Business Associations Flashcards
Agency Formation
Agreement
Benefit
Control
Agency Duties
Principal Duties
Compensation, Cooperation, Indemnity, and Reimbursement
Agent Duties
Duty of Care, Duty of Loyalty
Agent’s Contract Liability
Agent is personally liable when:
Disclosed Principal - agent generally not liable
Unidentified (partially disclosed) Principal - A is liable
Undisclosed Principal - A is liable
Principal Tort Liability
(By Agent)
Principal is liable for torts committed by employee, not independent contrator unless: negligent hiring, activity was inherently dangerous, duty was nondelgable
Employee vs. IC depends on degree of control over performance.
Employers only liable for employee intentional torts if within scope of employment.
Principal Contract Liability
Express Authority
Express authority exists through express manifestations from the principal to the agent about what they can do
Implied Authority
Implied authority is authority that the agent reasonably believes is necessary to carry out their job responsiblities
Apparent Authority
Apparent authority arises from the prinicpal holding out the agent to a third party, that the ageny has the authority to bind the principal.
Ratification
If an agent acts for the principal without authority, but the principal later validates the act, princiapl is bound if they (1) knew of all material facts; (2) accepted transaction; and (3) had capacity.
Partnership Formation
A partnership is formed when two or more people agree to carry on a business for profit. A partnership need not have a formal agreement and courts will look at the intent of the parties. Partners have equal management and, unless stated otherwise, an equal share of profits, which the losses follow. Partners are jointly and severally liable for the partnership.
Corporation Formation
De Jure
A corporation is a formal business entity that is formed by filing the articles of incorporation with the secretary of state. The articles of incorporation must identify a variety of different information including: name of the company, company’s purpose, agents name, office address in incorporating state, and incorporators name and address. A corporation is formed when the secretary of state accepts the filing. The name must include Inc. to indicate that the shareholders are protected by limited liability.
De Facto
A De Facto corporation is formed when the incorporator makes a good faith effort at incorporating the company but fails to do so. So long as the corporation runs as if it was formed, in good faith, and it is not known that it was improperly formed, it will be treated like a corporation.
Corporation by Estoppel
An entity or individual that purports to represent a corporation that is treated as a corporation by a 3rd party will estop the 3rd party from denying that it was a corporation. This usually applies to contract claims, not tort claims.
Piercing the Corporate Veil
Corporations typically have limited liability for its shareholders meaning the shareholders are not personally liable for the corporation. However, in the case of: (1) shareholders treating the corporation as an alter ego; (2) undercapitalization; and (3) fraud, an aggrieved party may “pierce” the veil of limited liability and directly go after the shareholders.
Alter Ego: Shareholders treat the corporation as an extension of themselves, fail to follow corporate formalities or comingle funds
Undercapitalization: The corporation was underfunded at the time of incorporation or fails to keep enough capital during existence to run business activities or pay creditors
Fraud
Promoter Liability
A promoter is a person who enters into contracts on behalf of the corporation prior to its incorporation. A promoter is personally liable for the contract unless the corporation, once formed, enters a novation.
A corporation will become liable if it adopts the contract. However, this does not release the promoter.
Corporate Directors & Officers Fiduciary Duties
Duty of Care: The Directors and Officers must act like an ordinarily prudent person in the course of business. They must make decisions in good faith and for the benefit of the company.
Business Judgment Rule: The BJR creates a rebuttable presumption that the director’s decision was reasonable, in good faith, and for the benefit of the company.
Duty of Loyalty: Directors owe a duty of loyalty to the company and must not engage in: (1) self-dealing; or (2) usurpation of corporate opportunities. Self dealing occurs when the director is interested on both sides of the transaction. Breaches of the DoL may be waived if the director/officer fully discloses the transaction and (1) a majority of the disinterested shareholders OR directors approve; or (2) the director/officer can demonstrate that the deal was fundamentally fair to the corporation.
Other entities
LLC: An LLC is a hybrid entity. It give the members limited liability but does not require corporate formalities and is more flexible like a partnership. It grants pass-through taxation like a partnership. A filing must be made with the state certifying the LLC’s creation.
LLP: An LLP is an entity typically used for professional organizations, like law and accounting firms. LLPs are like generally partnerships except the partners are granted limited liability from other parnters debts. A filing must be made with the state certifying the LLP’s creation.
LP: A limited partnership is an entity that has at least one general and at least one limited partner. General partners are like partners in a general partnership. Limited partners are like shareholders in that they invest in the company but do not have management interests. A filing must be made with the state certifying the LP’s creation.
Shareholder and Director Meetings/Voting
Director
Quorum (majority of directors), Presence (in person, phone, or Zoom), Vote passes with majority of those present. Action can also be made if all directors sign written consent.
Meeting can be regular or special (2 days notice required)
Shareholder
Quorum (in person or proxy) of shares, not shareholders, Vote passes with majority of those present.
A person may vote in person or by proxy. The proxy vote must be in writing and delivered to the corporation or its agent. A proxy is valid for 11 months and is revocable unless expressly provided that it is irrevocable and is coupled with an interest. If a shareholder acts inconsistently with a proxy, like attending the shareholder m
Shareholder and Director Voting Agreements
Shareholder: Shareholders may enter into a written and signed agreement providing for the manner in which they will vote their shares, this is known as a voting pool. It need not be filed with the corporation or have a time limit. Furthermore, an arbitrator must be an independent person who exercises fair and equitable judgment when resolving disputes.
Director: Not allowed
Shareholder Suits
Direct Suit: A shareholder may bring a suit for breach of fiduciary duty owed to the shareholder.
Derivative Suit: A derivative suit is when a shareholder sues on behalf of the corporation, the corporation is entitled to any recover. The shareholder must be a shareholder at the time of filing and when the cause of action arose. The shareholder must give the BoD notice 90 days before filing to allow them to respond, unless it would be futile.
Controlling Shareholder
A controlling shareholder (greater than 50%), or a coalition of shareholders, owe a duty of care and loyalty to minority shareholders for (1) sale to looter; (2) trying to oust another shareholder; or (3) receive distribution minority shareholders are not entitled to.
