legal module 2 (study) Flashcards
what is an agent
Someone who agrees to do the act for the principal
what is a principal
has the right to control the agents conducts in matters entrusted to the agent
Someone who interacts with the agent on behalf of the principal
Third party
How is a agency relationship created
by agreement of the parties, ratification, estoppel, operation of law
what factors used to determine whether an agency relationship exists?
-consent
-control: principal has the right to control
-fiduciary duties
-financial arrangements
-representation: the agent representing principal
why do we want agents at all?
-performance
-notification
-loyalty
-obedience
-accounting
what are problems with having agents
-agency costs with hiring them
-agency risks, leading to moral hazard
Where do employees fit into agency
normally, all employees who deal with third parties are deemed to be agents
How do independent contractors relate to agency issues?
IC have the flexibility and specialized skills to hiring parties, the nature of their realtionship raises unique agency issues related to liability, contractual obligations, and control.
what type of things can an agent do and how is it determined?
-scope of employment:
-agency relationship
-authority
power or right to give orders, make decisions,or enforce rules
authority
authority declared in clear, direct, and definite terms. can be given orally or in writing
express authority
do what is reasonably to carry out his or her express authority and accomplish the objectives of the agency
implied authority
an agent’s ability to put costs on principals can be limited by
the authority provided by principal, they’re limited by rules and only spend within their authority, acting in the principals best interest
what are the duties for agents
- performance
- notification
3.loyalty
4.obedience
5.accounting
An implied condition in every agency contract is the agent’s agreement to use reasonable diligence and skill in performing the working
performance
agent is required to notify the principal of all matters that come to her or his attention concerning the subject matter of the agency
notification
agent has the duty to act solely for the benefit of his or her principal and not in the interest of the agent or third party
loyalty
agent has a duty to follow all lawful and clearly stated instructions of the principal
obedience
agent’s duty to keep and make available to the principal an account of all property and funds received and paid out on behalf of the principal
accounting
what are the duties from principals to agents
compensation, reimbursement and indemnification, cooperation, and safe working conditions
Principal has a duty to pay the agent for services rendered
compensation
when an agent spends money for principals needs or as part of their job, principal must repay the agent for those expenses
reimbursement
if the agent does something the principal asked for and it leads to some kind of loss or trouble the principal has to pay or cover the costs
indemnification
principal must cooperate with the agent and assist the agent in performing her or his duties
cooperation
principal conducting an activity through an agent may be liable for harm resulting from the principal’s own negligence or recklessness.
Principal’s tortious conduct
principal who authorizes an agent to commit a tort may be liable to persons or property injured thereby b c the act is considered to be the principals
principals authorization of agents tortious conduct
what are the types of business enterprises
sole proprietorship, partnership, and corporation
principal is always directly responsible for an agent’s misrepresentation made within the scope of the agent’s authority
liability for agent’s misrepresentation
what are the pros of a sole proprietorship
the proprietor owns the entire business and has the right to receive all profits
- provides more flexibility than other business types
- and propreitor pays only personal income taxes on the business profits
disadvantage of sole proprietorship
-the proprietor alone bears the burden of any losses or liabilities incurred by the business enterprise
- Personal asses at risk
-lack of continuity when died
pros of partnership
- share responsibility
-shared capital and resources
cons of partnerships
-unlimited liability
-disagreements and conflicts
-shared profits
what is the formality for sole proprietorship
may need to register a name
- personal tax returns include business income and expenses
formality for partnership
- partnership agreement for outlining rights and responsibilities
-keep records of partnership transactions and decisions
formalities for limited liability company
articles of organization filed with the state
- operating agreement outlining management structure, member rights
what is the default tax treament for sole proprietorship
pass-through taxation
-taxes are reported on the owner’s personal tax return
what is default tax treatment for partnership
-pass-through taxation
-partnerships file an information tax return but the income and losses are passed through to the partners who report them on their personal tax returns
default tax treatment for corporation
coporation elects to pass income, losses, deductions and credits through to shareholders for federal tax purposes, similar to a partnership
a partner owes this to the partnership and to other partners
fiduciary duties
what do fiduciary duties consist of
duty of care
duty of loyalty
refraining from grossly negligent or reckless conduct, intentional misconduct or a knowing vioaltion of law
duty of care
requires a partner to account to the partnership for any “property, profit, or benefit” derived by the partners from the partnership’s business or the use of its property
duty of loyalty
legal entity created and recognized by state law
corporation
what is different for corporations compared to other businesses
corporations offer advantages such as limited liability, access to capital, separate legal status
how is a corporation formed
responsibility for the overall management of the firm is entrusted to a board of directors, whose members are elected by shareholders
when a corporation is formed incorrectly or with defects, the law provides several ways to address these issues:
-ratification
-articles of incporation
-de facto corporation
-estoppel
-piercing the corporate veil
legal principal that provides protection to corporate directors and officers when making business decision
business judgement rule
what is the difference between fiduciary duties and business judgement rule
FD provide a framework for ethical conduct and accountability in business entities, the BJR offers protection to directors and officers when exercising their business judgement
who are the corporate personnel
board of directors who are responsible for the overall managment of the firm
who elects the board of directors in a corporate personnel
elected by shareholders
whose shares are held by members of a closely held, family, or privately held corporations
close corporation
ownership is held closely by a small group of individuals or entities, focuses on the limited dispersal of shares and the lack of public trading in the corporation’s stock
closely held corporation
the action from court to disregard the corporate entity and hold the shareholders personally liable for corporate debts and obligations
piercing the corporate veil
when do courts pierce the veil?
when the corporate privilege is abused for personal benefit or when the corporate priviledge is abused for personal benefit or when the corporate business is treated so carelessly that the corporation and the controlling shareholders are no longer separate entities
how do you finance a corporation
by the issuance and sale of corporate securities, which includes bonds and stocks
funds borrowed by a business that must be repaid over time, usually with interest
debt
represents ownership in a business, typically in the form of common or preferred stock
equity
what rights can be attached to stock
voting rights that may affect corporation
-dividend rights, shareholders may be entitled to recieve dividends
major structural changes refer to significant alterations made to the organizational framework or operations of a business entity
major structural changes
why do major structural changes matter
it can shape the future trajectory and success of a business
involves the legal combination of two or more corporations in such a way that only one of the corporations continues to exist
merger
two or more corporations combine in such a way that each corporation ceases to exist and a new one emerges
consolidation
some or all of the shares of one corporation are exchanged for some or all of the shares of another corporation, but continue to exist
share exchange
a relationship between two parties in which one party, the agent, agrees to represent or act for the other, principal
agency
principal causes a third party to believe that the agent has authority, even though they do not
apparent authority
Principal whose identity is known to a third party at the time the agent makes a contract with the third party
disclosed principal
a rule requiring that an agents authority be in writing if the contract to be made on behalf of the principal must be in writing
equal dignity rule
person having a duty created by his or her undertaking to act primarily for another’s benefit in matters connected with undertaking
fiduciary
one who works for, and receives payment from, an employer but whose working conditions and methods are not controlled by the employer. Not an employee but may be an agent
independent contractor
A public official authorized to attest to the authenticity of signatures
Notary public
Principal whose identity is unknown by a third party, but the third party knows that the agent is or may be acting for a principal at the time the agent and the third party form a contract
partially disclosed
authorization for another to act as one’s agent or attorney in either specified circumstances (special) or in all situations (general)
Power of attorney
a doctrine under which a principal or an employer is held liable for the wrongful acts committed by agents or employees while acting within the course and scope of their agency or employment
respondeat superior
principal whose identity is unknown by a third party, and that person has no knowledge that the agent is acting for a principal at the time the agent and 3rd party form a contract
undisclosed principal
holding one person or entity responsible for the actions of another person who is under their supervision or control
vicarious liability
document filed with a designated state official by which a limited liability company is formed
articles of organization
written agreement that sets forth each partner’s rights and obligations with respect to the partnership
articles of partnership
the amount payable to a partner on his or her dissociation from a partnership, based on the amount distributable to that partner if the firm were wound up on that dare, and offset by any damages for wrongful dissociation
buyout price
the document that must be filed with a designated state official to form a limited partnership
certificate of limited partnership
in partnership law, an order granted by a court to a judgment creditor that entitles the creditor to attach a partner’s interest in the partnership
charging order
The severance of the relationship between a partner and a partnership when the partner ceases to be associated with the carrying on of the partnership business
dissociation
the formal disbanding of a partnership or a corporation. it can take place by acts of the partners or, in a corporation, acts of the shareholders and board of directors, the subsequent illegality of the firms business
dissolution
in limited partnership, a partner who assumes responsibility for the management of the partnership and has full liability for all partnership debts
general partner
a tax return submitted by a partnership that only reports the business’s income and losses
information return
doctrine under which a plaintiff may sue, and collect a judgment from, all of the partners together (jointly) or one or more of the partners separately (severally, or individual)
joint and several liability
the partners shared liability for partnership obligations and debts. a third party must sue all of the partners as a group, but each partner can be held liable for the full amount
joint liability
a hybrid form of business enterprise that offers the limited liability of a corporation and the tax advantages of a partnership
limited liability company
used mainly by professionals who normally do business in a partnership. An LLP is a pass-through entity for tax purposes, but a partner’s personal liability for the malpractice of other partners is limited
limited liability partnership
partnershp consisting of one or more general partners (who manage the business and are personally liable for debts of the partnership) and one or more limited partners (who contribute only assets and are liable only up to the extent of their contributions)
limited partnership
person who has an ownership interest in a limited liability company
member
an agreement in which the members of a limited liability company set forth the details of how the business will be managed and operated
operating agreement
partnership liability imposed by a court on persons who have held themselves out to be partners, even though they were not, and others have detrimentally relied on the their representations
partnership by estoppel
a business entity that has no tax liability. the entity’s income is passed through to the owners, and they pay taxes on the income
pass-through entity
the second of the two stages in the termination of a partnership or corporation, in which the firms assets are collected, liquidated, and distributed, and liabilities are discharged
winding up
a corporation formed in another country but doing business in the uS
alien corporation
the right of a dissenting shareholder, who objects to a merger or consolidation of the corporation, to have his or her shares appraised and to be paid the fair value of those shares by the corporation
appraisal right
The document containing basic information about the corporation that is filed with the appropriate state official, usually the secretary of state, when a business in incorporated
articles of corporation
security that evidences a corporate debt
bond
the internal rules of management adopted by a corporation at its first organizational meeting
bylaws
a corporation whose shareholders are limited to a small group of persons, often only family members
close corporation
to put funds or goods together into one mass so that they are mixed to a degree that they no longer have separate identities, as when personal and corporate interests are mized together to the extent that the corporation has no separate identity
commingle
shares of a ownership in a corporation that give the owner of the stock a proportionate interest in the corporation with regard to control, earnings, and net assets
common stock
the legal combination of two or more corpoations in such a way that the original corporations ceases to exist, and a new corporation emerges with all their assets and liabilites
consolidation
a distribution of corporate profits to the corporations shareholders in proportion to the number of shares held
dividend
the legal combination of two or more corporations in such a way that only one corporation continues to exist, having acquires all of the assets and liabilites of the other corporation
merger
the action of a court to disregard the corporate entity and hold the shareholders personally liable for corporate debts and obligations
piercing the corporate veil
stock that has priority over common stock as to payment of dividends and distribution of assets on the corporation’s dissolution
preferred stock
funds invested by a private equity firm in an existing corporation, usually to purchase and reorganize it
private equity capital
in a corporate dissolution, a court-appointed person who winds up corporate affairs and liquidates corporate assets
reciever
The portion of a corporations profits has not been paid out as dividends to shareholders
retained earnings
a close business corporate attributes, including limited liability, but qualifies under the internal revenue code to be taxed as a partnership
S corporation
generally, stocks, bonds, or other items that represent an ownership interest in a corporation or a promise of repayment of debt by a corporation
securities
a transaction in which some or all of the shares of one corporation are exchanged for some or all of the shares of another corporation, but both corporations continue to exist
share exchange
merger that can be accomplished without the approval of the shareholders of either corporation because one company (the parent corporation) owns at least 90% of the outstanding shares of each class of stock of the other corporation
short-form merger
the acquisition of control over a corporation through the purchase of substantial number of the voting shares of the corporation
takeover
special invitation from one company to the shareholders of another company, asking if the sharesholders want to sell their shares of stock
tender offer
activites of a corporations manager that are outside the scope of power granted them by the corporations charter of the laws of the state of incorporation
ultra vires
financing provided by professional outside investors to a new business venures
venture capital
