MEE Agency/Partnership + Corporations

Question 1

How is an agency relationship created?

Answer 1

When 1 person (principal) manifests an intent that another person (agent) act on their behalf AND both parties consent to the agreement

*WO! May require a writing if the scope of the authority falls w/in SOF (authority to purchase land, or authority to act as agent for 3 years, etc.) - called the equal dignities rule

Question 2

Actual Authority (def.):

Answer 2

Authority that the agent reasonably thinks they possess based on the principal’s dealings with them; this authority can be:

1. Express - contained in an agreement, expressly told; and/or
2. Implied from the actions of the principal

Question 3

Apparent Authority (def.):

Answer 3

This arises when Principal “holds out” Agent as having certain authority, which causes a 3rd party to reasonably believe the agent has such authority

Question 4

What are the common fiduciary duties?

Answer 4

1. duty of care: act reasonably and carry about business like a reasonable person
2. duty of loyalty: generally, treat principal (partners, shareholders, etc.) fairly & act in their best interest rather than your own

Question 5

What is the Duty of Care re: General Partnerships?

Answer 5

For GPs, it requires the partners refrain from engaging in grossly negligent or reckless conduct, intentional misconduct, OR a knowing violation of law

BUT - excludes ordinary negligence

Question 6

7 Methods of Partnership Dissociation

Answer 6

1. oral or written notice of partner’s express will to w/draw;
2. happening of an agreed event;
3. valid expulsion of the partner;
4. partner’s bankruptcy or the appointment of a receiver for a partner;
5. partner’s death or incapacity to perform partnership duties;
6. a court’s decision a partner is incapable of performing a partner’s duties;
7. termination of a business entity that is a partner

Question 7

What 2 things can occur when a partner dissociates?

Answer 7

1. partnership is dissolved, business is wound up (liquidated); OR
2. partnership continues, but dissociated partner is entitled to a buyout of their partnership interest

Question 8

What must be done to create a Limited Partnership?

Answer 8

1. file a certificate of limited partnership with Secretary of State
2. ensure file includes:
   
   1. name of partnership
   2. names and addresses of agent for service of process
   3. names and addresses of each general partner
   4. whether LP is LLLP or not

Question 9

What must be done to create a valid LLP?

Answer 9

1. file a statement of qualification with the Secretary of State
2. the statement must be executed by at least 2 partners
3. information must include:
   
   1. name and address of partnership;
   2. statement that partnership elects to be an LLP; AND
   3. a deferred effective date

Question 10

What is required to form an LLC?

Answer 10

1. file certificate of organization (some states - articles of organization) w/ Sec. of State
2. the LLC must have at least 1 member
3. certificate must include:
   
   1. name of LLC
   2. address of LLC’s registered office; AND
   3. name and address of registered agent

Question 11

(Def.) Dissociation:

Answer 11

a change in partner relationship caused by any partner ceasing to be associated with the carrying on of the business; partner = dissociated upon notice of express will to withdraw as a partner

Question 12

Promoter Liability

Answer 12

A promoter = person who procures commitments (for capital or instrumentalities) on behalf of corp that hasn’t been formed yet

generally → promoter is personally liable on these Ks, & liability continues even after corp is formed AND even if corp adopts contract

how to not be liable? include an express provision in the contract that states the promoter will not be liable

Question 13

Effect of promoter signing contract: “___ as agent for New, Corp., a corporation to be formed.”

Answer 13

If Promoter = Agent → agent is NOT liable b/c entered on principal’s behalf

If Promoter ≠ Agent → agent is liable *BECAUSE, like here, the principal hasn’t been formed yet

Question 14

How can a corporation become liable on a contract a promoter entered into on its behalf?

Answer 14

Adopt the contract, either

1. expressly → by board resolution with knowledge of material facts; OR
2. impliedly → by acquiescence or conduct normally constituting estoppel, such as accepting the benefits of the contract, if done w/ knowledge of material facts

Question 15

[R] Business Judgment Rule

Answer 15

A court will not second-guess a decisions if

1. the directors–in good faith–manage the corporation to the best of their ability;
2. with the care that an ordinarily prudent person in a like position would exercise; AND
3. in a manner they reasonably believe is in the corporation’s best interests.

Under the BJR, there is a presumption that directors’ decisions are (i) made in good faith and (ii) in the corporation’s best interests

Challenger bears burden of proof

Question 16

Directors do not violate their duty of care if, in discharging their duties, they rely on reports from:

Answer 16

1. corporate officers the directors reasonably believe are reliable and competent; AND
2. corporate outsiders as to matters the director reasonably believes to be within the outsider’s professional competence

Question 17

Re: duty of loyalty, a director’s conflicting interest transaction will not be set aside if:

Answer 17

after disclosing all of the material facts of the transaction, the deal is:

1. approved by a disinterested majority of the directors; OR
2. approved by a majority of the shareholders; OR
3. the deal is fair

Question 18

What 2 types of suits can a shareholder bring?

Answer 18

1. direct action: seeks to enforce duties the corporation owes to the shareholder
2. derivative action: seeks to vindicate wrongs done to corp (suing on corp’s behalf)

Question 19

What must a shareholder do before bringing a derivative suit? What might relieve a shareholder of this obligation?

Answer 19

Shareholder MUST make a demand on the board of directors to act on corporation’s behalf.

BUT → many states will dispense this requirement if the request would be futile (i.e., where the majority of the board is accused of wrongdoing and are thus unlikely to agree to bring suit against themselves)

Question 20

What are 3 requirements for a shareholder to bring a derivative suit?

Answer 20

1. standing
2. adequacy (shareholder can show they are representing corp’s interests)
3. demand (shareholder must usually file a written demand to Board and wait 90 days before filing the suit - unless determined efforts are futile)

Question 21

A shareholder has a right to inspect corporate books and records, but what is required when they exercise this right?

Answer 21

A shareholder must only make this demand to inspect

1. in good faith; &
2. for a proper purpose
   
   1. ^ = a purpose reasonably related to a person’s interest as a shareholder

AND → the demand must state: (i) the purpose, (ii) the records shareholder desires to inspect, & (iii) the records directly connected to this stated purpose