Business Associations Flashcards
WHAT IS AN AGENCY:
“A relationship whereby a person (the agent) acts on behalf of and subject to the will of another person (the principal).”
BUSINESS ASSOCIATION FIDUCIARY DUTIES:
C = Care O = Obedience I = Information L = Loyalty
Contract Liability of Principal:
The Principal is liable in contract whenever his agent enters into a contract on his behalf with AUTHORITY. The agent is himself liable only when the other party does not know the identity of the principal.
3 Types of Authority
Actual, Implicit, Apparent
APPARANT AUTHORITY
A communication from a principal to a third party that his agent has authority to enter into a contract for him. Such as a manager of a store.
WHAT IS A GENERAL PARTNERSHIP?:
The unincorporated association of two or more persons acting as co-owners in a business for profit.
HOW IS A GENERAL PARTNERSHIP FORMED?
Any manifestation of an intent of the parties to enter into a partnership type relationship, as determined by the facts… No writing or other formalities required. Sharing profits of a business creates a rebuttable presumption.
How to Add New Partners to a General Partnership
Unanimous Consent.
Partnership by Estoppel:
If an entity holds itself out to be a partnership, to the detriment of a third party who relied on the entity being a partnership, the entity is estoppel from denying it is a partnership.
HOW IS A GENERAL PARTNERSHIP MANAGED?:
Unless otherwise agreed in partnership agreement, each partner gets equal say in management, ordinary decisions are by majority, significant decisions are unanimous.
Access to Info (General Partnership):
Unless otherwise agreed, all partners have right to inspect all business records.
Agency (General Partnership):
All partners are agents of the partnership. Actual and Implied authority can be agreed upon in the partnership agreement, but apparent authority can not be waived.
Duty of Care
(General Partnership): Partners have a fiduciary duty to other partners to refrain from GROSS negligence, reckless conduct, intentional misconduct, or knowing violations of the law. Regular negligence is ok.
Property (General Partnership):
Property contributed to the partnership is owned by the partnership and no individual partner has any right to receive such property upon leaving the partnership. belongs to the Account for and respect the property of the partnership. Don’t treat partnership property as your own.
Contract Liability (General Partnership):
Partners are joint and several liable for all contracts entered into by partners or other agents in the ordinary course of business or with authority.
Tort Liability (General Partnership):
Partners are joint and several liable for torts committed by partners or other agents in the ordinary course of business or with authority. Also liable for any misapplication of funds by partners.
The Exhaustion Rule (Partnership):
The Exhaustion Rule requires that Creditors exhaust/collect the assets of the partnership before seeking the personal assets of the partners.
Limited Liability Partnership:
A business election available to general and limited partnerships, that allows partners to opt out of joint and several liability by filing a document with SDAT.
Property and Profit Distribution (General Partnership):
Unless otherwise agreed, the profits and property are distributed equally. By default, no partners have a right to specific partnership property, even if they contributed it.
HOW DOES A PARTNER GET OUT OF A PARTNERSHIP?:
A partner has absolute ability to voluntarily dissociate at any time but cannot sell or transfer ownership without unanimous consent. However, a partner can assign his distribution rights.
HOW IS A PARTNERSHIP DISSOLVED?:
Unanimous choice of partners or by Court petition any partner or transferee of partner’s distribution interest. Upon dissolution, assets go to pay creditors then are distributed to partners pro-rata, based on capital contributions.
WHAT IS A LIMITED PARTNERSHIP?:
A special type of partnership created by law in which at least one partner is a general partner and one or more partners are limited partners.
HOW IS A LIMITED PARTNERSHIP FORMED?:
File a Certificate of Limited Partnership with SDAT.
New General Partners (Limited Partnership):
New general partners can only be admitted with the unanimous approval of the existing general partners and the majority approval of the limited partners (by profit interest, not quantity)
New Limited Partners
Unless otherwise agreed, new limited partners can be admitted only with the unanimous approval of all partners.
HOW IS A LIMITED PARTNERSHIP MANAGED?:
The general partners manage the limited partnership in accord with the partnership agreement. Limited partners may not participate in management, but they may by employees, consult the general partners, and vote on extraordinary matters, if general partners allow.
Information Access:
Only partners with 5% or more interest, or a group of partners with such interest, may have access to the tax records of the limited partnership and the name and address of the partners. All partners have access to other types of partnership records.
Derivative suits
A limited partner cannot file a lawsuit on behalf of the partnership. But, Limited partners may bring a derivative action to enforce a right of the limited partners, but only after first making a demand on the general partners.
WHAT FIDUCIARY DUTIES EXIST IN A LIMITED PARTNERSHIP?:
General Partners owe same duties as in a general partnership. However, limited partners owe no fiuciary duties to the partnership.
Contract Liability (Limited Partnership):
General Partners are joint and several liable for contracts entered into by general partners or other agents in the ordinary course of business or with authority. Partnership agreement can eliminate actual and implied, but no apparent authority. Limited partners do not have apparent authority
Tort Liability (Limited Partnership):
General Partners are joint and several liable for torts committed by general partners or other agents in the ordinary course of business or with authority and for any misapplication of funds by general partners
General Partner Liability (Limited Partnership):
GENERAL Partners are jointly and severally liable for all contract and tort obligations of the partnership. The exhaustion rule applies and a limited partnership can also elect to be a “limited liability partnership.”
Limited Partners Liability (Limited Partnership):
Limited partners are not personally liable for the obligations of the limited partnership at all, contract or tort.
WHAT ARE THE ECONOMIC IMPLICATIONS OF A LIMITED PARTNERSHIP?:
Profits are allocated based on the relative capital contributions of each partner, by default, unless otherwise agreed. (Contrast this with regular partnership, which defaults to equal profit sharing)
HOW DOES A PERSON GET OUT OF A LIMITED PARTNERSHIP?
Same as general partnership, but limited partners have no default right to voluntarily dissociate from the partnership.
HOW IS A LIMITED PARTNERSHIP DISSOLVED?
As agreed in partnership agreement, by unanimous agreement of all partners, court order.
WHAT IS A CORPORATION?:
A corporation is an artificial person created by a concession of the government.
HOW IS A CORPORATION FORMED?:
Articles of Incorporation are APPROVED by the state. Articles must name initial directors and how many directors the corporation will have.