Agency & Partnerships Rules

Question 1

Agency Creation

Answer 1

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 (ABC)

Question 2

Actual Authority

Answer 2

An agent can bind a principal to contracts if the agent has actual authority. This can be provided in writing or can be given to the agent orally.

Question 3

Express Authority

Answer 3

Occurs when the principal has clearly and overtly told the agent that they are directed to act on the principal’s behalf.

Question 4

Implied Authority

Answer 4

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.

Question 5

Equal Dignity Rule

Answer 5

If the Agent signs a contract that requires a writing, the agency agreement must also be in writing. (Look for an agent transferring a deed without written authority)

Question 6

Formation of a Pship

Answer 6

A pship is created when two or more persons carry on a business for profit. The ship is formed upon agreement, written or verbal. Sharing profits is a key indicator that a ship has been formed.

Question 7

Partner Liability

Answer 7

Generally partners are personally liable for the liabilities of the ship. Usually, judgments are not assessed against personal assets unless partnership assets have been depleted.

Question 8

Limited Liability Partnership

Answer 8

An LLP is a pship where the partners have limited personal liability. Formation requires filing with the Secretary of State. A limited partner can actively manage the ship, which is different from a Limited Partnership, where one partner has all of the power, and the others simply have a financial stake.

Question 9

Authority to Bind

Answer 9

Each partner has the authority to bind the business contractually. A unanimous vote of all partners is required to bind the ship if the action is beyond the normal scope of usual business. All partners have implied authority.

Question 10

Winding Up

Answer 10

Upon the termination of the pship, pship 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. Additionally, if no assets remain and the pship has outstanding creditors, these liabilities will be divided and assigned to each partner at their percentage of ownership.