Agency & Partnerships Flashcards
What are the ABCs of agency?
Assent
Benefit (to principal)
Control
Who can’t be a principal?
minors
intoxicated people
What is a partnership?
An association of two or more legal persons who carry on a for profit business as co-owners
What is a “legal person” in terms of a partnership
- anyone with legal capacity to contract (not inebriated or a minor)
- legal entities (corporations, LLCs, etc.)
What intent do you need to form a partnership?
- intent to carry on as co-owners (sharing control)
2. intent to split profits
When is there a presumption of a partnership?
When 2 or more people share profits
What’s the key phrase for partnerships?
The partnership agreement is the law of partnerships
Partnership Liability
partners are personally liable for the partnership’s obligations
Taxation for partnerships
no entity-level taxation (less taxes)
When is state law mandatory for partnerships?
- liability to 3rd parties
- cannot deny partners access to books and records
- fiduciary duties cannot be eliminated
Who owes fiduciary duties to the partnership and what are they?
Every partner
loyalty & care
3 violations of duty of loyalty in a partnership
- compete with partnership business
- advance interest that is adverse to partnership
- Usurp a partnership opportunity
What should a partner do if they’re worried their behavior is disloyal?
make full disclosure of all material facts
- certain percentage of other partners may authorize or ratify the transaction
3 violations of duty of care in partnership
- grossly negligent or reckless conduct
- intentional misconduct
- knowing violation of the law
Who are fiduciary duties in a partnership owed to?
only current partners - not former or prospective partners
When there’s no partnership agreement, how are profits divided?
evenly
With losses in a partnership, what’s the key phrase
losses follow profits
default rule with partnership distributions
partners do not have a right to demand distributions
default rule with transfer of partnership interest
a partner does not have the right to transfer their partnership responsibilities BUT they can transfer their partnership interest
default rule for adding a new partner to a partnership>
all existing partners must consent to new partner (partners can modify this in their agreement)
default rule for partnership management
every partner has equal rights in management
default rule for partnership voting on ordinary business matter
majority vote (remember this can be changed in the partnership agreement)
default rule for partnership voting on extraordinary business matter
vote of all partners (remember this can be changed in the partnership agreement)
mandatory rule for partnership records
access to records MUST be provided to partners and their agents (this cannot be changed by agreement!!)
What is dissociation
When a partner ceases to be associated with a partnership
Dissociation can be ________ or __________
voluntary (may give notice), involuntary
7 forms of involuntary dissociation
- Event that was mentioned in the partnership agreement happens
- expelled pursuant to agreement
- unlawful for partnership to carry on business with that partner
- court orders partner dissociated
- partner goes bankrupt
- partner has become incapacitated
- one of the entities of the partnership dissolves
(Every Chicken Bawks if Under Extreme Duress)
T/F - if a partner is dissociated the partnership automatically ends
FALSE
if a partnership continues after a partner is disassociated, what does it need to do?
buy out the dissociated partner’s interest
A partner is ___________, ____________, & __________ liable for all partnership obligations
personally
jointly
& severally
every partner is an ________ of the partnership
agent
implied authority
exists based on the partner’s reasonable belief that an action is necessary to carry out express authority
apparent authority
based on interactions between the principal and a 3rd party
creditors must do what first when going after a partnership
FIRST - exhaust partnership’s funds
THEN - can go after individual partners’ assets
liability of incoming partners
not personally liable for contract or tortious obligations incurred before they became partner
liability of outgoing partners
may be personally liable for partnership obligation that occurred after they were disassociated
2 steps for termination of partnership
- Dissolution
2. Winding UP
3 ways to dissolve partnership
- any dissolving event set forth in partnership agreement
- any event that makes it unlawful to continue if not cured within 90 days
- judicial determination
Who can wind up a partnership?
- any partner that hasn’t been wrongfully dissociated
- a legal rep of the last surviving partner
- a court (through requested judicial supervision)
power of person winding up a partnership
- dispose of and transfer partnership property
- preserve partnership business to maximize value as a going concern
what’s a statement of dissolution?
notice to 3rd parties that partnership has been dissolved after 90 days
priority of distributions in partnership?
creditors first then partners
When does an LP come into existence?
when filed
What partnership entities need to file with the state?
LP & LLC
How does a general partnership become an LP
partners vote to authorize transformation
limited partners’ liability
- NOT personally liable for obligations of LLP
- personally liable for their own personal misconduct or negligence
Canceling an LLP’s status?
- parters can voluntarily cancel it
- state can revoke LLP’s status
What’s an LP?
A partnership formed by two or more persons that has at least one general partner and one limited partner
- limited partners have limited liability
- general partners have personal liability
What needs to be on a certificate of limited partnership?
- name of limited partnership (including LP)
- in state address
- name of agent in that state
- names and addresses of all general partners
- statement of duration
- signed by general partner
what kind of compliance does an LLP need with its filing to be formed?
substantial compliance
default rule for limited partner voting
a limited partner DOES NOT VOTE
what can a limited partner do without technically running the business?
- be an officer, director, shareholder of general partner
- consult general partner on partnership affairs
- act as a surety of the partnership
- request to attend meetings
- wind up partnership
- propose or approve partnership matters
limited partner must give _____ written notice before withdrawing
6 months
how to terminate status as a general partner?
- voluntarily withdraw
- remove the general partner
- general partner goes bankrupt or becomes insolvent
- death or incapacitation
- business-entity partner is terminated
In an employer/employee relationship, the employer controls the employee’s what?
“physical conduct of work”
actual express authority
principal creates authority through words (written or spoken) to convey authority to the agent
actual implied authority
principal uses words (written or spoken) to convey authority to the agent to take whatever steps necessary to achieve the principal’s objectives
agent has actual implied authority to act within the _______________ or _______________
accepted business custom or general trade usage
apparent authority
principal’s words cause a third party to reasonably believe the principal consents to having acts done on the principal’s behalf by the agent
ratification
- the principal has knowledge of the material terms of the contract and
- the principal then accepts the contract’s benefits
exceptions where principal is vicariously liable for agent’s intentional torts:
- conduct occurred within the general space and time limits of employment
- agent was motivated in some part to benefit the principal
- Act is of a kind that the agent was hired to perform
what duties does an agent have to a principal?
- duty of care
- duty of loyalty
- duty to obey reasonable instructions
under duty of loyalty, what can an agent NOT do?
- usurp a business opportunity
- take in secret profits
- compete in a competing business with the principal
Who can never create apparent authority?
An undisclosed principal
