Business Organizations Flashcards
1
Q
Business types:
Pros:
Owner in complete control
Owner gets all profits
Cons:
Owners personal finances and business finances the same
A
Sole proprietorship
2
Q
Two types of partners in a limited partnership?
A
- Limited
- General
3
Q
Limited partnerships:
________ partner: No involvement, no daily responsibilities, and no liability.
A
Limited partner
4
Q
Limited partnerships:
______ partner: Oversees daily company activity and responsible for it. Full liability.
A
General Partner
5
Q
T/F) Both limited & general partners, in a limited partnership, own part of the company.
A
True
6
Q
This course covers 4 entity types. What are they?
A
- Partnership
- Limited Partnership
- Corporation
- LLC
7
Q
________: An artificial legal person that can own property, owe debts, sue, and be sued.
A
Entity
8
Q
Owners of corporation?
A
Investors/Shareholders
9
Q
Owners of an LLC?
A
Members
10
Q
Owners of a partnership?
A
Partners
11
Q
_____ rule: A rule of law that requires or prohibits some act.
“A director SHALL be a natural person.”
A
Mandatory rule
12
Q
______ rule: A rule that applies only when the K among the parties does not provide otherwise.
A
Default rules
13
Q
________ rule: A rule of law that enables or entitles an entity to do something they could not do in its absence. “Stunts”
“Any 2 or more corporations of this state MAY merge into a single corporation.”
A
Enabling rule
14
Q
Stunts:
1st
2nd
3rd
4th
A
- Form.
- Get investors, elect managers, buy assets
- Parent-subsidiary relationship
- Merger
15
Q
What happens if parent entity distributes the subsidiary stock to investors?
A
Investors of entity A now own entity B directly.
16
Q
Stock dividend, where Entity A distributes entity B stock to original investors is known as….
A
Spin off . The investors separate into owners of A and B shares.
17
Q
When Entity A merges with Entity B, all shareholders receive entity ____ shares.
A
Entity C
18
Q
Who votes on merger?
A
Investors of the two entities
19
Q
After merger, entities file a certificate of _____ with the SOS.
A
Certificate of merger
20
Q
A wants to merge. B refuses. What can A do?
A
Buy B investors shares and elect managers who want to merge.
“tender offer”
21
Q
When Entity A makes offer to buy majority shares of Entity. B. This is a ____ offer.
A
Tender offer
22
Q
The ________ deal: The deal by which the investors and managers associate. Contained in the statutes and fundamental documents.
A
Business deal
23
Q
4 main issues of a business deal?
A
- Money
- Decision making
- Transfers
- Fiduciary duties
24
Q
What is the only entity that requires 2 or more persons to form?
A
Partnership
25
T/F) The business itself is not an entity.
True
26
____ can own property, owe debts, enter Ks. A ____ can do none of this.
Entity v. Business
27
_____ owns the business that sells the food.
Entity
28
3 roles of individuals in an entity? "IMO"
Investors, Managers, Officers
29
IMO:
Who makes the entity's decisions?
Who puts the decisions into effect?
Managers
Officers
30
The legal term for roles in a company is ______. The same person can participate in an entity in several _______.
Capacities
31
____________: This contains the fundamental documents for a corporation.
Articles of incorporation
32
Fundamental docs:
1. Corporation = Articles of Incorporation
2. LLC =
3. LP =
2. Operating agreement
3. Certificate of LP
33
Fundamental doc for LLC?
Operating agreement / Articles of Organization, filed with SOS and one person must become member.
34
Fundamental doc for LP?
Certificate of LP
35
Shares of stock enable shareholders to vote on what?
Election of directors [managers]
36
Fundamental docs for partnership?
Partnership agreement
37
______ _____ doctrine: Is a conflict of laws rule that provides that the law of the formation state applies. For Hammond, this means the laws of Costa Rico will govern JP93.
Internal affairs doctrine
38
_____ ordering: The default rule is that a corporation is governed by a Board of Directors. But, may be governed by anyone or anything it chooses.
Private ordering
39
_________ companies: are entities whose debt or equity securities are publicly traded on stock exchanges or other public platforms. Public companies are usually corporate groups.
Public companies
40
Formation:
Where does an entity start?
File articles of corporation [corp], or operating agreement [LLC] or Certificate of LP [LP] or Partnership agreement [P]
41
__________ : The persons who formally initiate a corporation.
Incorporators
42
Articles of Incorporation typically name directors. What if it does not?
Incorporators may select them.
43
Roles of directors /managers in a corporation?
1. Issue stock for investments
2. Adopt bylaws
3. Hire officers [employees]
44
Case name?
"A corporation is an artificial being, invisible, intangible, and existing only in contemplation of law."
Dartmouth v. Woodward
45
T/F) Sole Proprietorship does not met the definition of an entity. If T, why?
True. The single owner is not distinguishable from the business. Pass through tax/liability to the owner.
46
T/F) SP is pass through. Meaning, taxes & profits reported on personal income of the single owner.
True
47
T/F) In a partnership, not all persons wear equal ownership hats.
True. You have LP and GPs.
48
T/F) Both SP and Partnerships are pass through.
True, so is an LLC.
49
Difference between LP and GP in a partnership?
GP puts it all on the line. [You must have one of each] GP has unlimited liability and oversees daily operations of the company.
50
While LPs have limited liability, they have full control, like a GP, of the company. [T/F]
False. Limited liability = limited control.
51
Corporations are proper for those pursuing a "_______" model. They are meant to grow, get big.
Growth model
52
T/F) Some owners in a corporation benefit from Limited liability.
False. All owners benefit.
53
Who are the owners of a corporation?
Shareholders/Investors
54
LLCs default tax structure?
Pass through
55
LLCs: Do the owners have limited liability?
Yes, it is in the name.
56
T/F) Entities may choose their own terminology.
True
57
________ are contract rights entitling investors to participate in entities decision making in specified ways, receive dividends, etc.
Shares
58
___________ doctrine: Is a conflict of laws rule that the formation state applies to entity internal affairs. [States choose where they form]
Internal affairs doctrine
59
Entity law = _____ law
State law
60
T/F) SP does not met definition of entity.
True
61
Owners of LLC called?
Members
62
__________: Termination of an entity's existence.
Dissolution
63
Under the default rules, how may a partner dissolve a partnership?
Giving notice to the partnership
64
___________: Is a process in which a dissolved entity sells its assets, pays its debts, and distributes proceeds to investors.
Winding up
65
________ : The process by which an Entity can acquire another by buying the majority shares.
Acquisition
66
The agreement of co-owners in the "fundamental documents" is also known as what?
The Business Deal
67
What if co-owners don't have Business deal / fundamental documents?
Default rules apply
68
Business deal addresses 4 issues.
1. Decision making
2. Fiduciary duties
3. Transferability of investor shares
4. Resources investors contribute and receive
69
Voting:
Alice 60 shares [Vote A]
Bob has 20 shares [Vote B]
Joe has 30 shares [Vote B]
Who wins by person? Assume Bob and Joe vote together.
Who wins by share?
Person = Bob and Joe
Shares = Alice
70
Example of an enabling rule?
Mergers
71
How does a company get shareholders?
Selling shares / receiving investments
72
Who elects the managers of a company?
Investors / Shareholders
73
Entity finances:
Investors make ___ ____ as equity into the company.
Capital contributions
74
When investors make their CCs, they can receive what?
Shares
Interests [percent]
or Units
75
T/F) Debt has absolute priority over equity.
True
76
Entity owes 80 debt and has 100 for distribution. Where does it go?
80 > Debt
20 > Equity
77
Preferred vs commons shares. Which has preference?
Preferred, it is in the name.
78
Two preference share types?
1. Annual: Specified dividend each yr.
2. On Dissolution: First payout on dissolution.
79
Joe can give 70 shares to 3 candidates of his choice. Cannot stack his shares though.
What voting system?
Straight voting
80
Joe can add up his 3 votes of 70 into one big vote.
What voting system?
Cumalative voting
81
What tells us if an investor can sell / transfer their shares to another?
Fundamental documents
82
Managers have important fiduciary duties to the Entity and managers. What are they?
1. Duty of loyalty,
2. Duty of care, and
3. Good faith
83
_____ relationship: Legal arrangement where one person [principal] authorizes another person [agent] to act on their behalf.
Agency relationship
84
T/F) Whether parties label the relationship "agency" is not controlling.
True
85
3 types of agent authority?
1. Actual
2. Apparent
3. Inherent
86
______ authority is the authority principal confers on agent. May be express or implied. Actions are binding & have legal consequences for the principal.
Actual authority
87
_________ authority: is authority agent purported to have b/c agent appears to 3rd party to have it. Assessed from 3rd party POV.
Apparent authority
88
T/F) Apparent authority needs to be shown by the principal, not the agent.
True
89
______ authority is the authority to do acts that usually accompany or are incidental to transactions agent is authorized to conduct.
IE: Law School Dean has ____ authority to do incidental things such as negotiating terms on faculty hiring.
Inherent authority
90
When agent acts on behalf of principal w/o authority but later, the principal affirms the act, ______ occurs. Is now binding.
Ratification
91
3 types of principals?
1. Disclosed
2. Undisclosed
3. Unidentified
92
____ principal: One whose existence and identity are known to 3rd party at time of transaction.
Disclosed principal
93
_____ principal: One whose existence is not known to 3rd party at time of transaction.
Undisclosed principal
94
____ principal: One whose existence, but not the identity, is known to 3rd party at time of transaction.
Unidentified principal
95
A person who purports [agent] to enter K on behalf of principal, warrants the person's authority to do so.
What does this mean?
If the purported principal is not bound by K, agent may be liable to 3rd party for damages. Agent beware.
96
When do fiduciary duties rise between Principal and agent? IE: When does relationship start?
Principal manifests assent to agent and agent manifests assent to do so.
97
1. Interview at law firm. Is there a binding contract for over the phone offer?
2. What about for DOJ?
1. Maybe. If person "reasonably believes" person has authority [apparent] to make that offer then yes.
2. No one has apparent authority to act for the US gov.
98
Is SubK contracts with VP of company [Verizon] and VP backs out. Is Verizon liable? [You don't know what the actual authority level is.]
Without knowing actual, it is apparent authority to K which requires that the principal must be the one to convey that level of authority on VP from SubK POV.
IE: VP can't just say she has been vested by Principal with the app. authority to act.
99
Can an agent of company just tell a subK that they have been vested with app. authority?
No. This must be conveyed by Principal > agent from 3rd party POV.
100
_____ of authority: A person who purports to enter a contract on behalf of a principal warrants the person’s authority to do so. Restatement (Third) of Agency §6.10. If the purported principal is not bound by the contract and does not ratify it, the agent is liable to the third party for damages, including loss of the benefits expected from the contract.
Warrant of authority
101
Under what theory can you sue Principal if the agent of Principal makes a deal, then disappears leaving 3rd party in shit? [3rd party is unaware of Principal existence]
Undisclosed Principal Theory
102
2 times agent is liable to 3rd party?
1. Unidentified Principal
2. Breach of warranty [SL]
103
Agent fiduciary duties?
1. No secret income
2. No competing
3. Don't help competition
4. Loyalty / Confidentiality
104
Principal fiduciary duties
1. Indemnify for loss [compensate]
2. Deal w/ agent in GF
105
Generally, who has "managerial" capacities in an entity?
Directors, Officers
106
Who has authority to act for a Corporation? What type of rule is this?
BODs. Mandatory.
107
T/F) Individual members of a board have no authority, the authority rests with the Bd acting together.
True
108
Can board members wear multiple hats? IE: Director + employee of corp.
Yup.
109
T/F) General rule for board members is that they can take action without formal meeting.
False.
110
T/F) If not a legal board meeting, then the corporation may still be bound depending on specific circumstances.
False, must be a legal board meeting.
111
Can the Board authority be delegated?
Only if noted in the articles of incorporation. [Fundamental documents]
112
3 ways Bd can delegate decision making authority? [Meta Bd > CEO Mark]
1. Bylaws
2. Resolution
3. Articles of Incorporation
113
If you see "CEO" in a hypo, what argument should you make, authority wise?
1. Apparent authority binds the corporation.
2. See if authority has been delegated from Bd > CEO.
114
T/F) Only some partners can bind a partnership as an agent.
False. All partners.
Partner = BINDING
115
In a limited partnership, who are the binding agents?
GPs only
116
2 types of "managed" LLCs?
1. Member managed [binds as a group]
2. Manager managed [Single manager may bind]
117
How do members of LLC bind the LLC?
Making decisions as a group. Individually, default entity laws for LLC say one member is not an agent soley be reason of being member.
118
T/F) Default entity laws for LLC say one member is not an agent only because of them being member. Exceptions if true?
1. True. Group of members must make decisions together to bind the LLC. [Default rule]
2. Single manager of manager managed LLC has actual authority to bind.
119
T/F) In contrast to the default rule, a single manager of "Manager-managed" LLC can bind the LLC.
True.
120
Relationship of agency contemplates three parties. Who?
This creates ______ relationship.
1. Principal
2. Agent
3. 3rd party
Fiduciary relationship created
121
"Who acts through another, acts himself." Describes what?
Agency relationship
122
3RST requirements for agency relationship?
1. Principal manifests assent
2. That agent act on his behalf
3. Subject to Principal control
4. Agent manifests assent to do so
123
When there is a valid agency relationship between Principal and agent, who has liability for the properly authorized act?
Principal is liable to 3rd party
124
An agent is also an employee when?
When the principal has the right to control the physical details of the work.
125
When is principal VL for an act of nonemployee agent?
Only when principal authorized or intended the result or manner of performance of the act.
126
Torts in employment.
General rule?
Employee liable for his or her own negligence and employer is also VL.
127
When is "non-employer" liable for the torts of an independent contractor?
1. Abnormally dangerous activity
2. Non-employer is negligent [hiring / supervising]
3. Apparent agency [3rd party reasonably believes the non-employer controls manner in which I99e works.]
128
Five theories for holding principals liable?
1. Actual A
2. Apparent A
3. Inherent A
4. Ratification
5. Estoppel
129
Difference between apparent and actual authority? Meaning, whom's POV controls?
Its all POV.
1. Actual = Agent reasonably believes he has the authority to act.
2. App = 3rd party reasonably believes the agent has authority to act.
130
Liability:
1. Actual A
2. Apparent A
Principal
131
T/F) An agent may not manifest its own authority to act.
True.
AA is judged from "RE" of 3rd party and must be traceble to manifestations from the principal.
132
[Scenario]
T/F) P tells A "you are not authorized to sign the K, but you may tell 3rd party you are."
3rd party signs. Is principal liable?
Yes. "Secret limitations" are ineffective in cutting off liability.
133
T/F) Secret limitations set by principal are effective at cutting off liability.
False
134
Authority stemming from the [position] or [title] given to the agent/employee represents _____ authority.
Inherent authority
135
Where does liability rest for [inherent] authority acts?
With the Principal.
136
Dean of CSOL tells faculty recruit: "You will be able to teach Business Associations." Recruit takes job in reliance.
Later, "You must now teach tax." Did the Dean have [inherent] authority?
Yes if the recruit "reasonably believed."
137
_________ is the affirmance of a prior act done by another, whereby the act is given effect as if done by an agent acting with authority.
Ratification
138
T/F) A person may ratify an act [only] if the actor had acted as an agent on the person's behalf.
True
139
T/F) Agents do not have authority to manifest their own authority.
True!
140
If principal tells agent, "You are not authorized to sign the K, but you may tell 3rd party. you are..."
Principal will be liable, agent has demonstrated "Manifestation of Authority."
141
______ is the affirmance of a prior act done by another, whereby the act is given effect as if done by agent acting with authority.
Ratification
142
When can person with authority ratify act of prior person who didnt actually have authority?
Only when the actor purported to act as an agent on persons behalf.
143
When is Principal liable under theory of estoppel?
IE: Person induced to rely to their detriment.
1.
2.
1. Principal intentionally or carelessly caused such reliance/belief; or
2. Having noticed persons reliance, did not take reasonable steps to notify them of facts.
144
Clark v. Verizon is example of what theory at play and why?
1. Estoppel
2. Verizon didn't authorize agent to K. Ks are signed. Verizon knows this and does nothing. If reliance on K detrimentally, Verizon may be estopped!
145
When an agent acting with actual or apparent authority makes K on behalf of DISCLOSED principal, who is liable / in k?
Principal & 3rd party.
Agent not party unless agent & 3rd party agree otherwise.
146
Parties to K for disclosed principal?
Principal & 3rd party
147
Party to K for UNIDENTIFIED principal?
Principal and 3rd party. Unidentified and/or undisclosed Principal creates liablity for agent. [Winer v. Valentino]
148
Parties to K for UNDISCLOSED principal?
Unless excluded in the K, principal IS A PARTY + agent + 3rd party. [Everyone]
Case: Winer v. Valentino
149
It is well settled that an individual who signs K as an agent for an UNDISCLOSED entity will be held liable on K as well. Case?
Winer v. Valentino
150
Best practice signature to avoid liability issues when agents contract on behalf of principals?
1. Principal name & Unique Identifier
2. Agent name, signature, and capacity
151
Best practice signature allows you to draw 3 inferences...
1. Parties intend for principal to be liable.
2. Parties intend for agent to be not liable.
3. Agent warrants his authority to bind the corporation.
152
2 times agent may face liability?
1. Undisclosed Principal
2. Breach of warranty of authority [SL]
153
Agent fiduciary duties?
1. No secret income
2. Don't help competition
3. Loyalty & Confidentiality
154
Principal fiduciary duties?
1. Indemnify for payment made and losses
2. Good faith
155
T/F) Unlike directors of a corporation, partners have the authority to act individually on behalf of the entity.
True
156
Where can you find a "recorded statement" of authority?
Statement of Authority filed by entity with the Secretary of State
157
Can an agent act for more than one principal?
Yes, Coprincipals.
Example: RE transaction whereas broker serves buyer & seller.
158
What if coprinicpal interests come into conflict?
Agent may withdraw.
159
When may a parent corporation be held liable for actions of subsidiary?
When parent exercised significant control over the facility.
160
A parent corporation is not normally liable for a subsidiary's actions unless the corporate veil can be pierced, but direct liability may arise if the parent directly operates the facility. [T/F]
True
161
Can Directors & Officers hold positions with both the parent and subsidiary?
Yes.
162
T/F) Any partner can bind a partnership.
True
163
T/F) Individual directors have authority to bind the corporation.
False
164
T/F) Individual members of LLC [member managed] have capacity to bind the LLC.
False, this is the rule for [manager-managed] LLCs.
165
T/F) Any partner in a LP can bind the LP.
False, only GP can bind.
166
Can the corporation give the BOD additional authority / more hats?
Yes
167
T/F) LLCS must have specific lawful purpose at inception and must be not for profit.
False. LLCs can be established for "any lawful purpose" and can be for profit or non-profit.
168
T/F) Member is not an "agent" of the LLC soley by reason of being a member. [exam mcq]
True, this is the minority but also the default rule.
169
Default rules: Who can bind in the "ordinary course of business?"
1. Corp.
2. Partnership
3. Member mg LLC
4. Limited partnership
1. CEO [apparent authority]
2. Any partner
3. No one [only group]
4. General Partner only
170
What do we look at with regard to actual authority within an organization?
Hint: We look at the "___ ___" of the 3rd party.
"Reasonable expectation"
171
___ ___ : Is the document issued by a law firm addressing the legitimacy of a transaction with an entity.
Legal Opinion
172
T/F) If in your dealings with an entity, you are suspicious of the legitimacy of the transaction, you can ask for a "legal opinion"from their in house counsel.
True
173
The ___ ____ is helpful to ask before because it reduces the arms length nature of the transaction.
Legal Opinon
174
What's even better to ask for than a "legal Opinion?"
Certified copy of minutes from the actual corp. secretary.
175
Investor starts selling her shares off. How do we know that she can do this?
Look to fundamental documents to see if her ownership stake is freely transferable.
176
The _______ _______ rule is a legal principle that protects corporate directors from personal liability for decisions they make in good faith, with reasonable care, and believing they are acting in the best interests of the company, even if those decisions turn out to be unsuccessful;
Business Judgement rule
177
When does the business judgment rule protect managers from shareholders?
1. Acted with care
2. Acted with loyalty
3. Acted in good faith
4. Not wasteful [rational]
5. Business related
178
T/F) Entity investors are not liable for their capacities as investors.
True. Without this rule, regular consumers could be held liable for owning shares in shitty company.
179
Fundamental documents vs default rule. Which prevails?
Fundamental documents, so long as in keeping with any mandatory statutes.
180
T/F) Property purchased by a partnership is "presumed" to be property of the partnership, not individual partners.
True, so long as purchased with partnership assets. [Even if not acquired in name of partnership]
181
T/F) If 2 or more person associate as co-owners of a business for profit, it is a partnership, even if they did not intend to form one.
True.
182
T/F) Property acquired by. a partnership is property of the partnership and not of the partners individually.
True!
183
Partnership rules turn to ____ statutes.
"RUPA"
184
RUPA stands for what?
Revised Uniform Partnership Act
185
T/F) A partnership is an entity but NOT one that is distinct from its partners.
False. RUPA 201 says otherwise.
186
Your clients by chance, formed a partnership. They wish to form an LLC. Steps?
1. File articles of organization with secretary of state.
2. Effective when SOS files and at least one person has become a "member."
187
When forming an LLC, the Certificate of Organization must contain what?
1. Name of LLC, complying with §112.
2. Street / Mailing address of principal office; and
3. Name / Street / Mailing address of LLC's agent in the state.
188
What is required for LLC creation to become final?
1. At least one person becomes member
2. SOS files the COO.
189
Like a partnership, can you, on accident, create an LLC?
No.
1. requires filing Articles of organziation with SOS.
2. + At least one person become member to become "effective."
190
How to transfer from the old partnership to newly created LLC without transferring physical assets?
Conversion
191
How to convert Partnership > LLC
1. Approve plan of conversion
2. Plan of conversion signed and delivered to SOS
192
When is a plan of conversion effective?
When it is organized under and subject to the organic law of the converted entity.
193
What must be included in the plan of conversion?
1. Name of converting partnership
2. Name, J, and type of entity of converted entity
3. Manner of converting interests
4. Organic records of the converted entity
194
Do directors of a corporation owe fiduciary duties [care and loyalty] to the corporation AND the persons whom appointed them from the board?
No. To the entity only.
195
What fiduciary duties owed to an entity?
1. Care
2. Loyalty
3. Good faith
196
Can you have an LLC similar to the governing structure of a board? IE: Established board of directors.
Yes. This is a "manager-managed" LLC.
197
________ is the fiduciary relationship that arises when principal manifests assent to agent that the agent shall act on principals behalf and agent manifests assent to do so.
Agency
198
Five theories for holding principals liable? [All render principal liable]
1. Actual
2. Apparent
3. Inherent
4. Ratification
5. Estoppel
199
T/F) Whether the parties label the relationship agency is NOT controlling.
True. Manifestations of mutual assent that one person will act on another’s behalf and subject to the others control are what creates principal-agent relationship.
200
Under this case, "an agency relationship is formed when two people agree that one will act for the other and under the other's control." [Wife signing ADR for hubby at nursing home]
"BATZ" - Northern Health facilities v. Batz
201
Agent acts with ________ authority when, at time of taking action that has legal consequences for the principal, the agent reasonably believes that the principal wishes the agent to act.
Actual
202
T/F) Actual authority may be express or implied.
True
203
Actual authority, which may be conferred intentionally [or not] by the principal, is assessed from whom's perspective?
Agent's perspective
204
This authority is authority a purported agent has because the agent appears to the third party to have it.
Apparent
205
Apparent authority is assessed from whom's standpoint?
The 3rd party
206
_______ authority is the power held by an agent or other actor to affect a principal’s legal relations with third parties when a third party reasonably believes the actor has authority to act on behalf of the principal and that belief is traceable to the principal’s manifestations.
Apparent authority
207
___________ are "written or spoken words or other conduct."
Manifestations
208
"Apparent authority, which allows an agent to act for a principal, needs to be shown by the principal, not the agent." [Case?]
Clark v. Verizon
209
What authority did person in Verizon actually have?
Inherent authority
210
____________ authority is the authority to do acts that “usually accompany or are incidental to transactions which the agent is authorized to conduct.” Inherent authority does not require any manifestation from the principal to the third party.
Inherent authority
211
T/F) Inherent authority does not require any manifestation from principal to the 3rd party.
True
212
The doctrine applies in situations where an agent or other person purports to act on behalf of a principal, but does not have authority to do so.
The principal is not bound. But if the principal later affirms the act, _________ occurs.
Ratification
213
If a person is not the principal of someone who purports to be its agent, but (1) the person intentionally or carelessly causes a third party to justifiably believe the person is the principal, or (2) knowing that a third party has such a belief, does not take reasonable steps to notify the third party that its belief is wrong, and (3) the third party detrimentally relies on its belief, then the person is estopped to deny the agency and is liable to the third party.
Estoppel
214
3 types of principals?
1. disclosed
2. undisclosed
3. unidentified
215
_______ principal: One whose existence and identity are known to 3rd party at time of transaction.
Disclosed principal
216
_______ principal: One whose existence, but not its identity, is known to 3rd party.
Unidentified
217
_________: One whose existence is not known to 3rd party.
Undisclosed
218
Meta Platforms, Inc. wants to buy Tim’s property, but doesn’t want Tim to know he is selling to Meta Platforms. (If Tim knows he’s dealing with a fat cat, he might want more money.) Meta hires Annika as its agent and instructs her to buy the property without disclosing that she is buying for Meta Platforms. Meta Platforms is an ___________ principal.
Undisclosed principal
219
"__________________" is for forming a new business, while "________________" is for changing an existing business's legal structure
1. Articles of organization
2. Conversion
220
A person who purports to enter a K on behalf of a principal _____ the persons authority to do so.
Warrants
221
ROL: "Employees and agents have a duty of loyalty to their employers. This means they can't work for competitors or get extra benefits from others when doing business for their employer."
Wall Systems Inc. v. [Pompa]
222
Is the waiter in a restaurant an agent of the customer?
Probably not. Agency manifests when Principal manifests assent for Agent to act on their behalf and Agent then manifests willingess to do so. Therefore, [Waiters are agents of the resteraunt.]
223
When do fiduciary duties arise between Principal and Agent?
When we have a "manifestation of agency" between them.
224
Would you likely have a binding relationship with a law-firm regarding over the phone job offer?
Prob not. However, if you "reasonably believe" that the person has the authority to make that offer, then maybe yes under theory of Apparrant authority.
225
T/F) Nobody has apparant or inherent authority to bind the DOJ.
True! [badass]
226
T/F) Ticket agents have NO authority to bind the airline. [Including under theory of apparant authority]
True
227
Warranty of ___________ A person who purports to enter a contract on behalf of a principal warrants the person’s authority to do so. Restatement (Third) of Agency §6.10. If the purported principal is not bound by the contract and does not ratify it, the agent is liable to the third party for damages, including loss of the benefits expected from the contract.
Authority
228
In the fact pattern for Verizon v. Clark, would Verizon be liable if VP had written agreement down with subk?
Prob not. Under the theory of apparant authority, it must be conveyed by principal to third party. This act itself is only serving to "stack authority."
229
When can you sue the agent himself for breach of contract?
Breach of warranty when there is an undisclosed principal. [Winer v. Valentio] Shitty as construction worker in 2014 signing for company without telling buyer about company.
230
This case showed the fiduciary duties employee / agent owes to his employer.
1. GF
2. Care
3. Loyalty
4. No side hustles
5. Dont help competition
Pompa
231
The rule of this case is that a person who signs a contract for someone else is still responsible for that contract unless the other person involved in the contract knows that the signer is acting for someone else. [Undisclosed principal theory case]
Winer v. Valentino
232
What case demonstrates liability for agent under theory of a undisclosed principal.
Winer v. Valentino
233
Who has managerial capacity?
Directors and Officers
234
Perspective for binding the entity will be from who's view?
The 3rd party to determine if entity is bound.
235
The ____ has authority to act for a Corporation.
Board. Both the DGCL and the MBCA say as much.
236
According to what case do individual board members have no authority to act individually?
Baldwin v. Canfield
237
In _____, it was determined that individual board members have no authority to act.
Baldwin
238
Can a board act without meeting?
Maybe... but it will require unanimous consent of all members. [Baldwin]
239
What case said individual board members have no authority?
Baldwin
240
T/F) If in the articles of incorporation, board authority may be delegated.
True
241
Multiple ways to delegate board authority?
1. Board adopts bylaws
2. Board passes resolution
3. Articles of incorporation
242
Meta bylaws…. Board authority delegated to CEO. Then CEO of meta has the Board authority and this is binding on Meta. What sort of authority?
Actual authority, delegated by the bylaws of Meta.
243
Absent delegation, only the Board has actual authority to bind a corporation BUT CEOs have ________ authority to bind the corporation regarding matters in the ordinary course of business.
Apparent authority
244
T/F) Every partner can bind the partnership as an agent in the "ordinary course of business."
True
245
Partner = binding [T/F]
True
246
In a limited partnership, who are the binding agents?
General partners
247
In manager managed LLCs, who are the binding agents?
Each member.
248
In member managed LLCs, who are the binding agents?
Members only when acting as a group.
249
Default entity laws for LLC say a member is not an agent of LLC solely by reason of being a member. T/F
True
250
T/F) Single manager of manager managed LLC has actually authority of LLC to bind.
True
251
"A corporate officer has the authority to bind the corporation only to the extent specified in governing corporate instruments unless the corporation gives the officer additional apparent authority or ratifies the officer’s acts."
Sienna at Old Orchard [Sienna]
252
Case review:
1. Undisclosed principal =
2. Individual bd. mbrs. have no authority =
3. Corporate officer may not bind UNLESS given more authority =
4. Fiduciary duties owed to employer =
5. Agency relationship requirements =
6. Each partner can bind partnership if not a LP. [Its General P]
7. Parent may be held liable for subsidary if exercise "significant control."
8. 2 cases for franchises
9. SC endorses I.A. Doctrine
10. Consequenes of not following I.A. Doctrine
11. DFMD for cashouts
12. Partnership 4 rules
13. Estoppel & Apparent agency
1. Winer v. Valentino
2. Baldwin
3. Sienna
4. Pompa
5. Batz
6. National Biscuit
7. US v. Bestfoods
8. Franchises = eTeam v. Hilton and Mobil Oil v. Bransford
9. CTS v. Dynamic
10. McDermitt v. Lewis
11. Farris v. Glen Alden
12. McArthur v. Stein
13. Verizon
253
Undisclosed principal case?
Winer v. Valentino
254
Individual board members have no authority case?
Unless given more authority case?
1. Baldwin
2. Sienna
255
Fiduciary duties owed to employer case?
Pompa
256
Agency relationship establishment case?
Batz
257
T/F) Partners have the authority to act individually on behalf of the entity.
True
258
"In a general partnership with two partners, each party has the power to bind the partnership in matters pertaining to the partnership’s business."
National Biscuit co v. Stroud
259
What is something a partnership can deliver to SOS that is conclusive in favor of that person have authority to act for the partnership.
Statement of partnership authority
260
What is something a LLC can deliver to SOS that is conclusive in favor of what persons have authority [or do not] to act for the LLC?
Statement of LLC company authority.
261
Can an agent have more than one principal?
Yes, "Dual agency." Owes fiduciary duties to both and may withdraw when conflict between them.
Example: RE transaction whereas Broker serves buyer and seller.
262
Case? "Parent company may be held directly liable if the parent itself exercised 'significant control' over the facility."
US v. Bestfoods
263
What case shows us that parent companies are liable when exercising "significant control" over subsidiary?
Bestfoods
264
"A parent corporation is not normally liable for a subsidiary's actions unless the corporate veil can be pierced, but direct liability may arise if the parent directly operates the facility. " T/F
True. Bestfoods.
265
To "pierce the _____ _____" means to legally hold the owners of a company personally liable for the company's debts and actions by proving that the company and its owners are so intertwined that the business is essentially an extension of the owner, typically requiring evidence of serious misconduct like commingling personal and corporate assets, undercapitalization, or blatant fraud;
Pierce the Corporate Veil
266
Examples of piercing the corporate veil?
Commingling assets, blatant fraud, serious misconduct, etc.
267
Directors and officers holding positions with a parent and its subsidiary can and do change hats… to present the two corps.
True. And, when acting for Subsidiary courts presume they are wearing their subsidiary hat... unless "plainly contrary" to the interests of the company.
268
Courts generally presume that the directors are wearing their subsidiary hats and not their parent hats when acting for the subsidiary. T/F
True
269
A. What is the court presumption when a a Director acting for subsidiary also is a director in the parent company?
B. When rebutted?
A. Presumption is that acting for the subsidiary when wearing subsidiary hat
B. (1) Action by dual officer plainly contrary to interests of the other. (2) Action by an officer who had no capacity to act. [hat]
270
Should your client accept the authority of Cox to bind his company which is a partnership? You may assume Cox is a partner.
Yes. Any partner may bind a partnership. RUPA 301.
271
Should your client accept the authority of Cox to bind his company which is a corporation? You may assume Cox is a Director.
No. Individual Directors may not bind.
272
Should your client accept the authority of Cox to bind his company which is LLC? You may assume Cox is a member.
1. If member managed, no.
2. If manager-managed, maybe yes.
273
Should your client accept the authority of Cox to bind his company which is a Limited partnership? You may assume Cox is a GP.
What if Cox was an LP?
1. Yes
2. No
274
T/F) For CEOs, most courts say CEOS – even absent actual authority – have the apparent authority to bind a corporation.
True
275
Is LLC member an "agent" for the LLC soley by reason of being a member?
Nope! [This is minority, default rule, which controls for exam purposes.]
276
Can a CEO bind in the "ordinary course of business?
Presumption by the courts is yes, under Apparrent authority.
277
For determining level of authority, what do we ALWAYS look at?
The "reasonable expectation" of the 3rd party.
278
This document is issued by law firm addressing a transaction. You can ask for this from the entity you are having transaction with to ensure legitimacy or just check it.
[You are reducing arm’s length nature of the transaction.]
Legal opinion
279
[Ascertaining authority]
1. Certified Board minutes; or
2. Legal opinion?
Both are great but certified minutes is best. Ask for both!
280
MBCA §_._ _ requires that “[a] corporate name . . . must contain the word ‘corporation,’ ‘incorporated,’ ‘company,’ or ‘limited,’ or the abbreviation ‘corp.,’ ‘inc.,’ ‘co.,’ or ‘ltd.,’ or words or abbreviations of like import in another language
MBCA $ 4.01
281
T/F) LLCs are generally required to have names that contain the words “limited liability company” or the abbreviations “LLC” or “L.L.C.”
True
282
Limited partnerships are generally required to have names that contain the words “limited partnership” or the abbreviation “LP” or “L.P.” [T/F]
True
283
The ____ _____rule is a standard of judicial review employed by courts when they are asked to evaluate the business decisions made by corporate boards of directors.
Business Judgment rule
284
T/F) If the agent has not received the principal's manifestation revoking the earlier authority, the agent would be in a position to continue to reasonably interpret the earlier manifestations of consent.
True
285
T/F) It is possible to have apparent authority without having actual authority.
True. For example, an agents authority is revoked but agent has not received the news yet and the 3rd party with whom he is negotiating reasonably believes he has authority.
286
1. Agent has actual authority revoked.
2. Principal unable to comm. this in time to agent.
3. Apparrent authority to K reasonably believed by 3rd party.
4. Binding?
Yes, apparent authority can bind. Agent will be liable to principal but as between principal and innocent 3rd party, principal is liable for the K.
287
1. P owns cafe.
2. P tells A dont hire anymore ppl.
3. Worker quits. A hires T.
4. T works and P refuses to pay.
Liable?
Yes. T gets paid. Apparent authority stemming from "Power of position." [Watteau v. Fenwick]
288
T/F) An undisclosed principal who employs an agent to run a business is liable to third parties who contract with the agent for transactions typical in the line of business, even if the agent’s actions violate an agreement between the agent and principal.
True. Watteau v. Fenwick
289
Is there a "uniqueness" requirement for entity names?
Yes.
290
"Commodore Corporation, A Georgia Corporation."
What does this imply?
Commodore Corp. is incorporated in GA but doing business in another state as a "foreign" entity.
291
T/F) Partnerships are NOT required to register with the state.
GPs are not. If LmtP it must register.
292
T/F) LPs are not required to register with the state.
False.
293
What abbreviation must partnership that elects limited liability use?
LLP
L.L.P.
Limited Liability Partnership
294
The general public knows a business by its ___ name.
Trade name
295
________ is a contractual relationship whereas the franchisor authorizes operation of independent business.
Franchisee
296
Does Franchisee own the business?
No
297
Firehouse subs is an example of what type business?
Franchise
298
When is franchisor liable under the theory of actual agency liability?
Only when they exercise significant levels of control over franchisee operations. [Mobil oil v. Bransford, eTeam v. Hilton]
299
Case?
"In today’s world, it is well understood that the mere use of franchise logos and related advertisements does not necessarily indicate that the franchisor has actual or apparent control over any substantial aspect of the franchisee’s business or employment decisions."
Mobil Oil v. Bransford
300
In this case, the franchisor incurred liability for the franchisee’s errors by exercising too much control over the franchisee’s operations.
eTeam v. Hilton
301
In eTeam v. Hilton, the franchisor was liable b/c it exercised too much control over franchisee operations. [T/F]
True
302
Ltd. is a common abbreviator for what?
Limited Corporation
303
T/F) Most Js now hold that an entity that employs a physician is subject to VL for that physican's malpractice.
True if committed in the course of employment.
304
Can hospitals be held liable for I99 contract physicans?
Yes. Look at degree of control over the employee.
305
Is a hosptial listing a I99 physican's name on the employee board in lobby enough for liability?
No look at degree of control
306
_____ doctrine: applies to amend/correct inconsequential deficiencies or technicalities in the naming of parties. IE: You sued the correct entity but used the wrong name, this allows you to amend it.
Misdomer Doctrine
307
What should you counsel friend who says he will lease one building to multiple companies?
Be aware of apparent agency relationships to avoid cross liability.
308
In ___ ____, CJ Souter provided that "A parent can be liable if it directly operates the polluted site or if the corporate veil can be pierced.”
US v. Bestfoods
309
___ ___ Test: The presumption… an act is taken of behalf of a subsidiary wanes as the distance from – the norms of corporate behavior – approaches the point of action by a dual officer plainly contrary to the interests of the subsidiary yet nonetheless advantageous to the parent.
Plainly Contrary test
310
If client wants to sue Starbacks, does your complaint name "Starbucks?"
No this is the trade name. I will need to find the entity name behind it to properly serve.
311
T/F) Franchise requires certain control from Franchisor, that’s a given, that in itself is not enough for liability
True. Mobil Corp v. Bransford. The control must go BEYOND the expected level of control.
312
Whats the difference between Mobil Oil Corp. v. Bransfrod and eTeam v. Hilton?
eTeam case found liability because of degree of control.
313
"Privilege" doctors are today simply ___ workers.
I99 workers
314
Hypo:
1. Incorporated in Delaware
2. HQ in Summerville.
What laws apply to internal affairs? Could you sue in SC?
1. Low of formation state governs internal affairs.
2. Yes, HQ here and SC applies IAD so it would apply Delaware law.
315
What rules?
1. The rules that apply when fundamental docs don't change anything.
2. The rules the fundamental docs cannot change.
3. The rules that enable a company to do something in absence of a rule on it.
1. Default
2. Mandatory
3. Enabling
316
Which MBCA rule is the required rules for corporations?
MBCA 7.32(a)
317
MBCA 7.32 is what?
Required rules for corporations
318
Can an LLC change the Internal affairs rule?
Cannot eliminate completely but they can modify it, add more detail to operating agreement to go beyond default rules.
319
T/F) Partnerships are not permitted to specify different procedures for adding new GPs.
False
320
When can a Corporation eliminate the MBCA fiduciary requirment?
Only if in a state that has not adopted the MBCA.
321
T/F) Law of formation state applies to Internal affairs.
True
322
Steps for general entity formation? What will Hammond do first?
Hammond will need to:
1. Pick what entity JP is and decide what state JP will be incorporated in. [CR]
2. Reserve the name "Jurassic Park" - If partnership can be any name you want. If other entity must be legally distinct.
3. Hire agents and find office [on island]
4. File the fundamental docs w/ SOS for Costa Rica
5. Buy entity kit
6. Org. meeting to elect directors then issue shares
323
eTeam v. Hilton
Mobil oil v. Bransford
Which one was liable?
Hilton because of the degree of control exercised over franchisee.
324
"A boss is responsible for the actions of a worker who does things that are usually part of their job, even if the boss told them not to do those things."
Ex: Hammond instructed Nedry NOT to leave his desk. Nedry left his desk to steal IP from JP93.
Case?
Watteau v. Fenwick
325
Where / to whom does an entity pay "formation & registration" fees?
1. Formation state fees
2. States doing business in is registration fees
[Usually same amounts]
326
When you register an entity, are you required to have a registered office in state where formed?
Yes. "300K businesses have registered at same address in Delaware but not physically there. How? They hired an agent to receive shit there, such as papers of service."
327
This is something that makes corp. tangible.
IE: Actual charter doc,
Articles of incorp, or
Stock register.
What is described?
A corporate kit
328
Example of a "corporate kit?" This is something Hammond would keep on file after formally incorporating JP in 93.
Stock register
Charter documents
Articles of Incorporation
329
Who calls the very first Organizational meeting?
Typically the person who filed AOI
330
What should Hammond accomplish at his first organziatinal meeting?
Hammond will need to call to order the organization as person whom filed articles of Incorporation. Then:
1. Select directors of JP
2. Directs appoint officers/agents for JP
3. Adopt corporate seal of JP
4. Directors authorize bank account for JP by Bd resolution
5. Directors issue stock certificates
331
When is corporation birthdate?
Date stamped on AOI time stamp.
332
When did entity come into existance?
1. Corp.
2. LLC
3. LP
4. GP
1. AOI filed
2. COO filed + 1 person become mbr
3. CLP filed + 1 person GP +1 person LP
4. Doesnt file
333
T/F) No such thing as non-profit partnership
True
334
In both mergers & acquisitions, shareholders "may" be entitled to 4 protections.
The right to:
1.
2.
3.
4.
1. Vote against merger
2. Appraisal rights
3. Sell 2 3rd party
4. Sue to prevent illegal transactions
335
[Merger]
_____ _____ : Right of [dissenting] investor to be paid the pre-transaction value of shares by surviving entity of merger.
Appraisal Rights
336
T/F) To utilize appraisal right, the SH must have voted no to the merger in the first place.
True
337
What is the rationale behind appraisal rights?
The merger is fundamentally changing the nature of SH investment.
338
Partnerships & LLCs do not give appraisal rights to SHs when merging. Why?
Merge requires UNANIMOUS assent. [default rule]
339
T/F) Publicly traded corp. still offers appraisal rights.
False. B/C Sh can sell their shares at any time and very quickly on public market.
340
What is the share # cutoff for appraisal rights?
2000 shares [you only have a slim portion of overall shares anyways]
341
Statutory merger process?
1. Red & Blue adopt plan to merge.
2. Boards put plan before SHs for vote. [Absolute majority required]
3. Merge
4. Purple entity files with certificate of merger with SOS
5. Dissenting SH paid out [app. rights]
**Creditors for both dragged along.
342
Define the statutory merger process.
1. Red & Blue create merger plan.
2. Red & Blue boards put plan to SHs to vote on. [Absolute majority]
3. Merger
4. Purple files COM with SOS
5. Dissenting SHs paid [app. rights]
**Creditors dragged along for the ride**
343
2 types of mergers?
1. Stock for stock merger
2. Cash out merger
344
[Merger]
Red gets blue stock.
Blue gets red stock.
What merger type?
Stock for stock
345
Red gets cash instead of stock/shares, breaking ownership chain. Red has been bought out and Blue gets the resulting purple stock.
What merger?
Cash out [asset sale for cash]
De Facto merger doctrine applies in most states [not DL] to prevent company from doing this to merge so they dont have to follow merger protections.
Farris v. Glen Alden
346
T/F) Cash out mergers break ownership chain.
True b/c the compay sells its assets for cash not stock. Sometimes, this process is used for mergers to avoid typical merger protections. [De Facto Merger Doctrine used to prevent that]
347
Stock for stock merger.
What do red & blue own in purple?
Both own smaller piece of bigger entity.
348
Walgreen shareholders need not vote when Walgreens buys small local pharmacy. Only the smaller pharmacy votes.
What merger is this?
Small-scale
"Pacman." [Big eating little]
349
For small scale "pacman" type merger, does the larger entity vote on merger?
No.
350
" Think parent-subsidiary and parent absorbs subsidiary if it owns at least 90% of just by filing a piece of paper." No SHs vote on this.
What style merger?
Short form.
351
T/F) Short form mergers require no SH vote.
True. Parent can absorb subsidiary just by filing paperwork if parent owns at least 90% of the subs.
352
In a short-form merger, does the subs. SHs have any protections?
No. They represent only 10%.
353
[Acquisitions]
If Board decides to sell "____ ____" assets at one time, then SHs entitled to vote on that.
Substantially all
354
Selling 4/5 factories requires shareholder approval. Why?
The company is selling "substantially all" assets.
Example: A cashout requires voting b/c selling substantially all assets.
355
T/F) A shareholder can have the right to assess the value of their shares even if two companies combine through a contract and not the usual merger process.
True. [Farris v. Glen Alden]This is the De Facto Merger doctrine. Typically invoked when a company atttempts what is essentially a merger through "cash for assets" to avoid merger protections.
356
De Facto Merger doctrine is what case?
Farris v. Glen Alden. Treats a cash out as merger, returning formal rights and protections to the SHs, such as appraisal rights. [Not followed in DL]
357
Farris v. Glen Alden = what doctrine?
De Facto merger doctrine
358
Does Deleware follow the De Facto Merger Doctrine? If no, what does this mean?
No. Entities in DL may merge by [cashout] which circumvents the typical merger protections.
IE: No appraisal rights in Deleware.
359
The "___ ____ ______ doctrine" is a legal concept that applies when a transaction, typically structured as an asset sale, is essentially a merger in substance, meaning that even though the deal isn't formally a merger, a court may treat it as such to prevent a company from avoiding liabilities by not following proper merger procedures;
De Facto Merger Doctrine.
Farris v. Glen Alden. We treat the cash out as a merger and give protections back to SHs.
DL does not follow.
360
2 methods of reincorporation?
Conversion and Domestication
361
________: Is the process of moving a business's legal registration from one state to another. It allows a business to maintain its identity while moving to a new state.
Domestication
362
_________ : the legal process of converting your current business entity into another business entity, without having to form a new entity or dissolve your current entity.
Conversion
363
Entity can reincorporate in 3 ways:
1.
2.
3.
1. Merge into shell entity
2. Asset sale for stock
3. Conversion and domestication
364
___ ____ : One company becomes two.
Spin off
