealing with the agent must have a reasonable belief in the agent’s authority. 2. The belief must be generated by some act or neglect on the part of the principal.
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8
Q

What is ratification in the context of agency?

A

Ratification occurs when a principal affirms or accepts the benefit of an agent’s unauthorized acts, provided the principal knew the material facts and had capacity.

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9
Q

True or False: An agent is bound to a third party on a contract if the agent had no actual or apparent authority.

A

True.

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10
Q

What is vicarious liability?

A

Vicarious liability refers to a principal being liable for the torts committed by their agent while acting within the scope of employment.

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11
Q

What are the conditions under which an employer is liable for an agent’s torts?

A
  1. Acting in the scope of employment. 2. Minor deviation from employment. 3. Intentional tort for the principal’s benefit or authorized by the principal.
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12
Q

What is indemnification in agency law?

A

Indemnification allows a principal to recover against an agent for actions taken beyond their authority.

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13
Q

What are the principal’s direct liabilities?

A

The principal is directly liable for their own negligence in hiring, failing to fire, or failing to supervise the agent.

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14
Q

What duties does an agent owe to the principal?

A

The agent owes a duty of care and a duty of loyalty.

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15
Q

What is the presumption created by profit sharing in a partnership?

A

Profit sharing creates a presumption that a person is a partner unless the profits were received in payment of a debt, rent, wages, etc.

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16
Q

True or False: A partner is entitled to separate payment for services rendered.

A

False.

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17
Q

What is required for extraordinary matters in a partnership?

A

Extraordinary matters require a unanimous vote.

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18
Q

What is the liability of partners in a general partnership for partnership debts?

A

Partners are jointly and severally liable for partnership debts.

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19
Q

What fiduciary duties do partners owe each other?

A

Partners owe the duty of loyalty, duty of care, and duty to account.

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20
Q

What does dissolution of a partnership entail?

A

Dissolution is a change in the relation of the partners, but does not end the partnership until winding up is complete.

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21
Q

What is the process following the dissolution of a partnership?

A
  1. Dissociation. 2. Winding up. 3. Termination.
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22
Q

Fill in the blank: A partnership is the association of two or more persons to carry on as co-owners, a business for _______.

A

profit.

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23
Q

What must partners do during the winding up phase?

A

Liquidate partnership assets and pay creditors.

24
Q

What can a creditor obtain if they have a claim against a partner?

A

An interest in the partnership, including profits.

25
Q

What are partners liable for during the winding up phase?

A

Partners are still liable for any liabilities that occur during the winding up phase.

This includes obligations incurred before the partnership is fully dissolved.

26
Q

What can a creditor obtain if they have a claim against a partner?

A

A creditor can obtain an interest in the partnership, including profits but not management or voting rights.

This principle emphasizes the creditor’s rights in relation to partnership profits.

27
Q

What is the liability of partners in a partnership?

A

Partners are jointly and severally liable for the obligations of the partnership.

This means each partner can be held responsible for the entire amount of the partnership’s debts.

28
Q

What must partnerships other than general partnerships do to be properly formed?

A

They must file a certificate with the state.

This is a requirement for limited liability partnerships and limited partnerships.

29
Q

What is a Limited Liability Partnership (LLP)?

A

An LLP is a partnership where no partner is personally liable for the obligations of the partnership, except for their personal torts.

This structure limits personal liability for business debts.

30
Q

What is required for a corporation to be formed?

A

The articles of incorporation must be filed with the state.

These articles govern the corporation and take precedence over bylaws in case of conflict.

31
Q

What is the role of shareholders in a corporation?

A

Shareholders are only owners and do not manage the corporation.

They typically participate in annual meetings and can vote by proxy.

32
Q

What is the business-judgment rule?

A

It presumes that directors acted on an informed basis, in good faith, and in the honest belief that their actions were in the best interest of the company.

This rule protects directors from liability for business decisions.

33
Q

What is the duty of loyalty for a director?

A

A director must act in good faith with a reasonable belief that their actions are in the corporation’s best interest.

Breaches of this duty can lead to serious legal consequences.

34
Q

What are the three ways a duty of loyalty issue can arise?

A
  1. Director is on both sides of a transaction
  2. Competes with the corporation
  3. Usurps a corporate opportunity

These are summarized using the mnemonic BCC.

35
Q

What is required for a resolution to pass in a shareholder vote?

A

There must be a quorum present and more votes in favor than against.

A quorum typically means a majority of outstanding shares.

36
Q

What is the requirement for a proxy to vote on behalf of a shareholder?

A

A shareholder can appoint a proxy in writing or through a verifiable electronic transmission.

Proxies are generally revocable unless stated otherwise.

37
Q

What is a direct suit in the context of shareholder lawsuits?

A

A direct suit is appropriate when the wrong done amounts to a breach of duty owed to the individual shareholder personally.

Examples include denial of preemptive rights or payment of dividends.

38
Q

What is a derivative suit?

A

A derivative suit is appropriate when the injury is caused to the corporation and a shareholder is trying to enforce the corporation’s rights.

This type of suit is also applicable to LLCs.

39
Q

What are the three requirements for filing a derivative lawsuit?

A
  1. The shareholder must have been a shareholder at the time of the act.
  2. The shareholder must have made a demand on the board of directors.
  3. The shareholder must not have been able to obtain adequate relief from the corporation.

This is summarized with the mnemonic SAD.

40
Q

What are the three requirements a shareholder must meet to file a derivative lawsuit?

A

Standing, Adequacy, Demand

Mnemonic: SAD

41
Q

What does ‘standing’ require in the context of a derivative lawsuit?

A

The shareholder must be a contemporaneous owner at the time of the alleged act or omission.

42
Q

What is the purpose of the ‘demand’ requirement in derivative lawsuits?

A

The shareholder should file a written demand and wait 90 days before filing suit unless irreparable injury would result or demand would be futile.

43
Q

Under what circumstances can a derivative suit be dismissed?

A

If it’s not in the best interest of the corporation to continue it, with court approval.

44
Q

What is ‘piercing the corporate veil’?

A

Holding a shareholder personally liable for corporate debt in limited circumstances.

45
Q

What must a plaintiff show to pierce the corporate veil?

A

Shareholders abused the privilege of incorporating, fairness requires holding them liable, and evidence of undercapitalization, failing to follow formalities, commingling of assets, confusion of business affairs, or deception of creditors.

46
Q

What is the shareholder’s right regarding corporate books and records?

A

A shareholder has the right to inspect corporate books and records if the demand is made in good faith and for a proper purpose.

47
Q

What constitutes a ‘proper purpose’ for inspecting corporate records?

A

A purpose reasonably related to a person’s interest as a shareholder.

48
Q

What must a shareholder state when demanding to inspect records?

A

His purpose, the records he desires to inspect, and that the records are directly connected to his purpose.

49
Q

What is required to form an LLC?

A

Articles of organization must be filed.

50
Q

What fiduciary duties do members of an LLC have?

A

Members have fiduciary duties to the LLC and its members.

51
Q

What happens to an LLC if a member leaves?

A

It leads to dissociation of that member but does not result in winding up or dissolution unless all other members unanimously agree.

52
Q

Are individual members of an LLC generally liable for losses?

A

No, unless the court pierces the LLC veil or proper procedures for dissolution and winding up have not been followed.

53
Q

What can creditors do if the proper procedures for an LLC’s dissolution are not followed?

A

Creditors may enforce claims against each of the LLC members.

54
Q

Fill in the blank: A shareholder must file a written _______ before initiating a derivative lawsuit.

A

demand

55
Q

True or False: Piercing the corporate veil applies to all corporations regardless of circumstances.

A

False

Bar Exam (14 decks)

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