Final Flashcards
1
Q
Master
A
principal who controls the conduct of the agent
2
Q
Servant
A
Person who is subject to the control of another as to the means used to achieve a particular result
3
Q
Independent Contractor
A
Person is subject to the control of another as to his results only
-Master typically isn’t liable for torts committed by independent contractors
4
Q
Actual Authority
A
- the agent has power to deal with other as a representative of the principal
- may be express, implied, incidental, or by title
5
Q
Express Authority
A
oral or written
6
Q
Implied Authority
A
Inferred from the principal’s prior acts
7
Q
Incidental Authority
A
Authority to do incidental acts that are related to a transaction that is authorized
8
Q
Apparent Authority
A
manifestation by principal to the 3rd party that another person is authorized to act as an agent for the principal
-can be established through agent’s title
9
Q
Hamilton Hauling v. GAF Corp
A
- agent for GAF enters into 10 year contract for woodchips on behalf of principal
- Hamilton should have known agent had no apparent authority - no prior act where agent made big deals like this; agent said he had authority, but that doesn’t count
10
Q
Ratification
A
Principal held responsible if the agent purports to act on the principal’s behalf AND:
Express ratification or implied ratification
11
Q
Express Ratification
A
principal affirmatively treats the agent’s act as authorized
12
Q
Implied Ratification
A
Principal engages in conduct justifiable only if the principal is treating the agent’s act as authorized (usually occurs when principal has knowledge of the unauthorized transaction on his behalf, but accepts the benefits of it)
13
Q
3rd Party liable to principal if:
A
- agent has actual, apparent, or inherent authority
- principal is disclosed or partially disclosed
14
Q
3rd party liability to undisclosed principal:
A
if agent had actual or inherent authority, the principal is not excluded from the terms of the contracts, and the existence of the principal is not fraudulently concealed
15
Q
Principal duties to agent
A
- no fiduciary duty
- act in good faith
- indemnify agent for losses reasonably incurred in the scope of the relationship
- can revoke relationship unless contract says otherwise
16
Q
Agent Duties to Principal
A
- Fiduciary
- duty or loyalty & duty of care
17
Q
Partnership
A
Default Rule: Every partner acts as an agent of the partnership
- partners have apparent authority to things in ordinary course of business
- actual authority can be establishe dby underlying agreement among partners
18
Q
Rights of Partners
A
- equal rights
- default voting structure is per capita
- need consent of all partners to admit a new partner
- differences as to ordinary matters can be decided by majority vote
19
Q
National Biscuit v. Stroud
A
- Stroud contracted Ntl Bis Co to buy bread.
- One partners said they wanted to go somewhere else for bread, but other partner kept buying bread
- Partner buying bread had actual authority to buy bread
- Doesn’t take a majority vote to remove partner’s actual authority, because this wasn’t a new activity, it was an ordinary activity in the course of business
20
Q
National Biscuit Co and Summers v Dooley Similarities and differences
A
- both actual authority cases
- National Biscuit Co was about an activity in the ordinary course of business and Dooley was about a new activity which required majority partnership agreement
21
Q
Limited Partnership
A
- don’t have agency authority by statute
- not by statute agents of the partnership
22
Q
Limited Liability Company
A
- every member is an agent if member-managed
- could elect to be member-managed (owner managed) or manager-managed in articles of organization
- default rule: managers don’t have to be members as a matter of statute
- members have apparent authority for activities in the ordinary course of business
23
Q
Manager-Managed
A
only people given manager status are the ones acting as agents
24
Q
Corporations
A
- Have to a president and secretary, but can be the same person
- controlled and managed by board of directors
- all officers and agents have authority in duties of management, but no apparent other for extraordinary contracts
25
Lee v. Jenkins Bros
- President of Jenkin's gives employee oral agreement that he will get a lifetime pension and then pres died & there were no witnesses to the promise.
- This wasn't an extraordinary contract so president had apparent authority, but there wasn't enough evidence to establish the existence of the agreement so Lee lost.
26
To form a business org, all business types have to register with the secretary of stated EXCEPT:
general partnerships and sol partnerships
27
Renewal Obligations:
- LLP: annual renewal
- Corporation: Annual registration report
- LLLP: annual renewal which creates liability shield
28
No renewal required for:
- LLCs (in MO)
| - LPs
29
Necessary Filings
- LP - certificate of limited partnership
- LLP - required to file a document
- LLC - articles of organization
- Corporation - Articles of Incorporation; no filing of operating agreement required, though
30
No Initial Filing with Secretary of State Required for:
General Partnerships
31
Hillme v. Chastain
- general partnership
- Chastain tried to cut Hillme out of partnership - claiming there's no partnership (nothing in writing)
- Court said Hillme is a partner
- Hillme is a partner because there was a joint checking account for the business, they shared a risk of loss when they each signed for the loan, and Each participated in management decisions
- didn’t file a partnership tax return, but they acted as though they were partners
32
H20 v. Brazos
- no general partnership here
- calling each other partners is not determinative
- No cash investment, risk of loss, or decision making authority on Brazos's side.
33
Partnership by Estoppel
You're estopped from claiming you're not a partner if you misrepresent to people that you are (even if you're not)
-liable to third parties
34
Smith v. Kelley
- Smith claims he was a 20% partner because he receives a portion of the business’s net profits
- Court said no - Smith is not a partner because he didn't contribute to partnership's assets or take part in management, but he was a partner by estoppel; liable to the third parties where he represented himself as a partner
35
Promoter
-a person who solicits people to invest money into a corp when it is still being formed
36
Promoter Liability
default rule: If a promoter signs a contract on behalf of the yet-to-be-formed corporation, if that corp fold, he is personally liable for fulfilling the contract
37
Liability of a Limited Liability Company
- everyone is liable only for their own bad acts
| - company assets aren't shielded, but personal assets are protected
38
It is possible for a Missouri manager-managed limited liability company to
have one or more “managers” that are not human beings.
True
39
In terms of apparent authority by statute, the situation of a member in a manager-
managed Missouri limited liability company is essentially the same as that of a
partner in a Missouri limited liability partnership.
FALSE
40
If Buono is worried that Askew might start trying to bind the Organization to contracts
with third parties without sufficient prior analysis and discussion with Buono, solely from
an authority perspective which of the following organizational structures is the BEST in terms of addressing Buono’s concern in that regard?
A Missouri manager-managed limited liability company with Buono as the
sole manager and Askew as a member who is not a manager.
41
Defective Incorporation (MO)
- If you act as a corporation without filing articles of incorporation with the Secretary of State and KNEW there was no corporation, you are jointly/severally liable for all debt and liabilities
- lack of knowledge as to defective incorporation could be a defense
42
Corporation becomes incorporated when:
articles of incorporation are filed by the secretary of state; mailing it in is not enough!
43
Liability of General Partnership Partners
- partners are jointly, severally, and personally liable for everything chargeable to partnership
- partnership is bound by partner's wrongful act(s)
- Any partner acting in ordinary course of business that causes loss to a third party, entire partnership is liable
44
Roach v. Mead
-third person, Mead's client, Roach, reasonably believed that the private business was within the ordinary course of the partnership so entire partnership was liable
45
Liability for LLPs
- no partner is liable for debts of partnership OR to each other in tort or contracts disputes as long as the LLP is registered!
- partners are only liable for their own bad acts
- Partners are safe against conduct of other partners
- incoming partners are liable for partnership obligations there were there before he got there, though
46
Liability for LPs
- Limited Partners are Silent/Passive Partners - they let general partners run the show
- General Partners of limited partnerships have the same liabilities as a partner in a general partnership
- Limited Partners are not personally liable for obligations of LP
47
Liability of Limited Liability Limited Partners
- Limited partners are not personally liable for obligations of partnership
- must have LLLP in name or it is not a valid LLLP
48
Liability of Limited Liability Companies
- both members and managers are protected from personal liability as long as acts are done after filing as LLC
- can be held liable for one's own wrongful acts
49
Pepsi v. Handy
- Pepsi bought a parcel of land from an LLC
- Pepsi realized the parcel had a wetlands issue that wasn’t disclosed prior to the purchase and sues the LLC
- LLC doesn't protect partners here, because the bad acts happened prior to the LLC being formed!
50
Liability of Shareholders in General Business Corporations
- shareholders have no obligation to the corporation or its creditors other than to pay the corporation the full consideration for the shares
- shareholders are liable for their own bad acts, however
51
Piercing the Corporate Veil
-treats the rights or duties of a corporation as the rights or liabilities of its shareholders.
52
6 Factors from Batz which could allow a court to pierce the corporate veil
1. fraudulent representation by corporation directors
2. Undercapitalization
3. Failure to observe corporate formalities
4. Absence of corporate records
5. payment by the corporation of individual obligations
6. Use of corp to promote fraud, injustice, or illegalities
53
MO Collett 3 part test to pierce the corporate veil in parent/subsidiary corp setting
1. parent company has complete control
2. some sort of injustice
3. This injustice must be the proximate cause of the injury
54
Reverse Piercing
shareholder wants to claim assets in corporation are still personal assets
55
Equitable Subordination
if shareholder has "inside advantage", creditors are paid first
56
Interlocking Management
Same person is on the board for both companies
57
Bartle v. Home-Owners
- Court refused to pierce the corporate veil here because no fraud or unfairness by shareholders
- Dissent said that subsidiary was just the alter ego of Home Owners
58
Alter Ego
- no separation of identity between shareholder and corporation
- corporation is alter ego of shareholder
59
Dewitt Truck Brokers v. Ray Flemming Fruit Co
Closely held corp. Dewitt sought to pierce the corporate veil and impose liability on the president of the corp and court allowed the piercing because:
- corp was president's personal piggy ban
- no respect of corporate formalities
- thin capitalization
- misrepresentation of personal obligations (told a creditor that he'd pay with personal funds)
60
Baatz v. Arrow Bar
Baatz injured in auto accident want to pierce corp veil to reach the shareholders of closely held corp. Piercing not allowed because:
- no undercapitalization of the corp
- no failure to observe corporate formalities
- no payment by the corp of individual obligations
61
Baatz 6 factors that would created injustice:
- fraudulent representation by corporate directors
- undercapitalization of the corporation
- failure to observe corporate formalities
- absence of corporate records
- payment by the corporation of individual obligations
- use of corporation to promote illegalities
62
Kaycee Land
LLCs treated same as corporations for determination of corporate veil piercings
63
Capital Account Formula for Partners
- Add capital for contributions and shares of profit
- subtract distributions and losses
- partner w negative capital upon final settlement must pay the partnership that amount
64
Net Income statement
statement of profit and losses for the year
65
Balance Sheet
snapshot at one point in time, often at end of year, balance between losses and assets
66
Cash Flow
Dollars In, Dollars out; different than net income
| -doesn't account for depreciation
67
Principals factors affecting capital structure planning:
- bargaining leverage of investors
- market conditions
- industry custom
- risk/reward analysis
- company's cash flow projections
- avoidance of "veil piercing" exposure
68
Cash Method
income recognized when payment is received
| -exception: constructive receipt (denying an offer for someone to pay you & saying come back and pay me next year)
69
Accrual Method
income recognized when work is completed.
70
Par value
arbitrary dollar value assigned to shares of stock which represents minimum amount for which each share may be sold.
-set by board of directors
71
stated capital
the par value per share times the number of shares issued.
72
watered stock
when you don't pay par value with legitimate consideration (money, property, or labor)
73
preemptive rights
- Right of existing shareholders in a corporation to purchase newly issued stock before it is offered to others
- opt-out provision in MO
- MO presumes that you have preemptive rights unless action in the articles is taken to limit or deny them
74
Preferred Stock
```
class of shares that are preferential to those assigned to the common shares, but limited in some way.
-no voting rights usually
```
75
Liquidation Preference
- a claim to priority when funds are available upon dissolution
- preferred stockholders get their investment before common stock holders
76
Preferred Dividends
guaranteed interest payments on a certain class of stock; owners of preferred dividends get paid fixed amount in scheduled payments
77
Redemption rights for Preferred Stock
Right for company to buy back the stock if they want to
78
General Partnerships - sharing of profits/losses
- each partner shares equally in profits unless otherwise agreed upon
- each partner must contribute toward losses, according to share in their share in the profits
79
Limited Partnership - sharing of profits/losses
- profits/losses allocated among partners as per partnership agreement
- if no agreement, profits/losses allocated on basis of value of contributions (received but not returned)
- if all contributions have been returned, profits shared equally like general partners
80
Limited Liability Company - Sharing of Profits/Losses
- profits/losses and distributions allocated among members in manner provided by operating agreement
- everyone gets their contributions, then share the remaining distributions equally if not otherwise agreed upon in OA
81
Corporations - Sharing of Profits/Losses
- figure our who gets paid first by classes of stock you issue
- if there's only common stock, profits are allocated based on shares
82
C corp
- double taxation
| - c corps get no deduction for dividends distributed
83
Double taxation
- corp pays tax on its taxable income
| - shareholders are subject to federal income tax on dividends distributed to them
84
Dividends received deduction
- If shareholder is itself a corporation, may be entitled to dividends received deduction
- could reduce/eliminate shareholder's tax on the dividend
85
S Corp
-pass-through treatment
86
Pass-through Treatment
corp doesn't pay tax on taxable income at entity level
87
Tax Treatment of Partnerships
-pass-through treatment
88
Tax classification possibilities for 2 or more owners:
- partnership: (unincorporated entities are treated as partnerships for tax purposes)
- S Corp
- C Corp
89
Unincorporated entities treated as partnerships for tax purposes:
- general partnership
- limited partnership
- limited liability partnership
- limited liability company
90
If only 1 owner, tax classification possibilities are:
- disregarded entity
- s corp
- c corp
91
Domestic Eligible Entity
-unincorporated business entity formed under US law
92
DEE with two or more owners
- default tax classification is partnership
| - can elect to be treated as corporation for tax purposes
93
DEE with one owner
- default is disregarded entity
| - can elect to be treated as corporation for tax purposes
94
To be a corporation for tax purposes, a DEE must:
-file election with the IRS under check the box regs
95
If DEE wants to be an S Corp for tax purposes, DEE must:
- file election with the IRS under check the box regs, AND
| - file an S election
96
Under check the box regulations, a Missouri general business corp will be:
- a corporation for fed tax purposes
| - NOT allowed to elect partnership or disregarded entity
97
S Corp Eligibility Requirements
- can only have 100 or less shareholders
- prohibited from having nonresident alien shareholders or non-individual shareholders
- cannot issue more than one class of stock (except for classes that differ only in voting rights)
98
Factors relevant to determining most desirable tax classification:
- contributions for property other than cash in exchange for ownership interest
- contributions of services in exchange for ownership interests
- profits & losses generated by entity
- distributions of cash or property to owners
- etc
99
Blue Sky Laws
- state securities regulation
| - involve more merit review of securities offerings
100
Security definition
- equity/ownership interests in business orgs
| - stock is a security
101
Investment Contract
- interests in unincorporated business entities that have been tested for security status
- apply the howey test
102
The Howey Test (3 prong) - whether something is a security
1. investment of money (or property)
2. in a common enterprise
3. with profits to come SOLELY from the efforts of others
Doesn't apply to stock; if interest passes the howey test, then the interest is a security
103
Rebuttable presumptions of ownership interests in unincorporated business orgs that are NOT a security
- general partner interest in general partnerships, LP, LLP, or LLLP
- member interest in member-managed limited liability company
104
Rebuttable presumptions of ownership interests in biz orgs that ARE a security
- limited partnership interest in LP or LLLP variations of LPs
- non-manager interest in a manager-managed LLC
105
Requirement to bring in a new partner in unincorporated entities:
consent of all other partners
106
Charging Order
-lien on partnership interest
107
Jingle Rule
- individual creditors have priority with regard to individual property
- partnership creditors have priority with regard to partnership property
108
Assignability of Equity Interests in Partnership
- consent of all partners not required to assign an economic interest (right to profits)
- consent of all partners required to admit a new partner
- Partners cannot freely transfer full ownership interest (financial and management rights)
- Partnership interests are personal property regardless of whether in reality its real property!!!
109
Assignability of Equity Interests in LLCs
default rule: assignment of interest or admission of new member requires 100% written consent by all members
-LLC members cannot freely transfer full ownership interest (financial and management rights)
110
Assignability of Equity Interests in Corporations
- no default rule on transfer of voting rights
- can have restrictions on the sale of stock
- transfer restrictions are enforceable if reasonably and conspicuous or actual notice
111
Right of First Refusal
- must let company decide if they want to buy before selling to 3rd party
- default rule in MO close corporations
112
Right of First Look
-first offer of sale goes to the company or owners
113
Forced Liquidation
forced sale of company assets
114
Freeze-out
- majority shareholders withhold dividend payments to force minority shareholders to sell their shares to the majority for pennies on the dollar
- courts usually force majority shareholders to buy-out oppressed minority shareholders at FMV
115
Minority Discount
-since minority shareholders lack control of the company, purchasers don't want to pay full value since no power
116
marketability discount
since closely held corporations can't sell their stock on the open market, value is decreased
117
Cross-purchase
When one or more owners buy back stock
118
Entities WITH Statutory Rights to a buyout:
- General Partnerships
| - LLC
119
Entities WITHOUT statutory right to buyout
- Corporations
| - Limited Partnership
120
Buyout
- court ordered acquisition
| - oppressive conduct is ground for buyout
121
Deadlock
-owners are at odds so much so that no progress can be made
122
Deadlock Solutions in MO
- Appoint a custodian/receiver
- Appoint a provisional director (neutral third party) if half of the directors file for the appointment or no less than 1/3rd of the outstanding shares
123
Judicial Dissolutions for Corporations
- when directors in deadlock in management of affairs
- shareholders can't bread the deadlock
- irreparable injury to the corporation is threatened
124
Withdrawal - General Partnership
-default: partner always has power to withdraw with written notice even if agreement says otherwise
125
Dissolution - General Partnership
-adding a new partner leads to dissolution (old partnership is gone and there now a new partnership)
126
General partnership dissolution without breach when:
- termination of definite term
- express will of any partner when there's no definite term
- expulsion of partner from business in accordance with partnership agreement
127
Additional Causes of Dissolution of Partnership
- illegality
- death of partner
- bankruptcy of any partner
- decree of court
128
Breach of Agreement - General Partnership
breacher must pay partners the value of his interest minus any damages caused by the breach
129
Withdrawal - Limited Partners
- Can withdraw ONLY at time of event(s) specified in writing in partnership agreement
- partnerships can't pay partner for his interest if it would leave them insolvent to creditors
130
Dissolution - Limited Partners
-If dissolution, affairs will be wound up
131
(MO) If dissolution was caused by withdrawal of a general partner:
- LP doesn't dissolve if partnership agreement contains right of continuing partners to continue business, OR
- take a vote within 90 days to get majority of interest to agree to continue in writing, OR
- judicial dissolution is necessary because it's not practicable to carry on business
132
Judicial Dissolution is available for Limited Partnerships when:
- partner is mentally incapacitated
- partner becomes incapable of performing his part of the contract
- partner is guilty of conduct that would affect carrying on business
- business can only be carried on at a loss
133
Withdrawal - LLCs
- members can withdraw at any time if they provide 90 days written notice or upon events specified in the operating agreement
- withdrawing member gets FMV of interest within 180 days (if they didn't breach)
134
Dissolution of LLCs occurs if:
- written consent of all members, or
- happening of events in operating agreement, or
- withdrawal of members if within 90 days and majority of remaining members decide to dissolve
135
Dissolution - Corporation, occurs when:
- merger automatically dissolves the corp, OR
- if not stock has been issued, but the corp has articles of incorporation, OR
- Stock is issued and the board of directors proposes dissolution, recommends dissolution to shareholders, and the shareholders approve by a 2/3rds vote, OR
- written consent by holder of 100% of the outstanding shares
136
Internal Affairs Doctrine
- A choice of law rule
| - the state where corp is incorporated determines issues relating to the internal affairs of a corp
137
Reasons Delaware is popular for corporations:
- large amount of case law - predictability
- chancellors have alot of business experience
- low percentage of chancery decisions are appealed, generally upheld
- law more flexible towards corporations
- more attractive to investors than shareholders
- pro-management
138
Business Judgment Rule
- courts defer to the business judgment of leaders in corporations
- applies largely to business decisions and duty of care
139
Purpose of Corporations
- for profit theory
| - social entity theory
140
For Profit Theory - Corporations
corporation is property of shareholders so leaders owe a duty to make money for the shareholders
141
Social Entity Theory
-corporations should care about their effects on employees, the environment, and society
142
Who votes for directors of a coporation?
shareholders
143
Pooling Agreeement
-shareholders agree among themselves as to how they're going to vote on directors
144
Statutory Close Corporations
- not same as closely held corps
| - specifically elected type of corporation
145
Requirements to become a statutory close corporation (MO):
- must be in articles of incorporation
- must be 50 or less shareholders
- must be approved by 2/3rds votes
146
Share Transfer Prohibition
- opt out
- interest in shares of statutory close corp cannot be transferred until the shares are first offered to the corp AFTER obtaining an offer for cash from a third person
147
Proxy
- someone who is not a shareholder voting on behalf of a shareholder
- usually necessary for big corps - hard to round up all shareholders
148
Record Owner
- registered owner
| - entitled to dividends
149
Record Date
cutoff date for determining registered shareholders
150
Beneficial Owner
- person who actually owns the shares
- may be different or same as the record holder
- can force record owner proxy
151
Inspectors
-person who determines who the record owners are and if the proxy was properly executed
152
Proxy Voting in MO
-Allowed for corporations
153
Voting for Corps in MO
- default rule is one share, one vote
- in election of directors, cumulative voting is default
- shareholder meets required at least once annually unless unanimous written consent by shareholders
154
Directors in Corps in MO
- must be humans!
| - terms can't exceed 3 years
155
Cumulative Voting
- gives minority shareholders a seat at the table by increasing the likelihood that minority can elect a director
- only for election of directors
- can opt out in the Articles of Incorporation in MO
156
Cumulative Voting Formula
(ns/(d+1)) +1
s - total number of shares voting
n - number of directors hoping to elect
d - total number of directors up for election
157
Voting Trust in Corporations
- allowed in MO
- Separates voting rights from ownership
- Any number of shareholder can do it (not all shareholders have to do it)
- Can last as long as they want
158
Types of Fiduciary Duty Claims
- Duty of Loyalty (duty of good faith is subset of duty of loyalty)
- Duty of Care
159
3 Ways to Overcome Business Judgment Rules
1. Breach of the duty of loyalty
2. Breach of the duty of care
3. Waste
160
Breach of Duty of Loyalty Claims
- conflicts of interest
- self-dealing
- improper seizing of corporate opportunity
161
Waste
- lack of minimum rationality
- no rational business person would make that decision
- a showing of bad faith
162
Tag-Along Rights
-if people in control (typically in closely-held corps) sell their shares to someone else, they must give minority shareholders the same opportunity to sell their shares at the same price.
163
To get court to compel dividends, Plaintiff must show:
1. surplus
| 2. bad faith
164
Self Dealing - not void/voidable as long as:
1. relationship is known by board of directors and they authorize it by majority vote of disinterested directors
2. full disclosure of material facts to shareholders and the transaction is approved in good faith by vote of shareholders
3. transaction is intrinsically fair to corp at time of authorization or approval by board or shareholders
4. (MO only) have 1 of the first 3 or the transaction is void
165
Corporate Opportunity
when a directors steals an opportunity from the corp and take the deals for themselves
166
Director can't take advantage of a corporate opportunity unless:
1. he first offers the corp opportunity to the corp, and
2. the corporate opportunity is rejected by the coro, and
3. the rejection of the opp if fair to the corp, OR the opp is rejected in advance following disclosure
