Business associations

Question 1

formation of agency relationship

Answer 1

1. Consent: Both principal and agent must consent to the relationship.
2. Control: Principal must have the right to control the agent’s actions.
3. Purpose: The relationship must be for a legal purpose.
4. Capacity: Both parties must have the capacity to enter into the relationship.

Question 2

Express Authority

Answer 2

a type of actual authority

Explicitly given by the principal.

Question 3

Implied Authority

Answer 3

A type of actual authority

Authority that is reasonably necessary to carry out express authority.

Question 4

Apparent Authority

Answer 4

Principal’s actions lead a third party to reasonably believe the agent has authority.

Question 5

Ratification

Answer 5

Principal accepts the benefits of a transaction after the fact.

Question 6

Contract Liability

Answer 6

Principal is liable for contracts entered into by the agent with actual or apparent authority.

Agent is not liable if acting within the scope of authority.

Question 7

Tort Liability

Answer 7

Principal is liable for torts committed by the agent within the scope of employment (respondeat superior).
Agent is always liable for their own torts.

Question 8

duty owed from Agent to Principal

Answer 8

Duty of care, duty of loyalty, duty of obedience.

Question 9

duty owed from Principal to Agent:

Answer 9

Duty to indemnify, duty to compensate.

Question 10

Partnership formation (general partnership)

Answer 10

General Partnership: Formed by an agreement between two or more persons to carry on a business for profit.

Question 11

Liability (Partnerships) (General Partners)

Answer 11

Personally liable for partnership obligations.

Question 12

Liability (partnerships) (Limited Partners)

Answer 12

Liability limited to their investment in the partnership, provided they do not participate in management.

Question 13

Formation (limited partnerships)

Answer 13

Formed by filing a certificate of limited partnership with the state.

Question 14

Management and operation (general partnerships)

Answer 14

Each partner has equal rights in the management unless otherwise agreed

Question 15

Management and operation (limited partnership)

Answer 15

General partners manage the business; limited partners usually do not have management rights.

Question 16

Fiduciary duties (general Partnership)

Answer 16

Duty of loyalty, duty of care, duty to act within the scope of authority

Question 17

fiduciary duties (limited partnerships)

Answer 17

Generally, no fiduciary duties if they do not participate in management.

Question 18

Dissociation

Answer 18

Partner leaves the partnership, which can lead to dissolution.

Question 19

Dissolution

Answer 19

Process of winding up the business and distributing assets.

Question 20

Formation (LLC)

Answer 20

Articles of Organization: Must be filed with the state.

Operating Agreement: Governs the relations among members and the LLC.

Question 21

Management (LLC)

Answer 21

2 possibilities

1. Member-Managed: All members participate in management.
2. Manager-Managed: Management is delegated to managers who may or may not be members.

Question 22

Liability (LLC)

Answer 22

Members are generally not personally liable for the debts of the LLC.

Piercing the LLC Veil: Members can be held liable if the LLC is used to perpetrate fraud or injustice.

Question 23

Fiduciary duties (LLC)

Answer 23

Members/Managers owe a duty of loyalty, duty of care, duty to act in good faith and fair dealing.

Question 24

Dissolution (LLC)

Answer 24

two ways to go about this

1. Voluntary Dissolution: As specified in the operating agreement or by consent of members.
2. Involuntary Dissolution: By court order or administrative action by the state.

Question 25

Formation (corporation)

Answer 25

you need

1. Articles of Incorporation: Must be filed with the state.
2. Bylaws: Internal rules governing the corporation.

Question 26

Types of corporations

Answer 26

1. C Corporation: Separate tax entity; double taxation.
2. S Corporation: Pass-through taxation; limited to 100 shareholders.

Question 27

Corporate Governance structure (corporations)

Answer 27

1. Shareholders: Owners of the corporation; elect directors.
2. Directors: Set policy and oversee management; owe fiduciary duties.
3. Officers: Manage day-to-day operations; owe fiduciary duties.

Question 28

Fiduciary duties (corporation)

Answer 28

1. Duty of Care: Act with the care an ordinarily prudent person would take.
2. Duty of Loyalty: Act in the best interests of the corporation; avoid conflicts of interest.

Question 29

Liability (corporation)

Answer 29

Limited Liability: Shareholders are not personally liable for corporate debts.

Piercing the Corporate Veil: Shareholders can be held liable if the corporation is used to perpetrate fraud or injustice.

Question 30

securities regulation

Answer 30

Securities Act of 1933: Governs initial sale of securities; requires registration and disclosure.

Securities Exchange Act of 1934: Governs secondary trading; established the SEC; requires periodic reporting.

Question 31

Dissolution (corporation)

Answer 31

two ways to go about this

1. Voluntary Dissolution: By board and shareholder approval.
2. Involuntary Dissolution: By court order or administrative action by the state.