NY Agency/Partnership Law

Question 1

What is a general partnership?

Answer 1

An “association” of 2 or more persons who are carrying on as co-owners of a business for profit

Question 2

What is necessary to establish a general partnership?

Answer 2

NO FORMAL REQS! There are no formalities to becoming a general partnership NOTE: sharing profits is KEY→contribution of money/services in return for a share of PROFITS (not salary, comission) is prima facie evidence of a GP

Question 3

What is the liability of a general partner to third parties?

Answer 3

EACH partner is liable for each OTHER partner’s torts in the scope of the partnership business AND for each OTHERS partner’s authorized Ks Coming/going partners Incoming partners are generally NOT liable for PRIOR debts, BUT any money paid into the partnership CAN be used to satisfy those prior debts Dissociating/withdrawing partners retain liability on future debts until ACTUAL notice of their dissociation is going to KNOWN creditors AND until PUBLICATION notice is given to POTENTIAL creditors **General partnership liability by estoppel: one who represents to a 3d party that a general partnership exists WILL BE liable as if the general parntership exists (e.g. “My partner and I….”)

Question 4

What duties do partners owe each other?

Answer 4

GPs are fiduciaries of EACH OTHER and the Partnership→Owe duty of loyalty No self-dealing No usurping partnership opporunities No secret profits at the partnership’s expense Partnership may bring an “action for accounting” to cover losses that are caused by a breach of duty of loyalty/discorge profits made by breaching partner

Question 5

What’s the difference b/t partnership property and personal property?

Answer 5

The test is: whose money is being used to buy the property? 1) If partnership money is being used→ specific partnership asset, which req’s partnership authority to transfer Land, leases, equipment Share in mgmt (i.e. the right to vote): cannot be transfered outside the partnership to 3d parties 2) If personal money is being used→ personal property Share in profits and surplus: owned by each ind. partner

Question 6

How are partnerships managed?

Answer 6

Absent an agmt, EACH partner is entitled to EQUAL control (vote) 1 partner, 1 vote Majority vote governs ordinary partnership matters Unanimous consent needed for FUNDAMENTAL matters

Question 7

How do partner’s share profits and losses?

Answer 7

Absent an agmt… 1) Profits are shared equally 2) Losses are shared JUST LIKE PROFITS NOTE: if there is a specific agmt on losses, but profits are silent, PROFITS ARE STILL SHARED EQUALLY NOTE: partners DO NOT get salaries; EXCEPTthey do receive a commission to help set up the business

Question 8

How does a partnership dissolve and liquidate?

Answer 8

STEP 1: Dissolution A GP dissolves AUTOMATICALLY upon any material change in partnership caused by the death or withdrawal of ANY single general partner STEP 2: Winding up phase The pd b/t dissolution and termination in which the remaining partners liquidate the partnership’s assets to satisfy the partnership’s creditors STEP 3:”Termination” (i.e. the real end of the partnership)

Question 9

What is the liability of the partnership during the “wind up” phase?

Answer 9

“Old business”: the partners are liable forall transactions entered into in orderwind up old business(e.g. paying off creditors) “New Business”: individual general partners still retain liability on brand new business transactions unless notice of dissolution given to all creditors (actual and potential)

Question 10

What is the priority of distribution when “winding up” a partnership?

Answer 10

FIRST: outside creditors MUST be paid All non-partner, 3d party trade creditors must be paid first SECOND: inside creditors MUST be paid Partners/insiders who have LOANED the partnership money THIRD: partner capital contributions MUST be paid The partnership is liable to its own partners for FULL pmt of its capital contributions If not enough assets, partners have to contribute equally for any deficit FOUTH: net profits (profits – losses), IF ANY Profits/surplus are shared equally among partners (absent an agreement)

Question 11

What is a limited partnership AND how is it formed?

Answer 11

Defined: Partnership w/ at least 1 General Partner & at least 1 Limited Partner General Ps = personally liable but get to manage Limited Ps = limited liability so cannot manage Formation: file limited partnership certificate that includes names of ALL GENERAL partners w/ Dept. of State

Question 12

How is a registered ltd liability company (RLLC) formed AND what’s the liability scheme?

Answer 12

Formation: file a certificate of registration w/ Dept. of State that includes the profession you are practicing Liabilities: no partner is liable for the debts & obligations of the RLLP but partners are always liable for their own personal TORTS

Question 13

What is a ltd liability company (LLC) and how is it formed?

Answer 13

A “hybrid” b/t a corporation (ltd liability) and a partnership (partnership tax treatment) “Members” (i.e. owners) not liable for the debts & obligations of company itself Members control but may delegate to managers (ltd cntrl) Membership interest is NOT freely transferable (ltd liquidity) LLC will dissolve upon majority vote of the membership interest OR as provided in the operating agmt (limited life) Formation: Must file “articles of organization”; AND Must publish a summary of the articlesin at least 2 newspapers NOTE: Members MAY adopt an operating agmt

Question 14

When is a principal liable for Ks entered into by its agent?

Answer 14

Principal is liable for Ks entered into by its agent IF the principal “AUTHORIZED” the agent to enter into the K i.e. the principal is liable ONLY FOR its “authorized Ks”

Question 15

What are 4 types of authority (that will render a principal liable for an agent’s Ks)?

Answer 15

1) Actual express authority: principal used WORDS to express authority to agent Can be oral and private (few ppl know), BUT is narrowly construed EXECPTION: if the K ITSELF must be in writing (b/c of SOF), the express authority must ALSO be in writing (e.g. when an agent is negotiating a land K) Express authority will be revoked by: Unilateral act by EITHER the principal or agent; OR Death of the principal (EXCEPT if the principal give the agent the pwr of atty that EXPRESSLY survives death) Incapacity of the principal (NOTE: in NY a pwr of atty WILL survive incapacity unless it expressly states otherwise) 2) Actual implied authority: authority which the principal gives the agent thru CONDUCT or CIRCUMSTANCES Necessity: there is an implied authority to do all tasks that are NECESSARY to carry out an expressly authrized task Custom: there is an implied authority to do all tasks that by CUSTOM are performed by agent’s title or position (e.g. a lawyer) Prior dealings b/t the principal and agent: there is an implied authority to do all tasks that the agent believes to be authorized to do from “prior acquiescense” by the principal 3) Apparent authority: 2 things… Principal “cloaked” agent with the appearance of authority; AND Third party reasonably relies on appearance of authority 4) Ratification: Authority can be granted AFTER the K has been entered IF… Principal has knowledge of all material facts re: the K; Principal has accepted its benefits; AND Ratification did NOT alter the terms of the K

Question 16

What is the effect of a principal authorizing a K?

Answer 16

The principal is liable on its authorized Ks →agents are NOT LIABLE for their authorized Ks EXCEPTION: if the principal is PARTIALLY DISCLOSED (only the identity of the principal concealed) or UNDISCLOSED (fact of principal concealed)→authorized agents may NONETHELESS be liable at the election of the 3d party

Question 17

When is a principal vicariously liable for torts committed by an agent?

Answer 17

Principal will be liable for torts commited by agent IF: 1) A PRINCIPAL-AGENT RELATIONSHIP exists; AND 2) The tort was commited by the agent within the SCOPE of that relationship

Question 18

What 3 things are necessary for a principal-agent relationship?

Answer 18

1) Assent: an informal agmt b/t a principal (who has capacity) and an agent 2) Benefit: the agent conduct must be for the principal’s benefit 3) Control: the principal must have “the right to cntrl the agent by having the pwr to supervise the manner of the agent’s performance” NOTE: these are ALSO the reqs for liability for “sub-agents” (hired by the agent) & “borrowed agents” (borrowing from another principal)

Question 19

What is the rule for vicarious liability and independent contractors?

Answer 19

IC = an agent MINUS the ability to cnrtl (i.e. supervise the performance) RULE: there can be no vic. liability for an IC’s torts EXCEPTIONS: liability for ICs attaches… 1) For inherently dangerous activity and IC commits a tort 2) With Estoppel: If you “hold out” your IC w/ the appearance of agency→will be estopped from denying liability on that ground

Question 20

When is an agent’s activities w/in the “scope” of the relationship?

Answer 20

Factors include… 1) Was the conduct “of the kind” that the agent was HIRED to do (i.e. w/in the job description)? YES→ WITHIN SCOPE 2) Frolic vs. detour? Frolic = new/independent journey→ OUTSIDE SCOPE Detour = a mere departure of an assigned task→ WITHIN SCOPE 3) Did agent INTEND to benefit the principal? YES→ WITHIN SCOPE 4) Did the agent commit an INTENTIONAL TORT? YES→ GENERALLY OUTSIDE SCOPE EXCEPTIONS→ WITHIN SCOPE Action authorized by the principal Action is “natural” from the nature of the employment (e.g. a bouncer) Action was”motivated” by desire to serve principal

Question 21

What are the 3 duties that an agent owes to a principal?

Answer 21

In return for reasonable compensation and reimbursement of expenses, agents owe… 1) Duty of care 2) Duty to obey REASONABLE instructions (i.e. lawful) 3) Duty of loyalty: Agent cannot engage in… Self-dealing: receiving a benefit to the detriment of the principal Usurping the principal’s opportunity Secret profits: making a profit at the principal’s expense w/o disclosure