BUSASSOC Flashcards
What is Agency?
A fiduciary relationship where a person or entity (agent) acts on behalf of another (principal).
What are the three elements required to create an agency relationship?
1) ASSENT by Principal and Agent to work together, 2) BENEFIT where the agent acts for the principal’s benefit, and 3) CONTROL where the principal has the right to control the agent.
How can an agency relationship be terminated?
1) Manifestation by either party to discontinue the relationship, 2) Expiration of a specified term, 3) Death (no notice needed), 4) Incapacity.
What is Actual Authority?
Principal is bound to a contract entered into by its Agent if the Agent had ACTUAL AUTHORITY, which can be EXPRESS or IMPLIED.
What constitutes Express Actual Authority?
Authority given by Principal’s explicit directions to the agent (oral or in writing).
What constitutes Implied Actual Authority?
Authority inferred from Principal’s conduct that leads Agent to believe they have authority.
What is Apparent Authority?
Principal is bound to a contract entered into by Agent if Agent had apparent authority based on a third party’s reasonable belief generated by Principal’s actions.
What are the exceptions to Apparent Authority?
1) Third party has knowledge that Agent didn’t have actual authority, 2) Transaction was not in the ordinary course of business.
What is Ratification in agency?
Makes Principal liable for Agent’s contract entered into without authority when Principal has knowledge of all material facts and approves the contract.
When is an Agent not liable?
Agent is NOT liable if they fully disclosed Principal to third party and have actual or apparent authority.
What distinguishes an Employee from an Independent Contractor?
Independent contractors are hired to do something but are NOT CONTROLLED by Principal; focus is on the right to control the manner/method of job performance.
What is the Respondent Superior Doctrine?
Employer is liable for employee’s torts/negligent acts if acting in the scope of employment or made a minor deviation.
What are the duties owed by an Agent to a Principal?
1) Duty of Care, 2) Duty of Loyalty, 3) Duty of Obedience.
What is a General Partnership?
Created if 2 or more people as co-owners carry on a business for profit; intent to form not required.
What is a Limited Partnership?
Created with limited partners and at least 1 general partner; must file a certificate with the Secretary of State.
What is a Limited Liability Partnership?
All partners have limited personal liability if approved by the same vote needed to amend the partnership agreement and file a statement of qualification.
How can a partner bind a partnership?
A partner must have authority; acts of a partner will bind the partnership if the partner acted with authority.
What is the liability of General Partners?
General partners are personally liable for all obligations of the partnership unless otherwise agreed or provided by law.
What is the liability of Limited Partners?
Limited Partners are NOT personally liable for obligations of the partnership except for their own misconduct or if they participate in management.
What are the duties of partners under RUPA?
Partners owe a duty of care and a duty of loyalty to the partnership and other partners.
What is Dissociation in a partnership?
A partner may dissociate from a partnership at any time upon notice; wrongful dissociation can occur if it breaches the partnership agreement.
What is Dissolution of a partnership?
Occurs when notice of a partner’s express will to withdraw is given or due to other specified events; fiduciary duties continue until winding up is complete.
What is the role of Shareholders in a corporation?
Shareholders are the owners of the corporation; they do not manage it and have rights to vote at annual meetings.
What is the role of the Board of Directors (BoD)?
The BoD manages the corporation and acts as a body by voting; they cannot vote by proxy.
What is required for a quorum in a Shareholder meeting?
A majority of shares entitled to vote must be present.
What rights do Shareholders have regarding inspection of books?
Shareholders have the right to inspect and copy the corporation’s accounting records under certain conditions.
What is the Duty of Loyalty for directors?
Directors must act in the corporation’s best interest without personal conflict, including not entering into conflicting interest transactions.
What is required for a written notice?
5 days written notice
What must a request for records include?
1) Made in good faith and for proper purposes 2) Describe the purpose with particularity 3) Requested records are directly connected with purpose
What can be inspected without providing a proper purpose?
Articles of Incorporation, bylaws, Board of Directors resolutions, minutes of shareholder meetings, and business addresses of current directors/officers
What is the Duty of Loyalty for a director?
A director must act in the corporation’s best interest and without personal conflict.
What actions are prohibited under the Duty of Loyalty?
1) Enter into conflicting interest transactions 2) Usurp corporate opportunities 3) Compete with the corporation 4) Trade insider information
What are the three safe harbors for conflicting interest transactions?
1) Approval by disinterested directors 2) Approval by disinterested shareholders 3) Transaction judged to be fair at the time
Can the Business Judgment Rule be used for Duty of Loyalty breaches?
No, the burden is on the director.
What is the Duty of Care for directors?
Directors must act in good faith, with reasonable belief that they are acting in the best interests of the corporation, and with appropriate care.
What defense can directors use regarding the Duty of Care?
They may use the Business Judgment Rule as a defense.
What is the Business Judgment Rule?
Presumption that directors acted on an informed basis, in good faith, and in the honest belief that the action was in the best interest of the company.
What must directors be informed about?
They must be informed to an extent that they reasonably believe is appropriate and are entitled to rely on information from corporate officers, legal counsel, and public accountants.
What is the burden of proof in a Duty of Care case?
The burden is on the plaintiff to show the Board of Directors breached their duty of care.
What fiduciary duties do members of an LLC have?
Members of an LLC have fiduciary duties and member-managed LLCs are treated as agents of the LLC.
What happens if a member leaves an LLC?
Dissociation occurs, but it does not lead to winding up or dissolution unless all members unanimously agree.
What is the liability of individual LLC members?
Members are not liable for losses unless the court pierces the LLC veil or proper procedures for dissolution have not been followed.
What is the liability structure in a Limited Partnership (LP)?
Limited partners have limited liability, while general partners are liable for all partnership obligations and manage the business.
What is a Direct Action in corporate law?
May be brought when there is a duty owed to a shareholder.
What is a Direct Suit?
Appropriate when the wrong done amounts to a breach of duty owed to the individual personally.
What is a Derivative Action?
Appropriate when the injury is caused to the corporation and a shareholder is trying to enforce the corporation’s rights.
What are the requirements for filing a derivative lawsuit?
1) Standing to bring a lawsuit 2) Adequacy (SH represents the interests of the corporation) 3) Demand (generally filed a written demand and wait 90 days before filing unless irreparable injury would result or demand would be futile)
What happens to recovery in a derivative lawsuit?
Any recovery goes to the corporation.
What is the personal liability of shareholders?
Shareholders are NOT personally liable for corporate liabilities and obligations.
What is piercing the corporate veil?
Doctrine that allows shareholders to be sued for debts of the corporation under certain conditions.
What conditions allow for piercing the corporate veil?
1) Corporation is alter ego of shareholders 2) Corporation failed to follow formalities 3) Inadequately capitalized at inception 4) Corporation used for fraud
What must a plaintiff show to pierce the corporate veil?
That shareholders abused the privilege of incorporating and fairness requires holding them liable.
