Business Associations

Question 1

Formation by Acts of Parties (Agency)

Answer 1

An agency relationship results from assent by the principal to another agent. The agent shall represent and act on the principal’s behalf in dealing with third parties and subject to the principal’s control, and assent by the agent so to act. There must be contractual capacity.

Question 2

Formation by Estoppel (Agency)

Answer 2

An agency may be created through estoppel which requires third party reliance on Principal’s communication.

Question 3

Duties owed by Agent to Principal (Agency)

Answer 3

1. Fiduciary duty of loyalty
2. Duty of obedience to reasonable direction
3. Duty of care under the circumstances
4. Express contractual duties

Question 4

What remedies are available to the principal if the agent breaches a duty?

Answer 4

Principal has all contract remedies if Agent compensated, tort remedies, action for secret profits, withholding of competition

Question 5

Duties owed by the Principal to the Agent (Agency)

Answer 5

1. Duty to reasonably compensate or reimburse expenses
2. Duty to Cooperate
3. Express contractual duties

Question 6

What remedies are available to the agent if the principal breaches a duty?

Answer 6

Agent has all contract remedies and lien on any money due from the Principal

Question 7

Agency Authority

Answer 7

To determine if the Principal is bound by the contract, the Agent must have had the authority to enter into the contract and bind the Principal.

Question 8

Actual Express Authority

Answer 8

Authority through express manifestation to Agent contained within the 4 corners of the agreement.

Question 9

Actual Implied Authority

Answer 9

Authority that the Agent reasonably believes that it has as a result of the Principal’s actions.

Question 10

Termination of Actual Authority

Answer 10

1. Lapse of specified or reasonable time
2. Occurrence of a specified event
3. Change in circumstances
4. Breach of duty by Agent
5. Unilateral termination by either Agent or Principal
6. Operation of Law (death or incapacity)

Question 11

Apparent Authority

Answer 11

Aries from manifestations of Agent’s authority due to Principal holding out as such via Principal’s words, actions, or failure to act, therefore inducing someone to rely on that authority.

Question 12

Ratification

Answer 12

If an Agent acts for the Principal without any authority but the Principal subsequently validates the act, the Principal is bound. The Principal must know or have reason to know all material facts, accpet the transaction and have capacity.

Question 13

Agent Tort Liability

Answer 13

Principal is only liable for torts committed by the Agent who is an employee, not an independent contractor.

*Principal could still be liable for an independent contractor if the activity involved was inherently dangerous, duty was non-delegable, or the Principal was negligent in hiring the contractor.

Question 14

Relationship by Estoppel

Answer 14

If the Principal creates the appearance of employer-employee relationship that an outside party relies on then the Principal is estopped from denying the relationship and will be liable under respondeat superior.

Question 15

Scope of Employment

Answer 15

Where there is a relationship, an employer will be liable for the employee’s torts if they were committed within the scope of the employee’s employment.

1. Same general nature as the job
2. Proximity to time and place of authorized employment
3. Motivation to serve Employer
4. Intentional torts are not within the scope of employment unless it’s a natural part of duties or misrepresentation.

Question 16

Partnerships (Revised Uniform Partnership Act)

Answer 16

A general partnership is an association of 2 or more entities to carry on a business for profit as co-owners.

Question 17

General Partnership

Answer 17

To determine whether a General Partnership exists, the key test is intent. No formal agreement is required to form a general partnership. Intent may be implied through conduct, joint title property, parties designation as partnership.

*General partners have unlimited personal liability no matter what limited liability they declare.

Question 18

General Partnership Property

Answer 18

Property acquired by the General Partnership is owned by the General Partnership and not the individual partners.

1. Not freely transferrable
2. A partner has no right to use partnership property other than for the benefit of the partnership.
3. Titled property is a partnership property if titled in partnership name or partner (bought with partnership funds or rebuttably presumed separate even if used for partnership purposes).

Question 19

Rights of a General Partner

Answer 19

1. Management
2. Distribution
3. Interest
4. Indemnification for payments and obligations reasonably incurred in carrying on the partnership business.
5. Inspection
6. Lawsuit
7. Settlement

Question 20

Management

Answer 20

All partners have an equal right to participate in management and control of the partnership, unless there is an agreement providing otherwise.

1. Decisions about ordinary course of business = majority of partners
2. Matters outside ordinary course of business = require unanimous

Question 21

Distribution

Answer 21

Each General Partner is entitled to share equally in profits and must contribute toward losses in proportion to profit share. May agree to share profits other than equally and share the losses in the same ratio.

Question 22

Interest

Answer 22

Each General Partner has an economic right in the general partnership that is personal and transferable without dissolving the general partnership.

*Transferee receives distributions, transferor retains rights and duties.

Question 23

Indemnification

Answer 23

All General Partners have a right to indemnification for payments and obligations reasonably incurred in carrying on the partnership business.

1. Contribution from other partner for paying more than his share of the partnership liability.
2. No right to remuneration for services to General Partnership except reasonable compensation for winding up business

Question 24

Inspection

Answer 24

All General Partners may inspect and copy the partnership book.

Question 25

Lawsuit

Answer 25

A General Partner may sue another partner for breach of agreement or duty or to enforce a certain right.

Question 26

Settlement

Answer 26

All General Partners have a right to settlement of account upon dissolution.

Question 27

Duties of a General Partner

Answer 27

1. Duty of Care 2. Duty of Loyalty 3. Duty of Good faith and fair dealing 4. Duty to keep books fair and accurate

Question 28

Duty of Care (GP)

Answer 28

Duty of care to not engage in negligent, reckless, or unlawful conduct or intentional misconduct.

Question 29

Duty of Loyalty (GP)

Answer 29

Duty of loyalty to act in the best interests of the partnership, including duties to: 1. Account for all profits and benefits derived from the partnership 2. Not deal with partnership with adverse interest 3. Not compete with partnership - must present business opportunities to partnership if it is connected to the business.

Question 30

General Partnership Authority

Answer 30

Each General Partner is an agent of the partnership for the purpose of its business. 1. Apparent authority: a partner who acts in the ordinary course of the partnership's business, binds the general partnership unless the GP did not have the authority to act in that particular matter and the person with whom they were dealing with knew or had knowledge he lacked authority.

Question 31

General Partnership Liability

Answer 31

1. Partners are liable for all contracts entered into by a partner in the scope of partnership or w/ authority of partnership. 2. Partners are liable for all torts by any partner or employee acting in the ordinary course of business or w/authority of the partnership. 3. Partners are criminally liable only for their own crime or participation.

Question 32

General Partnership Civil Liability

Answer 32

Civil liability is joint and several. 1. Suit against partner - each partner is personally and individually liable for entire amount of partnership obligations. If paid more they can seek contribution/indemnification

Question 33

When can a General Partner dissociate or dissolve?

Answer 33

A General Partner can dissociate or dissolve at any time by express will, agreed event, event that makes continuation unlawful, expulsion, bk, death or incapacity, or judicial order.

Question 34

Dissolution (GP)

Answer 34

Dissolution requires the partnership to be wound up (sell and settle affairs) before termination. Partners may waive dissolution by unanimous vote of partners who have not wrongfully dissolved.

Question 35

Distribution of Assets (GP)

Answer 35

When a General Partnership dissolves, the distribution of assets goes as follows in descending order: 1. Creditors 2. Partner creditors 3. Non creditor partners accounts Partners must make distribution/contribution equal balance in proportion to profit/loss sharing.

Question 36

What types of Corporations are there?

Answer 36

1. De-jure Corporations 2. De Facto Corporations 3. Corporation by Estoppel 4. Limited Liability Corporation 5. Professional Corporation

Question 37

De Jure Corporation

Answer 37

Incorporators must file 1. Articles of incorporation (# of shares, agent info, incorporator info, indicate corporation) with secretary of state 2. Substantial compliance w/ statute also qualifies 3. Ultra Vires Acts [CL] - if articles include narrow business purpose and the activities go beyond that scope it can be found void [RMBCA] - generally enforceable

Question 38

De Facto Corporation

Answer 38

Good faith is needed, a colorable attempt made to comply with incorporation statute + conduct of business as if validly incorporated but unaware they had an invalid incorporation.

Question 39

Corporation by Estoppel

Answer 39

Parties acted as if there was a corporation are estopped from denying the corporations existence and cannot avoid liability.

Question 40

Limited Liability Corporation (LLC)

Answer 40

Owners have limited liability.

Question 41

Professional Corporation

Answer 41

Licensed professionals may incorporate as a professional corporation for malpractice.

Question 42

Pre-incorporation Contracts

Answer 42

1. Promoter Liability - jointly and severally liable for obligations even after corporation formed. 2. Promoters act on behalf of a corporation that has not been formed yet. Corporation may be bound by promoter incorporation K by adoption of K by express or implied adoption of promoter K 3. Promoters remain liable as fiduciaries of the corporation until novation (agreement to substitute new party)

Question 43

Piercing the Corporate Veil

Answer 43

Creditors may pierce corporation protection and hold individuals jointly and severally liable for corporation obligations based on unity of interest + injustice. 1. Unite of interest: Corporation is acting as an alter ego of a person and this is shown when the shareholder is treating the assets as their own, do not observe formalities or undercapitalization. 2. Necessary to prevent fraud , avoidance of existing personal obligations.

Question 44

Directors

Answer 44

1. Election & Removal: 1+ member on board, shareholder elects the Director, shareholder may remove the Director with or without cause, shareholder may fill vacancy

Question 45

Action of Board of Directors

Answer 45

1. Meeting is required unless all Directors consent in writing to act without a meeting. 2. Quorum (majority) must be present for the board to legally competent to transact business. 3. Majority vote of quorum in attendance is required to constitute a valid action by the board.

Question 46

What duties does a Director owe?

Answer 46

1. Duty of Care (BJR) 2. Duty of Loyalty

Question 47

Duty of Care (BJR)

Answer 47

Under the business judgment rule, Directors and Officers must perform their duties in good faith, with such care as an ordinarily prudent person in a like position would use under similar circumstances, in a matter reasonably believed to be in the best interest of the corporation. AKA informed judgment

Question 48

Duty of Loyalty (Directors)

Answer 48

Directors and officers have a duty to be loyal to the corporation including to act in its best interest. 1. Self Dealing : Conflict arises when the Director gets an unfair benefit from transaction with own corporation. 2. Corporate Opportunity: Director must not benefit from any business opportunity that could benefit the corporation. 3. Competition: Director must not engage in a competing business with own corporation. 4. Ratification: Director may defend claim by obtaining ratification by majority vote of independent director, majority vote of committee or majority vote of shares held by the independent shareholder.

Question 49

Direct Suits (Shareholder Rights)

Answer 49

Action brought for breach of fiduciary duty owed to shareholder by Director and Officers for damages to shareholder.

Question 50

Derivative Suits

Answer 50

Brought by shareholders on behalf of the corporation to enforce a corporate right that the directors and officers failed to assert. 1. Must be brought by a contemporaneous stock owner 2. Stockowner must first make a written demand to corp to redress grievances and corp has 90 days

Question 51

Right to Vote (Shareholder)

Answer 51

1. Right to vote in person or by proxy executed in writing 2. Proxy valid for 11 months bt default. Irrevocable only if proxy states so + coupled with interest.

Question 52

Right to Inspect (Shareholder)

Answer 52

Right to inspect accounting records, shareholder lists with proper purpose. Bylaws and minutes regardless of purpose.

Question 53

Shareholder Agreements (Control Voting)

Answer 53

1. Voting Agreement - Written agreement to vote shares as required in agreement is binding and enforceable. 2. Voting Trusts - Formal written agreement delegating voting power to a trustee expires in 10 years, it is renewable.