MEE - Agency & Partnership Flashcards
*How is an agency relationship created?
Generally, an agency relationship is created when one person (the principal) manifests an intent that another person (the agent) act on his behalf and both parties consent to the agreement.
A principal is contractually bound to the acts of the agent if the agent acted with the actual or apparent authority. Thus, a principal is liable to third parties for contracts entered into by an authorized agent.
Generally, if the agency term is specified, the agency terminates at the end of the term. Either the principal or agent may unilaterally terminate the agency before the end of the term, but the breaching party may be liable for damages. However, where an agent breaches his duties, the principal may terminate the agency before the end of the agreed-upon term without incurring any liability for breach.
*What is actual authority
Actual authority is authority that the agent reasonably thinks he possess based on the principal’s dealings with him. Actual authority can be express or implied from the actions of the principal through custom, necessity, or prior acquiescence. (subjective)
*What is apparent authority?
Apparent authority arises when the principal holds out the agent as having certain authority, causing third parties to reasonably believe the agent has such authority. (objective)
*How is a partnership formed?
A partnership is formed when two or more people associate to carry on as co-owners a business for profit. There is no requirement that the parties subjectively intend to form a partnership, only that the engined to run a business as co-owners. Generally, neither a formal agreement nor writing is required; in fact, the intent of the parties to carry on as co-owners of a business can be implied from their conduct.
In the absence of an agreement to the contrary, partners share profits equally, and losses are split in the same ratio as profits.
Indicators of partnership establishment: (1) A person who receives a share of the profits from a business is presumed to be a partner.
*How is a limited partnership formed?
A limited partnership is comprised of at least one general partner and at least one limited partner. A certificate of a limited partnership must be filed with the Secretary of State and must be signed by all general partners.
*What actions may bind a partnership by the actions of a partner?
Every partner is an agent of the partnership.
A partnership can be bound on contract entered into by a partner with actual or apparent authority.
A partnership is liable in contract to a 3rd party if the agent had authority or the partnership ratified the contract.
A partnership is generally not liable for independent contractor torts. Though it may be liable through respondeat superior.
**What is respondeat superior?
Under respondeat superior, and employer is liable for the negligence of his employee committed within the scope of the employee’s employment. Generally, an employer is not liable for the torts of an independent contractor.
*What are individual partners liable for in regards to partnership activities?
All partners are jointly and severally liable for all obligations of the partnership, which means that each partner is personally liable for the entire amount of such obligations. In jurisdictions that follow the Uniform Partnership Act, partners are only jointly liable for debts of the partnership.
A partnership must indemnify a partner with respect to payments made by a partner in the ordinary and proper conduct of the partnership’s business. Where one partner pays the whole of a partnership debt, she may required the other partner to contribute his pro rata share of the payment.
A judgment will not personally bind a partner who has not been served. Generally, a judgment creditor must first seek satisfaction of any judgment from the partnership, and then from the partners personally to the extent not covered by partnership assets. Once a judgment is issued against a partner though, the creditor can attach the transferable interest of the partner to satisfy the judgment. The charging order then becomes a lien on the partner’s transferable financial interest in the partnership.
A person admitted as a partner is not personally liable for any partnership obligation incurred before the person’s admission as a partner.
*How do you determine whether someone is an employee vs an independent contractor?
The overriding factor in determining whether a person is an employee is whether the employer has the right to control the manner and method by which the person performs his task. In determining right to control, the following factors should be considered: the characterization by the parties of their relationship, whether the person hired is engaged in a distinct business of his own, the customs of the locality regarding supervision of the type of work to be performed, the degree of skill required, whether the employer provided the tools to perform the job, the length of the employment period, the basis of compensation, and whether the person was hired to perform an act in furtherance of the employer’s business.
**How do you determine whether an employee’s act is within the scope of employment?
Three tests are used to determine if an employee’s conduct was within the scope of employment: (1) whether the conduct was of the same general nature as, or incident to, that which the employee was employed to perform; (2) whether the conduct was substantially removed from the authorized time and space limited of the employment; (3) whether the conduct was actuated, at least in part, by a purpose to serve the employer.
*What is partnership by estoppel?
When the partnership creates the appearance that an employer-employee relationship exists, a third party relies on that relationship, the partnership is estopped from denying the existence of an employment relationship.
*What is a partnership dissociation?
Dissociation is a change in the relationship of the partners caused by any partner ceasing to be associated with the carrying on of the business. A partner is dissociated from the partnership upon notice of his express will to withdraw as a partner.
A partnership is dissolved and its business must be wound up when a partner in a partnership at will notifies the partnership of his intent to withdraw. However, if the dissociating partners (excluding any wrongfully dissolving partners) and the remaining partners unanimously vote to continue the partnership business, then the dissolution is retroactively nullified.
*What is a partnership dissolution?
Dissolution is the termination of a partnership. In an at will partnership, at any time after the dissolution of a partnership and before winding up of the partnership’s business is completed, the partners may decide by unanimous vote to continue the partnership business. If the partnership business continues after a partner dissociates, the partnership must buy out the dissociated partner’s interest.
Entering a new contract is considered new business that is beyond the scope of the partners’ authority once a dissolution has occurred. A partner who acts for the partnership after dissolution, other than for the purpose of winding up, is not entitled to copartner contribution for a liability arising from the act, if the acting partner had notice of the dissolution at the time of the act.
A rightfully dissociating partner is not liable for damages to the partnership and may take part in winding up the partnership’s affairs.
In a partnership for a definite term or particular undertaking, a partner’s wrongful dissociation causes a dissolution and winding up only if, within 90 days, at least half of the remaining partners decided to wind up the business.
*What powers do dissociated partners have in binding a partnership?
Absent an agreement to the contrary, the dissolution of a partnership terminates the authority of any partner to act as an agent for the partnership except for the purpose of winding up the affairs of the partnership.
A partnership will be bound by a partner’s act after dissolution if the act is appropriate for winding up the partnership business. A partnership also will be bound by a partner’s post dissolution act - even an act that is not appropriate for winding up the partnership, such as entering into a contract to carry out new business - where the party with whom the partner dealt did not have notice of the dissolution and the act would have bound the partnership before dissolution.
A third party will be deemed to have notice of a partnership’s dissolution 90 days after a partner files a statement of dissolution with the Secretary of State. If a statement of dissolution is not filed, a third party also has notice if it knows of the dissolution, receives notification of it, or has reason to know of it based on the surrounding circumstances.
*What rights do partners in a partnership hold?
Power to manage: Partners have an equal right to manage the business of the partnership, absent an agreement to the contrary.
Power to bind: Actual authority to enter into transactions regarding matters within the ordinary course of business requires a majority vote of the partners. Actual authority to enter into transactions regarding matters outside of the ordinary course of business requires a unanimous consent of all partners. The act of any partner apparently carrying on in the ordinary course of the partnership business or business of the kind carried out by the partnership will bind the partnership unless the partner had no authority to act for the partnership and the third party with whom the partner dealt knew the partner lacked authority.
Compensation: Absent an agreement to the contrary, a partner is not entitled to remuneration for services rendered to the partnership, except for reasonable compensation for services rendered in winding up the partnership business.
Property: Additionally, property that is titled in the partnership name is deemed to be partnership property; a partner has not interest in partnership property.
Transferable Interest: A partner has a transferable interest in the partnership, which consists of his share of the profits and losses and right to receive distributions. He cannot transfer his interest in management and other rights. The transferable interest can be transferred to a third party, and upon transfer of such rights, the transferee is entitled to receive distributions to which the transferring partner would have been entitled. The transferee does not, however, become a partner by virtue of the transfer, and therefore has no right to interfere in the management of the partnership or to inspect the partnership books and records.
The transferree of a partner’s transferable interest can ask the court for a judicial decree that it is equitable to wind up the partnership only if: (1) the term specified in the partnership agreement has expired, or (2) it is a partnership at will.
