Business Transactions Flashcards
Agency
Formation of agency:
Agency is a fiduciary relationship that arises when one person (the “principal” appoints another (the “agent”) to act on the principal’s behalf and the agent consents to act.
Modes of creating agency
by parties (agreement) or by operation of law (by estoppel- is the same as operation of law, third party reliance or by Statute- statutes creating agencies are usually designed to accomplish a limited purpose)
Duties of agent
CLOE Agent – Care, Loyalty, obedience, express in contract.
Duties of Principal to agent
CECI – Compensation, Express contractual duties, cooperation, indemnity
Type of Authority does Agent have (agency formation)
-Actual – express of implied. In contract or the parties reasonably believes. Implied -acted similarly in the past, customary, necessary.
-Apparent- exists when the (i) principal “holds out” another as possessing authority and based on this holding out, a (ii) third party is reasonably led to believe that authority exists. Exception: when agent does not have actual authority not liable, ultra vires acts. except – when entered the contract for a principal and he permits an impostor to be in a position to appear to have agency authority.
-Ratification elements-(i) principal have knowledge of all material facts (ii)accept the entire transaction) (iii) principal have capacity. Company KARMA – Capacity, Knowledge, accepts (consent), ratifies, material acts
Ratification elements
Company KARMA – Capacity, Knowledge, accepts, ratifies, material acts
Frolic and detour:
Frolic and detour: a detour or small deviation from employer’s direction is within scope of employment. Frolic: major deviation, no.
Partnership
Duties to the other partners:
CLOD – Care, loyalty, obedience (breach of duties), disclosure.
Corporation
Types of creation:
de jure corporation, we need a person (name of each incorporator), a paper (articles of incorporation), and an act (file at secretary of state).
De Facto: courts recognize limited corporate liability if there was a colorable, good-faith attempt to incorporate and actual use of the corporate form, such as by contracting in the corporate name.
By estoppel: most jurisdictions recognize limited corporate liability if a third party deals solely with the purported corporation and– and the parties acted that there were a corporation
Fraud in the corporation? Piercing the corporate veil (PCV)
Applicable to LLCs too
Piercing the corporate veil (PCV) – Shareholders generally cannot be liable for corporate debts, but the court might pierce the corporation veil in close corporations only. Two req. (i) the shareholders must have abused the privilege of incorporating and; (ii) fairness must require holding them liable. Major factors in corporate veil piercing: FUc’n A: Fraud Undercapitalization Alter-ego
Notice reqs.
Notice: The corporation must provide shareholders entitled to vote with notice of any meeting between 10 and 60 days before the meeting date.
Special meetings (acts cpecific): req. at least 2 day’s notice for board, president, or at least 10% of voting shares. Failure to give notice. Act voidable.
Proxy – irrevocable if
Proxy – irrevocable if PEACE
P – PLEDGED shares for a loan
E – Person ENTITLED to the shares (owner of record on the corporate books)
A – An AGREEMENT between shareholders to vote the shares in a particular way and they execute an irrevocable proxy for that purpose
C – A CREDITOR of the corporation who has been given an irrevocable proxy for extending new credit, or agreeing to continue credit to the corporation
E – An EMPLOYEE is given a proxy
Under the business-judgment rule,
if self-dealing, breach of loyalty - explain
a court will presume that a director acted in good faith, * upon reasonable information to the directors, and * in the honest belief that the decision was in the corporation’s best interests and the director made a FULL disclosure of his or her interest in that transaction, and approved by all or directors.
He will not be liable in self-dealing if. 2Fs:
F – A contract or transaction was FAIR and reasonable to the corporation when it was approved by the board of directors.
F – The director made a FULL disclosure of his or her interest in that transaction, and approved by all or direc.
Exculpatory provision in a corporation
in the articles of incorporation may limit or eliminate director’s personal liability for damages of shareholders or directors. Exception: (i)received a benefit not entitled, (ii)intentional harms the corporation, (iii) approved unlawful distributions, (iv)intentionally committed a crime.
Proxy allowed to vote if
Allowed to vote:
A proxy is (1) a writing (fax and email are fine), (2) signed by the record shareholder (email is fine if the sender can be identified), (3) directed to the secretary of the corporation, (4) authorizing another to vote the shares.
no limit b4 the meeting
Shareholders on record when:
to vote in a meeting
Only shareholders of record on the record date are entitled to vote shares owned on that date at a shareholder meeting. The record date cannot be more than 70 days before the meeting date.
Shareholder can request dissolution by showing that the majority is engaged in
ID FLOW (at least one)
I – ILLEGAL conduct by those in control
D – DIVERSION of corporate assets to those in control Essay #3 Feb. 2012
F – FRAUDULENT conduct toward the minority Essay #5 July 2007
L – LOOTING corporate assets Essay #1 July 2004
O – OPPRESSIVE actions
W – WASTE of corporate assets
Liability of agent to third party
explain disclosed or undisclosed principal
- Disclosed principal—Agent generally not liable
- Unidentified or undisclosed principal—Generally either principal or agent can be held liable (third party chooses
Principal is not liable for acts of independent contractors unless:
(1) inherently dangerous activities are involved; (2) nondelegable duties have been delegated; or (3) principal knowingly selected incompetent independent contractor.
What to include in the Articles of Incorporation - SPAWN
Corporation
Shares info (Maximum authorized)
Price (minimum issue price).
Address info (name and address of agent and principal place of business)
Why the corporation is being formed (statement of purpose) - usually it says something like “to engage in any lawful activity”
Name of corporation, including its designation such as “Inc.”
Inspect the books as shareholder you need to:
Corporation
give them five days notice to view them during regular business hours, and you need a Particularly Good and Proper Connection. PGPC
Meetings notices for shareholders and directors
minimum days
Remember shareholders are 10-60 days notice WITH purpose. Directors are only 2 days notice for special meetings and they ONLY get the time and place of the meeting, not the purpose.
Conflict of interest - discuss business judgment rule and exception:
The business judgment rule does not apply if directors are financially interested in the transaction they decide upon. It will breach the loyalty. Exception: he will not be liable in self-dealing if. 2Fs:
F – A contract or transaction was FAIR and reasonable to the corporation when it was approved by the board of directors.
F – The director made a FULL disclosure of his or her interest in that transaction, and approved by all or direc.
S- shareholders approval
Explain Business judgment rule
Under the business-judgment rule, a court will presume that a director acted * in good faith, * upon reasonable information, and * in the honest belief that the decision was in the corporation’s best interests.
