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CA Bar Exam > Business Associations > Flashcards

Business Associations Flashcards

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1
Q

How do you create an agency relationship?

A

ABC
Agreement that agent will act:
Benefit of principal
Control of principal

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2
Q

Is a written agreement needed to create agency relationship?

A

No.

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3
Q

Agent’s duties

A
  1. Loyalty
  2. Obedience
  3. Reasonable Care
  4. Notification
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4
Q

Principal’s duties

A

Compensation
Reimbursement
Coordination

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5
Q

When is a principal liable for acts of his agents?

A

If the agent acted with actual or apparent authority, or if no authority, principal later ratified acts.

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6
Q

What is actual authority?

A

Express (ordered by principal) or implied (acts necessary to effectuate orders of principal) authority. Based on reasonable belief of agent, NOT principal.

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7
Q

What is apparent authority?

A

If, due to principal ’s actions/inactions (“holding out” agent as having authority), THIRD PARTY reasonably believes that agent acted with authority. Based on 3rd Party’s reasonable belief.

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8
Q

When will an agent be liable to a third party under a contract?

A

Depends on whether principal is disclosed:

Disclosed: Agent has no liability and agent cannot enforce K.

Undisclosed/not identified: BOTH agent and principal liable, and BOTH can enforce (if agent enforces, principal is entitled to rights/benefits).

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9
Q

Is a principal liable for torts of agent?

A

Principal is generally not liable, UNLESS agent acted within the scope of his employment. RESPONDEAT SUPERIOR

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10
Q

Are intentional torts considered to be within the scope of employment?

A

No, unless natural incident of carrying out business. (E.g., bouncer)

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11
Q

Is a principal liable for tortious acts of an independent contractor?

A

No, unless knowingly hired incompetent IC or if hired to perform inherently dangerous activity.

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12
Q

What is a partnership?

A

Two or more parties agree to carry on a for-profit business as co-owners.

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13
Q

What formal requirements are there for general partnership?

A

None.

No formal agreement required. Partnership can be inferred from intent of parties or by their acts (sharing profits).

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14
Q

Even if no partnership is formed, what can be done to protect third parties that relied on a partnership?

A

Partnership by estoppel

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15
Q

What does partnership property consist of?

A

Contributions by partners, property titled in partnership name or purchased with partnership assets.

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16
Q

Do partners have individual interests in property?

A

No, and thus personal creditors can’t reach partnership property

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17
Q

What share does each partner have in profits and losses of partnership?

A

Equal unless modified by agreement.

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18
Q

What are the 3 types of partnerships?

A
  1. General - no formalities required. All partners are liable personally and jointly, for all partnership debts.
  2. Limited Liability Partnership - must be approved by vote of partners and filed with the state. Personal liability is limited, but rights/obligations of LLP are same as general partnership.
  3. Limited Partnership. Must file certificate with state identifying general partners. An LP establishes two classes of partner: general and limited. General partners are jointly, severally liable for all partnership obligations. Limited partners are only liable to extent of their investment and DO NOT owe any duty to partnership (may compete).

NOTE: If LLP or LP not properly formed, general partnership.

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19
Q

What are the liabilities of partners for contracts?

A

Partners can bind partnership to K unless (1) they had no authority AND (2) third party was aware they lacked authority. All partners liable.

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20
Q

What are the liabilities of partners for torts?

A

Partners are liable for torts committed by other partners if performed in the course of ordinary business, or with authority of other partners.

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21
Q

What is dissociation?

A

Partner ceasing to be associated with partnership. Terminates former partner’s legal relationship with partnership. If partnership continues after dissociation, it must “buy out” former partner’s interest.

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22
Q

What is dissolution?

A

Termination of the partnership. Upon dissolution, partnership must “wind up” business activities and distribute assets.

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23
Q

What is a corporation?

A

A legal entity separate from its owners (shareholders). A corporation is considered a “person” for constitutional purposes. Corporation itself is liable for its obligations, and not the shareholders.

24
Q

Is a corporation liable for pre-incorporation actions?

A

No, unless it later ratifies obligations.

25
Q

What is a promoter?

A

A person who acts on behalf of a not-yet-formed corporation to secure capital by entering into agreements with people interested in becoming shareholders.

26
Q

Is a promoter personally liable for K’s entered into before incorporation? How about after corporation?

A

Yes to both, unless parties agree to novation (corp substituted for promoter), or corporation agrees to indemnify promoter for liabilities.

27
Q

How is a corporation properly formed?

A

When articles of incorporation are filed with the state.

28
Q

What must articles of incorporation include?

A

ISCAN

  1. Initial agent
  2. Street address
  3. Corporation’s name
  4. Authorized number of shares
  5. Name/address of each incorporator
29
Q

What is an ultra vires act?

A

If corporation acts beyond scope of stated purpose. It can be enjoined by shareholders, corp can sue for damages, or state can dissolve corp.

30
Q

What is it called if a corporation made good faith efforts to incorporate, but failed to property register?

A

De facto corporation (de jure corp is one that properly registered)

31
Q

If people act like a corporation, but aren’t, and people relied on it, what can be done?

A

Corporation by estoppel.

32
Q

What is it called if courts disregard corporate protection and when does it apply?

A

Piercing the corporate veil

  1. If Corp acts as alter ego of shareholder and formalities are ignored.
  2. If corp is undercapitalized at formation
  3. In cases of fraud or illegality
33
Q

What are the two primary securities corps use to get funding? Which gives ownership interest in corp?

A

stocks (equity, gives ownership interest) and bonds (debt)

34
Q

What rights do shareholders have?

A
  1. Remove directors
  2. Amend/repeal bylaws
  3. Mergers/sales/dissolution
  4. Inspect books/records (with 5 day notice)
35
Q

How often must a corp hold a shareholder meeting to elect directors? Is notice required?

A

Annually, notice required.

36
Q

How many directors must a corporation have?

A

1

37
Q

What rule is applied if directors violate the duty of care?

A

Business Judgment Rule. Courts will not second-guess poor business decision if:

  1. Made in good faith
  2. With care of reasonably prudent person in same position/same circumstances
  3. In manner reasonably believed to be in best interest of corporation.
38
Q

If a director/officer violations duty of care, can they be held personally liable?

A

Yes.

39
Q

Other than duty of care, what other main duty do directors owe?

A

Duty of loyalty. Must avoid conflict of interest and must not divert business from corp.

40
Q

What is a merger and what must happen generally?

A

When 2 corps become 1. Each corp must get majority approval of the boards and shareholders (no shareholder approval needed if surviving corp not substantially changed).

41
Q

What is a short-form merger?

A

If parent company owns 90% of subsidiary, they may merge without shareholder approval.

42
Q

What are the three types of dissolution?

A
  1. Voluntary (board and shareholder approval)
  2. Administrative (by state)
  3. Judicial (action by attorney general or shareholders suit)
43
Q

What is an LLC?

A

Entity that allows for taxation of its owners like a partnership, but has limited liability like a corporation.

44
Q

How is an LLC formed?

A

Same as a corporation.

45
Q

What is the governing document of an LLC called?

A

Operating agreement.

46
Q

What are owners of LLC considered to be?

A

Members or managers

47
Q

What duties are owed by members and managers

A

Member-managed LLC: all members owe duty of care and loyalty

Manager-managed - only managers owe duty of care and loyalty.

Everyone owes good faith and fair dealing

48
Q

What are the 3 securities laws tested?

A

16(b)
10b-5
Sarbanes-Oxley

49
Q

What is Section 16(b) about generally?

A

Any short-swing trading profits received within 6 month period by a corporate insider must be disgorged by corp.

50
Q

For Section 16(b) to apply, what must the corp be?

A
  1. Listed on national exchange

2. $10 million in assets and 2,000 shareholders.

51
Q

How much stock must corporate insiders own for Section 16(b) to apply?

A

10%

52
Q

What does Section 10b-5 address?

A

Prohibits trading securities based on non-public corporate info.

53
Q

What is the liability of a tipper under 10b-5?

A

Liable if non-public info shared for improper purpose

54
Q

When is a tippee liable under 10b-5?

A

Only liable if they knew tipper breached a duty

55
Q

What is the Sarbanes-Oxley Act?

A

Creates standards for public accounting firms that perform audits for corporations. Also imposes criminal penalties for destruction of docs, securities fraud, and creates whistleblower protection.

CA Bar Exam (11 decks)

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