BA Flashcards
An agency relationship is created when:
- The parties voluntarily consent to enter into an
agency relationship; AND - The agent is subject to the principal’s control.
Termination of an agency relationship:
- Agent or principal manifests to the other the desire
to cease the agency relationship; - Express terms of the agency expire; OR
- Purpose of the agency relationship isfulfilled.
The agency relationship may be terminated by operation of
law if the:
- Agent or principal dies;
- Agent or principal loses capacity; OR
- Agent materially breaches a fiduciary duty owed to
the principal.
AUTHORITY TO BIND PRINCIPAL:
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 termsof
the contract.
ACTUAL AUTHORITY:
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.
Express Authority.
Actual express authority exists when
the principal directs the agent to engage in the precise
task in question.
Implied Authority.
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.
APPARENT AUTHORITY:
An agent acts with apparent
authority when:
- The principal holds the agent out as having authority
to act on the principal’s behalf;
AND - 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.
RESPONDEAT SUPERIOR:
An employer (principal) may be
liable for torts committed by an employee (agent) if:
- An employer-employee relationship exists; AND
- The employee’s commission of the tort occurs within
the scope of employment.
INDEPENDENT CONTRACTORS:
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:
- The nature of the work
- The skill required in the particular occupation;
- Who supplies the equipment or tools to perform the
work; - The method of payment (hourly, salary, etc.);
- The length of the employment; AND
- How the parties characterize the transaction.
General Partnership
A GP is a type of partnership
that has no limited personal liability. A GP is formed when:
- Two or more person;
- Associate as co-owners;
- To carry on a business for profit.
LIMITED PARTNERSHIP
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.
Formation. 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.
LIMITED LIABILITY PARTENRSHIP
An LLP limits a
partner’s potential liability for professional malpractice thatis
committed by another partner. Any partnership may become
an LLP upon the:
- Approval of the partners by vote; AND
- Filing a statement of qualification with the secretary
of state.
TORT LIABILITY PARTNERSHIP:
General partners are jointly and severally
liable for all obligations of the partnership arising from any
wrongful act or omission of any partner acting:
- Within the ordinary course of business; OR
- With the authority of all other partners.
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).
CONTRACT LIABILITY PARTNERSHIP:
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:
- Has no authority to act on behalf of the partnership;
AND - The other side has knowledge or notice that the
partner lacks authority.
DUTIES OF PARTNERS: DUTY OF CARE
Each partner owes a limited fiduciary duty of care to the partnership and other partners, which requires that each partner refrain from engaging in:
- Grossly negligent or reckless conduct;
- Intentional misconduct; OR
- A knowing violation of the law.
DUTY OF LOYALTY PARTNERSHIP:
Each partner owes a fiduciary duty of loyalty to the partnership and other partners, which requires that each partner:
- Act in good faith and fairly toward the other
partners; - Account for any property, profit, or benefit derived
by the partner from the partnership business;AND - Refrain from:
a. Competing with the partnership; AND
b. Usurping a business opportunity that
properly belongs to the partnership.
PARTNERSHIP: EFFECT OF BREACH
If a partner breaches the duty of care or loyalty, he may be held personally liable for damages.
PARTNERSHIP DISSOLUTION
DISSOLUTION: 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.
CAUSES OF PARTNERSHIP DISSOLUTION
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 continuethe
partnership’s business).
PARTNERSHIP DISSOLUTION: UNIFORM PARTERNSHIP ACT
Under the UPA, any
change in partner membership automatically triggers
dissolution of the partnership unless there is an agreement to
the contrary.
PARTNERSHIP DISSOLUTION:REVISED UNIFORM PARTERNSHIP ACT
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:
- The partnership is an at-will partnership; OR
- There is an occurrence of an event that the partners
specified in the partnership agreement that would
cause dissolution (e.g., term partnerships).
PARTNERSHIP DISSOLUTION: TERM PARTNERSHIPS
Under RUPA, a term partnership may be dissolved before its term expires if:
- 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 - All of the partners agree to amend the partnership
agreement by expressly agreeing for dissolution.
CORPORATE FORMATION: ARTICLES OF INCORPORATION
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).
Amendments. 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.
CORPORATE FORMATION: CORPORATE BYLAWS
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.
Amendments. 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.
PIERCING THE CORPORATE VEIL: GENERAL RULE
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.
PIERCING THE CORPORATE VEIL:
Courts will allow a creditor
to pierce the corporate veil and hold a shareholder personally
liable for the debts of a corporation when:
- The shareholder has dominated the corporation to
the extent that the corporation may be considered
the shareholder’s alter ego; - The shareholder failed to follow corporate
formalities; - The corporation was undercapitalized; OR
- There is fraud or illegality present.
PIERCING THE CORPORATE VEIL: EFFECTS
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.
SHAREHOLDER RIGHTS: MEETINGS
MEETINGS: 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.
Notice. Generally, shareholders who are entitled to vote
must be provided with sufficient notice of all annual and
special meetings.
Quorum. 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.
SHAREHOLDER RIGHTS: VOTING
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.
SHAREHOLDER RIGHTS: ELECTING DIRECTORS
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.
SHAREHOLDER RIGHTS: VOTE BY PROXY
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.
Freely Revocable. A proxy is freely revocable unless the
recipient of the proxy has an economic interest in the
shares.
SHAREHOLDER RIGHTS: BOOKS AND RECORDS
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.
SHAREHOLDER RIGHTS: SALE OF CORPORATE ASSETS
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).
DUTIES OF DIRECTORS AND OFFICERS: AUTHORITY OF DIRECTORS
Subject to any limitation
imposed by law or the articles, the board of directors has full
control over the affairs of the corporation.
DUTIES OF DIRECTORS AND OFFICERS: AUTHORITY OF OFFICERS
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.
DUTIES OF DIRECTORS AND OFFICERS: DUTY OF CARE
Directors and officers owe the corporation a
fiduciary duty of care. This duty includes:
- The duty to take reasonable steps to monitor the
corporation’s management; - The duty to be satisfied that proposals are in the
corporation’s best interests; - The duty to disclose material information to the
board; AND - The duty to make reasonably informed decisions.
BUSINESS JUDGMENT RULE (BJR):
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.
SHAREHOLDERS RIGHTS: CONFLICTING INTEREST TRANSACTIONS
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:
- Disinterested shareholders approve the transaction;
- The non-interested members of the board authorize
the transaction; OR - The transaction, at the time of commitment, is
established to have been fair to the corporation.
SHAREHOLDERS RIGHTS: CORPORATE OPPORTUNITIES
The corporate opportunity
doctrine prohibits directors and officers from usurping
business opportunities that rightfully belong to the
corporation for their own benefit.
MERGERS AND CONSOLIDATIONS
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. A merger or
consolidation both require:
- The recommendation of an absolute majority of the
board of directors; AND - The agreement of each corporation by an absolute
majority of shareholders.
MERGERS AND CONSOLIDATIONS: DISSENTERS’ RIGHTS
After a merger or consolidation occurs, dissenting shareholders opposed to the action may either:
- Challenge the action; OR
- Receive payment determined at fair market value of
their shares immediately before the merger or consolidation took effect.
SHAREHOLDER LITIGATION: DERIVATIVE CLAIMS
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.
Demand. 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).
SHAREHOLDER LITIGATION: DIRECT CLAIMS
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.
