Business Associations (Corporations, Agency, Partnership)

Question 1

Agency

Answer 1

An agent is a person or entity that acts on behalf of another - the principal.
Fiduciary relationship, exists if there is:
1) assent/consent (formal or informal okay)
2) benefit (agent’s conduct benefits the principal)
AND
3) control
(principal has the right to control/ability to supervise. does not need to be significant amount)

Question 2

Agent Authority

Answer 2

An agent’s authority can be either Actual or Apparent.

Actual Authority can be express or implied.

Question 3

Pre-Incorporation Contracts

Answer 3

A promoter is a person who acts on behalf of a corporation that has not yet been formed.
A promoter remains personally liable on any pre-incorporation contract entered into EVEN IF the Corp subsequently adopts the contract.

Question 4

Corporations - Duty of Loyalty - Fiduciary Duties

Answer 4

Duty of Loyalty - Fiduciary Duty - must act in the best interests of the corporation AND without personal conflicts of interest.

The Duty of Loyalty forbids Directors from:
a) entering into conflicting interest transactions;
b) usurping corporate opportunity;
c) competing with the corporation;
OR
d) trading on inside information

Question 5

Piercing the Corporate Veil

Answer 5

A court will pierce the corporate veil and hold shareholders personally liable in the following situations:
1) corporation is acting as the alter ego of the shareholders;
2) where the shareholders failed to follow corporate formalities;
3) corporation was inadequately capitalized;
4) to prevent fraud.

Question 6

Partnership - Formation

Answer 6

A general partnership is created when:
1) two or more persons
2) as co-owners
3) carry on a business for profit.

No written agreement is required.

Question 7

Partner Liability

Answer 7

General Partners are personally liable for ALL obligations of the partnership UNLESS otherwise agreed by the claimant or provided by law.

General partners are jointly and severally liable for partnership obligations.

Question 8

Failed Corporate Formation - De Facto Corporation

Answer 8

Exists when the entity:
1) made a good faith attempt to incorporate;
2) is otherwise eligible to incorporate;
AND
3) took some action indicating that it considered itself a corporation.

Must be truly unaware of failed corporate formation to assert the de facto corporation doctrine.

Question 9

Express Actual Authority

Answer 9

When the principal has explicitly told the agent that he is entitled to act.

Question 10

Implied Actual Authority

Answer 10

Implied actual authority occurs when either:
a) the agent believes he is entitled to act because the action is incidental or necessary to carry out his express authorized duties;
b) the agent has acted similarly in prior dealings between the principal and agent;
OR
c) it is customary for agents in that position to act in that way.

Question 11

Apparent Authority

Answer 11

Arises where:
1) the principal holds out another as having authority; (position/title/previous conduct)
AND
2) the third-party reasonably relies on that authority.

Question 11

Corporations - Duty of Loyalty - Conflicting Interest Transaction

Answer 11

A conflicting interest transaction with the corporation is a breach of the duty of loyalty UNLESS the Director shows that:
a) it was approved by a majority of disinterested Directors after full disclosure of all relevant material facts;
b) it was approved by a majority of disinterested Shareholders after full disclosure of all relevant material facts;
OR
c) the transaction as a whole was fair to the corporation at the time it was entered into.

Question 11

Failed Corporate Formation - Corporation by Estoppel

Answer 11

Any person or entity that treated a business as a corporation may be estopped from denying that the business is corporation even if a valid corporation was NOT formed.