Business Associations

Question 1

Authority of Agent to Bind Principal

Answer 1

An agent may bind a principal to a contract if the agent is acting within his actual or apparent authority, or inherent agencypower. Once a principal is validly bound to a contract by his agent, the principal is liable under the terms of the contract.

Question 2

Actual Authority
(Express v. Implied)

Answer 2

• An agent acts with actual express authority when the principal directs him to engage in a specific task.
• An agent acts with actual implied authority when the agent believes, based on a reasonable interpretation of the principal’s words or conduct, that the principal wishes him to act on the principal’s behalf.

(Incidental authority. The agent’s authority to conduct a transaction includes the authority to engage in actions that are incidental to it, usually accompany it, or are reasonably necessary to accomplish it.)

Question 3

Apparent Authority

Answer 3

An agent acts with apparent authority when:

1. The principal holds the agent out as having authority to act on the principal’s behalf; AND
2. 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.

Apparent authority does NOT exist if the third party has knowledge that the agent does not have actual authority.

Question 4

Contract Liability of Partnership

Answer 4

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:

1. Has no authority to act on behalf of the partnership; AND
2. The other side has knowledge or notice that the partner lacks authority.

Actions taken by a partner that are OUTSIDE the ordinary course of the partnership’s business do NOT bind the partnership UNLESS the other partners unanimously authorize the action with actual or apparent authority.

Question 5

Partnership Dissolution Causes

Answer 5

There are three main causes of dissolution:

1. Actions taken by the partners (e.g., disassociation, partners agree to certain causes for dissolution, etc.);
   Operation of law (e.g., it becomes illegal to continue the business of the partnership); OR
2. Court order (e.g., a court may grant a judicial dissolution if it is no longer reasonably practicable to continue operation of the partnership business).

Question 6

Dissassociation of Partnership (UPA)

Answer 6

Under the UPA, any change in partner membership automatically triggers dissolution of the partnership unless there is an agreement to the contrary.

Question 7

DISASSOCIATION OF A PARTNER
Under The Revised Uniform Partnership Act [RUPA]

Answer 7

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:

1. The partnership is an at-will partnership; OR
3. There is an occurrence of an event that the partners specified in the partnership agreement that would cause dissolution (e.g., term partnerships).

Question 8

Term Partnership Dissolution

Answer 8

Under RUPA, a term partnership may be dissolved before its term expires if:

1. 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
2. All of the partners agree to amend the partnership agreement by expressly agreeing for dissolution.

Question 9

LL

Corporation Formation

Answer 9

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).

Question 10

B

Business Judgment Rule

Answer 10

In suits alleging that a director or officer violated his duty of care owed to the corporation, courts will apply the business judgment rule. Under this rule, a court will not second guess the decisions of a director/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.

Liability. If a director or officer breaches the duty of care, he may be held personally liable for damages. A corporation’s articles of incorporation may reasonably limit the liability of directors and officers for bad judgment, but NOT for bad faith misconduct.

Question 11

Conflicting Interest Transactions

Answer 11

Directors and officers have a duty to avoid implicating their personal conflicting interests in making business decisions for the corporation. A director/officer has a conflicting interest in a transaction when the director/officer or a family member either:

1. Is a party to the transaction; OR
2. Has a beneficial financial interest in the transaction of such significance to the director/officer that the interest would reasonably be expected to exert an influence on the director/officer’s judgment if called upon to vote on the transaction.