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MEE > Agency, Partnerships, & Corporations > Flashcards

Agency, Partnerships, & Corporations Flashcards

1
Q

Creation of Agency Relationship

A

The Parties voluntarily consent to enter into an agency relationship; and
The agent is subject to the principal’s control

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2
Q

Two categories of terminating agency relationships

A
  1. By the parties, and

2. By operation of law

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3
Q

Termination of Agency by the parties

A
  1. Agent or principal manifests to the other the desire to cease the agency relationship;
  2. Express terms of the agency expire; OR
  3. Purpose of the agency relationship is fulfilled.
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4
Q

Termination of Agency by operation of law

A
  1. Agent or principal dies;
  2. Agent or principal loses capacity; OR
  3. Agent materially breaches a fiduciary duty owed to the principal.
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5
Q

Authority to Bind Principle

A

An agent may bind a principal to a contract if the agent is acting within his actual or apparent authority. Once a principal is validly bound to a contract by his agent, the principal is liable under the terms of the contract.

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6
Q

Actual Authority Defined

A

An agent acts with actual authority (express or implied) when the agent reasonably believes, in accordance with the principal’s manifestations to the agent, that the principal wishes the agent to act.

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7
Q

Two types of Actual Authority

A

Express & Implied

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8
Q

Express Authority

A

Actual express authority exists when the principal directs the agent to engage in the precise task in question.

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9
Q

Implied Authority

A

Actual implied authority exists when the agent believes, based on a reasonable interpretation of the principal’s words or conduct, that the principal wishes the agent to act on his behalf.

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10
Q

Apparent Authority

A
  1. The principal holds the agent out as having authority to act on the principal’s behalf; AND
  2. The principal’s conduct, when reasonably interpreted, causes a third party to rely on the agent’s appearance of authority when dealing with the agent.
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11
Q

Respondeat Superior

A

An employer (principal) may be liable for torts committed by an employee (agent) if:

  1. An employer-employee relationship exists; AND
  2. The employee’s commission of the tort occurs within the scope of employment.
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12
Q

Liability for Independent Contractors

A

Generally, a principal is not liable in tort for the unauthorized conduct of an independent contractor. The principal’s amount of control over the agent is the key factor in determining whether an agent is an independent contractor. Other relevant factors include:

  1. The nature of the work
  2. The skill required in the particular occupation;
  3. Who supplies the equipment or tools to perform the work;
  4. The method of payment (hourly, salary, etc.);
  5. The length of the employment; AND
  6. How the parties characterize the transaction.
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13
Q

Three types of partnerships

A 
General Partnership (GP)
Limited Partnership (LP)
Limited Liability Partnership (LLP)
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14
Q

General Partnership (GP)

A

GENERAL PARTNERSHIP (GP): A GP is a type of partnership that has no limited personal liability. A GP is formed when:

  1. Two or more person;
  2. Associate as co-owners;
  3. To carry on a business for profit.
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15
Q

Limited Partnership (LP)

A

An LP consists of one or more general partners and one or more limited partners. General partners remain personally, jointly and severally liable for all debts of the LP, while limited partners are personally liable for debts only to the extent of their investment in the LP.

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16
Q

Formation of an LP

A

An LP is formed when a written certificate of limited partnership is executed in substantial compliance with state law and filed with the secretary of state.

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17
Q

Limited Liability Partnership

A

An LLP limits a partner’s potential liability for professional malpractice that is committed by another partner. Any partnership may become an LLP upon the:

  1. Approval of the partners by vote; AND
  2. Filing a statement of qualification with the secretary of state.
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18
Q

GP Liability for Torts

A

General partners are jointly and severally liable for all obligations of the partnership arising from any wrongful act or omission of any partner acting:

  1. Within the ordinary course of business; OR
  2. With the authority of all other partners.
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19
Q

LP Liability for Torts

A

Limited partners are not personally liable for obligations of the LP arising from the wrongful acts or omissions of other partners (they are always liable for their own misconduct).

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20
Q

Partnership’s Liability for Contracts

A

Each partner is an agent of the partnership. Therefore, the actions of every partner that are made within the ordinary course of business to carry on the partnership’s business bind the partnership, unless the partner taking the action:
1. Has no authority to act on behalf of the partnership;
AND
2. The other side has knowledge or notice that the partner lacks authority.

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21
Q

Duties of the Partners

A

Duty of:
Care, &
Loyalty

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22
Q

Partner’s Duty of Care

A

Each partner owes a limited fiduciary duty of care to the partnership and other partners, which requires that each partner refrain from engaging in:

  1. Grossly negligent or reckless conduct;
  2. Intentional misconduct; OR
  3. A knowing violation of the law.
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23
Q

Partner’s Duty of Loyalty

A

Each partner owes a fiduciary duty of loyalty to the partnership and other partners, which requires that each partner:
1. Act in good faith and fairly toward the other partners;
2. Account for any property, profit, or benefit derived by the partner from the partnership business; AND
3. Refrain from:
a. Competing with the partnership; AND
b. Usurping a business opportunity that
properly belongs to the partnership.

24
Q

Effect of Breach of Duties of the Partners

A

If a partner breaches the duty of care or loyalty, he may be held personally liable for damages.

25
Q

Dissolution of Partnerships

A

Dissolution of a partnership does not immediately terminate the partnership. Rather, the partnership enters a “winding up” phase, which continues until the winding up of the partnership’s affairs is completed.

26
Q

Causes of Dissolution of Partnerhsips

A

There are three main causes of dissolution

  1. Actions taken by the partners (e.g., dissociation);
  2. Operation of law (e.g., the partnership’s business becomes illegal); OR
  3. Court order (e.g., a judicial dissolution may be granted if it becomes impracticable to continue the partnership’s business).
27
Q

Dissolution under Uniform Partnership Act (UPA)

A

Under the UPA, any change in partner membership automatically triggers dissolution of the partnership unless there is an agreement to the contrary.

28
Q

Dissolution under Revised Uniform Partnership Act (RUPA)

A

Under RUPA, absent an agreement to the contrary, the “disassociation” (occurs when a partner ceases his association with carrying on the partnership business) of a partner does not automatically trigger dissolution unless:

  1. The partnership is an at-will partnership; OR
  2. There is an occurrence of an event that the partners specified in the partnership agreement that would cause dissolution (e.g., term partnerships).
29
Q

Dissolution of Term Partnerships

A

Under RUPA, a term partnership may be dissolved before its term expires if:

  1. At least half of the partner’s express their will to wind up the business within 90 days after a partner’s disassociation by death, bankruptcy, becoming incapacitated, or wrongful disassociation; OR
  2. All of the partners agree to amend the partnership agreement by expressly agreeing for dissolution.
30
Q

Articles of Incorporation

A

Generally, a corporation is formed when the articles of incorporation are filed with the secretary of state (unless the articles specify a delayed effective date).

31
Q

Amendments to Articles of Incorporation

A

The articles may be amended if there is a majority vote from the directors and shareholders. However, minor amendments may be made by the board of directors without shareholder approval.

32
Q

Corporate Bylaws

A

Corporate bylaws are written rules of conduct that must be initially adopted by the incorporators or board of directors. The bylaws may contain any provision for managing the business and regulating the affairs of the corporation to the extent that is consistent with the law and articles of incorporation. If there is a conflict between the articles and bylaws, the articles of incorporation govern.

33
Q

Amendments to Corporate Bylaws

A

The bylaws may be amended or repealed by the corporation’s shareholders. The board of directors may also amend or repeal the bylaws unless the shareholders expressly specify otherwise.

34
Q

SH Liability for Debts of Corporation

A

Generally, shareholders of a corporation are not personally liable for the debts of the corporation. However, the major exception to this rule is the doctrine of piercing the corporate veil.

35
Q

Piercing the Corporate Veil

A

Courts will allow a creditor to pierce the corporate veil and hold a shareholder personally liable for the debts of a corporation when:

  1. The shareholder has dominated the corporation to the extent that the corporation may be considered the shareholder’s alter ego;
  2. The shareholder failed to follow corporate formalities;
  3. The corporation was undercapitalized; OR
  4. There is fraud or illegality present.
36
Q

Effect of Piercing the Corporate Veil

A

Once the corporate veil has been pierced, courts generally hold all of the shareholders liable. However, some courts do not extend liability to passive investors.

37
Q

List the Shareholder Rights

A
  1. Meetings
  2. Voting
  3. Electing Directors
  4. Voting by Proxy
  5. Books and Records
  6. Sale of Corporate Assets
38
Q

SH Meetings

A

A corporation must hold an annual meeting of shareholders at a time that is fixed in accordance with the bylaws. Special meetings can be held in certain situations.

39
Q

SH Meetings - Notice

A

Generally, shareholders who are entitled to vote must be provided with sufficient notice of all annual and special meetings.

40
Q

SH Meetings - Quorum

A

A quorum must be present in order for the shareholders to take action at a meeting. Unless otherwise set forth in the articles, a quorum exists when at least a majority of the shares entitled to vote are present.

41
Q

SH Voting Rights

A

The articles may provide that holders of certain types of shares cannot vote unless specific conditions are satisfied. Unless otherwise provided by law or the articles, all shareholders’ votes are counted equally, regardless of class.

42
Q

SH Election of Directors

A

Shareholders elect directors either directly (each share equals one vote) or cumulatively (voters can put multiple votes on one or more candidates). Generally, cumulative voting is more favorable to minority shareholders.

43
Q

SH Vote by Proxy

A

A vote by proxy allows a shareholder to vote without physically attending the meeting by authorizing another to vote her shares on her behalf. A valid proxy must exist in the form of a verifiable electronic transmission or a signed written appointment form.

A proxy is freely revocable unless the recipient of the proxy has an economic interest in the shares.

44
Q

SH Access to Books & Records

A

A shareholder possesses the right to inspect corporate books and records during normal business hours so long as the purpose for the inspection is proper. However, a shareholder may inspect the articles and bylaws without providing a proper purpose.

45
Q

SH Approval of Sale of Corp. Assets

A

Shareholder approval is required for the corporation to sell, lease, exchange, or otherwise dispose of all, or substantially all, of its property if the disposal is not in the corporation’s usual and regular course of business. However, if the disposal of assets is in the corporation’s usual and regular course of business, shareholder approval is not required (unless otherwise set forth in the articles of incorporation).

46
Q

Authority of Directors

A

Subject to any limitation imposed by law or the articles, the board of directors has full control over the affairs of the corporation.

47
Q

Authority of Officers

A

The board of directors generally delegates day-to-day management of the corporation’s business to officers elected by the board. The board may remove officers at any time with or without cause.

48
Q

Director & Officer Duty of Care

A

Directors and officers owe the corporation a fiduciary duty of care. This duty includes:

  1. The duty to take reasonable steps to monitor the corporation’s management;
  2. The duty to be satisfied that proposals are in the corporation’s best interests;
  3. The duty to disclose material information to the board; AND
  4. The duty to make reasonably informed decisions.
49
Q

Business Judgement Rule (BJR)

A

In suits alleging that a director or officer violated his duty of care owed to the corporation, courts will apply the BJR. Under this rule, a court will not second guess the decisions of a director or officer so long as the decisions are made:
1. In good faith;
2. With the care an ordinarily prudent person in a like position would exercise under similar circumstances; AND
3. In a manner the director/officer reasonably believes to be in the best interests of the corporation.
If a director or officer breaches the duty of care, he may be held personally liable for damages.

50
Q

Director & Officer Duty of Loyalty

A

Directors and officers have a duty to avoid implicating their personal conflicting interests in making business decisions for the corporation. However, a director/officer that enters into a conflicting interest transaction may be protected if:

  1. Disinterested shareholders approve the transaction;
  2. The non-interested members of the board authorize the transaction; OR
  3. The transaction, at the time of commitment, is established to have been fair to the corporation.
51
Q

Corporate Opportunities

A

The corporate opportunity doctrine prohibits directors and officers from usurping business opportunities that rightfully belong to the corporation for their own benefit.

52
Q

Differentiate Mergers & Consolditation

A

A merger occurs when one of two existing corporations is absorbed by the other corporation. A consolidation occurs when two existing corporations combine into one new corporation.

53
Q

A merger or consolidation both require:

A
  1. The recommendation of an absolute majority of the board of directors; AND
  2. The agreement of each corporation by an absolute majority of shareholders.
54
Q

Dissenter’s Rights

A

After a merger or consolidation occurs, dissenting shareholders opposed to the action may either:

  1. Challenge the action; OR
  2. Receive payment determined at fair market value of their shares immediately before the merger or consolidation took effect.
55
Q

Derivative Claims

A

A derivative claim is a lawsuit brought by a shareholder on behalf of the corporation. The shareholder is suing to enforce the corporation’s rights when the corporation has a valid cause of action, but has failed to pursue it. If successful, the proceeds go to the corporation. However, if the award to the corporation benefits the defendants, the court may order that damages be paid directly to the shareholder who brought the action.

56
Q

Demand Requirement for Derivative Claims

A

Generally, a shareholder must make a written demand on the board before commencing a derivative action. After submitting the demand, the shareholder must wait 90 days to file the derivative action, unless the board rejects the demand during the 90-day period. However, under the common law, and in some jurisdictions today, the plaintiff shareholder does not have to make a demand on the board if it would be futile to do so (e.g., the board is interested in the transaction being challenged).

57
Q

SH’s Direct Claims

A

A direct claim is a lawsuit brought by a shareholder to enforce his own rights. The shareholder must prove actual injury that is not solely the result of an injury suffered by the corporation. If a direct claim is successful, the proceeds go to the shareholder.

MEE (5 decks)

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