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Select Topics - Second Semester > Business Associations > Flashcards

Business Associations Flashcards

1
Q

Agency - Elements

A
  1. Capacity
  2. Consent
  3. Control
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2
Q

Agency - Independent Contractors

A

A principal has no right to control or power to supervise.

No liability unless inherently dangerous or non-delegable duty.

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3
Q

Agent’s Contractual Authority - 4 Types

A
  1. Actual Express
  2. Actual Implied
  3. Apparent
  4. Ratification
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4
Q

Agent’s Contractual Authority - Actual Express

A

Express words, including orally (but look for equal dignity problem)

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5
Q

Agent’s Contractual Authority - Actual Implied

A

Necessity, custom, or prior consent

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6
Q

Agent’s Contractual Authority - Apparent

A

Principal cloaked agent in authority and a third party relied.

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7
Q

Agent’s Contractual Authority - Ratification

A

Principal has knowledge and accepts benefits.

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8
Q

Liability Rules for Parties

A
  1. Principal - Bound if valid authority existed
  2. Agent - Bound unless Principal’s existence and identity are disclosed (also liable if parties intended or for breach of implied warranty of authoirty)
  3. Third Party - Bound to Principal if valid authority existed (unless affirmative misrepresentation of principal’s identity or unforeseen burden due to performance for principal instead of agent), and to Agent if principal partially disclosed or undisclosed and agent enforces contract (but principal entitled to contract benefits).

REMEDIES - Principal can recover damages, compel accounting/disgorgement of secret profits, and withhold agent’s compensation.

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9
Q

Agent’s Duties to Principal + Remedies

A
  1. Duty of Care - Due care under community standards and Agent’s special skill.
  2. Duty to Obey - Obey reaosnable instructions.
  3. Duty of Loyalty - No self dealing, usurping corporate opportunities, or secret profits.

REMEDIES - Principal can recover damages, compel accounting/disgorgement of secret profits, and withhold agent’s compensation.

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10
Q

Principal’s Duties to Agent + Remedies

A
  1. Duty of Reasonable Compensation
  2. Duty to Reimburse Expenses - Reasonably incurred in discharging duties.

REMEDIES - Agent can recover for breach of contract and secure agent’s lien in property agent holds.

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11
Q

Ways to Terminate Agency

A
  1. Lapse of Time
  2. Some Event
  3. Change in Circumstances
  4. Breach of Duty
  5. Unilateral Act
  6. Operation of Law
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12
Q

What is a General Partnership?

A

An association of two or more persons who carry on as co-owners of a business for profit.

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13
Q

Partnership - Duty of Loyalty

A
  1. No Self Dealing
  2. No Usurping Corporate Opportunities
  3. No secret profits
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14
Q

Partnership - Liability for Debts

A
  1. Generally - Personally liable for all depts of partnership and co-partner’s torts.
  2. Incoming - Not liable for prior debts, but money paid in can be used to pay them.
  3. Disassociating - Liable on future debts until actual notice given to creditors, or until 90 days after filing notice with the state.
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15
Q

Partnerships - Partners’ Rights

A
  1. Management - Absent agreement, entitled to equal control in management.
    • Majority vote for ordinary affairs.
    • Unanimous vote for fundamental concerns of partnership.
  2. Salary - Absent agreement, not entitled to salary (except winding up)
  3. Profits and Losses - Absent agreement, profits are shared equally and losses shared in same way as profits.
  4. Indemnification - Mandatory indemnification for payments and obligations reasonably incurred in carrying on partnership business.
  5. Contribution - Right to contribution for paying more than own share.
  6. Inspection - Right to inspect and copy partnership books.
  7. Lawsuits - Partner may sue partnership and vice versa.
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16
Q

Dissolution and Disassociation of Partnerships - Generally

A

Absent agreement, a partnership dissolves:

  1. Upon notice of express will of any partner to disassociate, or
  2. Where any partner dies, becomes incompetent, or is expelled
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17
Q

Dissolution and Disassociation of Partnerships - Disassociation

A

Absent agreement, an at-will partner may diassociate by express will, but wrongful disassociation entitles partnership to damages.

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18
Q

Dissolution and Disassociation of Partnerships - Avoiding Dissolution

A

Partnership may avoid dissolution by continuing business and buying out diassociated partner (based on greater of partnership’s liquidation value or partnership’s value as going concern without disassociated partner)

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19
Q

Dissolution and Disassociation of Partnerships - Acts Causing Dissolution

A
  1. 90 days after partner’s death
  2. Bankruptcy or wrongful disassociation
  3. Express will of half of remaining partners to wind up
  4. Express consent of all partners to wind up
  5. Experiation of term
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20
Q

Dissolution and Disassociation of Partnerships - Winding Up

A

Period between dissolution and termination during which partners liquidate assets and pay creditors

21
Q

Dissolution and Disassociation of Partnerships - Liability During Winding Up

A

Partnership and partners are liable for old business, and new business until actual notice of dissolution given to creditors, or 90 daysafter statement filed with state.

22
Q

Dissolution and Disassociation of Partnerships - Priority of Distribution

A

Pay…

  1. Creditors
  2. Repay partners’ capital contributions
  3. Distribute profits in equal shares (absent agreement)
23
Q

Partnerships - Alternative Business Orgs - Partnerships

A
  • No filings required
  • All partners are general partners
24
Q

Partnerships - Alternative Business Orgs - LP

A
  • File limited partnership certificate with the state
  • Need at least 1 general and 1 limited partner
25
Q

Partnerships - Alternative Business Orgs - RLLP

A
  • File statement of qualification and annual reports
  • No partner is personally liable
26
Q

Partnerships - Alternative Business Orgs - LLC

A
  • File articles of incorporation with state
  • Owners called “members”
27
Q

Corps - Corporate Liability for Promoter’s Contracts

A
  1. Adopted by express resolution, or
  2. Implied through knowledge and acceptance of benefits

Note: A promoter remains liable until there has been a novation—if corporation is never formed, promoter alone is liable

28
Q

Corps - Promoter Sales to Corporation

A
  1. Acquired Pre-Promoter: Okay only if property sold at fair market value
  2. Acquired Post-Promoter: Corporation can recover profit
29
Q

Corps - Formation Requirements

A
  1. De Jure Corporation: The incorporators must file AOI with state
  2. De Facto Corporation: A business that makes a good faith colorable attempt to comply with formalities and unknowingly failed is treated as a corporation
  3. Corporation By Estoppel: Persons who treat an entity like a corporation cannot later claim it is not (contracts not torts)
30
Q

Corps - AOI Requirements

A
  1. Name of Corporation
  2. Number of Shares Authorized
  3. Registered Agent Info
  4. Incorporators’ Info
  5. Statement of Business Purposes
31
Q

Corps - Piercing the Corporate Veil

A
  1. Alter Ego
  2. Undercapitalization
  3. Avoidance of Existing Obligations at Incorporation or Fraud

Note: Look for tort victim

32
Q

Corps - Stock Issuance - Consideration

A

Corporation must issue stock for at least par value, but board can accept any valid consideration in good faith. If sold less than par value, corporation can recover stock. Treasury stock can be sold as no par stock.

33
Q

Corps - Stock Issuance - Preemptive Rights

A

Right of existing shareholder to maintain percentage ownership of company does not exist unless expressly granted by AOI

34
Q

Corps - Board of Directors Meetings

A
  1. Valid Meeting: Must be a valid meeting for all board actions unless all directors consent in writing to act without meeting
  2. Valid Notice: Must be valid notice and no proxies or voting agreements
  3. Quorum: Unless bylaws differ, there must be a majority of directors to take action (if interested directors, need majority of disinterested directors)
  4. Vote: To pass resolution, need majority vote of those present (if interested directors, need majority vote of disinterested directors present)
  5. Concurrence Presumed: Directors are presumed to concur in action unless dissent or abstention recorded
35
Q

Corps - Directors’ Duties

A
  1. Duty to Manage: Can delegate functions to committee that recommends actions
  2. Duty of Care: Must act in good faith, as an ordinarily prudent person in a like position, in the best interests of the corporation—entitled to Business Judgment Rule presumption (no second guessing decisions)
  3. Duty of Loyalty: No self-dealing, usurping corporate opportunities or insider trading (unless material disclosure and ratification)
  4. Duty to Disclose: Must disclose material corporate information to the board
36
Q

Corps - Indemnification of Directors and Officers

A
  1. Never: Director or officer held liable to own corporation
  2. Always: Director or officer wins a lawsuit against any party
  3. Permissive: Director or officer
    • (a) held liable to third party or settles with corporation, or
    • (b) shows good faith belief conduct was in corporation’s best interest

Decision Made By: Majority of independent directors, committee of at least two independent directors, majority of shares held by independent shareholders, special lawyer recommendation

37
Q

Corps - Derivative v. Direct Suit

A
  1. Direct: Shareholder may sue directly for breach of duty owed directly to shareholder
  2. Derivative: Shareholder may sue derivatively for breach of duty on corporation’s behalf (e.g., director breach of fiduciary duty).
    • Shareholder must own stock when claim arose, adequately represent corporation’s interest, and make written demand on board and wait 90 days to sue (unless futile)
38
Q

Corps - Shareholder Voting

A
  1. Voting at Meeting: Only owner on record date, set within 70 days of meeting, can vote
  2. Voting by Proxy: Proxy voting okay, if there is writing signed by shareholder, sent to secretary of corporation authorizing another to vote shares—only for 11 months
  3. Annual Meetings: Every corporation must have annual meeting to elect at least one director—notice includes time and place
  4. Special Meetings: Board, president or beneficial owner of 10% can call special meeting to vote on proposals or fundamental corporate changes—notice includes special purpose
  5. Quorum: Majority of outstanding shares must be represented (unless AOI different)
  6. Voting Requirements: If quorum, votes in favor must exceed votes against
  7. Pooled/Block Voting: Voting trust is a formal written agreement delegating voting power to trustee for max of 10 years. Voting agreement is binding and enforceable, but remedy for breach is contract damages
  8. Cumulative: In traditional vote, separate elections for each director. In cumulative, multiply shares by number of elections and hold a single election—must be expressly granted by AOI
39
Q

Corps - Distributions

A
  1. Generally: Distributions are declared by board in their discretion, unless corporation is insolvent or would be rendered so.
  2. Dividends: Dividends can be paid to shareholders as cash or indebtedness (unless restricted in AOI)
  3. Redemption: AOI can give board right to redeem shares in forced sale
  4. Liquidation: Corporation is dissolved
40
Q

Corps - Shareholder Liablity

A
  1. PCV
  2. Cannot Freeze Out
  3. Cannot Sell to Looters
  4. Cannot Sell at Premium w/ Corporate Office
41
Q

Corps - Shareholders may seek dissolution where:

A
  1. Director deadlock and irreparable injury
  2. Director or shareholder acted with fraud, illegality, or oppression
  3. Shareholder deadlock and failed elections
  4. Corporate waste or misapplication of assets
42
Q

Corps - Fundamental Changes - Types of Changes

A
  1. Merger (But Not Short-Form Merger)
  2. Consolidation
  3. Dissolution
  4. Fundamental Amendment to AOI
  5. Sale of All or Substantially All Assets
43
Q

Corps - Fundamental Changes - Protocol

A
  1. Board resolution
  2. Notice of a special meeting
  3. Approval by majority of all shares and a majority of each voting group adversely affected
  4. Dissenting shareholder has right of appraisal
  5. Corporation files notice with state
44
Q

Corps - Right of Appraisal

A
  1. Prior to shareholder vote, file written notice of objection and payment demand
  2. Do not vote in favor of change
  3. Make prompt written demand to be bought out
45
Q

Corps - Rule 10b-5 - Fraud

A
  1. Scienter
  2. Materially False or Misleading Statement or Omission
  3. In Connection with Purchase or Sale of Security
  4. Reliance (e.g., Fraud on the Market)
  5. Damages
  6. Interstate Commerce (Jurisdictional Req.)
46
Q

Corps - Rule 10b-5 - Insider Trading

A

Generally: Where one purchases or sells stock with knowledge of material non-public information and without disclosure of that information, in breach of a duty owed to the issuer, shareholders or the source of the information.

Types of Liability:

  1. Insider: One connected to the issuer, who purchases or sells stock with knowledge of nonpublic information and no disclosure, and who breaches a duty of trust or confidence to the source (i.e., company)
  2. Tipper: A tipper is one who, in breach of his fiduciary duty, wrongfully tips inside information for a personal benefit or wrongful purpose to another who trades
  3. Tippee: A tippee is liable where the tipper breached his fiduciary duty, the tippee knew or had reason to know of the breach, and the tippee used the information for a personal benefit
  4. Misappropriator: A misappropriator steals or converts material non-public information in violation of a confidential relationship and uses it to trade
47
Q

Corps - Rule 16(b) Short Swing Profits

A

Any officer, director or beneficial shareholder of more than 10 percent of a reporting company who profits from buying or selling a corporation’s stock within a 6-month period must disgorge profits to the corporation.

48
Q

Corps - Sarbanes-Oxley

A
  • SOX applies to reporting companies, and requires them to establish independent audit committees.
  • CEOs and CFOs must certify reports filed with SEC, and willful filing of false report brings $5 fine and 20 years in jail.
  • Corporations may recover benefits to offers who trade in company’s securities in 12-month period after false report, and any benefits officer made by trading during blackout periods where employee cannot trade in retirement plan’s securities.

Select Topics - Second Semester (7 decks)

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