MEE - Bar Exam Drills Flashcards
Partnership:
Partnership is created when two or more persons associated to carry on as co-owners a business for profit
Persons can include entities, like LLCs.
Sharing profits, not gross receipts, create a presumption of a partnership.
When a partnership is created, all partners are jointly and severally liable for the obligations of the partnership.
Courts will look at whether the persons intended to carry on business for profit, and look at factors like whether each had rights in the business or venture, whether they designated their relationship as such, whether they shared property as joint tenants or tenants in common, and whether the activity required extensive activity.
Courts will also look at whether each had a right to participate in the business or who had control.
Courts will also look at whether they agreed on losses and costs may indicate a partnership was formed.
LLC Liability for Acts:
An LLC can be liable for the acts of those with direction, oversight, and management authority based on agency principles.
Debts of LLCs:
The general rule is that the debts of one LLC are the debts of the LLC and a veil is erected around its members.
Actual Authority:
Actual authority exists when the agent-manager acts with authority he/she reasonably believes he/she possesses based on his/her communications with LLC, the principal, and such conduct is within the scope of the LLC’s ordinary course of business.
Actual authority can be express or implied.
Apparent Authority:
Apparent authority exists when the principal holds out the agent as his/her own, while exceeding his/her actual authority, and the agent acts in such a way that a third party reasonably believes the agent to be acting with such authority, the agent is acting within the ordinary course of the LLC business, and the third party lacks notice that the agent lacks such authority and is exceeding his/her actual authority.
(The issue is whether SubCo’s veil of limited liability should be pierced such that its sole member, Parent, should be held liable for the obligations of Sub.)
LLC’s Veil:
An LLC is like a corporation in that it has a legal fiction: the debts, obligations, and liabilities of the LLCs are those of the LLC and not its member.
Members are not personally liable for the LLC’s debts, unlike partners in general partnership.
But, like a corporation, an LLC’s veil of limited liability for its members can be pierced if three elements are present:
- (1) there is control by a member in his or her member capacity, not manager capacity
- (2) the member uses that control to abuse the veil of limited liability
- (3) piercing the veil of limited liability and holding the member accountable is necessary to prevent injustice
Ability to Investigate Pre-Agreement:
Courts are less likely to pierce the veil in contract cases, whereby parties had ability to investigate an LLC or corporation
