Business Associations

Termination of agency

1. When the stated time period expires 2. when the purposes of the agency have been accomplished 3. By mutual agreement 4. by death or bankruptcy of either party 5. or by either party by reasonable notice to the other

UPA

A partnership is dissolved and must wrap up or wind up its business whenever any one of the partners departs for any reason.

Frolic

Activities performed by an employee during working hours that are not considered to be in the course of his or her employment, since they are for the employee's personal purposes only.

Agreement (agency)

Agent agrees to act on behalf of principle orally or in writing. Express agency example would be real estate agent; implied agency example is retail shop employee

Two Ways Agency Relationship Created

Agreement and Estoppel

Estoppel

An agency relationship that arises because it would be inequitable to allow the principle to deny the relationship.

Liability for Agent's Torts

An agent is liable for her own torts (civil wrongs). Such torts might include: assault; battery; negligence; fraud; malpractice. The principle is liable for the torts of his agent if committed in the course and scope of the agency.

Accounting

An agent must account to the principal for all money or property paid out or received on the principal's behalf. The principal's funds must be maintained separately from the agent's. The funds must not be commingled.

Notification

An agent must disclose all information relating to the agency to her principal. An agent selling a house for home owners may not decide for herself, "this offer is so low I won't bother telling the owner's about it." In agency law, it is presumed the principle knows all that the agent knows

Performance

An agent must perform the work or duties required by the principal, whether set forth in a written agreement, included in an oral agreement, or implied from the nature of the agency relationship. The agent must perform these duties with reason diligence and due care.

Lack of Continuity

Because sole prop is so closely related to sole proprietor, sole prop generally terminates upon death of sole proprietor. If the business debts descend to an heir who continues to run the business, a new sole prop has been created.

Principal's owes three duties to Agent

Compensation; Reimbursement and Indemnification; Cooperation

S Corporation

Corporation that passes all income to its shareholders, who pay tax on income

DBA

Doing business as; another name for a fictitious business name statement

Unlimited Personal Liability (General Partnership)

Each partner has unlimited personal liability for debts and obligations of partnership. Personal assets (savings accounts; art collections) are vulnerable to seizure by partnership creditors (assuming no statutes exemptions exist). Joint and Several liability applies. Can try to protect with insurance

Advantages of Sole Proprietorship

Ease of Formation; Managerial discretion; retention of profits; pass-through tax status

Advantages of Partnership

Ease of formation (filing not needed with state or local agency); flexible management (GPs share management); ease of raising capital (can request capital from partners) ; pass-through taxation (partnerships do not pay federal taxes; earned income is passed through to individual partners)

Employer (principal) Liability for Employee (agent)

Employer-principal's may also be liable for failure to supervise an employee properly, for improper selection of an employee (as is the case when an employer hires an obviously unqualified employee), or for wrongful retention of an employee (as is the case when an employer does not terminate employment although the grounds for termination exist, such as acts of violence and threats by the employee).

Business name

Generally, if all the partners' surnames are included in the business name, it is not a fictitious name.

Fictitious Business Name Statement

If the business name includes the sole prop's last name and does not imply that others are involved (ex: and company; brothers; and associates) no statement needs to be filed. LAST NAME

Unlimited Personal Liability

Makes sole prop personally liable for the debts and obligations of the business. The sole prop liability extends beyond what has been invested in the business to her personal assets. May include money in bank accounts, art collections, and furniture. Sole prop is also liable for torts (civil wrongs) of committed by employees in the scope and course of their employment. (In some cases may purchase insurance to protect against liability; not all risks are covered)

Partnership Management Rights

Partners have the right to participate in management of the partnership, usually through voting at partnership meeting. Not a transferable right.

Partnership Property Contributions

Partners may contribute cash, property, or services to the partnership. Once contributed, unless a partner specifies otherwise, the property then becomes the property of the partnership entity and the contributing partner cannot retrieve the property. Partners should agree on stated value of contributions (cars, furniture, etc). All items acquired by partnership is property of partnership, not partners.

Duties and Rights of Partners (General Partnership)

Partners owe each other fiduciary duties and must deal with each other in good faith.

Limited Liability Partnership

Partnership providing protection against personal liability for wrongful conduct of other partners (also called registered limited liability partnership)

Agents owes these four duties to Principal

Performance; Notification; Loyalty; Accounting

Compensation

Principle must pay agents for their services. If no fixed compensation is agreed upon, the agent is entitled to compensation in a reasonable and customary amount

Partnership Property

RUPA section 501 provides that a partner is not a co owner of partnership property and has no interest in partnership property that can be transferred. Property owned by entity and is therefore safe from creditors of partners.

fictitious business name statement

Record filed with public officials to identify the owner of a business operating under a name other than the owner's surname

RULPA

Revised Uniform Limited Partnership Act; the model for limited partnership legislation in most states

RUPA

Revised Uniform Partnership Act; model for partnership legislation in about three fourths of the states; retains most of the basic features of UPA, but includes changes involving breakups of partnerships. Attempts to provide more stability and continuity to partnerships providing that only certain departures trigger a dissolution.

2001 Act

Revised version of Uniform Limited Partnership Act; fully adopted in 19 jurisdictions, providing significant protection from liability for all partners

Difficulties in Raising Capital

Sole prop is limited in the methods of raising money (v a corp that can sell stock). If a bank won't give loan to sole prop, the sole prop may collapse

Continuity of Existence

Some enterprises such as corporations are capable of existing perpetually. Others such as sole proprietorships do not have such continuity of existence.

Loyalty

The agent must act solely for the benefit of the principle and may not engage in any transaction that would be detrimental to the principal or that would conflict with the principal's interest. Thus, generally, an attorney may not represent both the plaintiff and the defendant in a lawsuit unless each party consents.

Ease of Formation

The ease with which a business can be formed should be carefully considered. Ex: A sole proprietorship is easy and inexpensive to form, whereas a corporation requires compliance with state statutes and can be expensive to form and maintain.

Difficulty in Transferring Partnership Interest

The only transferable right in a general partnership is right to profits. Other partners didn't agree to do business with a newcomer.

Cooperation

The principal must not hinder the agent in the performance of her duties. This duty to cooperate includes a duty to provide the agent with what she will need to perform duties, such as a credit card, an office, necessary equipment, and so forth

Reimbursement and Indemnification

The principal must reimburse the agent for costs and expenses incurred on the principal's behalf. For example: employers routinely reimburse employees for their travel expenses incurred on behalf of the employer. The principal is also generally required to indemnify or compensate the agent for liability incurred by the agent while performing duties for the principal. The agent will not be indemnified for fraud or for reckless or willful misconduct, but the agent will be indemnified for acts directed or authorized by the principal.

Partnership Profits

The right to profit from partnership is a right that can be assigned to another. Can be seized by a partner's creditor. Ex. Dean owes child support. Can have partnership write a check each month from Dean's share of profits rather than paying Dean then having Dean pay support.

Retention of profits

The sole prop may keep all profits generated by the business

Management Vulnerabilities

The sole prop may not have all expertise needed. Sole prop is sole decision maker and may need funds to hire outside consultants and expertise.

Pass-Through Tax Status

The sole prop's income is passed through to the sole proprietor who pays taxes at her appropriate individual rate. The business itself pays no taxes

Managerial Discretion (sole prop)

The sole proprietor is free to make all decisions regarding the business. The sole prop may select the name of the business, establish its location, hire employees, and decide what products and services will be offered. The owner is not vulnerable to the negligence of a partner and may sell the business without securing approval from anyone.

Ease of Formation (sole prop)

The sole proprietorship is easily and inexpensively formed and operated

Partnerships Governed by their state statutes

UPA (Uniform Partnership Act) and RUPA (Revised Uniform Partnership Act--37 states and district of columbia) Louisiana follows its own statutes

Lack of Continuity (General Partnership)

Under UPA, a partnership cannot survive the death or withdrawal of a partner unless partners have specified otherwise. Provides less stability than a corporation which can exist perpetually. RUPA tries to help by providing that partnerships no longer dissolve every time a partner departs.

Dissolution and Winding up --UPA

Under the UPA, dissolution of the partnership triggers winding up, namely a wrapping up of the business affairs of a partnership.Causes of dissolution: the ending of the term of the partnership; the withdrawal at will of any partner; unanimous agreement of all partners; death, expulsion, or bankruptcy of a partner. Any time a partner leaves the partnership the partnership is dissolved and must wind-up its affairs.

UPA

Uniform Partnership Act; model for partnership legislation in about one fourth of the states; acts as safety net or default rules for partnerships. If a dispute arises on some issue in which the agreement is silent (does not spell out). Then UPA (or RUPA) dictates.

Disadvantages of Partnership

Unlimited Personal Liability; lack of continuity; difficulty in transferring partnership interest

Disadvantages of Sole Prop

Unlimited personal liability; lack of continuity; difficulties raising capital; management vulnerabilities

Fiduciary Duties

While partners may eliminate or vary many UPA or RUPA provisions by their agreement, under RUPA section 103(b) they may not eliminate the duty of due care each partner owes to the other partners and to the partnership

foreign limited partnership

a limited partnership doing business in a state other than the one in which it was formed

Domestic limited partnership

a limited partnership doing business in its state of formation

limited liability partnership

a limited partnership providing protection from limited liability to its general partners; recognized fully in 19 states

limited partner

a member of a limited partnership who does not participate in controlling the business and whose liability is limited to amount invested in the business

Interest in the partnership

a partner's right to profits (or share of losses)

partnership interest

a partner's share of partnership profits (and losses)

partnership at will

a partnership with no specific term

Profits and losses

a sole proprietor retains all business profits, but she is also solely liable for all losses.

joint venture

a type of partnership formed to carry out a single enterprise

General partnership

a voluntary association of two or more persons to carry on a business for profit

general partnership

a voluntary association of two or more persons to carry on a business for profit

ratification

acceptance of an act

event of withdrawal

action by general partner that usually causes dissolution of limited partnership

doing business

activities enumerated by a state that require an entity to qualify before entering the state to transact business

express authority

actual authority granted by one to another, in writing or orally

Upon termination of the agency relationship

agent no longer has authority to bind the principal

limited partnership agreement

agreement among partners in a limited partnership, usually written but may be oral

RUPA

allows a general partnership to convert to a limited partnership and vice versa or to merge with other partnerships to form a new entity

Express Agency

an agency agreement, written or oral

agency by estoppel

an agency arising from acts that lead others to believe an agency relationship exists

implied agency

an agency relationship in which there is no express agreement, but the parties' words, conduct, or prior dealings show the existence of their agency relationship

partnership agreement

an agreement by two or more persons to do business together as a partnership; may be oral or written

apparent authority

authority that arises through words or conduct of principal leading others to believe agent has authority to act for principal

limited partnership

business created under a state statute in which some partners have unlimited personal liability and others have no liability beyond the amount contributed to the business

limited partnership

business entity created in accord with state statutes that provides limited liability to some of its members, called limited partners

limited liability company

business entity providing limited liability for its members

sole proprietorship

business owned and operated by one person

non-compete clause

clause in agreement restricting signatory from competing with another during and after parties' relationship terminates

Transferability

clients must consider how easy it is to "get into" and "get out of" the business enterprise. It may be difficult to withdraw from a partnership, but it is usually easy to sell stock and transfer out of a corporation. If clients foresee a need to liquidate their investment in a business for cash, they should consider how easy or difficult it will be to transfer out of the enterprise

dissociation

departure by a partner from a partnership

wrongful dissolution

departure from a partnership in breach of partnership agreement

judicial dissolution

dissolution of an entity ordered by a court

nonjudicial dissoclution

dissolution of an entity without court involvement

statement of denial

document filed with secretary of state denying information in statement of authority

statement of authority

document filed with secretary of state providing notice of partners who are authorized to act for partnership

statement of dissociation

document filed with state to identify dissociating partner and to limit period for which partnership will be liable for dissociating partner's acts

fiduciary duties

duty to act in utmost good faith and fair dealing

recitals

introductory clauses in agreements setting forth basis for agreement

due dilligence

investigation conducted prior to entering an agreement or consummating a transaction

business corporation

legal entity existing under the authority of the state legislature

personal libility

liability extending beyond business assets to personal assets

personal liability

liability for business debt, which extends beyond what is invested in a business to include an individual's personal assets

respondent superior

liability imposed on employers for acts of employees

vicarious liability

liability imposed on one for another's acts, without regard to actual fault

general partner

member in a limited (or general) partnership who controls the business and has unlimited personal liability

check the box

method by which businesses may elect how they wish to be taxed, namely, as a corporation

capital

money used to form and operate a business

fictitious name

name that must be registered with state or local officials because it does not disclose the surname of the business owner

Agent

one who acts for or represents another

sole proprietor

owner of a sole proprietorship

marshaling of assets

partnership theory requiring creditors to first exhaust partnership assets before pursuing partners' individual assets

implied authority

power to perform acts customarily performed by agents

Joint and Several liability

principle that each partner and the partnership are liable to pay all of a debt or obligation

RUPA

provides that a partnership is a separate entity and thus property may be acquired in the partnership's name, and the partnership may sue and be sued in its own name.

close corporation

small corporation whose shareholders are active in managing the business and that operates informally

Full shield states

states in which partners in an LLP are fully protected from personal liability, whether arising in tort or contract

Partial shield states

states in which partners in an LLP retain personal liability for contractual obligations

general agency

the authority of a partner to act for and bind teh partnership and other partners

limited partnership certificate

the document filed with a state that creates a limited partnership

principal

the person for whom an agent acts

agent for service of process

the person or entity that receives service or process on behalf of a business entity

pass-through tax status

the tax status of a partnership in which all income is passed through to partners who pay taxes at individual rates