Most Frequent Agency and Partnership Rules Flashcards
How is a Limited Liability Company (LLC) created?
An LLC is created when (i) in a writing the parties agree and consent to forming an LLC; (ii) there is at least one general partner, and one or more limited partners; (iii) the writing contains the name of the business along with the language of “Ltd” or “LLC” to evidence intent in the formation of a limited liability company and (iv) the agreement is filed with the proper state agency (usually the secretary of state).
If any of these requirements is lacking the parties are presumed to have formed a general partnership.
How is a General Partnership formed?
A general partnership is the default business organization and is formed when two or more people carry on as co-owners of a business for profit. There are no formalities required other than two or more people creating a business relationship.
Sharing in profits equally is evidence of a general partnership.
Actual v. Apparent Authority
A principal is bound to contracts entered into by its agent if the agent has actual or apparent authority.
Actual Authority - Actual authority may be express or implied. Express authority occurs when the principal has explicitly told the agent (either orally or in writing) that they are entitled to act. Implied authority occurs when either: (a) the agent believes he is entitled to act because the action is necessary to carry out his express authorized duties; (b) the agent has acted similarly in prior dealings between the principal and agent; OR (c) it is customary for agents in that position to act in that way.
An agent has actual authority to act in accordance with his reasonable understanding of his authority, even if the principal later establishes that the agent was mistaken. Silence or prior acquiescence by the principal may give rise to the agent’s reasonable belief that he has authority to perform similar acts in the future.
If an agent acts within their scope of authority, the principal will be liable to a third-party on the contract, even if the principal is undisclosed, partially disclosed, or unidentified.
Apparent Authority - Apparent Authority exists when (i) a third-party reasonably believes that the person/entity has authority to act on behalf of the principal; AND (ii) that belief is traceable to the principal’s manifestations (i.e. the principal holds the agent out as having authority).
A principal holds an agent out as having authority when he: (a) gives the agent a position or title indicating certain authority; (b) has previously held out the agent as having authority andn has not published a revocation of said authority; OR (c) has cloaked the agent with the appearance of such authority.
Withdrawal from an “at will” Partnership
A partner in a partnership “at will” may withdraw from the partnership business at any time. A partnership is “at will” when the partnership is not created for a limited duration or for a specific undertaking. When a partner in a partnership “at will” expresses to the other partners their intent to dissociate from the partnership business, it triggers dissolution of the partnership.
What happens when a partner in an “at will” partnership business dissociates from the partnership?
When a partner in a partnership business dissociates from the partnership, it triggers dissolution of the partnership. Upon dissolution, the partnership business must begin “winding up” the partnership business which includes ending the business, settling up the current business of the partnership, any paying off any debts and obligations before any partner is entitled to receive profits from the partnership business. Absent language in an agreement to the contrary, partners share in profits equally and share in losses the same as they do profits. However, if the remaining partners agree to carry on the partnership business (absent the dissociating partner) this will stop the partnership from dissolving. The remaining partners must pay the dissociating partner their interest in the partnership business.
