Agency & Partnerships Flashcards
Definition of “Agent” and Agency Creation
An agent is a person or entity that acts on behalf of a principal.
Agency exists if there is:
1) assent to act as an agent;
2) benefit to the principal; and
3) control of the agent by the principal.
Actual Authority
An agent can bind a principal to contracts if the agent has actual authority.
This can be provided orally or in writing.
Express Authority
Occurs when the principal has clearly and overtly told the agent that they are directed to act on the principal’s behalf.
Implied Authority
Exists when the agent believes the action taken is required by their duties, they have acted the same previously, or if it would be normal and appropriate for agents to serve in this capacity.
Apparent Authority
Exists when the principal holds out the agent as someone acting on their behalf, and a third party reasonably relies on the agent having such authority.
Equal Dignity Rule
If the agent signs a contract that requires a writing, the agency agreement must also be in writing.
(E.g., look for an agent transferring a deed without written authority).
Formation of a Partnership
A partnership is created when two or more persons carry on a business for profit.
The partnership is formed upon agreement, written or verbal.
Sharing profits is a key indicator that a partnership has been formed.
Partner Liability
General partners are personally liable for the liabilities of the partnership. Usually, judgments are not assessed against personal assets unless partnership assets have been depleted.
Limited Liability Partnership (LLP)
An LLP is a partnership where the partners have limited liability, i.e., their personal assets may be attacked.
Formation requires filing with the SEcretary of State.
A limited partner can actively manage the partnership, which is different from a Limited Partnership (LP), where one partner has all of the power, and the other partners simply have a financial stake.
Authority to Bind
Each partner has the authority to bind the business contractually.
A unanimous vote of all partners is required to bind the partnership IF the action is beyond the normal scope of usual business.
All partners have implied authority.
Winding Up
Upon the termination of the partnership, partnership assets will be distributed to:
1) outside creditors;
2) inside creditors;
3) capital contributions from the partners; and
4) the remaining assets, if any, will be divided among the partners equal to their percentage of ownership.
If no assets remain and the partnership has outstanding creditors, these liabilities will be divided and assigned to each partner at their percentage of ownership.
