Business Organizations - DeVito

Re: principal:agent - what is apparent authority?

"Apparent authority," is authority that would be reasonable for a third party to believe an agent holds, based on words or conduct of the principal manifested to the third party.

Note: when looking at Florida Statutes you will see that it uses "day" and "business day." What do these terms mean?

"Business day" means Monday through Friday, excluding any day a national banking association is not open for normal business transactions. "Day" means a calendar day.

What is the definition of "dissolution?"

"Dissolution" is merely the commencement of the winding up process. RUPA § 801 cmt. 2

what's the difference between notice and notification?

"Notice" is something one has "Notification" is something one gets

What is a "record date" relative to shareholder meetings?

"Record date" means the date fixed for determining the identity of the corporation's shareholders and their share holdings for purposes of this chapter. Unless another time is specified when the record date is fixed, the determination shall be made as of the close of the business at the principal office of the corporation on the date so fixed.

Can you waive the duty of care?

"Subject to any agreement with the principal, an agent has a duty to the principal to act with the care, competence, and diligence normally exercised by agents in similar circumstances." Comment b adds: A principal and an agent may establish benchmarks or other measures for the effort and skill to be expected from the agent. If an agreement between principal and agent is otherwise enforceable, it may define the standard of performance applicable to the agent across the board in general terms and without the specificity required under § 8.06(1)(b).

What does winding up of a partnership entail? What does this mean for the partnership? What happens when the winding up process is complete?

"Winding up" the partnership business entails selling its assets, paying its debts, and distributing the net balance, if any, to the partners in cash according to their interests. The partnership entity continues, and the partners are associated in the winding up of the business until winding up is completed. When the winding up is completed, the partnership entity terminates. RUPA § 801 cmt. 2

Re: principal:agent - what is actual authority?

"actual authority" is authority that a principal manifestly gives by written words, spoken words, or conduct indicating to the agent the principal's intent to create that authority

When can a corporation advance funds to pay for or reimburse expenses incurred in a legal proceeding arising out of individual's capacity as an officer director?

(1) A corporation may, before final disposition of a proceeding, advance funds to pay for or reimburse expenses incurred in connection with the proceeding by (2) an individual who is a party to the proceeding because that individual is or was a director or an officer (3) if the director or officer delivers to the corporation (4) a signed written undertaking of the individual to repay any funds advanced if: (a) The individual is not entitled to mandatory indemnification; and (b) the individual's conduct fails to qualify for permissive indemnification, or (c) indemnification is prohibited by law unless pursuant to court order.

What "time" requirement must a shareholder meet in order to have standing to bring a derivative complaint?

(1) A shareholder may not commence a derivative proceeding unless the shareholder is a shareholder at the time the action is commenced and: (a) Was a shareholder when the conduct giving rise to the action occurred; or (b) Whose status as a shareholder devolved on the person through transfer or by operation of law from one who was a shareholder when the conduct giving rise to the action occurred.

What liability can this D & O insurance protect the corporation from?

(1) Against liability asserted against or incurred by the individual (a) in the capacity he served another entity at the corporation's request, or (b) arising from his director or officer status, (2) irrespective of whether the corp would have the power to indemnify or advance expenses to the individual against the same liability.

Requirements of a corporate name:

(1) Must contain the word "corporation," "company," or "incorporated" or the abbreviation "Corp.," or "Inc.," or "Co.," or the designation "Corp," or "Inc," or "Co," (2) May not contain language stating or implying that the corporation is organized for a purpose other than that permitted in this chapter and its articles of incorporation. (3) May not contain language stating or implying that the corporation is connected with a state or federal government agency or a corporation or other entity chartered under the laws of the United States. (4) Must be distinguishable from the names of all other entities or filings that are on file with the department

A partner is dissociated from a partnership upon the occurrence of any of the following events: (WEEBDDT)

(1) Notice of the partner's express will to withdraw; (2) Happening of an agreed event; (3) The valid expulsion of a partner; (4) The partner entering bankruptcy; (5) The partner's death or incapacity to perform partnership duties; (6) For a partner that is a trust or estate, distribution of the trust's or estate's entire transferable interest in the partnership; and (7) Termination of a business entity that is a partner.

under Florida law, when is a corporation prohibited by law from indemnifying or advancing expenses to its directors or officers?

(1) Unless ordered by a court . . . a corporation may not indemnify or advance expenses to a director or officer if (2) a judgment or other final adjudication establishes that his or her actions, or omissions to act, (i) were material to the cause of action so adjudicated (ii) and constitute: (a)Willful or intentional misconduct or a conscious disregard for the best interests of the corporation in a proceeding by or in the right of the corporation to procure a judgment in its favor or in a proceeding by or in the right of a shareholder; (b)A transaction in which a director or officer derived an improper personal benefit; (c)A violation of the criminal law, unless the director or officer had reasonable cause to believe his or her conduct was lawful or had no reasonable cause to believe his or her conduct was unlawful; or (d)In the case of a director, a circumstance under which the liability provisions of s. 607.0834 (liability for unlawful distributions) are applicable.

What can an officer or director do if a corporation fails to indemnify him, or determines he is not eligible for indemnification?

(1) Unless the corporation's articles of incorporation provide otherwise, (2) notwithstanding a corporation's failure to indemnify a D or O, and (3) despite a determination of ineligibility of the board of directors or of the shareholders in the specific case, (4) a director or officer of the corporation who is a party to a proceeding because of such status (5) may apply for indemnification or an advance for expenses, or both, to (a) a court having jurisdiction over the corporation which is conducting the proceeding, or (b) to a circuit court of competent jurisdiction. . . .

When may a corporation indemnify an individual?

(1) a corporation may indemnify an individual who is a party to a proceeding because the individual is or was a director or officer against liability incurred in the proceeding if: (a) The director or officer acted in good faith; (b) The director or officer acted in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the corporation; and (c) In the case of any criminal proceeding, the director or officer had no reasonable cause to believe his or her conduct was unlawful.

When can a partnership creditor seek execution of a judgment against the personal assets of an individual partner? A judgment creditor of a partner may not levy execution against the assets of the partner to satisfy a judgment based on a claim against the partnership unless the partner is personally liable for the claim under Section 306 and:

(1) a judgment based on the same claim has been obtained against the partnership and a writ of execution on the judgment has been returned unsatisfied in whole or in part; (2) the partnership is a debtor in bankruptcy; (3) the partner has agreed that the creditor need not exhaust partnership assets; (4) a court grants permission to the judgment creditor to levy execution against the assets of a partner based on a finding that partnership assets subject to execution are clearly insufficient to satisfy the judgment, that exhaustion of partnership assets is excessively burdensome, or that the grant of permission is an appropriate exercise of the court's equitable powers; or (5) liability is imposed on the partner by law or contract independent of the existence of the partnership.

What are the to rebuttable presumptions that apply when partners have failed to express whether property belongs to the partnership or to partners individually?

(1) property purchased with partnership funds is presumed to be partnership property, notwithstanding the name in which title is held (2) property acquired in the name of one or more of the partners, without an indication of their capacity as partners and without use of partnership funds or credit, is presumed to be the partners' separate property, even if used for partnership purposes. (only the use of the property is contributed to the partnership).

What happens to a partner's rights in a partnership after the partner dissociates from the partnership, but the dissociation does not cause dissolution of the partnership? (RUPA 603(b)) (management/duties terminating/duties continuing)

(1) the partner's right to participate in the management and conduct of the partnership business terminates (but can participate in winding up under RUPA 803), (2) the partner's duty of loyalty to not compete with the partnership terminates; and (3) the partner's duty of loyalty (accounting/hold property as trustee and having adverse interest) and duty of care continue only with regard to matters arising and events occurring before the partner's dissociation, unless the partner participates in winding up the partnership's business pursuant to Section 803.

What happens if a partner waives the winding up of a partnership after an event triggering dissolution?

(1) the partnership resumes carrying on its business as if dissolution had never occurred, and any liability incurred by the partnership or a partner after the dissolution and before the waiver is determined as if dissolution had never occurred; and (2) the rights of a third party accruing under Section 804(1) or arising out of conduct in reliance on the dissolution before the third party knew or received a notification of the waiver may not be adversely affected.

A person who has not made a manifestation that an actor has authority as an agent and who is not otherwise liable as a party to a transaction purportedly done by the actor on that person's account is subject to liability to a third party who justifiably is induced to make a detrimental change in position because the transaction is believed to be on the person's account, if

(1) the person intentionally or carelessly caused such belief, or (2) having notice of such belief and that it might induce others to change their positions, (3) the person did not take reasonable steps to notify them of the facts.

A person who: 1. has not made a manifestation that an actor has authority as an agent and 2. who is not otherwise liable as a party to a transaction purportedly done by the actor on that person's account is subject to liability to a third party who justifiably is induced to make a detrimental change in position because the transaction is believed to be on the person's account, if:

(1) the person intentionally or carelessly caused such belief, or (2) having notice of such belief and that it might induce others to change their positions, the person did not take reasonable steps to notify them of the facts.

What information is required under a certificate of limited partnership?

(1)the name of the limited partnership, which must comply with Section 114; (2) the street and mailing addresses of the partnership's principal office; (3)the name and street and mailing addresses in this state of the partnership's registered agent; (4)the name and street and mailing addresses of each general partner; and (5)whether the limited partnership is a limited liability limited partnership. ULPA § 201(b)

What events will trigger dissolution of a partnership for a definite term or a partnership for a particular undertaking?

(2) In a partnership for a definite term/particular undertaking: Expiration of the term; Completion of the undertaking; Consent of all partners to dissolve; Within 90 days of a partner's death, bankruptcy, or wrongful dissociation, at least half of the remaining partners wish to dissolve.

In Florida, a corporation may indemnify an individual who is or was a director or officer from liability if:

(a) The director or officer acted in good faith; (b) The director or officer acted in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the corporation; and (c) In the case of any criminal proceeding, the director or officer had no reasonable cause to believe his or her conduct was unlawful.

In Florida, a corporation may not indemnify an individual who is or was a director or officer from liability if his actions constitute:

(a)Willful or intentional misconduct or a conscious disregard for the best interests of the corporation . . . ; (b)A transaction in which a director or officer derived an improper personal benefit; (c)A violation of the criminal law, unless the director or officer had reasonable cause to believe his or her conduct was lawful or had no reasonable cause to believe his or her conduct was unlawful; or (d)In the case of a director, a circumstance under which the liability provisions of s. 607.0834 [unlawful distributions] are applicable.

A partnership may file a statement of partnership authority, which: (1) must include:

(i) the name of the partnership; (ii) the street address of its chief executive office and of one office in this State, if there is one; (iii) the names and mailing addresses of all of the partners or of an agent appointed and maintained by the partnership for the purpose of subsection (b); and (iv) the names of the partners authorized to execute an instrument transferring real property held in the name of the partnership

What two groups can the reasonable inquiry and good faith determination to dismiss a derivative suit can be made by?

1) A majority of qualified directors present at a meeting of the BOD if constituting a quorum, or 2) A majority vote of a committee consisting of two or more qualified directors, (a) appointed by majority vote of qualified directors, present at a meeting of the BOD, whether or not constituting a quorum.

If a Florida corporation doesn't want to have a BOD, how can this be done?

1) By an agreement approved by all shareholders and set forth in the AOI, or 2) set forth in a written agreement signed by all shareholders and made known to the corporation, and 3) subject to termination or amendment only by all shareholders (unless the agreement provides otherwise).

What can the corporation do if it wants the reasonable inquiry and good faith determination to dismiss a derivative suit to be made by a panel of people not from the board?

1) Upon motion by the corporation, 2) the court may appoint a panel consisting of 3) one or more disinterest and independent individuals

why does the failure to exercise good faith fall under a breach of the duty of loyalty?

1) because it requires conduct that is qualitatively different from, and more culpable than, the conduct giving rise to a violation of the duty of care, and 2) because a director cannot act loyally towards the corporation unless she acts in the good faith belief that her actions are in the corporation's best interest

To summarize the previous two slides: who can the director rely on for performance? Who can the director rely on for information?

1) competent and reliable officers and employees, 2) attorneys, CPAs, or other experts when appropriate, and 3) (for info only) a board committee which merits confidence if the director is not a member

in discharging board or board committee duties, a director who does not have knowledge that makes reliance unwarranted, is entitled to rely on the performance of what type of persons that the board may have delegated the authority or duty to perform a board function?

1) officer(s) or employee(s) of the corp. whom the director reasonably believes to be reliable and competent in the functions to be performed or information to be provided, or 2) attorneys, CPA, or other persons retained by the BOD/Committee as to matters involving skills or expertise the director reasonably believes are matters a) within the person's professional or expert competence, or b) as to which the person merits confidence

in discharging board or board committee duties, a director who does not have knowledge that makes reliance unwarranted, is entitled to rely on information, opinions, reports, or statements (including financial statements and other financial data) prepared or presented by any of the following people

1) officer(s) or employee(s) of the corp. whom the director reasonably believes to be reliable and competent in the functions to be performed or information to be provided, or 2) attorneys, CPA, or other persons retained by the BOD/Committee as to matters involving skills or expertise the director reasonably believes are matters a) within the person's professional or expert competence, or b) as to which the person merits confidence, or 3) a board committee of which the director is not a member if the director reasonable believes it merits confidence

What is included within the good faith that is required of a corporate fiduciary?

1) the duties of care and loyalty, 2) and all actions required by a true faithfulness and devotion to the interests of the corporation and its shareholders.

in discharging board or board committee duties, what relevant factors can a director consider?

1) the long-term prospects and interests of the corporation and its shareholders, 2) the social, economic, legal, or other effects of any action on the employees, suppliers, customers of the corporation or its subsidiaries, the communities and society in which the corporation or its subsidiaries operate, and 3) the economy of the state and the nation.

What is included in a partner's duty of loyalty?

1) to refrain from competing with the partnership in the conduct of the partnership business before the dissolution of the partnership; 2) to refrain from dealing with the partnership in the conduct or winding up of the partnership business as or on behalf of a party having an interest adverse to the partnership; and 3) to account to the partnership and hold as trustee for it any property, profit, or benefit derived by the partner in the conduct and winding up of the partnership business or derived from a use by the partner of partnership property, including the appropriation of a partnership opportunity;

Under the RMBCA, an ultra vires act is enforceable and can only be raised in three circumstances:

1. A shareholder may sue the corporation to enjoin a proposed ultra vires act; 2. The corporation may sue an officer or director for damages arising from the commission of an ultra vires act authorized by the officer or director; and If found liable, the office or director may be held personally liable for damages. 3. The state may bring an action against the corporation to have it dissolved for committing an ultra vires act. Note that an ultra vires act will be enjoined only if it is equitable to do so.

What is a corporate opportunity?

1. Any opportunity to engage in a business activity of which a director or senior executive becomes aware either A. In connection with the performance of functions as a director or senior executive, or under circumstances that should reasonably lead the director or senior executive to believe that the person offering the opportunity expects it to be offered to the corporation or B. Through the use of corporate information or property, if the resulting opportunity is one that the director or senior executive should reasonably be expected to believe would be of interest to the corporation or 2. Any opportunity to engage in a business activity of which a senior executive becomes aware and knows is closely related to a business in which the corporation is engaged or expects to engage.

Why might an agent and principal want to enter into a written contract describing their agent-principal obligations to each other?

1. Avoid future problems 2. Clearly identify duties of each party 3. Default rules of agency might not capture the goals of one or both of the parties

What two-step process should the court apply when ruling on a pretrial motion to dismiss derivative litigation?

1. Court should inquire into the independence and good faith of the committee and the bases supporting its decision. (a) Limited discovery may be ordered to facilitate (b) Corporation has burden of proving independence, good faith, and a reasonable investigation. 2. The court should determine, applying its own independent business judgment, whether the motion should be granted. This step is intended to avoid instances where corporate actions (a) meet the criteria of step 1, but do not seem to satisfy its spirit or (b) where corporate activities would prematurely terminate a stockholder grievance deserving of further consideration in the corporation's interest.

What are the three ways in which a plaintiff can normally show a defendant has a conflict of interest?

1. Defendant had a direct interest in a transaction in which the defendant also acted on the beneficiary's behalf, 2. A close associate or relative of the defendant had such a direct interest, or 3. The defendant owed fiduciary duties to two or more persons whose interests in some transaction were adverse.

How do shareholders have indirect control over the corporation?

1. Election and removal of directors 2. Shareholders have the power to adopt, modify, and amend the bylaws 3. Must approve fundamental corporate changes like merger, sale of corporate assets outside ordinary course of business, dissolution, etc.

What are the three ways to establish apparent authority?

1. Expressly/Directly inform a third-party (The principal expressly and directly tells a third person that a second person has authority to act on the principal's behalf.) 2. Position-based inference (If a principal allows an agent to occupy a position which, according to the ordinary habits of people in the locality, trade, or profession, carries a particular kind of authority, then anyone dealing with the agent is so justified in inferring that the agent has such authority.) 3. Prior similar transactions (By allowing an agent to carry out prior similar transactions, a principal creates the appearance that the agent is authorized to carry out such acts subsequently.)

What factors are relevant to indicate injustice and inequitable consequences, allowing piercing the corporate veil?

1. Fraudulent representation by corporation directors; 2. Undercapitalization; 3. Failure to observe corporate formalities; 4. Absence of corporate records; 5. Payment by the corporation of individual obligations; or 6. Use of the corporation to promote fraud, injustice, or illegalities.

What are the three ways, under RUPA § 302, that partnership property may be transferred?

1. If property is held in name of partnership, then it may be transferred by instrument executed by a partner in the partnership name. 2. If property is held in name of one or more partners AND transferring instrument indicates existence of partnership, then it may be transferred by instrument executed in the partners' names. 3. If property is held in name of one or more persons AND partnership is not noted on the instrument, then it may be transferred by instrument executed in those persons' names.

What things will a court look for to determine that a corporation is an alter ego?

1. If shareholders treat the assets of the corporation as their own, 2. use corporate funds to pay private debts, 3. fail to keep separate corporate books, and 4. fail to observe corporate formalities

Each member of a BOD (whether acting as a director or BOD committee member), must act:

1. In good faith, and 2. In a manner they reasonable believe to be in the best interest of the corporation they serve.

When is a principal liable under a theory of direct liability?

1. Intended conduct or its consequences 2. Authorized through unintended conduct 3. Negligence in hiring or supervising

What types of transactions are ratifiable?

1. Interested transactions between a corporation and its directors, 2. Interested transactions between a corporation and an entity in which the directors are also directors/have a financial interest, and 3. Transactions between a corporation and its controlling shareholder.

What remedies are available to the principal for the breach of the excess benefits rule?

1. Monetary relief from the agent, 2. In appropriate circumstances, monetary relief from any third party who participated in the agent's breach, 3. Avoid a contract entered into by the agent with a third party who participated in the agent's breach of duty, 4. Recover any material benefit received by the agent through the agent's breach, the value of the benefit, or proceeds of the benefit retained by the agent, and 5. Damages for any harm caused by the agent's breach.

What are the key remedies one can seek for a breach of fiduciary duty?

1. Money damages, 2. Constructive trust, 3. Punitive damages, 4. Injunction (TRO), 5. Reuse to pay compensation, 6. Contract remedies (breach of fiduciary duty is always a material breach).

What are more specific duties a director has re: the business? misconduct? keeping informed? financial condition? taking action?

1. Must know the business they are directors for, 2. Must become informed about the business if they are unfamiliar with it, 3. Cannot willfully ignore learning about misconduct, 4. Has a continuing obligation to keep informed about the activities of the corporation—at the level of a general monitoring of corporate affairs and policies, 5. Has a duty to monitor the financial condition of the business, 6. Has a duty to take appropriate action in light of wrongdoing (resign, object, seek legal counsel).

What are the elements necessary to prove in order to demonstrate that an agency relationship has been formed? What is the exception to this rule?

1. Mutual manifestation of assent between the principal and agent that 2. the Agent will act on the principal's behalf, and 3. Subject to the principal's control. However, the existence of agency may be proved by circumstantial evidence which shows a course of a dealing between the two parties.

If Plaintiff cannot now argue that the demand is excused, what must plaintiff do if Plaintiff believes the board wrongfully refused the demand? At this point we are back in the business judgment rule. The plaintiff will have to now follow the Aronson rule, which requires that plaintiff to:

1. Plead facts with particularity 2.Creating a reasonable doubt that (a) The directors are disinterest and independent, and (b) The challenged transaction was otherwise the product of a valid exercise of business judgment

What are the eight ways that actual authority may be terminated? (PAPAORRS)

1. Principal's death (cessation of existence) 2. Agent's death (cessation of existence) 3. Principal's loss of capacity 4. Agreement between agent and principal 5. Occurrence of circumstances such that agent should reasonably conclude principal would no longer assent to agency 6. Revocation by principal to agent 7. Renunciation by agent to principal, and 8. Statute.

What events will dissociate a limited partner from an LP?

1. Providing notice to the partnership of express will to withdraw 2. agreed upon event 3. expulsion per the partnership agreement 4. expulsion by unanimous consent of the other partners if: a. unlawful to continue with the person as LP b. the LP's transfer of all of the partner's interest c. person is a corp d. person is a LLC or partnership that has been dissolved and whose business is being wound up

What does the duty of loyalty include?

1. Refrain from competing prior to dissolution 2. Refrain from dealing with the company adversely in the conduct of winding up 3. Accounting to the limited liability company and holding as trustee for it any property, profit, or benefit derived by the manager or member, as applicable: 1.In the conduct or winding up of the company's activities and affairs; 2.From the use by the member or manager of the company's property; or 3.From the appropriation of a company opportunity;

Factors indicating that one who is to buy property and transfer it to a third party he is selling to, and not acting as agent for the other seller, are:

1. That he is to receive a fixed price for the property, irrespective of the price paid by him.** 2. That he acts in his own name and receives the title to the property which he thereafter is to transfer. 3. That he has an independent business in buying and selling similar property. None of these factors is conclusive.

What factors should you discuss with Smith and Jones if they decide to incorporate out-of-state (e.g., Delaware)?

1. The advantages and disadvantages of the state's corporate law (both common and statutory); 2. Whether state income taxes will be due in both states; 3. Whether "franchise" taxes will be due, and the amount, to the state of incorporation; 4. The administrative and other costs of filing as a "foreign" corporation doing business in state (in this case Florida); 5. That the business is subject to the personal jurisdiction of both the foreign and home states.

When is a principal subject to vicarious liability to a third party harmed by an agent's conduct?

1. The agent is an employee who commits a tort while acting within the scope of employment; or 2. The agent commits a tort when acting with apparent authority in dealing with a third party on or purportedly on behalf of the principal.

An LLC is a member-managed LLC unless the Articles of organization or operating agreement expressly provide that:

1. The company is or will be manager-managed; 2. The company is or will be managed by managers; or 3. Management of the company is or will be vested in managers;

How do you know if the employee's conduct is within the scope of employment? Whether an employee's conduct is within the scope of employment is subject to a three-part test:

1. The conduct occurred substantially within the time and space limits authorized by the employment. 2. The employee was motivated, at least partially, by a purpose to serve the employer, and 3. The act was of a kind that the employee was hired to perform.

What are the six parts of the BJR standard in controller mergers? In controller buyouts, the business judgment standard of review will be applied if and only if:

1. The controller conditions the procession of the transaction on the approval of both a Special Committee and a majority of the minority stockholders, 2. The Special Committee is independent, 3. The Special Committee is empowered to freely select its own advisors and to say no definitively, 4. The Special Committee meets its duty of care in negotiating a fair price, 5. The vote of the minority is informed, and 6. There is no coercion of the minority.

What are the five special duty of loyalty rules noted in the text?

1. The duty not to derive excess benefits, 2. The duty not to take business opportunities, 3. The duty not to compete with the principal, 4. Duties with respect to the principal's property, and 5. The duty not to exploit the principal's confidences.

What are four ways in which conflicts of interest generally arise?

1. The fiduciary has some direct pecuniary interest in a transaction that involves the corporation. 2. The fiduciary is related to or closely associated with a person who has a direct personal stake in a transaction that involves the corporation. 3. The fiduciary owes duties both to the corporation and to another person involved in a transaction with the corporation. 4. The fiduciary has taken something that belongs to the corporation and used it for the fiduciary's own benefit.

What is the process by which a business may be incorporated?

1. The incorporator(s) must file the articles of incorporation with the Secretary of State (Division of Corporations in Florida); 2. The incorporator(s) name the board of directors (unless named in the articles); 3. The incorporator(s) create the bylaws.

what type of misconduct constitutes the intentional dereliction of duty kind of breach of the duty of good faith?

1. The interests of the corporation and its shareholders are harmed by fiduciary breaches of this sort and the proper way to protect them from this kind of wrong is the duty of good faith. 2. As noted on the previous slide, there are statutes distinguishing gross misconduct from good faith, so there must be an injury associated with breach of the duty of good faith.

Are there situations where tort liability does flow from contract liability?

1. The promisor, while engaged affirmatively in discharging a contractual obligation, creates an unreasonable risk of harm to others, or increases that risk. 2. The plaintiff has suffered injury as a result of reasonable reliance upon the defendant's continuing performance of a contractual obligation 3. The contracting party has entirely displaced the other party's duty to maintain the premises safely.

Under Florida law, before a shareholder may file a derivative suit, what must they show relative to the failure of the corporation to sue on its own behalf?

1. They made a demand on the organization to sue on its own behalf and the demand was refused, rejected, or ignored by the board of directors prior to the expiration of 90 days from the date the demand was made, or 2. They made a demand on the organization to sue on its own behalf and there would be irreparable and material injury to the corporation or misapplication or waste of corporate assets to wait for the expiration of a 90-day period from the date the demand was made, or 3. No demand was made and the reason they did not make the effort.

What role in a corporation do the articles of incorporation play?

1. They set out the basics of the business' governance 2.They set out the capital structure of the business, 3.They set out rules governing virtually any matter within the corporation.

A failure to act in good faith may be shown where the fiduciary is shown:

1. To intentionally act with a purpose other than that of advancing the best interests of the corporation 2. With the intent to violate appliable positive law, or 3. Where the fiduciary intentional fails to act in the face of a known duty to act demonstrating a conscious disregard for his duties.

What are some examples of a principal's duty of good faith re: his or her agent?

1. a principal must not unreasonably interfere with the agent's completion of work 2. the principal must provide work if the terms of the relationship fairly imply such an understanding 3. a duty to warn an agent of risks either of physical harm or pecuniary loss, wherever the principal knows or reasonably should know that the risks are present in the agent's work and are unknown to the agent 4. the principal must refrain from conduct likely to injure the agent's business reputation and the agent's "self-respect. (Seriously scandalous conduct or acts of notorious moral turpitude by the principal might violate this duty, as would deliberate actions by the principal to disparage or compete with the agent.)

Given the value of entering into a written contract describing the agency relationship, why might parties be reluctant to enter one?

1. expresses a lack of trust 2. cost of paying a lawyer to draft a K 3. time may be of the essence 4. The agency may be informal or arise in an ad hoc/time-sensitive situation.

All partners in a general partnership have what? (LPMF)

1. full personal liability for the debts of the business, 2. equal claims on its profits, 3. equal management powers, and 4. fiduciary relationship with other partners

What are three types of principal?

1. fully disclosed 2. unidentified (know someone is working with an agent, but not sure who) 3. undisclosed

Black Letter Law: Corporation Adoption of Contracts

1.A corporate entity does not exist prior to incorporation 2.A corporate entity is not bound on contracts entered into by the promoter before incorporation in the corporate name absent adoption of the contract. 3.A promoter is not an agent of the corporation prior to incorporation. 4.The corporation may become bound on promoter contracts by adopting them. 5.Adoption makes the corporation a party to the contract at the time it adopts. 6.Adoption of the contract does not of itself relieve the promoter of his liability. 7.The liability of the corporation runs from the date of adoption. 8.Adoption may be express (e.g., by board of directors' resolution) or implied (e.g., by acquiescence or conduct normally constituting estoppel).

What are the advantages of a limited liability company?

1.Pass-through taxation like a partnership, 2.Offers its owners limited liability like corporate shareholders, and 3.May be managed either like a partnership or a corporation.

Our discussion of corporation control transactions will focus on the following five types of transactions:

1.Purchase of assets, 2.Share exchange, 3.Merger, 4.Tender offer, and 5.Private purchase of control shares.

what are the three categories of conduct that can demonstrate a failure to act in good faith?

1.Subjective bad faith - fiduciary conduct motivated by an actual intent to do harm. 2.Lack of due care - fiduciary action taken solely by reason of gross negligence and without malevolent intent. 3.Intentional dereliction of duty—a conscious disregard for one's responsibilities.

What information is required in the articles of organizations filed with Division of Corporations in Florida?

1.The name of the limited liability company. 2.The street and mailing addresses of the company's principal office. 3.The name, street address in this state, and written acceptance of the company's initial registered agent. Fl. Stat. § 605.0201(2).

Which of the following is true regarding the fiduciary duties of partners in a limited partnership? A.Limited partners may directly compete with the partnership. B.General partners have no duty of loyalty to limited partners. C.Some courts interpret limited partnership agreements in favor of the general partners. D.In transaction between partners as individuals, fiduciary duties are increased/more stringent.

A

What is a fiduciary?

A "fiduciary" is someone who is legally charged with the obligation to act on behalf of another rather than on his or her own behalf.

How is a general partnership created? Are there any formalities?

A GO is created when two or more persons agree to act as co-owners of a business for profit. No formalities; only agreement is necessary to form.

What does a capital account keep track of?

A capital account keeps track of the capital contributed, profits, and losses accruing to each partner.

Under Florida law, what must a derivative complaint allege with particularity?

A complaint in a proceeding brought in the right of a corporation must be verified and allege with particularity: (1) The demand, if any, made to obtain the action desired by the shareholder from the board of directors; and (2) Either: (a) If such a demand was made, that the demand was refused, rejected, or ignored by the board of directors prior to the expiration of 90 days from the date the demand was made; (b) If such a demand was made, why irreparable injury to the corporation or misapplication or waste of corporate assets causing material injury to the corporation would result by waiting for the expiration of a 90-day period from the date the demand was made; or (c) The reason or reasons the shareholder did not make the effort to obtain the desired action from the board of directors or comparable authority.

When can a corporate officer or director not take a business opportunity for himself?

A corporate officer or director may not take a business opportunity for his own if 1. The corporation is financially able to exploit the opportunity, 2. The opportunity is within the corporation's line of business, 3. The corporation has an interest or expectancy in the opportunity, and 4. By taking the opportunity for his own, the corporate fiduciary will thereby be placed in a position inimical to his duties to the corporation.

What's the relevant rule for a corporation with respect to it's ability to purchase "directors and officers" insurance?

A corporation has the power to: (1) purchase and maintain insurance (2) on behalf of and for the benefit of an individual (a) who is or was a director or officer of the corp, or (b) who, while a director or officer was serving at the corp.'s request as an agent of another entity.

When must a corporation indemnify an individual?

A corporation must indemnify an individual who is or was a director or officer who 1) was wholly successful, on the merits or otherwise, 2) in the defense of any proceeding 3) to which the individual was a party because he or she is or was a director or officer of the corporation 4) against expenses incurred by the individual in connection with the proceeding.

When can a corporation's power to act be challenged?

A corporation's power to act may be challenged: (a) In a proceeding by a shareholder against the corporation to enjoin the act; (b) In a proceeding by the corporation, directly, derivatively, or through a receiver, trustee, or other legal representative, or through shareholders in a representative suit, against an incumbent or former director, officer, employee, or agent of the corporation; or (c) In a proceeding by the Department of Legal Affairs [Attorney General's Office] pursuant to s. 607.1403 [articles of dissolution] or to enjoin the corporation from the transaction of unauthorized business.

When will a creditor-debtor relationship turn into a principal-agent relationship?

A creditor who assumes control of his debtor's business for the mutual benefit of himself and his debtor, may become a principal, with liability for the acts and transactions of the debtor in connection with the business.

What is a de facto corporation and when is a corporation found to be a de facto corporation?

A de facto corporation is a corporation that was not properly incorporated but which will be treated as if it was properly incorporated: 1. A valid law under which the corporation can be lawfully organized, 2. A good faith attempt to organize under the law, and 3. The entity acts as if it is a corporation. Compare to a de jure corporation which was properly created under the law.

What is a debt security?

A debt security represents a creditor-debtor relationship with the corporation, whereby the corporation has borrowed funds from an "outside creditor" and promises to repay the creditor (e.g., in the form of a corporate bond).

Are a limited partnership's debts considered debts of limited partners? Would this change if the limited partner participated in the management and control of the LP?

A debt, obligation, or other liability of a limited partnership is not the debt, obligation, or other liability of a limited partner. A limited partner is not personally liable, directly or indirectly, by way of contribution or otherwise, for a debt, obligation, or other liability of the partnership solely by reason of being or acting as a limited partner, even if the limited partner participates in the management and control of the limited partnership.

How should a disagreement as to a matter within the ordinary course of business of a partnership be handled?

A difference arising as to a matter in the ordinary course of business of a partnership may be decided by a majority of the partners.

When can a director or officer take a corporate opportunity?

A director or officer may take a corporate opportunity if 1. The opportunity is presented to the director or officer in his individual and not his corporate capacity, 2. The opportunity is not essential to the corporation 3. The corporation holds no interest or expectancy in the opportunity, and 4. The director or officer has not wrongfully employed the resources of the corporation in pursuing or exploiting the opportunity.

When is a fact material?

A fact is material if it is "substantially likely to be considered important by a reasonable [decision maker].

Why does a filing for a limited partnership require the general partners' names and addresses, but there is no requirement for the limited liability company's members names and addresses?

A general partner in a LP is liable for the obligations of the LP. So if a person wants to contract or interact with that partnership, they can price out the risk based on the assets of both the LP and the general partners. But the members of an LLC are not subject to unlimited liability. So calculating risk is based solely on the assets of the LLC and, as a result, knowing who the members are is unnecessary.

Does the general partner have an obligation to act in good faith and with fair dealing?

A general partner shall discharge the duties to the partnership and the other partners under this act or under the partnership agreement and exercise any rights consistently with the obligation of good faith and fair dealing.

What is it called, if the Neutron Brothers Board does not wish to be purchased by Big Co. and attempts to thwart the tender offer, but fails and Big Co. purchases enough shares to take control of the company?

A hostile takeover.

What are the additional requirements set forth by the NLRB to determine if someone is a joint employer?

A joint employer must not only possess the authority to control employee's terms and conditions of employment, but also must exercise that authority. The joint employer's control must be direct and immediate.

Do limited partners have any fiduciary duties to the LP or other partners solely by reason of being an LP? What if an LP is vested with or delegated management powers or duties under the partnership agreement?

A limited partner does not have any fiduciary duty to the limited partnership or to any other partner solely by reason of being a limited partner. Same duties as a general partner in this respect.

What is a "special" shareholder's meeting?

A meeting other than the annual meeting, called to discuss matters stated in the notice of the meeting.

Is a member or manager of an LLC personally liable for a debt, obligation, or other liability of an LLC?

A member or manager is not personally liable, directly or indirectly, by way of contribution or otherwise, for a debt, obligation, or other liability of the company solely by reason of being or acting as a member or manager.

On January 1, 2019, Smith Corp. sent a plan to the board of Jones Inc. offering to purchase all shares of Jones Inc. by offering one share of Smith Corp. for five shares of Jones Inc. The Jones Inc. board approved the plan and, on May 1, 2019, a majority of shareholders voted to approve it. On June 1, 2019, Smith Corp. completed the exchange of shares. Which type of control transaction is this? Which specific type?

A merger. A true merger.

On August 1, 2019, Smith-Jones Corp. sent a plan to the board of Quincy Inc. to form a new company, SJQ, Inc. that would own all of the assets and liabilities of Smith-Jones Corp. and Quincy Inc. with both Smith-Jones Corp. shareholders and Quincy Inc. shareholders receiving 1 share of stock in SJQ, Inc. for each share they own in their respective corporations. The Quincy board approved the plan, and, on December 1, 2019, the Quincy shareholders approved it by majority vote. On January 1, 2020, SJQ, Inc. came into existence and its shares were exchanged with the Smith-Jones and Quincy shareholders. That same day, both Smith-Jones and Quincy ceased to exist. Which type of control transaction is this? Which specific form?

A merger. A consolidation.

When can a non-majority of the partners restrict a partnership's ability/right to do business, if the business is on-going and the matter to be restricted falls within the ordinary business of the partnership?

A non-majority can't. Such restrictions on a partner's right to act on the partnership's behalf in carrying out the ordinary business of the partnership are only effective if adopted by a majority of the partners.

What liability do partners owe to each other after dissolution?

A partner is liable to the other partners for the partner's share of any partnership liability incurred winding up the partnership under RUPA 804. A partner who, with knowledge of the dissolution, incurs a partnership liability by an act that is not appropriate for winding up the partnership business is liable to the partnership for any damage caused to the partnership arising from the liability.

What is a service only partner?

A partner whose "capital contribution" in money or property is zero, but who contributes by giving services to the partnership.

How does the dissociation of a partner affect their liability for partnership obligations incurred prior to their dissociation? What about after their dissociation?

A partner's dissociation does not of itself discharge the partner's liability for a partnership obligation incurred before dissociation. A dissociated partner is not liable for a partnership obligation incurred after dissociation, except as otherwise provided in subsection (b).

What is the general rule for imputation of a partner's knowledge, notice, or receipt of notification of a fact?

A partner's knowledge, notice, or receipt of a notification of a fact relating to the partnership is effective immediately as knowledge by, notice to, or receipt of a notification by the partnership, except in the case of a fraud on the partnership committed by or with the consent of that partner.

When will a partner, whose dissociation did not result in dissolution and winding of the partnership business, be liable to a third party who entered into a transaction with the partnership within two years after the partner's dissociation?

A partner, whose dissociation did not result in dissolution and winding up of the partnership business, will be liable to a third party who entered into a transaction with the partnership within two years of the partner's dissociation, only if: 1. the partner is liable for the obligation under § 306, and 2. at the time of entering into the transaction the other party (a) reasonably believed that the dissociated partner was then a partner; (b) did not have notice of the partner's dissociation; and (c) is not deemed to have had knowledge under Section 303(e) or notice under Section 704(c).

Can a partnership eliminate the power of a partner to dissociate by express will?

A partnership cannot eliminate the power of a partner to dissociate by express will . . . but can eliminate the right and thereby make the dissociation wrongful.

What is the general rule for a partnership's tort liability? What is the extent of this liability?

A partnership is liable for: (1) loss or injury caused to a person, or (2) for a penalty incurred, as a result of a wrongful act or omission, or other actionable conduct, (3) of a partner acting in the ordinary course of business of the partnership or with authority of the partnership. The partnership will be jointly liable to the same extent as the partner so acting or omitting to act.

Can a partnership impose a fee for a partner or former partner to copy books and records?

A partnership may impose a reasonable charge, covering the costs of labor and material, for copies of documents furnished.

What obligations does a partnership have with respect to its books and records? How is this obligation modified with respect to a former partner?

A partnership shall provide partners and their agents and attorneys access to the partnerships books and records. A partnership shall provide former partners and their agents and attorneys access to the partnerships books and records pertaining to the period during which they were partners.

Is a newly admitted partner liable for partnership obligations incurred prior to become a partner?

A person admitted as a partner into an existing partnership is not personally liable for any partnership obligation incurred before the person's admission as a partner.

A wrongfully dissociating partner is liable to the partnership and other partners for what?

A person that wrongfully dissociates as a partner is liable to the partnership and to the other partners for damages caused by the dissociation. The liability is in addition to any debt, obligation, or other liability of the partner to the partnership or the other partners.

In the context of inside trading, what fiduciary duties do officers and directors have with respect to financial information?

A person who acquires special knowledge or information by virtue of a confidential or fiduciary relationship with another is not free to exploit that knowledge or information for his own personal benefit, but must account to his principal for any profits derived therefrom.

What is a "promoter"?

A person who acts on behalf of a business before it is incorporated.

RULE: ESTOPPEL TO DENY EXISTENCE OF AGENCY RELATIONSHIP

A person who has not made a manifestation that an actor has authority as an agent and who is not otherwise liable as a party to a transaction purportedly done by the actor on that person's account is subject to liability to a third party who justifiably is induced to make a detrimental change in position because the transaction is believed to be on the person's account, if (1) the person intentionally or carelessly caused such belief, or (2) having notice of such belief and that it might induce others to change their positions, the person did not take reasonable steps to notify them of the facts.

If a person suffers a loss by reliance on inaccurate information contained in the Articles of Organization, can they recover damages, and if so, from who?

A person who suffers a loss by reliance on such information may recover damages for the loss from: (a) A person who signed the record, or caused another to sign it on the person's behalf, and knew the information was inaccurate at the time the record was signed; and (b). . . a member of a member-managed limited liability company or a manager of a manager-managed limited liability company if: 1. The record was delivered for filing on behalf of the company; and 2. The member or manager had notice of the inaccuracy for a reasonably sufficient time before the information was relied upon so that, before the reliance, the member or manager reasonably could have [corrected it]

When is a partner's dissociation from a partnership wrongful?

A person's dissociation as a partner is wrongful only if the dissociation: (1) is in breach of an express provision of the partnership agreement; or (2) in the case of a partnership for a definite term or particular undertaking, occurs before the expiration of the term or the completion of the undertaking and: (A) the person withdraws as a partner by express will, unless the withdrawal follows not later than 90 days after another person's dissociation by death or otherwise under Section 601(6) through (10) or wrongful dissociation under this subsection; (B) the person is expelled as a partner by judicial order under Section 601(5); (C) the person is dissociated under Section 601(6); or (D) in the case of a person that is not a trust other than a business trust, an estate, or an individual, the person is expelled or otherwise dissociated because it willfully dissolved or terminated

Within a relationship of agency, a principal always has what power with respect to interim instructions?

A principal always has the power to provide an agent with interim instructions concerning action to be taken on the principal's behalf.

Broker hired Agent to sell property for Broker at Broker's real estate company. Per the written agreement Broker would pay agent 3% of the purchase price as commission on any property sold by Agent. Commissions were to be paid on the first of the month after the property sale had completed--provided Agent remained employed with Broker's company on that date. The agreement also made the employment relationship an at-will relationship. On January 28, Broker fired Agent without cause. Agent had property sales under contract that would close on January 29th that would have resulted in Agent receiving $35,000 in commissions on February 1st. Broker pointing to the contract, refused to pay Agent the commissions. What can agent do?

A principal and agent may provide by agreement that either or both may terminate their relationship and thus the agent's actual authority. Such a provision does not categorically protect termination under all circumstances. In particular, having been terminated, a former agent may claim that the principal's exercise of the contractual right contravened the implied contractual covenant of good faith and fair dealing, alleging that the termination was the product of improper motives. Every contract imposes on each party a duty of good faith and fair dealing in its performance and its enforcement.

what agreement can a principal and agent make about interim instructions?

A principal and an agent may agree that the principal will not give interim instructions or otherwise interfere with the agent's exercise of discretion.

When is a principal disclosed?

A principal is disclosed if: 1. when an agent and a third party interact, 2. the third party has notice that the agent (a) is acting for a principal and (b) has notice of the principal's identity.

What is the principal's generally duty regarding compensation of an agent? Exception? What may the agent be entitled to if there is no express agreement? What is the exception regarding sub-agents?

A principal is presumptively required to pay the agent for the services unless (1) the parties agree the agent will not be compensated, or (2) the parties' relationship or the trivial nature of the duties is such that a court infers an agreement denying compensation. Where there is no explicit agreement as to the amount of compensation, the agent will be entitled to a fair market compensation for the value of the services rendered. Where an agent is empowered to appoint a sub-agent, the sub-agent has an implied contractual right to compensation from the appointing agent, but not from the principal.

When is a principal undisclosed?

A principal is undisclosed if: 1. when an agent and a third party interact, 2. the third party has no notice that the agent is acting for a principal.

When is a principal unidentified?

A principal is unidentified if: 1. when an agent and a third party interact, 2. the third party has notice that the agent (a) is acting for a principal but (b) does not have notice of the principal's identity.

Re: indicia of authority, what can a principal furnish to an agent? What does this enable the agent/third parties to do?

A principal may furnish an agent with a writing, such as a power of attorney, that states the extent and nature of the agent's actual authority. Providing the agent with such a writing enables third parties to deal with the agent as to matters within the scope of the stated authority without confirming the agent's authority directly with the principal.

What is the principal's generally duty regarding indemnification of an agent? Exceptions?

A principal normally must indemnify the agent for losses incurred in the course of the agent's duties for the principal, unless: (1) the agent makes some deliberate payment that is without actual authority and (a) is either of no benefit to the principal or (b) was made "officiously," or (2) the agent suffers some inadvertent loss in the course of his duties but the loss is not "fairly" attributable to the principal. The agent might have additional indemnification rights by contract, see§8.14(1) and the comments following, and the parties can also agree by contract to limit the agent's indemnification rights, see §8.14(2).

On June 1, Smith Co. reached out to Jones and Quincy who, together, own a majority of shares in Cross Country Truckers, Inc., and privately offered to purchase Jones' and Quincy's shares in Cross Country Truckers. They agreed and Smith Co. purchased 55% of all shares in Cross Country Truckers from them. Which type of control transaction is this?

A private purchase of control shares.

Big Co. is a mining corporation with interests in oil and coal. Metals Corp. is a company that owns and operates five mines digging rare earth minerals. On June 1, Big Co. entered into an agreement by which it will purchase all of Metals Corp.'s mining assets including interests, equipment, contracts, and name. Which type of control transaction is this?

A purchase of assets.

On June 1, Smith Co. sent a plan of exchange to the board of Jones-Quincy, Inc. in which Smith Co. proposed to purchase all of the shares of Jones-Quincy, Inc. for $4 per share. After reviewing the proposal, the board of Jones-Quincy, Inc. recommends it to the shareholders. At a shareholder meeting 51% of the shareholders approve the agreement. As a result, all of the shares of Jones-Quincy are purchased by Smith Co. Which type of control transaction is this? Carbuncle, a shareholder in Jones-Quincy, Inc. voted against the share exchange agreement proposed by Smith Co. She has come to you, his attorney, to see how she can keep her shares. You say?

A share exchange. Because the share exchange agreement was approved by a majority of the shareholders (after recommendation by the board), Carbuncle has no choice but to sell the shares at the approved price.

In order to maintain a direct action, what must a shareholder plead and prove?

A shareholder maintaining a direct action under this section must plead and prove either: (a) An actual or threatened injury that is not solely the result of an injury suffered or threatened to be suffered by the corporation; or (b) An actual or threatened injury resulting from a violation of a separate statutory or contractual duty owed by the alleged wrongdoer to the shareholder, even if the injury is in whole or in part the same as the injury suffered or threatened to be suffered by the corporation.

Under the MCBA, what is the quorum requirement for a meeting?

A simple majority.

What is a "statement of partnership authority"?

A statement that is filed with division of corporations (or secretary of state), that identifies: 1) the partnership with name and address of the partnership, 2) name and address of the partners, 3) and states that the authority (or limits on the authority) of partners.

Big Co. is a mining corporation with interests in oil and coal. It recently discovered valuable uranium deposits on land it owns in the western United States. Lacking expertise in this area and with a large amount of cash on hand, Big Co. decides to take over Neutron Brothers Inc. a company with extensive experience in mining uranium. To do so, the board votes to make an open market offer to shareholders in Neutron Brothers Inc. to purchase shares of Neutron Brothers at $10 a share (the current market price is $7 a share). After six weeks, Big Co. has purchased enough shares to take control of Neutron's Board. Which type of control transaction is this?

A tender offer.

what partnership property does an individual partner have the individual right to sell or dispose of? (RUPA § 503) What effect does such a transfer have on the partnership? When an individual partner has transferred his transferable interest in the partnership to a transferee, what rights does the transferee not possess? (RUPA § 503)

A transfer, in whole or in part, of a partner's transferable interest in the partnership: (1) is permissible; (2) does not by itself cause the partner's dissociation or a dissolution and winding up of the partnership business; and (3) does not, as against the other partners or the partnership, entitle the transferee, during the continuance of the partnership, to participate in the management or conduct of the partnership business, to require access to information concerning partnership transactions, or to inspect or copy the partnership books or records.

When an individual partner has transferred his transferable interest in the partnership to a transferee, what are the rights of the transferee? (RUPA § 503)

A transferee of a partner's transferable interest in the partnership has a right: (1) to receive, in accordance with the transfer, distributions to which the transferor would otherwise be entitled; (2) to receive upon the dissolution and winding up of the partnership business, in accordance with the transfer, the net amount otherwise distributable to the transferor; and (3) to seek under Section 801(6) a judicial determination that it is equitable to wind up the partnership business.

What is a durable power of attorney?

A written designation of an attorney-in-fact expressing the principal's intention that the power shall not be affected by the principal's subsequent loss of capacity, or that the power shall become effective upon the principal's subsequent disability or incapacity. The principal may revoke the power so long as the principal has capacity.

Which of the following would create a partner's dissociation from a partnership? A. Partnership is formed to complete a task, the task is not complete, and Partner A states in writing that he wants to withdraw from the partnership. B. Partner A is wrongfully expelled from the partnership. C. Partner A is a trust that distributes its entire interest in the partnership. D. Partnership is at will and an agreed event occurs.

A, C, D

Paul is a car fanatic and hears that a very rare 1957 Jaguar XKSS is coming up for auction. Paul sends a letter to the auction stating, "Aaron will represent me at the upcoming auction on June 1, 2020 and is authorized to bid on my behalf." Aaron had previously bid on Paul's behalf at this auction house in amounts up $4 million. Paul informed Aaron that Aaron was authorized, in this case, to only bid up to $2 million. This limitation was not communicated to the auction house. What is the financial limit of Aaron's authority? (actual and apparent)

Aaron's actual authority is $2 million. But Aaron's apparent authority is in excess of $2 million.

What is the general rule for imputation of notice?

Absent adversity of interest, notice and notification generally are imputed from the agent to the principal

What does it mean to act adversely in the context of agency?

Acting adversely means "intending to act solely for the agent's own purposes or those of another person."

How can shareholders are action without calling a special meeting or the annual meeting?

Action required or permitted to be taken at an annual or special meeting of shareholders may be taken •without a meeting, •without prior notice, and •without a vote if the action is taken by the holders of outstanding shares of sufficient to authorize or take action at a meeting in which all voting groups/shares are entitled to vote were present.

When does actual authority arise?

Actual authority arises when: 1. At the time of taking action that has legal consequences for the principal, 2. the agent a. reasonably believes, b. in accordance with the principal's manifestations to the agent, c. that the principal wishes the agent so to act.

RE: the principal's liability for the Agent's Contracts, how is actual authority created?

Actual authority is created by manifestations from the principal to the agent

What can a partner do after dissolution to negate a filed statement of partnership authority? What does this do?

After dissolution, a partner who has not wrongfully dissociated may file a statement of dissolution stating the name of the partnership and that the partnership has dissolved and is winding up its business. A statement of dissolution cancels a filed statement of partnership authority for the purposes of Section 303(d) and is a limitation on authority for the purposes of Section 303(e).

What happens to a partner's rights in a partnership after the partner dissociates from the partnership, and the dissociation causes dissolution of the partnership? (RUPA 603(a)/803(a))

After dissolution, a partner who has not wrongfully dissociated may participate in winding up the partnership's business, but on application of any partner, partner's legal representative, or transferee, the court, for good cause shown, may order judicial supervision of the winding up.

On June 1, Principal Corporation retains Agency Sales as its exclusive sales agent for Maine. Terrance Inc. is a Maine customer and is notified, on June 7, that Agency Sales is Principal's new exclusive sales agent. On November 1, Principal terminates Agency Sales' authority and sends a letter to Terrance Inc. informing Terrance that Agency Sales is no longer authorized as Principal's agent. The letter arrives on November 2nd at 9:00 a.m. Relative to Terrance Inc., when does Agency Sales' authority terminate?

Agency Sales' authority ends as soon as Terrance Inc's office force has an opportunity to read and act upon the mail.

Paul asks his friend Al to select and purchase a suitable car for Paul. Al is not employed as an auto mechanic but has a lot of experience buying and selling cars and working on them. Al selects and purchases a used car for Paul from Thrifty Cars. Al did not inspect the car nor have an inspection conducted. The car is later found to have been in an accident that rendered it valueless and unsafe to drive. A routine inspection, which Al was competent to do, would have revealed the problem. What is the duty of care Al owes Paul and did Al breach it?

Al is subject to the duty of care of someone in Al's position. Here, Al was competent to perform the inspection, his failure likely means he will be liable for breaching the duty of care.

When will knowledge of an agent be imputed to his or her principal?

All facts an agent knows, or has either reason or a duty to know, are imputed to his principal: 1. so long as they are material to the agent's duties for that principal, and 2. so long as the agent is neither (a) acting adversely to the principal nor (b) subject to some duty to another person not to disclose the facts.

Which of the following would create a dissolution of a partnership? A. The term for a partnership for a definite term has expired. B. In a partnership at will Partner A notifies the other partners in writing that Partner A wishes to withdraw. C. The Partnership agreement requires that if the partnership loses money for three years it must dissolve and the Partnership has lost money for three years. D. The partnership is for running "Poker Playing Rooms" and the state legislature has just made "Poker Playing Rooms" illegal.

All of the above

Which of the following causes "winding up?" A.The term for a partnership for a definite term has expired. B.In a partnership at will Partner A notifies the other partners in writing that Partner A wishes to withdraw. C.The Partnership agreement requires that if the partnership loses money for three years it must dissolve and the Partnership has lost money for three years. D.The partnership is for running "Poker Playing Rooms" and the state legislature has just made "Poker Playing Rooms" illegal.

All of the above because, the dissolution of a partnership causes a winding up and each of the above cause a dissolution of a partnership

What is an accounting?

An accounting is a special procedure in which the partner asks the court to engage in an equitable proceeding examining the financial affairs of the firm and rendering judgment as to all debts owing among the partners.

What is required in order to amend a partnership agreement, or to undertake an act outside the ordinary course of business of a partnership?

An act outside the ordinary course of business of a partnership and an amendment to the partnership agreement may be undertaken only with the consent of all of the partners.

Jones Landholdings, Inc. is a major landlord in New City. On December 1st, Janice Jones, CEO of Jones Landholdings, has her secretary send an email informing all rent clerks that, "Per Janice Jones, CEO, any tenant who pays January rent in December will received a 20% discount on February rent." Smith reads the email on December 2nd and notifies his clients of the discount. Smith receives January rent from TimCo on December 3rd and Smith informs TimCo that TimCo owes 80% of its normal rent in February. Did Smith have authority to do so?

An agent acts with actual authority when, at the time of taking action that has legal consequences for the principal, the agent reasonably believes, in accordance with the principal's manifestations to the agent, that the principal wishes the agent so to act. Restatement (3rd) Agency 2.01 The question is attempting to get us to focus in on the fact that the email came from Janice Jones' secretary not Jones herself. Absent other facts, it is reasonable for Smith to rely on the email from Jones' secretary.

If there is a contract between Principal and Agent, what is the nature of the agent's duty?

An agent has a duty to act in accordance with the express and implied terms of any contract between the agent and the principal

When does an agent need to provide information material to a contemplated transaction to the principal?

An agent has a duty to use reasonable effort to provide the principal with facts that the agent knows, has reason to know, or should know when (1) subject to any manifestation by the principal, the agent knows or has reason to know that the principal would wish to have the facts or the facts are material to the agent's duties to the principal; and (2) the facts can be provided to the principal without violating a superior duty owed by the agent to another person. Restatement (Third) Agency § 8.11

Vera operates a health-food store, "Veggie Delight," located in a shopping mall. Vera's store markets itself as an enterprise dedicated to promoting vegan eating habits. Vera requires its employees to wear T-shirts throughout the workday that bear the insignia: "Veggie Delight. The Vegan Way." Vera employs Arnold as manager of Veggie Delight. Wearing the T-shirt provided by Vera, Arnold regularly eats lunch at the steak house, "Cattle Call," opposite Veggie Delight in the mall, publicly consuming large orders of meat. Has Arnold breached any duty to Vera?

An agent has a duty, within the scope of the agency relationship, to act reasonably and to refrain from conduct that is likely to damage the principal's enterprise. Restatement (Third) Agency § 8.10 Arnold's publicly eating meat on a regular basis in the same mall as Vera's store breaches Arnold's duty of good conduct because by publicly eating meat on a regular basis, Arnold reflects adversely on the credibility of Vera's enterprise.

What is an agent's duty with respect to the principal's property, and the principal's information?

An agent has a duty: 1. not to use property of the principal for the agent's own purposes or those of a third party; and 2. not to use or communicate confidential information of the principal for the agent's own purposes or those of a third party.

When is an agent's notice of a fact not imputed to the principal?

An agent's notice of a fact is not imputed to the principal if the agent is adverse to the principal (except under the exceptions mentioned in §5.04(a)-(b)).

What happens if the employee makes a minor deviation from his employer's business for his own purposes and injures a third party?

An employee making a minor deviation from his employer's business for his own purposes is still within the scope of his employment. (Detour) If the deviation in time or geographic area is substantial, the employer is not liable. (Frolic) This depends on the circumstances (think of Arizona trucker driving ten miles off of highway to get gas vs. city worker going a mile out of the way to do something)

How is an entity with one member taxed?

An entity that has only one member may elect to be taxed as a corporation or it will be treated as a "nothing," i.e., as though it has no separate existence from its owner.

When is an entity taxed as a corporation?

An entity will be taxed as a corporation if it is created under a statute that "describes or refers to the entity as incorporated or as a corporation, body corporate, or body politic" or as "a joint-stock company or joint stock association

What is an equity security?

An equity security is an instrument representing an investment in the corporation whereby its holder becomes a part owner of the business. Equity securities are shares of the corporation, and the investor is called a shareholder.

what does an estoppel to deny authority require?

An estoppel to deny authority requires detrimental reliance "caused" by the putative principal

What is a fiduciary duty?

An obligation to act for another's benefit.

Despite any contract provision, the agent may have certain powers to bind the principal. An undisclosed principal who entrusts an agent with the management of his business is subject to liability to for what?

An undisclosed principal who entrusts an agent with the management of his business is subject to liability to third persons with whom the agent enters into transactions usual in such businesses, and on the principal's account, although contrary to the directions of the principal.

When does an agent act with apparent authority?

Apparent authority arises when: 1. At the time of taking action that has legal consequences for the principal, 2. a third party a. reasonably believes, b. in accordance with the principal's manifestations to the third party, c. that the agent has authority to act on behalf of the principal.

RE: the principal's liability for the Agent's Contracts, how is apparent authority created?

Apparent authority is created by manifestations from the principal to a third party

Prudence retains Arnies, a real-estate broker to sell blackacre. P knows that A employs sales people to show property to prospective purchasers and to state the terms on which the property is for sale. Are the sales people Prudence's agents?

Arnie is Prudence's agent, and his sales people are Prudence's subagents.

When is a principal responsible for the torts of an independent contractor (acting in the scope of the employment)? What are the exceptions to this rule?

As a general rule, a principal is not liable for torts of independent contractors, unless: 1. The independent contractor is engaged in inherently dangerous activity (blasting), or 2. Duty is not delegable (duty to use care in building a fence around excavation site) The core idea is that certain work is either inherently dangerous (blasting) or has dangers specific to the work (hauling logs) and in those cases there may be a duty (to meet a standard of care) that the principal cannot delegate to the agent.

What duties do directors have with respect to economic waste?

As part of their duty of care, directors have a duty not to waste corporate assets by overpaying for property or employment services (e.g., by paying someone an amount substantially above market value for services or property).

At the end of year 1, a two-partner partnership has earned a profit of $300. What does this do to the partnership accounts?

As profits are distributed equally, absent other agreement, Each partner's capital account is increased by $150.

Where does a corporation reside? Where is a corporation domiciled?

As resident •A corporation may be a resident of the state where it is incorporated, where it is doing business, and it is possible it is a resident of a state where it is merely qualified to do business. Domicile •A corporation's domicile is the state of its incorporation. •A corporation may have multiple domiciles for certain purposes. •E.g., for state tax purposes when the corporation has its principal place of business in a state other than that of its incorporation.

Smith, Jones, and Carbuncle are in an at-will partnership. Assume the partnership dissolves. What does each partner get? Asset/Value/Payout Smith's capital account/$200/? Jones' capital account/$100/? Carbuncle's capital account/$0/? Assets/$400/? Liabilities/$400/? Creditors/-$400/?

Asset/Value/Payout Smith's capital account/$200/$200 Jones' capital account/$100/$100 Carbuncle's capital account/$0/$0 Assets/$0 Liabilities/$0 Creditors/$0/$400

How is the Board of Directors formed?

At a shareholders' meeting, the shareholders elect the members of the board.

Where shall a partnership keep its books and records, if it does so at all?

At its chief executive office.

If it designates more than one class of shares, what must the corporation assign to each type?

Authorize one which has unlimited voting rights, and authorize one that is entitled to received the net assets of the corporation upon dissolution. (Can be the same class as the voting shares).

What is the general rule re: agent-principals and the cost of doing business?

Barring agreement, an agent normally will not have a right to recover the agent's own ordinary costs of doing business, including the salaries of the agent's own employees. Presumably, this rule reflects the fact that principal and agent will normally agree on some compensation for the agent, from which the agent will be expected to fund his own costs.

West Plumbing Corp. provides residential plumbing services across South Florida employing 100 plumbers, 20 plumber-assistants, 10 office staff, 3 administrators, and its CEO Ms. West. Its articles of incorporation and its bylaws state that the company's purpose is "To provide residential plumbing services." Ms. West the CEO has decided to expand the business to include residential air conditioning services. Mr. East, a shareholder in West Plumbing Corp. believes the residential air conditioning business in South Florid is saturated and that starting such a business will be costly and, in the end, a failure. He asks you how he can stop the company from so expanding.

Because Mr. East is a shareholder, he may seek an injunction enjoining the corporation from engaging in an ultra vires act.

When is the agency relationship terminated?

Because agency must be a mutually consensual relationship, either party may terminate it at any time, even if doing so breaches a contractual obligation. Death of either party automatically terminates agency. At C/L the incapacity of either party, although this is modified by statute in some states.

Mrs. Pritchard, a director of ABC Corp., failed to obtain and read the annual financial statements which would have, on their face, shown the misappropriation of trust funds and shown that her sons were withdrawing substantial trust funds as shareholder "loans." Did Mrs. Pritchard breach her duty as a director?

Because she was not familiar with the business nor the financial statements, she did not discharge her duties as a director with the degree of diligence and care that others exercise in a similar position.

Why do we have a case on "oversight" liability in a section on liability for breach of the duty of good faith?

Because the failure to oversee the corporation can, in certain circumstances, result in a finding of liability for failure to act in good faith.

Why is the entire fairness usually substituted for the "disinterested board and stockholder approval" standard in the controller merger context?

Because the latter two protections are potentially undermined by the influence of the controlling shareholder, and because applying entireness fairness will achieve the same results as a 1) disinterested board, and 2) stockholder approval.

When stock ownership and board composition of two families is shared equally by two different groups, what is thee primary problem of this type of corporate structure?

Because the shares and board are split evenly, you run the risk of deadlock on the board that cannot be resolved by a board or shareholder vote.

Why is this person called the "beneficial" owner/holder?

Because they are the person who enjoys the benefits of ownership (right to dividends, voting, etc.)

What problem does the book note for service only partners upon dissolution?

Because they share equally in a firm's losses, they may have to pay other partners.

Peter, Paul, and Petunia are partners in a restaurant. Peter wants to enter into an agreement with Cleaners, Inc. (on the partnership's behalf) to provide cleaning services to the restaurant. Paul and Petunia want to enter into an agreement with Janitorial Corp. Under RUPA, how should this be resolved?

Because this is a matter in the ordinary course, it should be decided by a majority vote of the partners. RUPA § 401(j)

What does the phrase "ultra vires" mean? What does the phrase "intra vires" mean?

Beyond the legal power or authority of a corporation, corporate officer, etc. Within the legal power or authority of an individual or corporation.

How can the defendant show that the transaction was fair to the plaintiff despite the conflict of interest?

By showing that: 1. The beneficiary received the same treatment that might have been available in the open market, and 2. The beneficiary was not coerced, misled, or otherwise taken advantage of.

What must partners do if they want to allow for capital calls?

Capital calls do not have a basis in RUPA, so if the partners want to allow for capital calls, they should include a provision for them in the partnership agreement.

What would you advise Carbuncle to do if the Board refuses to ratify his decision?

Carbuncle can either do nothing and see if Medium Corp. (or its shareholders) sue or Carbuncle can turn the opportunity over to Medium Corp.

Medium Corp. runs fortune teller booths at State and County fairs across the United States. On June 1, Carbuncle, a director of Medium Corp., is approached by Larry Medieval, owner of The Medieval Casino in Las Vegas. The Casino has a large open fair that includes various "historic" shops. Medieval wants to add a show with witches who tell fortunes to the fair. Medieval has come to Carbuncle because of his connection with Medium Corp. Carbuncle does not believe Medium would be interested in the opportunity so takes it for himself. After a board meeting where the CEO of Medium Corp. discusses her plan for expansion, he becomes concerned that he may have taken a corporate opportunity. What can Carbuncle do to protect himself from liability?

Carbunclecan seek ratification of his decision from the board of Medium Corp.

Are the following types of actions direct/representative, or derivative: 1. if the injury is one to the plaintiff as a stockholder and to him individually? 2. Where the corporation has no right of action by reason of the transaction complained of? 3. Actions to compel dissolution of a corporation? 4. An action by preferred stockholders against directors? 5. An action by a stockholder complaining that a proposed recapitalization would unfairly benefit holders of another class of stock?

Direct Representative Representative Representative Representative Representative

When is a director liable for breach of the duty to oversee the corporation?

Directors are liable for breach of the duty to oversee the corporation when 1. The directors utterly fail to implement any reporting or information system or controls, or 2. Having implemented such a system or controls, they consciously fail to monitor or oversee its operations thus disabling themselves from being informed of risks or problems requiring their attention.

What are the general rules relating to the duty of care for a director? What does the nature and extent of this duty depend on?

Directors have a duty to discharge their duties in good faith and with the degree of diligence, care and skill which ordinarily prudent men would exercise under similar circumstances in like positions. The size and type of company.

What is the link between loyalty, oversight, and good faith?

Directors have a responsibility to oversee. Acting in good faith requires that you act in way that you think is in the corporation's best interest. Cannot believe acting in good faith if not performing duties. And, if you are not acting in good faith, then you have violated your duty of loyalty.

What events will trigger dissolution of any type of partnership? (at-will/particular undertaking/definite term)

Dissolution of a partnership occurs upon the occurrence of any of the following events: (3) The happening of an event that makes continuation of the partnership illegal; (4) The happening of an event listed in the partnership agreement that requires winding up the partnership; (5) Issuance of a judicial decree on application by partner that: The economic purpose of the partnership is likely to be frustrated; A partner has engaged in conduct making it not reasonably practicable to carry on the business; or The business cannot practicably be carried on in conformity with the partnership agreement; (6) Issuance of a judicial decree on application by a transferee of a partner's interest that it is equitable to wind up the partnership: After the term expires or the undertaking is completed in a partnership for a definite term or particular undertaking; or At any time in a partnership at will.

What duties do Managers owe to the LLC, other managers, and members in a manager-managed LLC? What duties do member owe to the LLC and other members in a member-managed LLC?

Duties of loyalty and care

What is the only form of business that is subject to double taxation?

Chapter C corporation

What are co-agents and to whom do they owe duties?

Co-agents are agents of the same principal. Co-Agents are not agents of each other. Co-agents owe a fiduciary duty to the principal, but do not owe fiduciary duties to each other.

What are the difference between common stock and preferred stock?

Common Stock 1.Has governance role/entitled to vote at shareholder meetings. 2.Right to receive residual proceeds upon dissolution and liquidation of a corporation. 3.No legal interest in receiving dividends. Preferred Stock 1.No voting rights. 2.Liquidation preference. 3.May received a dividend preference (entitles owner to fixed dividend each year, if one is given, may accumulated in years not given).

From a plaintiff's point of view, why is it better to plead a cause of action under breach of duty of loyalty than to plead a cause of action under breach of duty of care against a corporate director or officer?

Duty of care actions are afforded the presumption of good faith/in the best interest of corporation. Breaches of the duty of loyalty are not afforded this presumption.

Smith and Jones enter into an oral partnership agreement on January 1, 2020. That same day, Smith contributes $400 to the partnership and Jones contributes $600. What do each of the partners have in their capital account?

Each account initially only includes the capital contributed by the individual partner. Smith $400 Jones $600

What must the partners and the partnership do when a partner needs information in order to properly exercise his rights and duties?

Each partner and the partnership shall furnish to a partner, and to the legal representative of a deceased partner or partner under legal disability: (1)without demand, any information concerning the partnership's business and affairs reasonably required for the proper exercise of the partner's rights and duties under the partnership agreement or this Act.

What does each partner have with respect to partnership business?

Each partner has equal rights in the management and conduct of the partnership business.

Relative to employment contracts, what is understood as "extraordinary?" What are the problems the court notes with such contracts?

Employment contracts for life or on a permanent basis if the only consideration for the promise is the employee's promise to work for that period. They unduly restrict the power of shareholders and future BODs on questions of managerial policy They subject the corporation to substantial liability They run for long and indefinite periods of time.

Ex: 1 - For years, the cashier's at grocery store have provided, on an. ad hoc basis, a 10% discount to anyone in military uniform. Owner has never expressly authorized the discount, but she is aware of it and has not objected to it. What kind of authority, if any, do the cashiers have to continue offering the discount? Ex: 2 - Same facts, but now owner tells cashiers that they are no longer to give the discount. A cashier later forgets and provides the discount. Does she have authority, and if so, what kind?

Ex: 1 - Actual authority. The lack of objecting (inaction) can be a sufficient manifestation of consent to the behavior. Ex: 2 - Given the instruction, cashier cannot reasonably believe that giving the discount is in accord with owner's manifestations. No Authority.

Ex: 1 - Elly is the CFO of PacificaBank. Elly hires Stan to work as Elly's executive assistant. Explain the agency/principal relationships of Elly and Stan in relation to their work for bank. Ex: 2 - Same facts, but now Elly asks Stan to fill out a form reporting a loss due to fire at Elly's home. Is Stan now Elly's agent?

Ex: 1 - Bank is the principal; Elly and Stan are agents for Pacificbank. Elly is not Stan's principal. Ex: 2 - Yes, Stan. is acting at Elly's agent in example 2.

When a party raises a breach of the duty of loyalty relating to the transaction, the directors will not be liable if the transaction was . . . ?

Fair and reasonable.

the "concept of fairness (in a transaction) has two basic aspects." What are they?

Fairness in dealing and fairness in price. Neither is sufficient or deficient in and of itself.

After winding up and paying off of all creditors, if the LLC still has assets, how are they distributed first? What if there is not enough to cover this? What distributions would be made secondly? What must distributes be paid in?

First, reimburse all members for not-previously-reimbursed contributions. If there is not enough to cover all of those, then distribute in proportion to the value of their respective unreturned contributions. Second, distribute what remains to members in the proportions in which they shared in distributions before dissolution. All distributions made must be paid in money.

Unless otherwise specified in its AOI, for what purpose is a corporation formed?

For the purpose of engaging in any lawful business, unless a more limited purpose is set forth in the AOI.

How do you know if someone is an officer of a corporation?

Generally, the officers of a corporation are listed in the charter or bylaws.

Smith, Jones, and Quincy are members of a limited liability company that is managed by Carbuncle. On May 1, 2020, Smith has given written notice of his intent to withdraw from the LLC as of June 1, 2020. Assuming the operating agreement is silent on this, what is the effect of Smith's notice to the LLC?

He is dissociated from the LLC as of June 1, 2020.

What if Paul and Petunia had objected before Peter entered into the agreement with Cleaners, Inc.? Does it matter whether Cleaners, Inc. knew of this dispute? How does both apparent and actual authority apply to this scenario? Is the partnership bound to its agreement?

Here we have a potential breach of a duty to the partnership by Peter. Relative to the contract with Cleaners, it does not matter whether Paul and Petunia objected. As long as Cleaners did not know of this dispute, Peter can bind the partnership to an agreement with Cleaners. RUPA § 301(1). Peter likely does not have actual authority to enter into this agreement. But, unless Cleaners knew of the dispute (and knew Peter did not have authority to enter the agreement with Cleaners), he does have apparent authority.

Smith is the CEO of BigCo, Inc. a company that manufacturers automotive tires. Smith personally owns Fracking Inc. a company that drills for oil using a fracking method. Worried that Fracking Inc. needs additional funding, Smith, on BigCo's behalf, purchases a 20% interest in Fracking Inc. for $20 million. Due to a rapid decline in demand and an over-supply of oil, Fracking Inc. was forced to close and BigCo's interest is now valued at $0. Jones, a shareholder in BigCo has come to you to ask you to sue Smith for this poor business decision. You say?

Here, we have facts that indicate that Smith was not looking out for the best interests of BigCo. So it is possible Smith could be held liable for the loss to BigCo.

Smith is the CEO of BigCo, Inc. a company that manufacturers automotive tires. Worried about rising costs for petroleum (from which synthetic rubber used in automotive tires is made), Smith purchased, on BigCo's behalf, a 20% interest in Fracking Inc. which is owned by Smith's wife. In an arms-length transaction, that 20% interest would be worth about $1 million but Smith had BigCo pay $20 million. A year later, the cost of oil increased dramatically but, due to BigCo's ownership interest in Fracking Inc., BigCo was able to save $40 million in oil costs. Jones, a shareholder in BigCo has come to you to ask you to sue Smith for the decision to purchase shares from Fracking Inc. You say?

Here, we have facts that would indicate that Smith was acting in bad faith (he overpaid by 20 to 1 for the shares where his wife had an interest). As such, Smith may be held liable for this decision despite it benefiting the company in the long run.

Smith is the CEO of BigCo, Inc. a company that manufacturers automotive tires. Worried about rising costs for petroleum (from which synthetic rubber used in automotive tires is made), Smith purchased, on BigCo's behalf, a 20% interest in Fracking Inc. a company that drills for oil using a fracking method. Due to a rapid decline in demand and an over-supply of oil, Fracking Inc. was forced to close and BigCo's interest is now valued at $0. Jones, a shareholder in BigCo has come to you to ask you to sue Smith for this poor business decision. You say?

Here, we have no facts that would indicate that Smith acted in bad faith or without ordinary care. Also, it appears Smith acted in a way that Smith thought would be in the best interests of the company. As such, Smith is unlikely to be held liable for this decision despite it costing the company a good deal of money.

Smith is a shareholder in BigCo, Inc. On June 1, Smith received notice of a special meeting to be held on June 4th. Smith was upset because he knew that the bylaws required 10 days of notice before a special shareholder meeting can be called. Smith has objected to the meeting, but the board is going forward with it at the noticed date. Smith intends to attend the meeting, but also wants to maximize his rights. She asks for your advice, you tell her:

If Smith attends the meeting, Smith will have waived any defect in the notice unless Smith objects at the beginning to the meeting. So she should attend, but make sure she objects, on the record, to holding the meeting.

Based on a directors duty of care, how should be frame the business judgment rule?

If a director discharges their duties in good faith and with the degree of diligence, care and skill which an ordinarily prudent person would exercise under similar circumstances in like positions, the director will not be held liable for errors.

How is an agent's duty of care modified if the agent has special skills or knowledge?

If an agent claims to possess special skills or knowledge, the agent has a duty to the principal to act with the care, competence, and diligence normally exercised by agents with such skills or knowledge. This factors in to whether the agent acted with due care and diligence.

When does an entity need permission from the Treasury Department to change its classification?

If an entity elects to change its classification, it may not change its classification back within five years without permission from the Treasury Department.

When can a partnership recover from a transferee partnership property held in the name of one or more partners which was transferred by an instrument executed in the partners' names? (A2)

If it can prove that the transferee knew or had received notification that the partner lacked authority to bind the partnership

When can a partnership recover from a transferee partnership property that was transferred by an instrument executed by a partner in the partnership name? (A1)

If it can prove that the transferee knew or had received notification that the partner lacked authority to bind the partnership

Under the business judgement rule if an officer or director makes a conscious business decision, when will it be in compliance with the duty of care to their corporations?

If it: 1. is not self-interested, 2. is reasonably informed, 3. is rationally related to the best interest of the corporation, and 4. is not knowingly wrongful or illegal.

How does the corporation decide on the record date?

If the bylaws state a manner of fixing the record date, follow the bylaws. If the bylaws do not, then the board may fix the date.

When does a director/officer fulfill the duties necessary for the BJR to insulate their decision from challenge under the duty of care?

If the director or officer 1. Is not interested in the subject of the business judgment 2. Is informed with respect to the subject to the extent he/she reasonably believes appropriate, and 3. Rationally believes that the business judgment is in the best interests of the company.

All persons purporting to act as or on behalf of a corporation, knowing that there was no incorporation under this chapter, are jointly and severally liable for all liabilities created while so acting. Fl. Stat. § 607.0204 Given this statute, when might a person acting on behalf of an entity that is not a corporation not be subject to joint and several liability?

If the person does not know that the corporation was not formed at the time of acting as the corporation or on the corporation's behalf.

Smith is a partner in the at-will partnership of Jones, Smith, and Day. On June 1, Smith informs the partners that he wishes to withdraw. As a result, the partnership dissolves and begins the process of winding down. On June 15, Jones and Day meet and agree that they would like the partnership to continue on (without Smith) rather than to wind it down and have to start over from scratch. What do can they do to prevent the partnership from winding down (without Smith)?

If they convince Jones to agree to not dissolving the partnership, even though he is withdrawing, they can continue the partnership.

What is implied authority?

Implied authority of a corporate officer or agent includes all such incidental authority as is necessary, usual and proper to effectuate the main authority expressly conferred. Can also arise from manifestations by the principal that reasonably leave the agent to believe he or she has the authority to take a particular action. In exams students can get hyper-focused on the notion of express or implied authority and talk about them even when they are not relevant. Only discuss these if necessary. And, by the way, notice that implied becomes relevant primarily in that it includes all incidental authority necessary to effectuate the agency.

When is a conveyance fraudulent?

In Florida, a conveyance is fraudulent if the debtor made the transfer: (a) With actual intent to hinder, delay, or defraud any creditor of the debtor; or (b) Without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor: 1. Was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction; . . .

Who decides matters relating to the activities and affairs of an LLC in a manager-managed LLC? what about a member-managed LLC? Does the other category have a right do so also?

In a manager-managed limited liability company, a matter relating to the activities and affairs of the company is decided exclusively by the manager, or if there is more than one manager, by the managers, except as expressly provided in this chapter. FL. Stat. 605.0407(2), (3) In a member-managed limited liability company, the management and conduct of the company are vested in the members, except as expressly provided in this chapter. FL. Stat. 605-0407(2), (3) No.

What events will trigger dissolution of a partnership-at-will?

In a partnership at will, notification by any partner of an express will to withdraw.

Why do we need something like "piercing the veil" in an LLC context? What does this mean for creditors dealing with an under-capitalized LLC?

In an LLC the assets of the individual members are protected (beyond the contributions given to the company). In an under-capitalized LLC, this can result in inequity to creditors. So in special circumstances, the court will allow creditors to reach the personal assets of members.

What is the "intrinsic fairness test?"

In breach of the duty of loyalty cases, the burden is on the defendant to prove that its transactions with the other party were objectively fair.

What is an agent's duty of disclosure?

In essence, the agent has a duty to disclose material facts (which is situation dependent) to the principal unless the agent has a higher duty to another principal (which implicates the duty of loyalty). An agent has a duty to use reasonable effort to provide the principal with facts that the agent knows, has reason to know, or should know when 1. subject to any manifestation by the principal, the agent knows or has reason to know that the principal would wish to have the facts or the facts are material to the agent's duties to the principal; and 2. the facts can be provided to the principal without violating a superior duty owed by the agent to another person.

What is a "proxy?"

In general, a proxy is an agent authorized to act for another. In this context, it is a person (natural or de jure) that is authorized to vote on another person's behalf at the shareholder's meeting.

How do contracts entered into by an agent typically affect a principal?

In general, all authorized contracts bind the principal

When the corporate veil is pierced, who will be held responsible? What form of liability will they be subject to?

In general, persons who were active in the management of the company will be held liable (not passive investors). Liability is joint and several.

What is horizontal piercing?

In horizontal piercing, the assets of the shareholders are being inequitably protected through the use of multiple corporations each of which hold some of the shareholders assets.

If a company wants to issue more than one type of stock what must it do?

In its articles of incorporation, it must: prescribe a distinguishing designation for each class or series, and before the issuance of shares of a class or series, describe the terms, including the preferences, limitations, and relative rights of that class or series.

What is the minority rule for distributing losses to a service only partner when the partnership agreement is silent?

In the absence of contrary agreement, Where one partner contributed capital and another only their services, in the event of a loss each losses his own capital (one money, the other labor)

What is the majority rule for distributing losses to a service only partner when the partnership agreement is silent?

In the absence of contrary agreement, a service only partner bears losses equally with all other partners.

What is a derivative suit?

In the limited partnership context, it is a lawsuit filed by a non-general partner on behalf of the partnership. Because the bringing of a lawsuit is a management function, it is normally beyond the authority of a limited partner.

What is "indemnification?"

Indemnification occurs when a person is compensated for a loss. In our context, it is a payment made to officers and directors to cover expenses they have had in relation to a lawsuit against them arising because they were an officer or director of the company.

Same facts. What non-monetary damages can Lumberjack claim against Mack?

Injunctive relief (e.g., a TRO) — stopping Mack from running his business. Replevy - get the equipment back.

When does insider trading occur?

Insider trading occurs when corporate fiduciaries use information they receive due to their position in the company to profit personally. For example, if you know from an internal report to the corporation (not public) that an asset is more valuable than thought, you can buy shares at the current low price (because it does not take into account the new information) and profit as the information becomes public and the price rises. It can also occur where you know an asset is less valuable than though, so you sell at the high price to lock in profit before the information becomes public and the price decreases.

Are intentional torts within the scope of employment? Are there any exceptions to this rule?

Intentional torts by employees are not within scope of employment. There are exceptions: 1. Force is authorized in employment (bouncer) 2. Friction is generated by the employment (bill collector) 3. The employee is furthering the business of the employer (remove rowdy customers)

If an entity is not created under such a statute, and has at least two members, how is it taxed?

It can elect to be taxed as either a partnership or as a corporation when it files its first tax return.

What powers does a corporation have?

It has the same powers as an individual to do all things necessary or convenient to carry out its business and affairs, including power: (1)To sue and be sued, complain, and defend in its corporate name; (2)To have a corporate seal; (3)To deal with real or personal property or any legal or equitable interest in property wherever located; (4)To sell, convey, mortgage, pledge, create a security interest in, lease, exchange, and otherwise dispose of all or any part of its property; (5)To lend money to, and use its credit to assist, its officers and employees; (6) deal with/acquire other companies; (7) make contracts and guarantees (8) make donations for the public welfare

What is a "freezing-out" merger?

It is a merger where a majority shareholder attempts to eliminate unwanted minority shareholders. Example - Signal owns 50.5% of the shares of UOP (it is a majority shareholder).It wants to take complete control of UOP by purchasing all of the shares and, thereby, eliminate all minority shareholders.

What is a warranty?

It is a promise that something will be a particular way.

What is a "raincoat" provision in a corporation's articles of incorporation?

It is a provision in the articles that indemnifies or exculpates the directors for certain breaches of duty (e.g., the duty of care).

What is a "capital call?"

It is a request of the partners to other partners to contribute funds to their capital accounts.

What is the public policy behind piercing the veil?

It is an equitable remedy. When continued recognition of a corporation as a separate legal entity would produce injustices and inequitable consequences then a court has sufficient reason to pierce the corporate veil.

Is the duty of good faith a stand-alone duty or does it arise out of another duty?

It is not an independent (stand-alone) cause of action. Depending on the cause of action, the duty of good faith (and the duty of disclosure) can arise either out of the duty of loyalty or the duty of care.

What is the strange thing about apparent authority? (Think explicit instructions)

It is possible for an agent to hold apparent authority to do something even when the principal has explicitly instructed the agent not to do it.

How do we know if property is partnership property? (RUPA § 204 cmt 3)

It is the intention of the partners that controls whether property belongs to the partnership or to one or more of the partners in their individual capacities, at least as among the partners themselves.

What is a "record owner" / "record holder?"

It is the person who is listed in the corporate records as the owner of a given share.

What is the "par value" of a stock? Is assigning a par value required?

It is the value attributed to each share in the articles of incorporation. No, it is voluntary.

If a derivative action by a subsidiary-corporation is challenging the dividend payments made by a parent corporation, why would it be relevant if a state statute authorized the dividend payments out of surplus or net profits? how could this be overcome?

It makes the mere fact of the excessiveness of the payments insufficient to state a cause of action. If a plaintiff can meet his burden of proving that a dividend cannot be grounded on any reasonable business objective, the courts can and will interfere with the board's decision to pay the dividend.

What does it mean to pierce the veil?

It means a court will disregard the limited liability of a shareholder and hold them personally liable.

What do we mean by "ratification" in this context?

It means that disinterested directors/shareholders have approved a transaction by a director/officer that is potentially adverse to the corporation's interests or that is potentially an usurpation of a business opportunity.

What does it mean, practically speaking, for partners to only be jointly liable for (non-tort) liabilities?

It means that if you sue the partners, you will have to join all partners in the lawsuit. Where if it were jointly and severally liable, you could go after one of the partners (who if he/she paid, would have to sue the others under his/her right of contribution).

What does the implied in implied warranty mean?

It means the warranty is assumed to exist as a matter of law even if the warrantor never made such a warranty.

What does D&O insurance coverage typically pay for?

It pays for a legal defense, settlements and judgments.

What is the duty of disclosure?

It requires fiduciaries to disclose the material facts of a transaction.

Florida's version of RUPA § 303, which refers to the filing of a statement of partnership authority, requires the partnership to file the SoA with who? What limits are there on pre-dating and post-dating the filing?

It requires that the partnership file the statement of partnership authority with the division of corporations. You cannot pre-date it (prior to the date of filing) and you can't post-date it more than 90 days after the date of filing.

Why is an accounting a potentially problematic thing to ask for?

It resolves all issues within the partnership. That means the court must value all assets and liabilities including uncertain or speculative ones. As a result, the proceeding may be drawn out, expensive, and unpredictable.

What is the effect of the loss of a principal's capacity on actual authority?

It terminates the agent's actual authority.

What if an entity not created by statute does not formally elect to be taxed as a corporation? What does this mean?

It will be taxed as a partnership (pass-through).

Walkovszky v. Carlton What would it mean for piercing the veil, if Walkovszky was able to prove that the corporation was a fragment of a larger corporate combine which actually conducts the business? What would it mean for piercing the veil, if Walkovszky was able to prove that the corporation was a "dummy" for its individual stockholders who are carrying o the business for their personal ends?

It would make the overarching/larger company liable. It would make the stockholders personally liable.

Who exercises the corporate powers of a corporation?

It's Board of Directors

What is the significance of a conversion from corporation to a partnership? What about a conversion from partnership to corporation?

It's a taxable event, treated as though the corporation dissolved and reconstituted itself as a partnership. P to C is usually a tax-free event.

What's the difference between a partnership and a joint venture?

JV = less formal than a partnership JV = not a legal entity separate from the participants JV = more limited in scope and duration JV = usually formed for a single business transaction, or a single series of transactions, or for a particular, defined purpose.

Owner engages Jockey to ride Horse in upcoming race. Owner agrees to pay Jockey a fee of $500. Gambler promises to pay Jockey $5,000 if Horse wins the race. Gambler asks Jockey not to tell Owner about Gambler's promise. Neither Jockey nor Gambler tells Owner about Gambler's promise. Horse, ridden by Jockey, wins the race. Gambler pays Jockey $5,000. Are either Gambler or Jockey liable to Owner?

Jockey breached Jockey's duty to Owner by acquiring a material benefit from a third party in connection with actions arising out of agent's position. So Jockey is liable. Gambler is also liable because Gambler knowingly provided substantial assistance and encouragement to Jockey in Jockey's breach of duty to Owner.

Smith is the sole shareholder in Little Co. a successful tour guide service in Boulder Colorado. Little Co. has no assets and any income made by the company is immediately pulled out through distributions. Smith and Little Co. are sued by Jones, a former employee, for breach of employment contract. Jones seeks to pierce the veil by arguing that Little Co. pays for all of Smith's personal expenses (rent of apartment, lease of car, groceries, etc.). What basis for piercing the veil is Jones asserting?

Jones appears to be asserting an alter-ego/not observing corporate formalities justification for piercing the veil as the company is merged with Smith's private life.

Assume the same facts and that the liabilities relating to the lease, loan, contract with the builder, and the contract for the mechanical units can be liquidated to $500,000. If Smith cannot be found, how much does Jones owe? Does Jones have any cause of action against Smith?

Liability under Fl. Stat. § 607.0204 is joint and several. As a result, Jones will be held liable for the full amount $500,000. Yes, if Jones pays, he may seek contribution in the amount of $250,000 from Smith.

Smith is the CEO of Big Corp. Big Corp has a contract with City to run City's sewage plants. Smith is informed that the plant is currently discharging raw sewage in violation of the Clean Water Act. The problem can be resolved quickly but will cost $500,000 to modify the equipment. Smith states that they should not repair the problem. One year later the state discovers the violation and charges Big Corp. a $100,000 fine. Big Corp. at that time makes the changes but due to manufacturing efficiencies, the cost is only $250,000. In addition, running the plant with the old equipment (as compared to the updated equipment) for a year, saved Big Corp. $50,000. Assuming Smith would be found to have violated his duty of care, what damages would Smith be liable for?

Likely none because the illegal act, on whole, saved the company money.

Smith is a partner in the law firm of Jones, Carbuncle, Quimby, and Xenith. The partnership agreement allows the law firm to expel a partner from the firm if at least two of the named partners agrees. On June 1, Bartle meets with Jones and Carbuncle to inform them that Bartle is about to receive a settlement in a big class action that will provide the firm with a $40 million attorneys' fee payment. Later that day Jones and Carbuncle realize that if Smith is removed from the firm before the award of the attorney's fee, Jones and Carbuncle will each receive $500,000 more of the fee and, as a result, pursuant to the partnership agreement they agree to expel Smith. Has Smith been properly expelled from the partnership?

Likely not. Partners have a fiduciary duty of loyalty that includes to refrain from dealing with the partnership in the conduct or winding up of the partnership business as or on behalf of a party having an interest adverse to the partnership. RUPA 404(b)(2). Here, Jones and Carbuncle seem to have an adverse interest to the partnership. In addition, partners shall discharge the duties to the partnership and the other partners under this [Act] or under the partnership agreement and exercise any rights consistently with the obligation of good faith and fair dealing. RUPA 404(d) Here, Jones and Carbuncle seem to be removing Smith in order not to pay him what he is due.

One June 1, Broke Inc., a company that provides loans to people via a smartphone app, filed for federal bankruptcy protection. On June 2, Broke Inc.'s CFO paid the company's employees their wages. Assuming Broke Inc.'s CFO's job duties included paying employees, did the CFO have authority to pay them on June 2?

Likely yes (assuming the court has not appointed a trustee yet). The circumstances under which a juridical person ceases to exist are governed by law applicable to that type of person. These statutes often specify the degree to which there is authority to take actions on behalf of an organization once it has taken action leading to cessation of its existence. R3dA § 307 cmt. C Under federal bankruptcy law, filing does not result in immediate dissolution.

What are the difference between LLCs and Corporations? (Liability, Formation, Owners, Corporate Taxes, Member Taxes, Self-Employment Tax)

Limited Filing Members vs. Shareholders None vs. Corp. Income Tax Members pat tax on LLC income vs. Shareholders pay tax on dividends Members pay vs. Shareholders do not pay

What are the 6 considerations when choosing what type of entity to form?

Limited Liability Taxes Governance and Internal Conflict Returns, Liquidity, and Exit Capital Structure Red Tape

At the end of year 1, a two-partner partnership has suffered losses of $500. What does this do to the partnership accounts?

Losses are distributed equally, absent other agreement, so Each partner's capital account is decreased by $250

Fritz and Lutz are drafting the articles of incorporation for a new business they are starting. Fritz believes that a valid corporation must have at least four officers: a president, vice president, secretary, and treasurer. Lutz disagrees and thinks they just need one. Who is correct?

Lutz is correct. Only one officer is needed provided that officer is responsible for preparing minutes of the directors' and shareholders' meetings and for authenticating records of the corporation. Fl. Stat. 607.08401(3)

In a partnership we have partners, in a LLC we have . . .

Managers and members

Who can co-agents be appointed by?

May be appointed by the principal or by another agent actually or apparently authorized by the principal to do so.

What are the two types of management structures an LLC can have?

Member-managed and Manager-managed.

Re: the Agency (creditor-debtor) relationship, what effect does: exercising veto power over purchases/sales not have? taking management and directing what contracts may be entered into have? assuming de facto control over debtor have?

Mere exercise of veto power over purchase/sales over specified amount does not create agency. Taking over management and directing what contracts may or may not be made by the debtor-company creates an agency. Creditor becomes principal when creditor assumes de facto control over debtor

The purported agent's previously unauthorized conduct followed by ratification can constitute what?

Mutual manifestation of assent to an agency relationship under Re(3) §1.01 In other words, even if there were no agency relationship prior to the ratification, ratification can create one, with the ongoing consequence of the agent's authority to bind the principal to further legal obligations and the agent's fiduciary responsibilities to the principal. See §4.01, comment b.

If an agent with apparent authority makes a K on behalf of an undisclosed principal, who are the parties to the K?

N/A - this only arises in the context of actual authority. The third party does not know there is a principal, so there can't be a manifestation from the principal to the third party that the agent is the principal's agent.

Smith and Jones wanted to start an organic supermarket together. They properly filed their articles of incorporation with effective date of the incorporated of "S&J Organic Foods, Inc." on June 1, 2020. Purporting to act on the corporation's behalf, on May 1 they entered into a 20 year lease for the future location of the store with Commercial Realty Inc. Commercial Realty Inc. knew that Smith and Jones were acting as promoters, that the paperwork necessary to form the corporation for the supermarket had not been filed, and that Smith and Jones did not intend to be held personally liable for the lease. If the supermarket fails in year 2 of the lease, are Smith and Jones liable on the lease?

No because the party they were contracting with knew that the corporation had not be formed yet and that Smith and Jones did not intend to be held personally liable for the lease.

How much notice must a corporation give before a meeting can be held?

No fewer than 10 or more than 60 days before the meeting date.

FoodCo employs Arnold as a traffic manager to arrange for the transportation of FoodCo's products, principally canned tuna and ham, and fresh poultry. Arnold's duties include making arrangements with common carriers, coordinating shipping schedules, negotiating shipping rates, and supervising warehouse employees who load trucks. Arnold becomes familiar with the identity of FoodCo's suppliers, customers, and common carriers, as well as delivery routes and rates. Arnold decides he is going to start a business selling fresh poultry. While still working at FoodCo, Arnold files articles of incorporation for his business and enters a lease for a building for the company. Has Arnold breached any duty to FoodCo by not disclosing his plans?

No, "[i]n general, an employee or other agent who plans to compete with the principal does not have a duty to disclose this fact to the principal." Restatement (Third) Agency § 8.04 cmt. c

Fritz and Lutz are directors for the Cup n Egg, Inc. a nationwide restaurant chain famous for all things breakfast. The Chair of the Board has formed a committee of three other board members to negotiate with another company to acquire their chain of steak house restaurants. Such negotiation was always a board function. Fritz and Lutz objected to this action stating that the board could not delegate its decision-making power in this way. Are Fritz and Lutz correct?

No, "the board of directors may establish an executive committee and one or more other board committees to perform functions of the board of directors. Such committees shall be composed exclusively of one or more directors. Fl. Stat. 607.0825(4)

Under Florida Law, must plaintiffs make a demand on the board or may they argue for futility?

No, Florida Law includes a futility approach.

Allana has a three year contract with PacificaBank to manage the branch located on Main Street in Any Town, USA. Despite good performance reviews, after two years, PacificaBank fires Allana and replaces her with Cheryl. Has PacificaBank violated Agency law in so firing Allana?

No, PacificaBank has the right to terminate the agency at any time.

Patty is 16 years old. In Patty's jurisdiction, Patty lacks capacity to make a binding contract because persons below the age of majority (18 years old) may disaffirm contracts entered into prior to reaching the age of majority. Patty asked Andrew, who is 19 years old, to contract on Patty's behalf to buy a car. Andrew agreed. Was an agency relationship created?

No, Patty is not a principal because Patty lacks the capacity to enter the contract if she did it herself. According to the Restatement (Third) Agency § 3.04(1), an individual has capacity to act as principal in a relationship of agency as defined in § 1.01 if, at the time the agent takes action, the individual would have capacity if acting in person. Because Patty is under 18, she could not enter into a binding contract to buy a car in her jurisdiction if she acted herself (she lacks capacity to contract).

Smith is a shareholder of Medium Inc. He believes that Jones, the CEO has violated Jones' fiduciary duties to the financial detriment of Medium Inc. On June 1, Smith demanded that the board take action. On July 1, the board rejected the demand. Smith has filed a complaint along with a signed written declaration as to the truth of the allegations. Medium Inc. has moved for summary judgment on the grounds that the declaration is not sufficient because it was not taken under oath or before an officer of the court. Assuming that a declaration is not taken under oath or before an officer of the court, should the Court grant Medium Inc.'s motion?

No, a derivative complaint must be verified. "Verified" means the complaint is sworn to by the plaintiff. One can swear to a complaint in many ways other than under oath or before an officer of the court—including using a signed, written declaration.

Peter, Paul, and Petunia are partners in a restaurant. Peter, without discussing it with Paul and Petunia, entered into an agreement, on the partnership's behalf, with Ace Hardware Corporation to purchase a franchise offered for the operation of a retail hardware store under the name "Ace Hardware." Is this agreement binding on the partnership?

No, a partner's act to bind the partnership in business unrelated to the partnership business is binding only if authorized by the other partners. RUPA § 301(2).

Is an agency relationship subject to contract law?

No, an agency relationship is not itself a contract. neither the promise to act gratuitously nor an act in response to the principal's request for gratuitous service creates an enforceable contract.

Paul asks his friend Al to select and purchase a suitable car for Paul. Al is not employed as an auto mechanic but has a lot of experience buying and selling cars and working on them. Al selects and purchases a used car for Paul from Thrifty Cars. Al did not inspect the car nor have an inspection conducted. The car is later found to have been in an accident that rendered it valueless and unsafe to drive. A routine inspection, which Al was competent to do, would have revealed the problem. Assume Al breached his duty of care. Would his being a gratuitous agent help him avoid liability to Paul?

No, an agent who acts gratuitously is subject to liability for breaching the duty of care.

Principal retains Agent, a real-estate agent, to sell Blackacre, specifying no limit on the duration of Agent's authority. Ten years pass with no communication between Principal and Agent. Agent then enters into a contract binding Principal to sell Blackacre to Third-Party. Does Agent have authority to so bind Principal?

No, an agent's actual authority terminates upon the occurrence of circumstances on the basis of which the agent should reasonably conclude that the principal no longer would assent to the agent's taking action on the principal's behalf. The passing of ten years here make it so that the agent should reasonably have concluded that the agency had ended.

If an agent harms a third party in the scope of the agency and in so doing breached a duty of care owed (solely) to the principal, can the third party raise that breach as a basis for the agent's liability to the third party? Is there an exception to this rule?

No, an agent's breach of a duty owed to the principal is not an independent basis for the agent's tort liability to a third party. Exception: An agent is subject to tort liability to a third party harmed by the agent's conduct only when the agent's conduct breaches a duty that the agent owes to the third party.

Angie represents to Thomas Builders Inc. that Angie is the CEO of Principia Corporation and enters into a contract on behalf of Principia Corporation to provide electrical wiring services to Thomas Builders. At the time of contracting, Principia does not exist because the requisite corporate documents have not been filed. Is there an agency relationship between Angie and Principia Corporation?

No, because Principia does not yet exist, Angie cannot be its agent. According to the Restatement (Third) Agency § 3.04(2), the law applicable to a person that is not an individual governs whether the person has capacity to be a principal in a relationship of agency as defined in § 1.01, as well as the effect of the person's lack or loss of capacity on those who interact with it. Here we are talking about the law relating to promoters. Under that law, if the corporation does not exist, it may not be bound (the promoters are) unless once it exists it later ratifies the contract (when the corporation exists).

Paul allows his 14-year-old son Arnold to use Paul's computer (which has internet access). In Paul's and Arnold's jurisdiction the age of majority is 18. Paul has set up his Amazon account to allow purchases to happen using the One-Click feature. With Paul's consent, Arnold uses the computer and the Amazon One-Click feature to purchase a book. Can Arnold be held personally liable for the purchase if Paul disaffirms it?

No, because the law of contracts make clear that he has the right to disaffirm the contract because he is under 18. According to the Restatement (Third) Agency § 3.05 the actor's capacity governs the extent to which, by so acting, the actor becomes subject to duties and liabilities to the person whose legal relations are affected or to third parties.

Jones is the CFO of SJQ, Inc. As CFO he oversaw the corporation's finances. Ethelbert was a manager in the accounting department and, over the course of two years, managed to embezzle nearly $3 million before disappearing with all of the money. Jones, as CFO, failed to discover the embezzlement and is being sued by a group of shareholders for a breach of the duty of care. The lawsuit is in the discovery stage and Jones has already paid $50,000 in attorney's fees. Jones has asked the Board to reimburse Jones for the $50,000 spent and advance Jones another $50,000 to give as a retainer to Jones' attorney. The Board is not predisposed to doing so, must it?

No, here we have a situation where advancing and reimbursing are permitted but not required. It might be mandatory under section 607.0852 if Jones succeeded fully.

Ethelbert has been a director on Mega Corp.'s board of directors from 2000 to present. In 2015, Bobbie and Tommie, sons of Bertie the majority shareholder, took over as CEO and COO. Over the next three years they fraudulently borrowed over $40 million from Mega Corp. No payments were ever made on the loans (neither principal nor interest) and there is no collateral guaranteeing the loans. Bobbie and Tommie have declared bankruptcy listing the loans as liabilities to be discharged. As a result, Mega Corp. has had to enter bankruptcy proceedings itself. During Ethelbert's time as director, Ethelbert would throw out any corporate documents provided to him (including financial records that would have exposed the fraudulent loans) and made public statements indicating that he had no intention of getting involved in the company finances. Ethelbert has been sued by shareholders for breach of the duty of care and duty of loyalty and he has demanded that Mega Corp indemnify him. The Board (controlled by Bertie) is predisposed to do so, may it?

No, here we have willful or intentional misconduct with a conscious disregard for the best interests of the corporation. So, unless the court orders otherwise, Mega Corp. cannot indemnify Ethelbert.

Smith and Jones file a certificate of limited partnership with the secretary of state's office under the name "Smith and Jones LP." Smith was the general partner while Jones was the limited partner. Later that year, the partnership was sued and the court found the filing to be ineffective as creating a limited partnership. Does Jones have limited liability for the obligations incurred before the court so ruled?

No, in this instance, the partnership will be construed to be a general partnership with joint and several liability for all of the partners.

Can a person be made a proxy orally?

No, it must be in a writing (or electronic submission).

On June 1, Smith properly forms a limited partnership with Jones and Carbuncle as limited partners. Three months later, Jones enters into a contract on behalf of the partnership to purchase a new building for the partnership. Under ULPA is that contract binding?

No, limited partners do not have management authority (unless built into the partnership agreement) and cannot bind the partnership in contract or tort. ULPA § 302

Ida represents Prudential Insurance Co. and solicits applications for insurance policies to be issued by it. Ida submits an application for life insurance completed by Terry to Prudential. After submitting the application but before Prudential issues a policy to Terry, Ida learns that Terry's health has deteriorated substantially. Ida emails the information about the deterioration in Terry's health to Prudential's underwriting department as Prudential has directed Ida to do. Unknown to Ida, Prudential does not receive the email due to a problem with Prudential's spam filter. Has Ida breached any duty to Prudential?

No, she has used reasonable efforts to provide information.

Is the record owner/holder necessarily the owner of the share?

No, sometimes the stock is cleared through a clearinghouse which will be the record owner, but is not the true owner of the share.

Is the corporate form dissolved if the company does not hold its annual meeting?

No, the directors simply remain in office.

Can a principal give a blanket waiver of the duty of loyalty?

No, the principal can only waive the duty of loyalty relative to specific acts or transactions or of transactions of a specified type. Restatement (3rd) Agency § 8.06(1)(b).

Smith, Jones, and Quincy are members of a limited liability company that is managed by Carbuncle. The company purchases foreclosed properties, refurbishes them, and then sells them at a profit. On June 1, Bank calls Carbuncle and tells Carbuncle about a large apartment complex that has been taken by Bank in foreclosure. Bank has called Carbuncle because this type of property is precisely the type of property the company purchases. Carbuncle determines that this is a so good of an opportunity that he personally buys the property. Is Carbuncle allowed to do so? What about one of the members? Could the members take the opportunity in a member-managed LLC?

No, this is a breach of the duty of loyalty that Carbuncle, as manager has to the company. He is not permitted to appropriate a company opportunity. Fl. Stat. 605.04091(2) Yes; because this is a manger-managed company, the members do not have a duty of loyalty to the company. No, because in a member-managed company all of the members owe a duty of loyalty to the other members including not to take opportunities from the company.

Carbuncle is the attorney for Smith and Jones, Inc. a Florida corporation. On November 1st, due to failing to file their annual report with the Department of State, Smith and Jones, Inc. is administratively dissolved. On November 15th, Carbuncle on Smith's direction and without knowledge of the dissolution enters into an agreement on Smith and Jones, Inc.'s behalf with Construction Inc. On December 1st, Smith and Jones, Inc. refile and are reinstituted as a Florida Corporation. If there is a dispute as to the contract with Construction Inc., is Carbuncle personally liable?

No, while Carbuncle acted on behalf of a Smith and Jones, Inc. when it was not incorporated, Carbuncle did not have knowledge that the entity had be administratively dissolved.

Does the MCBA/Florida law require that a corporation have any specific officers?

No, while the former MBCA provided for specific officers, the current MBCA allows every corporation to chose the officers it wants.

Smith, Jones, and Quincy are members of a limited liability company that is managed by Carbuncle. On May 1, 2020, Carbuncle has given written notice of his intent to withdraw from the LLC as of June 1, 2020. Assuming the operating agreement is silent on this, does Carbuncle's dissociation cause dissolution of the company? What events would cause dissolution and the requirement that LLC business be wound up?

No. A limited liability company is dissolved and its activities and affairs must be wound up upon the occurrence of the following: (1)An event or circumstance that the operating agreement states causes dissolution. (2)The consent of all the members. (3)The passage of 90 consecutive days during which the company has no members, unless . . . (4)The entry of a decree of judicial dissolution (5)The filing of a statement of administrative dissolution by the department pursuant

Is a corporation liable for engagements made on its behalf by its promoters before its organization? Can they ratify such contracts?

No. No, because this implies preexistence. They can adopt such K's (same as entering into new K).

Big Co.'s Board approves Smith's purchase of the apartment block. Later two of Big Co.'s shareholders sue Smith for taking a corporate opportunity. Should the court grant summary judgment in Smith's favor because the Board approved the transaction?

No. Authorization, approval, or ratification simply decreases the likelihood that the officer or director will be held liable. It does not eliminate liability.

Smith is the CEO of Big Corp. Big Corp has a contract with City to run City's sewage plants. Smith is informed that the plant is currently discharging raw sewage in violation of the Clean Water Act. The problem can be resolved quickly but will cost $500,000 to modify the equipment. Smith states that they should not repair the problem. If a shareholder were to sue Smith for this decision, would Smith's decision be insulated by the business judgment rule?

No. Knowingly doing an illegal act violates the standard of care.

Smith, Jones, and Carbuncle are the directors for George Corp. Per the corporate bylaws Smith, the Chair of the Board, calls a special meeting to be held via video-conference call. Jones objects to this method of meeting stating that meetings of the Board must be in-person. Is Jones correct?

No. Meetings of the board of directors may be held "through the use of any means of communication by which all directors participating may simultaneously hear each other during the meeting."

Smith answers his doorbell to find a salesperson selling magazine subscriptions to help support a local homeless shelter. He has a name tag, brochures, and information that make him seem to be exactly who he is. He is also quite a good salesperson and Smith purchases $200 worth of subscriptions from him signing a printed contract. Two months later Smith calls the shelter to ask about the subscriptions and they inform him that they do not sell subscriptions to support the shelter and he must be the victim of fraud. Assuming this to be true, can Smith force the shelter to refund the $200 on its apparent authority?

No. There was no apparent or actual authority as there are no manifestations of the "principal" to anyone authorizing the sale of subscriptions to support the shelter.

Pauline a wealthy heiress hired Albert to manage her finances including paying the people responsible for maintaining the grounds of her mansion. On June 1, Pauline unexpectedly died while talking to Ted, the person in charge of the mansion's grounds. Later that same day, and before Albert had learned of Pauline's death, Ted stopped Albert, reminded him it was the first of the month, and requested he be paid for caring for the grounds as he normally was. Albert took out Pauline's checkbook and paid Ted. Did Albert act with authority in paying Ted?

No. When a principal (natural person) dies, his/her agent's actual authority terminates relative to a third party when that third party has knowledge that the agent has died. In this case, Ted knew of Pauline's death.

If a non-majority of the partners inform a third party that they do not consent to, and will not be liable for, an act taken by a majority of the partners in the ordinary course of the business, will that remove the non-majority partners' liability for such act?

No; a non-majority of the partners cannot restrict the partnership's ability to enter into transactions/incur obligations that are within the ordinary course of partnership business. There manifestation of a lack of consent to the third party does not remove the majority partner's actual authority to enter into such agreements.

Who does property acquired by the partnership belong to?

None. Property acquired by a partnership is property of the partnership and not of the partners individually. RUPA § 203

How does ratification modify the relationship of the would-be principal and would-be agent?

Normally, if an agent executes an unauthorized contract on behalf of his or her principal, the act constitutes a breach of fiduciary duty and the agent will be answerable to the principal for the injuries caused. Not so upon the principal's manifestation of assent. However, that ratification in itself does not relieve the agent of contract liability if in fact that agent was initially a party to the contract. Ratification also gives rise to a claim for compensation by the agent.

Does Florida accept corporations by estoppel and de facto corporations?

Not clear on de facto corps. Yes on corporation by estoppel - usually in context of Ks.

Smith, Jones, and Quincy are members of a limited liability company that is managed by Carbuncle. At the end of the year, the company is forced to dissolve. At the end of the winding up period the company has $100,000 in liabilities (after all debts and obligations are properly paid). What are the obligations to pay this $100,000 among Carbuncle, Smith, Jones, and Quincy?

Nothing. Fl. Stat. 605.0304(1) A debt, obligation, or other liability of a limited liability company is solely the debt, obligation, or other liability of the company.

What are the three circumstances in which notice can be held to exist?

Notice can be held to exist when a person has 1. Actual knowledge of a fact 2. reason to know a fact if he or she could figure it out "on the basis of inferences reasonably to be drawn from [other] facts known to [the person.] 3. When a person should know a fact; i.e., when there is a duty to know it, and such a duty exists when failure to know the fact constitutes an actionable breach of a duty owed to someone else.

"Notice" defined:

Notice" is deemed knowledge of a fact under circumstances in which our law has decided that it is fair to treat a person as having such knowledge, whether the person does or not.

When are notifications given or received by an agent not imputed to his principal?

Notifications given or received by the agent are ineffective as against the principal if the relevant third party knows or has reason to know of the adversity.

When will a buyer-supplier relationship turn into a principal-agent relationship?

One who contracts to acquire property from a third person and convey it to another is the agent of the other only if it is agreed that he is to act primarily for the benefit of the other and not for himself.

What are some tax-law assumptions re: business organizations?

Only Profits Are Taxed. Pass-Through Taxation. Double Taxation. (Corporations) Salaries and Interest Are Deductible Business Expenses. Dividends Are Not Deductible Business Expenses.

How do decide who has a right to vote at a particular shareholders meeting?

Only the names appearing in the corporation's records on the record date are permitted to vote and receive notice.

How much liability does a shareholder have to corporation creditors?

Only up to the amount of the value of their shares. If they do not pay the corporation for the full value of their shares, they can be sued for the amount they should have paid up to 5 years after they were given stock.

Under ULPA, when may a limited partner withdraw?

Only upon winding up.A person does not have a right to dissociate as a limited partner before the termination of the limited partnership. Fl. Stat. § 620.1601(1)

What protection does a partner have from an unreputable partner using dissociation to cause dissolution so that the unreputable partner can take over a profitable business?

Partners owe each other fiduciary duties. The aggrieved party would have a cause of action for breach of those duties (the duty of loyalty).

RE: Distribution of assets during winding up, what happens to: Partnership assets? Partnership creditors? Any surplus or loss? How are partners paid out? (if applicable) What if a partner does not pay for losses?

Partnership assets are reduced to cash.Partnership creditors (including partners who are creditors) are paid. Any surplus (or loss) is applied to partner's capital accounts. Partners are paid out (or contribute) according the amounts in the capital accounts. If a partner does not pay for losses, the other partners must contribute per their share of profits/losses (the partners who contributed may seek the money from the partner who did not).

What is the exhaustion rule? From the creditor's perspective, why is this problematic?

Partnership creditors must first execute against partnership assets until those assets are fully exhausted before executing against a partner's personal assets. Requires lengthy court process; Unscrupulous partners will have time to conceal their assets; Possibility of misfortune affecting partner's assets.

What form of taxation are most business entities subject to? What does this form of taxation mean?

Pass-through taxation, meaning that the entity itself pays no income tax and the profits it earns are taxed only when they are distributed to investors.

What is corporation by estoppel and when is a corporation by estoppel found?

Persons who treat an entity as a corporation will be estopped from later claiming that the entity was not a corporation.

Under Partnership law, what does Peter, as a partner, have a right to do?

Peter, as a partner, has an equal right to manage the partners and acts as an agent for the partnership relative to partnership business

Delaware (and Florida) requires that a plaintiff in a derivative action affirmatively plead futility if no demand was made on the board. What is the initial test of futility arising out of Aronson v. Lewis? (what must the plaintiff plead?)

Plaintiff must 1. Plead facts with particularity 2. Creating a reasonable doubt that (a) The directors are disinterested and independent, and (b) The challenged transaction was otherwise the product of a valid exercise of business judgment

What is the "general" duty of loyalty (what are its elements)?

Plaintiff must show that: Defendant owed Plaintiff a duty of loyalty and while under that duty, defendant acted under a conflict of interest. If Plaintiff shows this, then: the defendant is liable unless defendant can show the conduct was "fair" to plaintiff.

Agent enters into a contract with Third Party on behalf of Principal. Agent and Principal are both aware that Third Party would not enter the contract were Third Party to know that Principal was involved. As a result, when Third Party asks if Principal is involved, Agent denies acting on behalf of a principal. What kind of principal is Principal?

Principal is an undisclosed principal because the third party has no notice that the agent is acting for a principal.

Big Co. buys and runs large apartment blocks in Queens New York. On June 1, Smith's CEO is approached by Jones who wants to sell his apartment block to Big Co. The price is fair. Smith believes that Big Co. lacks the resources to purchase it at this time. Smith has the cash on hand and seeing a good investment wants to purchase the apartment block himself. If Smith is to buy the property, what should Smith do?

Prior to purchasing the property, Smith should seek authorization from, or approval of, the transaction from Big Co.'s board.

How do we know if property is partnership property? (RUPA § 204)

Property is partnership property if acquired in the name of: (1) the partnership; or (2) one or more partners with an indication in the instrument transferring title to the property that the transferee is a partner, or the "unidentified" partnership. (b) Property is acquired in the name of the partnership by a transfer to: (1) the partnership in its name; or (2) one or more partners in their capacity as partners in the partnership, if the name of the partnership is indicated in the instrument transferring title to the property.

What are the pros and cons of a Sole Proprietorship?

Pros: unlitaeral control owner faces no challenges for power pass-through taxation Cons: Full personal liability for business's obligations Sole assumption of the risk (no sharing in loss with other owners)

How does a principal's ratification of a contract affect an agent's actual authority? what does this change? And what is the practical effect of this?

Ratification retroactively creates the effects of actual authority. It automatically changes all legal rights and obligations, retroactively, to those that would exist had the contract been authorized from the beginning. That is, ratification doesn't just render the principal subject to a contract otherwise avoidable. In other words, the principal ratifies the unauthorized act, and then, poof!—it's as if it has been authorized all along.

How can ratification affect rights and liabilities as between the agent and third parties?

Ratification will eliminate a third party's potential cause of action for the agent's breach of the implied warranty of authority.

What is the difference between a shareholder's direct action and a shareholder's derivative action?

Roughly, a direct action is one where a shareholder is harmed him/herself and the suit is filed to compensate the shareholder for that personal/direct injury. A direct action can arise even though the corporation is itself harmed/suffers a legally cognizable injury by the same conduct. A derivative action is one where the corporation is harmed and the shareholder is suing on the corporation's behalf.

Mariah retains Angie, a talent agent, to represent Mariah in negotiations with recording companies. Angie does not possess skills as an investment manager that are unusual among otherwise similarly situated talent agents, but represents to Mariah that she does. At Mariah's request, Angie undertakes to manage Mariah's investment portfolio. However, Angie does so ineptly, resulting in losses for Mariah. Has Angie breached the duty of care to Mariah and subjected herself to liability?

Same result, Angie breached the duty of care. A claim of specialized knowledge (false or otherwise) creates the higher standard.

What are three categories of stakeholders in a corporation, and what are their jobs?

Shareholders - Elect the board, modify bylaws BOD - advise and oversee, hire upper mgmt Upper Management - day-to-day operations

What happens if shareholders fail to adequately capitalize a corporation at the time of incorporation?

Shareholders will be held personally liable for their corporation's obligations.

What are shares in a corporation? What do they represent, and to what do they entitle the shareholder?

Shares are units of ownership interest in a corporation. Each share represents a portion of the equity in the corporation and provides for an equal distribution in any profits, if any are declared, in the form of dividends.

Smith, Jones, Carbuncle, and Xenith are partners in a limited partnership with Smith as general partner and Jones, Carbuncle, and Xenith as limited partners. The building the partnership had built for its headquarters was built with a number of defects. Carbuncle wishes to sue the construction company, but Smith does not agree. What can Carbuncle do?

She can file a derivative suit.

Smith, Jones, Carbuncle, and Xenith are partners in a limited partnership with Smith as general partner and Jones, Carbuncle, and Xenith as limited partners. Carbuncle wishes to dissolve the partnership and comes to you asking how she can do so. Under ULPA what can Carbuncle do?

She would need consent of Smith (all general partners) and the limited partners owning a majority of the rights to receive distributions as limited partners. ULPA § 801(a)(2)

Smith and Jones wanted to start an organic supermarket together. They properly filed their articles of incorporation with effective date of the incorporated of "S&J Organic Foods, Inc." on June 1, 2020. Purporting to act on the corporation's behalf, they •On May 1, entered into a 20 year lease for the future location of the store. •On May 7, they arranged for secured a loan from AmeriBank. •On May 14, they entered into a contract with a builder to convert the space to one that would work as a supermarket. •On May 21, they entered a contract to buy all of the freezers and other mechanical units necessary to run a supermarket. On July 1, 2022, the supermarket fails. Assuming the parties to the agreements above did not know the corporation did not exist when they entered the agreements, are Smith and Jones liable for the lease, loan, contract with the builder/for the mechanical units?

Smith and Jones are personally liable. The later formation of the corporation and subsequent adoption or ratification of the contract by the corporation does not necessarily release a promoter from liability, but may result in joint liability of the promoter and corporation, absent a novation or express release by the other party to the contract.

Smith and Jones want to start a business using a corporate business form. Smith and Jones live in Florida and all business activity will be in the state of Florida. Where can Smith and Jones incorporate their business?

Smith and Jones can incorporate in any state. They do not have to incorporate in Florida.

Smith, Jones, and Carbuncle enter into a partnership to build and sell a 4-unit apartment complex. After they have purchased the land and begun construction, but before completion and sale, Smith informs Jones and Carbuncle he wishes to leave the partnership. Can Smith do so/what is this called?

Smith can do so. This is wrongful dissociation. RUPA 602(b)(2)(i).

Smith owns a two restaurants in town, a warehouse, a small construction company, and three small apartment blocks. Smith wants to leave his business to his children but does not intend to stop running the business for many years. Why would you recommend an LP to Smith?

Smith can retain control (as the General Partner) while Smith slowly transfers his interests to his children (as limited partners) while limiting the tax consequences of doing so (e.g., gifting $15,000 worth of the business to each child tax free each year).

Smith and Jones are celebrating another successful year in their joint venture. Jones gets up to take a phone call but tells Smith "It's Happy Hour. Order another round of drinks for us and charge them to me." Smith does so. What kind of authority, if any, did Smith have?

Smith had actual authority. At the time he ordered the drinks he reasonably believed, based on Jones' manifestation, that Jones' wanted Smith to order more drinks and charge them to Jones.

Smith is a partner in the law firm of Jones, Carbuncle, Quimby, and Xenith. The partnership agreement allows the law firm to remove a partner from the firm by a two-thirds vote of the partners. Three-quarters of the partners vote to remove Smith from the partnership. Smith has been __?__ from the partnership.

Smith has been expelled from the partnership.

Let's reset to year 4 (Smith has $200, and Jones has $50), no property given to the partnership and year 4 is a loss year where the partnership loses $200. As a result, Smith and Jones decide to dissolve the partnership. Who gets what from the capital account?

Smith is in the negative and will have to pay Jones $50. Jones will receive $150. But since the capital account has, in total, just $100 in it, $50 of that $150 comes from Smith.

Smith, Jones, and Carbuncle form a limited partnership with each of them being listed as general partners. They have an additional 10 limited partners who are investing capital to start up the company. The partnership is sued and the general partners are found liable in the amount of $1 million. How much does Smith owe under ULPA? (Ignore the liability of the limited partners.) What if the other general partners have no assets to contribute?

Smith is jointly and severally liable with Jones and Carbuncle. So if all 3 contribute, Smith will owe $333,333.33. But if Jones and Carbuncle cannot pay, Smith will owe $1 million. ULPA § 404(a)

Smith, Jones, Carbuncle, and Xenith are partners in a limited partnership with Smith as general partner and Jones, Carbuncle, and Xenith as limited partners. Smith decides to withdraw. May Smith withdraw and, if so, how?

Smith may withdraw but Smith will need to provide written notice of the withdrawal to the other partners.

Same hypo as previously, but now Xenith joins the limited partnership as a general partner. She does so after the court finds the general partners are liable for $1 million but before it is paid. How much does Smith now owe under ULPA? Why?

Smith owes exactly the same. A person that becomes a general partner is not personally liable for a debt, obligation, or other liability of the limited partnership incurred before the person became a general partner. ULPA § 404(b)

Let's assume that year 4 is also a break-even year and, as a result, Smith and Jones decide to dissolve the partnership. Assuming the property Smith donated did not change in value, who gets what from the capital account? (Smith at $450 ($400 donation plus pre-existing balance), and Jones at $250).

Smith will receive $450, and Jones will receive $250. (assuming no creditors or liabilities of the partnership need satisfaction).

Smith and Jones enter into an agreement under which they will operate an import-export business as a partnership. Smith is to manage the company while Jones is to provide business contacts and financing. Neither Smith nor Jones receive a salary for the first six months as the partnership commences business. In the seventh month, the partnership becomes very profitable. When does Smith, who is actively managing the business of the partnership, have the right to a salary?

So, if no agreement, then no right to a salary. Unless the agreement stipulates otherwise, the default is that the partners are not entitled to remuneration for services performed for the partnership, except for reasonable compensation for services rendered in winding up the business of the partnership. RUPA 401(h)

What if a partnership can't meet its obligations or wants to use money to grow? (Why might a firm make a capital call?)

Sometimes a partnership needs additional resources to pay the obligations of the partnership or do some other activity. If that is the case, the partners may request additional funds from the partners.

What is a "drawing account?" What does it keep track of?

Sometimes the partners agree that individual partners may remove value from those capital accounts. One mechanism of doing so is to create a "drawing account" that keeps track of the amount the partner has withdrawn from their capital account.

What are all common entity forms in the United States governed by? What is the exception?

Statute; exception is the sole proprietorship.

What good faith obligation does a principal owe to his or her agent?

Strictly speaking, this is the same duty of good faith implied in all contracts. However, the principal's duty of good faith can be an implied contractual commitment even in the absence of other contract between the parties, and it can lead to some results that might seem a little surprising.

What are sub-agents? Do sub-agents have the same or different principal? To whom do they owe duties?

Sub-agents are persons appointed by an agent to perform the functions that the agent has consented to perform on behalf of the agent's principal and for whose conduct the appointing agent is responsible to the principal. They have the same principal. The sub-agent owes fiduciary duties to and create ariousarious liabilities for both the agent and the principal. The relationship between an appointing agent and a subagent is one of the agency.

What rights does a partner have to bind the partnership once the partnership has begun winding up? or When is a partnership bound by a partner's act after dissolution?

Subject to Section 805 (a statement of dissolution), a partnership is bound by a partner's act after dissolution that: (1) is appropriate for winding up the partnership business; or (2) would have bound the partnership . . . before dissolution, if the other party to the transaction did not have notice of the dissolution.

What is included under an agent's duty of care under the restatement?

Subject to any agreement with the principal, an agent has a duty to the principal to act with the care, competence, and diligence normally exercised by the agents in similar circumstances.

in a direct action, who can a shareholder sue, and on what grounds?

Subject to subsection (2), a shareholder may maintain a direct action against: (a) another shareholder, officer, director, or the company, (b) to enforce the shareholder's rights and otherwise protect the shareholder's interests, including rights and interests under the articles of incorporation, the bylaws or this chapter or arising independently of the shareholder relationship.

Telephone Company lays underground cable in parts of a city. Telephone Company hires Martin as the independent contractor to perform the digging necessary for laying the cable. When the job starts, Martin has no previous digging or construction experience and only several hours of practice using a trenching machine. Telephone Company does not inquire into Martin's experience in using trenching machines or working around gas pipes. During the course of the digging, Martin negligently strikes and damages a gas line, causing an explosion that seriously injures Anthony. Is Telephone Co. liable and, if so, under what theory?

Telephone Company is subject to liability to Anthony under this Section for failing to use reasonable care in selecting a competent contractor. (negligent hiring)

What must a plaintiff show to establish that a demand was "wrongfully" refused by the Board?

That there is reason to doubt that the board acted independently or with due care in responding to the demand.

Peter, Paul, and Petunia are partners in a restaurant. Peter, without discussing it with Paul and Petunia, entered into an agreement, on the partnership's behalf, with Ace Hardware Corporation to purchase a franchise offered for the operation of a retail hardware store under the name "Ace Hardware." Is this agreement binding on the partnership? No. What if What if Paul and Petunia object after the fact?

That would have no effect on the agreement. (Peter is liable individually, but Paul and Petunia are not, as the agreement is not within the ordinary scope of partnership business).

Peter, Paul, and Petunia are partners in a restaurant. Peter wants to enter into an agreement with Cleaners, Inc. (on the partnership's behalf) to provide cleaning services to the restaurant. Paul and Petunia want to enter into an agreement with Janitorial Corp. How would a disagreement between the partners as to expanding the scope of the partnership to include a retail hardware business be resolved?

That would require unanimous agreement of the partners. RUPA § 401(j)

How does the Corporation hire people like its CEO and CFO?

The Board hires upper management.

What does the National Labor Relations Act do?

The National Labor Relations Act provides the legal framework for private-sector employees to organize bargaining units in their workplace, or to dissolve their labor unions through a decertification election.

What is the National Labor Relations Board?

The National Labor Relations Board is an independent federal agency vested with the power to safeguard employees' rights to organize and to determine whether to have unions as their bargaining representative.

When we refer to the "Revised Uniform Limited Partnership Act" and the "Uniform Limited Partnership Act," which comes first?

The Revised Uniform Limited Partnership Act refers to the version of the Act that was adopted in 1976 including its amendments through 1985. The Uniform Limited Partnership Act refers to the version of the Act adopted in 2001.

How did the Securities Act of 1933 the Securities Exchange Act of 1934 change the former holding that "generally, a corporate director has no duty to disclose facts known to him when dealing with a shareholder in the corporation's shares."?

The Securities Act imposed duties on corporations to make full disclosure about their financial condition and affairs when raising capital from the public, and made directors liable for false or misleading statements in prospectuses (form of solicitation for funding).

What is the agency cost problem?

The agency cost problem occurs because the agent does not have the same motivation for engaging in action, relative to the agency, as the principal. As a result, the agent may act with less diligence or care than the principal would act (and desires the agent so to act).

When is a principal subject to direct liability to a third party harmed by an agent's conduct?

The agent acts with actual authority or the principal ratifies the agent's conduct and 1. The agent's conduct is tortious, or 2. The agent's conduct, if that of the principal, would subject the principal to tort liability; or 3. The principal is negligent in selecting, supervising, or otherwise controlling the agent; or 4. The principal delegates performance of a duty to use care to protect other persons or their property to an agent who fails to perform the duty.

Re: indicia of authority, When actual authority is terminated, what is the agent's duty? What if the agent does not properly discharge this duty?

The agent has a duty to return indicia of authority to the principal. If the agent does not return the indicia to the principal, the principal bears the risk that the agent will use them to deceive third parties who do not have notice that the agent's actual authority has been terminated.

RE: agents, what is the general duty to notify?

The agent has a fiduciary duty to report certain information to the principal

What is the most important problem for an agent of co-principals?

The agent may face an impermissible conflict of interest and, if serving one co-principal would compromise the agent's ability to serve the other co-principal equally. Think of a car accident where an attorney represents the Plaintiff driver and plaintiff passenger; passenger of plaintiff driver may also want to sue plaintiff driver for his negligence.

What is an agent's duty with regard to notice/knowledge of facts?

The agent must use "reasonable efforts" to provide the principal with any facts of which an agent knows, or has reason or duty to know, if either: 1. the agent knows or has reason to know the principal would want them, or 2. they are material to the agent's duties for the principal.

What may the articles of incorporation set forth?

The articles of incorporation may set forth: (a) The names and addresses of the individuals who are to serve as the initial directors; (b) Provisions not inconsistent with law regarding: 1. The purpose or purposes for which the corporation is organized; 2. Managing the business and regulating the affairs of the corporation; 3. Defining, limiting, and regulating the powers of the corporation and its boardof directors and shareholders; 4. A par value for authorized shares or classes of shares; 5. The imposition of personal liability on shareholders for the debts of the corporation to a specified extent and upon specified conditions; and 6. Exclusive forum provisions to the extent allowed by s. 607.0208; (c) Provisions for granting any preemptive rights to shareholders; and (d) Any provision that under this chapter is required or permitted to be set forth in the bylaws.

What must the articles of incorporation set forth?

The articles of incorporation must set forth: (a) A corporate name for the corporation that satisfies the requirements of s. 607.0401; (b) The street address of the initial principal office and, if different, the mailing address of the corporation; (c) The number of shares the corporation is authorized to issue; (d) The street address of the corporation's initial registered office and the name of its initial registered agent at that office together with a written acceptance as required in s. 607.0501(3); and (e) The name and address of each incorporator.

In the clearinghouse situation, what do we call the true owner of the stock?

The beneficial owner or beneficial holder.

What is the main job of a Board of Directors, and two ways it performs this job? What is not the job of the BOD?

The board ensure shareholders' interest are served by: 1) Advise - consult with management regarding strategy and operational direction of company, and 2) Oversight - monitor company performance and reduce agency costs The BOD does not manage the company.

What rule is applied to corporate officers and directors to determine if they are in compliance with the duty of care to their corporations?

The business judgment rule.

What is the chief of effect of ratification by a principal?

The chief effect of ratification of a contract is that the principal becomes bound to it. The principal must comply with the terms of the contract, but also may enforce it against any other party to it.

How can the controlling shareholder shift the burden of proof to the plaintiff in a freeze-out merger?

The controlling stockholder may shift the burden of persuasion to the plaintiff if either: 1. They show the transaction was approved by a well-functioning committee of independent directors, or 2. They show the transaction was approved by an informed vote of a majority of minority shareholders.

How does a court assess "fairness in dealing?"

The court analyzes questions of: when the transaction was timed, how it was initiated, how approvals of directors and shareholders were obtained.

How does a court assess "fairness in price?"

The court analyzes the economic and financial considerations of the proposed merging including all relevant factors: assets, market value, earnings, future prospects, etc.

Under Florida law, when can a court allow a corporation to dismiss a derivative suit?

The court can dismiss a derivative suit in whole or in part: 1) on motion by the corporation 2) if a qualifying group conducts a reasonable inquiry and determines in good faith 4) that maintaining the derivative suit is not in the best interests of the corporation.

How do Courts say we should assess or judge a director's decision relating to the company?

The court will defer to the judgment of the director unless there is evidence of wrongdoing relating to the decision.

When does a corporation begin to exist (such that it can undertake obligations/contracts)?

The date its AOIs are filed, or within 5 days prior to filing if specified in the AOIs.

What is the difference between an agent and an independent contractor?

The difference between an independent contractor and employee is that with the independent contractor, the principal has no right to control the manner and method in which the job is performed, while with the employee, the principal has the right to such control.

When a director seeks ratification of a previous decision, what is necessary for a corporation to authorize, approve, or ratify the actions of a director or officer?

The director/officer must: 1. Disclose the material facts as to their interest To the board, and 2. A majority of Disinterested directors must In good faith Approve the transaction OR The director/officer must: 1. Disclose the material facts as to their interest to the shareholders, and 2. A majority of Shareholders entitled to vote on the issue must In good faith approve the transaction

When a party raises a breach of the duty of loyalty relating to a transaction, who has the burden of proving that the transaction was fair and reasonable? What if this was brought as a violation of the duty of care?

The directors/officers charged with violating the duty. When there is a contract between a corporation and an entity in which its directors are interested the contract may be set aside unless the proponentof the contract shall establish affirmatively that the contract was fair and reasonable as to the corporation at the time it was approved by the board. Burden would be on the plaintiffs.

What duties do general partners owe to the limited partnership?

The duty of care and the duty of loyalty.

What does the duty of care include?

The duty of care in the conduct or winding up of the company's activities and affairs is to refrain from engaging in grossly negligent or reckless conduct, willful or intentional misconduct, or a knowing violation of law.

the failure to exercise good faith arises under a breach of which duty?

The duty of loyalty

What duty does an agent breach if they take a bribe in order to cause/not cause their principal to undertake a specific course of action? In such a case, must the principal be able to show injury to subject the agent to liability for the breach?

The duty of loyalty to not derive excess benefits. No; the breach of the duty is the harm.

Corporate officers and directors are corporate fiduciaries. As such, what are the two primary duties they owe the corporation? Occasionally we hear of two additional duties, what are they?

The duty of loyalty, and The duty of care. The duty of good faith, and The duty to disclose.

FoodCo employs Arnold as a traffic manager to arrange for the transportation of FoodCo's products, principally canned tuna and ham, and fresh poultry. Arnold's duties include making arrangements with common carriers, coordinating shipping schedules, negotiating shipping rates, and supervising warehouse employees who load trucks. Arnold becomes familiar with the identity of FoodCo's suppliers, customers, and common carriers, as well as delivery routes and rates. Without telling anyone else at FoodCo, Arnold organizes a business that Arnold operates out of Arnold's home, through which Arnold sells fresh poultry. What duty to FoodCo, if any, is Arnold breaching?

The duty to not compete with the principal. Throughout the duration of an agency relationship, an agent has a duty to refrain from competing with the principal and from taking action on behalf of or otherwise assisting the principal's competitors. During that time, an agent may take action, not otherwise wrongful, to prepare for competition following termination of the agency relationship. Restatement (Third) Agency § 8.04.

What standard is generally used to assess "freeze-out" mergers? (where majority stockholders use their control to force minority shareholders to shell their shares to the majority) Who has the burden under this standard?

The entire fairness standard. The majority stockholder has the burden of proof re: fairness in dealing and fairness in price.

Despite any contract provision, both the principal and the agent have the power to end the agency at any time. What does the power to terminate not depend on? What can exercising this power constitute? What does the power to terminate stem from?

The existence of or conformity with any K between P and A. Breach of K. The character of actual authority, which assumes ongoing and manifest assent.

What is the chief effect of termination of agency? What are some other effects?

The former agent is no longer the former principal's fiduciary, and for the most part may deal with the former principal at arm's length. However, if the agent is entrusted with the principal's property for use in the execution of his assigned duties, and for whatever reason retains it for some period after termination, the agent must return it and must strictly refrain from use of the property for his own benefit. If the agent comes into possession of confidential information of the principal and the agent knows the principal desires to keep it secret, even after termination the agent may not disclose it or use it for his own benefit. A former agent may be requires to continue to provide the principal with material information if

What are the two types of partners in a Limited Partnership and what (very roughly) are the differences?

The general partner manages the partnership and is subject to full liability for the partnership. The limited partner has no/limited management rights and is subject to limited liability for the partnership.

What is the giving of notification?

The giving of notification is merely a manifestation made in a form that is either specified by law or agreement, or that is "reasonable," which is intended to affect the rights between the notifier and the person notified. A good example is given in the comments following §5.01: It is an act of "notification" to file a lien against real property with the appropriate government office and in the manner specified by law, since it is intended to affect the status of the lien-filer's claims against the property vis-à-vis all the other persons who might have claims on it.

who's responsible for adopting initial bylaws for a corporation?

The incorporators or BOD unless that power is reserved to the shareholders

Let's assume that year 4 is also a break-even year and, as a result, Smith and Jones decide to dissolve the partnership. (Smith at $450, and Jones at $250) Assuming the property Smith donated increased in value by $100 (so it is sold for $500), who gets what from the capital account?

The increase in value of the property is divided equally among Smith and Jones, even though Smith donated it. Smith receives $500, and Jones receives $300. Both increase by $50, plus preexisting amount).

When does the law recognize that a general partnership has been formed? What type of standard is this viewed by?

The law recognizes there to be such an agreement as soon as the parties make objective manifestations as to its existence. That is, as soon as a reasonable third party would take their words and actions to indicate an intent to form a partnership, there is one, regardless of what their actual intent might be. Thus, even if they don't subjectively intend to create a partnership, they might do it anyway.

What does the type of principal affect?

The liability of the agent

In a derivative suit, who receives the benefits (damages from) a successful lawsuit? Who else can recover what?

The limited partnership. Although the plaintiff may recover reasonable expenses and attorney fees.

What is a "quorum?"

The minimum number of shares necessary to be represented at a meeting for the results of votes at the meeting to be valid.

What must the corporation include in its pretrial motion to dismiss derivative litigation? How should the court treat such a motion, and what does this treatment mean for each party? What burned will the moving party need to meet in order to prevail?

The motion should include a thorough written record of the investigation, the committee's findings and recommendations. Then, the Court should treat the motion like a summary judgment motion and each side should have an opportunity to make a record on the motion. The moving party should b prepared to meet the normal burden under Rule 56 (no genuine issue as to material facts/dismiss as matter of law).

What are the three situations in which the normal consequences of ratification do not follow?

The normal consequences of ratification will not follow when: 1. a person tricks the ratifier into the manifestation of assent; 2. a principal ratifies under the belief that failure to do so will result in some loss; or 3. ratification is used to destroy rights of other persons acquired prior to ratification.

When does an agent not have a duty to notify his principal of the agent's notice/knowledge of facts?

The only exceptions are: 1. where the principal has instructed the agent not to report those facts, see §8.11(1), and 2. where disclosure of them would violate a superior duty to another

What fiduciary duties does a partner owe to the partnership?

The only fiduciary duties a partner owes to the partnership and the other partners are the duty of loyalty and the duty of care set forth in subsections (b) and (c). All partner shall discharge the duties to the partnership and the other partners, and exercise any rights, consistently with the obligation of good faith and fair dealing.

What factors does the court look at in deciding whether to pierce the veil?

The overall approach is to decide whether the owners have "respected" the company as separate entity. (adhered to corporate formalities) Factors include: Have personal funds been commingled with company funds Have company's funds been commingled with other entities under their control, Has the entity been used for personal purposes or to advance the interests of other entities they control, Whether the entity is grossly undercapitalized, and Whether they have observed formalities in the running of its business.

Relative to the corporation, what is a primary difference between the owner of a debt security and the owner of an equity security? Why would one pick one over the other?

The owner of the debt security has no ownership interest while the owner of the equity security has an ownership interest. A person who has an equity interest, gains the benefit of the corporation growing in value but risks the corporation losing value. While a person who has a debt interest, does not gain if the corporation grows in value but does not risk the corporation losing value.

Given that directors are afforded a presumption that their judgment is formed in good faith and designed to promote the best interest of the corporation they serve, what would a plaintiff need to do get the court to "Second guess" a director's judgment?

The plaintiff has the burden of proving the decision is clearly unrelated to the best interests of the corporation. So the plaintiff would have to have shown that a director's rationale was unrelated to the corporation's business and solely related to humanitarian efforts.

What authority does a president have to bind his or her corporation?

The president has authority to bind the company by acts arising in the usual and regular course of business but not for contracts of an "extraordinary" nature.

what is the effect of a principal ratifying conduct of an agent that includes the giving or receiving of a notification? what about ratification of an act?

The principal almost assuredly takes on imputation of the notification, because the ratification will retroactively authorize it. Likewise, ratification of an act will by definition render that act within the agent's "duties for the principal." Therefore, any facts of which the agent had notice at the time and which are material to the act that was ratified will be retroactively imputed to the principal.

if the principal receives notice of facts that would cause a reasonable person to take steps to disaffirm a contract made on that person's behalf but the principal fails to do so, what happens?

The principal ratifies the contract.

When ratifying a contract, who must the principal manifest his or her assent to? why is this the rule?

The principal's manifestation need not be made to the agent or to the third party. Since the only question is whether a trier of fact could find the purported principal to have assented to the contract, any manifestation of assent made to anyone in any context can effect a ratification.

West Plumbing Corp. provides residential plumbing services across South Florida employing 100 plumbers, 20 plumber-assistants, 10 office staff, 3 administrators, and its CEO Ms. West. The board has been asked to approve a zero-interest loan of $20,000 to help Mr. Fritz, a long-time employee/plumber, pay for medical care for his daughter. As part of approval, the board intends to adopt a resolution that providing the loan will improve and sustain morale among the company's employees. The board has come to you to ask whether such a loan is permissible. You tell them . . .

The resolution makes this likely permissible because there is evidence that the board has conferred and (reasonably) determined that the loan will be of benefit to the corporation.

What does the right to access partnership books and records allow a partner to do?

The right of access provides the opportunity to inspect and copy books and records during ordinary business hours.

Based on what we have said about the business judgment rule, who bears the initial burden of proof—the director/officer or the person challenging the director/officer's decision?

The rule presumes that the director/officer's decision was appropriate, so the person challenging the decision has the initial burden of establishing that the decision was tainted in a way that shows the rule was not met.

What is the public policy behind the exhaustion rule?

The rule protects the personal creditors of individual partners. It might be easier to execute against the personal assets of a well-to-do partner. But that partner him/herself may have personal creditors and if the partnership creditor were to execute against the creditor, the personal creditor would have a less creditworthy debtor.

What is the simplest and most common business form in the US? What are three of its defining features?

The sole propriertorship. In such a business, one person: 1. owns all the business's assets, 2. owns all the profits derived from its operations, and 3. has unilateral management authority. In other words, the identity of the business and the owner are the same.

What two key factors are relevant to assess whether a concealment or misrepresentation is material?

The sophistication of the complaining partner and degree of access to partnership records.

What is the effect of the stockholder establishing that the demand was wrongfully refused?

The stockholder has the right to bring the underlying action as if the demand had been excused as futile.

What should the sub-agent do if the agent's instructions differ from the principal's instructions (and the sub-agent is aware)?

The sub-agent must obey the principal.

RUPA 401(b) states that each partner is chargeable with a share of the losses: Each partner is entitled to an equal share of the partnership profits and is chargeable with a share of the partnership losses in proportion to the partner's share of the profits. RUPA 401(b) What does "chargeable" mean here?

The term "chargeable" tell us that, absent previous agreement, partners are not liable to pay for the losses accrued by a partnership until either: (a) the dissolution of the partnership (b) or the partner's withdrawal from the partnership.

Does the termination of actual authority terminate any apparent authority held by an agent?

The termination of actual authority does not by itself end any apparent authority held by an agent. Apparent authority ends when it is no longer reasonable for the third party with whom an agent deals to believe that the agent continues to act with actual authority.

In order to ratify a previously unauthorized contract, what must a principal do? Is this always necessary?

The would-be principal, who must have sufficient legal capacity to have been a party to the underlying contract in the first place (see Re(3) §4.04), must: 1. manifest assent to be bound by the contract that was made on their behalf, 2. ratify before (a) the third-party's offer is retracted, and (b) before there are other changes in circumstances which would cause inequity to the third-party, 3. agree to be subject to the whole action and not just parts of it, and 4. have existed at the time of the act. re: existing at the time of the act: Recall, however, that even the previously non-existent principal can still adopt an otherwise enforceable contract made on its behalf, the difference being that the adoption takes effect only as of the date of the adoption.

What are three primary scenarios when the corporate veil can be pierced?

There are three primary cases in which the veil will be pierced: 1. Alter Ego/Corporate formalities are ignored, 2. Inadequate capitalization at the outset, 3. to prevent fraud, and 4. when shareholders attempt to avoid existing personal obligations.

Why is the duty of care of so "weak"?

There is a general policy of avoiding judicial second-guessing of business decision that simply turn out to be wrong and that such mistakes will not expose the general partner who made it to liability.

What do all but two entity forms have in common? What are the exceptions?

They all require the filing of some document with a state agency prerequisite to its creation. Sole proprietorship, and general partnership.

Directors are vested with the duty to manage the corporation to the best of their ability. What is the relevant standard of care?

They are required to discharge their duties 1. In good faith, 2. With the care that an ordinarily prudent person in a like position would exercise in similar circumstances, and 3. In a manner the directors reasonably believe to be in the best interests of the corporation.

Under the business judgment rule, corporate directors are required to discharge their duties how?

They are required to discharge their duties: 1. In good faith; 2. With the care that an ordinarily prudent person in a like position would exercise under similar circumstances; and (this element is not in Fl Stat. § 607.0830) 3. In a manner the directors reasonably believe to be in the best interests of the corporation. Directors who meet this standard of conduct will not be liable for corporate decisions that, in hindsight, turn out to be in error.

What are three ways normally one can prove that a stockholder was justified in not having made an effort to obtain board action before filing a derivative suit?

They can prove that: 1. A majority of the board has a material financial or familial interest; 2. A majority of the board is incapable of acting independently for some other reasons such as domination or control; 3. The underlying transaction is not the product of a valid exercise of business judgment.

When a party purchases a controlling share in a corporation, what do they normally do? Who does and does not benefit from this?

They normally pay more than face value of the shares; the pay a premium for knowing they can control the company. The premium price is what is paid to the shareholders who sold their controlling shares. The minority shareholders from who the buyer did not seek any shares are not entitled to share in the premium in the paid for the shares.

What is a director or officers duty of loyalty when on both sides of a transaction in the parent-subsidiary context?

They owe the same duty of good management to both corporations, and must exercise this duty in the best interest of both corporations absent: 1) an independent negotiating structure, or 2) total abstention from participation in the matter.

On June 1, 2020, Smith and Jones filed articles of incorporation for Middle Corp. a restaurant in Naples Florida. At that time, Smith made a $1,000 capital contribution to the restaurant and Jones made a $500 capital contribution. Once incorporated Middle Corp. hired 10 employees and entered into a 10-year lease for an already built-out French Bistro that had closed last year. After four months, the restaurant closed owing each of its employee's two months of salary. Carbuncle was a chef at the restaurant and is suing Smith and Jones in their personal capacity. Smith and Jones have moved for summary judgment on the basis that the employer was Middle Corp. and that, as shareholders, their liability is limited to their initial investment ($1,500) which they have already lost. Assuming a well-developed record that has all relevant facts, if you were the judge, would you grant summary judgment? Why/Why not?

This appears to be a case of undercapitalization (you need more than $1,500 to run a restaurant with 10 employees). So, as long as Carbuncle asserted piercing the veil due to undercapitalization, I would deny summary judgment.

Corp. A owns land, and corp. B owns a tire dealership. Both have different BODs, but BOD of Corp. A can control Corp. B. Why is this not a good idea?

This creates a conflict because the owners of the tire shop can use the realty corporation to increase profits of the tire dealership by keeping the tire dealership's expenses (e.g., rent) low. This has the effect of decreasing the income from the realty corporation as well as lowering its appraised value. So the owners of the tire dealership gain at the expense of the owners of the realty corporation.

Is it a good idea for a director to place different assets of a corporation into different-but-related corporations?

This is a good idea because it shields the companies from the liabilities of the other company. In essence, if the corp. a were sued and had liabilities beyond its assets, the assets of corp. B would not be subject to judgment because it is not in the same corporation.

Smith, Jones, and Quincy are members of a limited liability company that is managed by Carbuncle. Smith wishes to take an active role in the managing of the company. Assuming the operating agreement is silent on this, does Smith have a right to do so?

This is a manager-managed LLC, so Smith does not have a right to do so.

West Plumbing Corp. provides residential plumbing services across South Florida employing 100 plumbers, 20 plumber-assistants, 10 office staff, 3 administrators, and its CEO Ms. West. The board has been asked to provide Ms. West a $100,000, zero-interest loan to help her cover the cost of her daughter's college education. The board has come to you to ask whether such a loan is permissible. You tell them . . .

This is likely not permissible. While a corporation may lend money to its officers and employees, such loans must benefit the corporation. Here there is no evidence of such benefit.

Under the default rules of RUPA, what rights do individual partners not possess with respect to partnership property?

This means among partners (cmt. 4): a. No right to partition. b. No right to withdraw property or to in-kind distributions. c. No right to use for personal purposes. d. But, contrary agreements are enforceable.

What is the public policy behind requiring a shareholder to make a demand on the corporation to sue before the shareholder may undertake a derivative action?

This relates to the core view that corporate decisions are business decisions and should be left to the corporation's usual decision makers.

What is the initial inquiry to determine if an employer is a joint employer? What does the common-law test that answers this question say an employee is?

To determine if a putative joint employer meets the standard, the initial inquiry is whether there is a common-law employment relationship with the employees in question. The common law test says that a "servant (employee) is a person employed to perform services in the affairs of another and who, with respect to the physical conduct in the performance of the services, is subject to the other's control or right to control." This is the NLRB "current" standard

What is the primary purpose of an annual shareholder meeting?

To elect directors, but it may engage in any other legitimate shareholder business. Directors may also be elected by written consent.

What is the public policy behind the business judgment rule?

To encourage citizens to serve as corporate directors by immunizing them from acts and omissions that in hindsight proved to be wrong.

How do you form an LP under ULPA?

To form a limited partnership, a person must deliver a certificate of limited partnership to the Secretary of State for filing. ULPA § 201(a)

What is the general partner's duty of loyalty to the limited partnership?

To refrain from dealing with the limited partnership in the conduct or winding up of the limited partnership's activities as or on behalf of a party having an interest adverse to the limited partnership. To refrain from competing with the limited partnership in the conduct of the limited partnership's activities. To account to the limited partnership and hold as trustee for it any property, profit, or benefit derived by the general partner in the conduct and winding up of the limited partnership s activities or derived from a use by the general partner of limited partnership property, including the appropriation of a limited partnership opportunity.

Does it matter if a principal does not mean to ratify an authorized contract entered into by his agent but does so through his conduct?

To reiterate, however, because the existence of a manifestation is to be judged objectively, it does not matter whether the would-be principal means to ratify or not. Importantly, ratification can occur where the purported principal merely does nothing.

Tonya hires Blue Moon Movers, a local moving company, to transport furniture and packages from her old office to her new office. Tonya is a chemist, and some of her packages contain chemical mixtures that are combustible at temperatures over 100 degrees Fahrenheit. Tonya does not advise Blue Moon Movers that several boxes contain chemicals combustible at high temperatures. The move occurs on a summer day, and the temperature inside the truck exceeds 100 degrees. An explosion results, causing a collision that injures Darren, another driver. Is Tonya liable to Darren and, if so, under what theory of liability?

Tonya is subject to liability to Darren under this Section for failing to warn Blue Moon about the chemicals or to take other precautions as to the chemicals.

Fiduciary owes duties of care and loyalty. What type of action does one bring to indicate the breach of such duties, and what elements must be satisfied to recover?

Tort action for negligence. The plaintiff must establish that: The defendant bore a duty, The defendant breached the duty, The plaintiff suffered an injury, and The defendant's breach was the proximate cause of the plaintiff's injury.

When are two employers joint employers of the same employees?

Two employers are joint employers of the same employees if they share or codetermine those matters governing the essential terms and conditions of employment.

Are corporations required to have a BOD? What is its role if they have one?

Typically yes, but not in Florida. Exercising all corporate powers, and managing or directing the management of the business and affairs of the corporation.

What is proportional voting? What is cumulative voting? Which is the default, and how can the other one be made the procedure for casting votes?

Typically, each shareholder is entitled to one vote per share multiplied by the number of directors to be elected—this is called "proportional voting." In "cumulative voting" the shareholders can apply all of their votes to just one candidate. proportional is the default, and if a corporation wishes to allow cumulative voting it must provide for such in its AOIs.

Does Florida follow RULPa, or ULPA?

ULPA

Under the MBCA approach, must plaintiffs make a demand on the board or may they argue for futility?

Under MBCA § 7.42, Plaintiff must make a written demand and wait 90 days before filing suit, unless demand is earlier rejected, or the corporation would be irreparably injured by the wait.

What is the difference between UPA and RUPA in terms of when a partner is jointly and severally liable for liability's? (both tort and contract)

Under UPA the partner was jointly and severally liable for tort liabilities but only jointly liable for other liabilities (contract). Under RUPA, except as otherwise provided in subsections (b) and (c), all partners are liable jointly and severally for all obligations of the partnership unless otherwise agreed by the claimant or provided by law. RUPA § 306(a)

What does the Doctrine of Respondeat Superior mean for an employer?

Under the Doctrine of Respondeat Superior, an employer will be vicariously liable for tortious acts committed by her employee if the tortious acts occur within the scope of the employment relationship.

How can a principal terminate his agent's actual authority? apparent authority?

Unilateral termination is always possible, but may give rise to contract damages. (Notice is required) Apparent authority must be terminated the same way it is created.

When does corporate existence begin?

Unless a delayed effective date is specified, the corporate existence begins when the articles of incorporation are filed or on a date specified in the articles of incorporation, if such date is within 5 business days prior to the date of filing.

For what period of time is a corporation formed?

Unless otherwise specified in its AOI, every corporation has perpetual duration and succession

Smith and Jones enter into an agreement under which they will operate an import-export business as a partnership. Smith is providing 90% of the startup capital and Jones is providing 10% of the startup capital. At the end of the first year the partnership has lost $100,000. What share of the losses is attributable to each partner?

Unless the agreement stipulates otherwise, the default is that the partners share equally in the profits and the losses. So without information that the agreement provides for a different distribution, Smith and Jones are each obligated for $50,000 of the loss. RUPA 401(b)

Smith and Jones enter into an agreement under which they will operate an import-export business as a partnership. Smith is providing 90% of the startup capital and Jones is providing 10% of the startup capital. At the end of the first year the partnership has earned $1 million in profits. What share of the profits is each partner entitled to?

Unless the agreement stipulates otherwise, the default is that the partners share equally in the profits. So without information that the agreement provides for a different distribution, Smith and Jones are each entitled to $500,000 of the profit. RUPA 401(b)

At the beginning of year 3, Smith donated property worth $400. At the end of year 4, the partnership has broken even. What does this do to the partnership accounts?

We would add the value of property donated to Smith's capital account, but leave Jones as is.

Mariah retains Angie, a talent agent, to represent Mariah in negotiations with recording companies. Angie does not possess skills as an investment manager that are unusual among otherwise similarly situated talent agents, and does not represent to Mariah that she does. At Mariah's request, Angie undertakes to manage Mariah's investment portfolio. However, Angie does so ineptly, resulting in losses for Mariah. Has Angie breached the duty of care to Mariah and subjected herself to liability?

We would have to examine Angie's acts under a different standard. To avoid liability Angie would have to have acted with the care, competence, or diligence normally exercised by agents who undertake to manage property of a principal.

What is the definition of "dissociation?"

When a partner is no longer affiliated with the partnership. Dissociation is the change in the relationship caused by a partner's ceasing to be associated in the carrying on of the business. RUPA § 601 cmt. 1

When has a partner expelled from a partnership? When has a partner not been expelled?

When a partner is removed by the partners from the partnership and the partnership continues in existence, the removed partner has been expelled. If the partnership does not continue in existence, there has been a dissolution of the partnership and the partner was not expelled.

When do we have a de facto merger?

When an agreement changes the 1) corporate character and interest of the shareholders 2) such that preventing a dissenting shareholder from 3) exercising their right co claim fair value for the shares 4) forces the dissenting shareholder to give up stock in on corp. and accept shares in another against his will. Now extended to creditors as well.

What does it mean to be a joint employee?

When an employee may have more than one employer.

When can the issue of whether an employee was acting within the scope of employment be decided as a matter of law?

When an employee's conduct clearly falls outside the scope of employment, such that reasonable minds cannot differ, the issue may be decided as a matter of law.

What does it mean when a person treats a corporation as their alter ego?

When an individual treats a corporation "as an instrumentality through which he [is] conducting his personal business," it is appropriate to pierce the veil.

When can a partnership recover from a transferee partnership property held in the name of one or more persons (not partners) that was transferred by an instrument silent as to the existence of the partnership? (A3)

When it can prove that the transferee knew or had received a notification that (a) the property was partnership property and (b) that the person who executed the instrument of initial transfer lacked authority to bind the partnership

What is the effect of the loss of a principal's capacity on actual authority? It terminates the agent's actual authority. When is the termination effective?

When the agent has notice that that principal's loss of capacity is permanent or that principal has been adjudicated to lack capacity. Same rule relative to a third party.

Why does the two-step process (disinterested board and stockholder approval) allow the court to shift from an entire fairness analysis to business judgment rule?

When the controlling shareholder irrevocably and publicly disables itself from using its control to dictate the outcome of the negotiations and the shareholder vote, the controlled merge then acquires the shareholder-protective characteristics of third-party, arm's-length mergers—which are reviewed under the business judgment rule.

When will the court apply the intrinsic fairness to parent-subsidiary dealings?

When the parent controls the transaction and fixes the terms, and the parent has received a benefit to the exclusion and at the expense of the subsidiary.

When does the act of a partner, including the execution of an instrument in the partnership name, which is apparently for carrying on in the ordinary course the partnership business or business of the kind carried on by the partnership, not bind the partnership?

When the partner (1) had no authority to act for the partnership in the particular matter and (2) the person with whom the partner was dealing (a) knew or (b) had received a notification that the partner lacked authority.

What is the legal relation of an officer to the corporation?

While officers are not mere agents, they have an agency relationship with the corporation.

RUPA § 403 describes the rights of partners to access to books and records as well as where the partnership should keep those books and records. How does that relate to the partner's power/right to govern/manage the partnership?

Without access to information about the partnership, it is not possible for the partner to make informed decisions or to uncover problems.

Principal retains Agent, a real-estate agent, to sell Blackacre, specifying no limit on the duration of Agent's authority. Throughout a 10-year period, Agent reports to Principal on Agent's efforts to date and their results. Principal gives no indication to Agent that Agent's authority has terminated. Does Agent have authority to so bind Principal?

Yes under these circumstances the agent should reasonably conclude that the agency is still in effect.

Caesar owns five dogs. He hired Alice to take care of them while Caesar was gone. Alice allows people to walk the dogs, for a fee, as stress relief. These walks are quite beneficial to the dogs. Is Alice liable to Caesar?

Yes, Alice used Caesar's property (the dogs) for her own purposes (to earn extra money).

Is there any way in which an agent can, without incurring liability, knowingly and intentionally act in way that is adverse to the principal's interest?

Yes, An agent can act in a way that would be a breach of the duty of loyalty if they get the principal's consent. In doing so, the agent must act in good faith, disclose all material facts, and deal fairly with the principal. Restatement (3rd) Agency § 8.06(1)(a)

Mariah retains Angie, a talent agent, to represent Mariah in negotiations with recording companies. Angie has skills as an investment manager that are unusual among otherwise similarly situated talent agents. At Mariah's request, Angie undertakes to manage Mariah's investment portfolio. However, Angie does so ineptly, resulting in losses for Mariah. Has Angie breached the duty of care to Mariah and subjected herself to liability?

Yes, Angie breached the duty of care. She has specialized knowledge/skills as an investment manager and her "inept" management of Mariah's investment portfolio is inconsistent with the exercise of competence to be expected of an investment manager. So Angie is subject to liability to Mariah.

On June 1, Smith gives Jones a written power of attorney authorizing Jones to sell Blackacre upon terms laid out in the power. On September 1, Smith tells Jones that Jones' authority is revoked but Smith does not take back the power of attorney from Jones. The following day, Jones exhibits the power of attorney to Terrance, who has no notice of the revocation of Jones' authority and makes a contract to sell Blackacre in accordance with the terms stated in the power. Does Jones have authority for this sale?

Yes, Jones has apparent authority to do so. See Restatement (3rd) Agency 3.11 cmt. d

Peter, Paul, and Petunia are partners in a restaurant. Peter, without discussing it with Paul and Petunia, entered into an agreement with Cleaners, Inc. (on the partnership's behalf) to provide cleaning services to the restaurant. Is this agreement binding on the partnership? What if Paul and Petunia object after the fact?

Yes, a partner is an agent of the partnership for purposes of the business. RUPA § 301(1). Because the cleaning services were for the business Peter can bind the partnership to the agreement. That would have no effect on the agreement.

Does Jones have any way to avoid this outcome?

Yes, a partner who erroneously (but in good faith) believed he/she was a limited partner can avoid liability (other than for the initial investment) if, the person, on learning of the mistake: (a)Causes an appropriate certificate of limited partnership, amendment, or statement of correction to be signed and delivered to the Department of State for filing; or (b)Withdraws from future participation as an owner in the enterprise by signing and delivering to the Department of State for filing a statement of withdrawal under this section.

Can an agent have effective actual authority if the principal has lost capacity?

Yes, a written instrument may make an agent's actual authority effective upon a principal's loss of capacity (power of attorney for example), or confer it irrevocably regardless of such loss.

Is an agent subject to liability to a third party harmed by the agent's tortious conduct where the conduct was properly within the scope of employment?

Yes, an agent is subject to liability to a third party harmed by the agent's tortious conduct. Unless an applicable statute provides otherwise, an actor remains subject to liability although the actor acts as an agent or an employee, with actual or apparent authority, or within the scope of employment.

When making the decision to dismiss derivative litigation, does the business judgment rule shield a committee of a board (like an audit committee/litigation committee)? What must be true of the directors and decision to dismiss, if allowed?

Yes, but in order for the business judgment rule to apply, the directors must be disinterested and make a decision independent of improper influence.

If third party finds out that principal is the principal (after expressly being told he was not), may 3P avoid the contract?

Yes, but not because of the terms of the agreement. the 3P may avoid the K or conveyance if the P or A had notice that the 3P would not have dealt with the principal.

Under ULPA, can a limited partner cause the dissolution of the partnership? If so, how?

Yes, but only seeking judicial order for dissolution.

Lumberjack Inc. owns a lumbermill that takes trees and cuts them into various finished pieces of wood. Mack is the manager of the lumbermill. Mack's supervisor directs Mack to dismantle and scrap the band saw (which will be replaced by a new one). Mack dismantles the saw but stores the pieces of the equipment in his garage. Later, after Mack decides to form a business to compete with Lumberjack Inc., Mack retrieves and reassembles the equipment, resigns from Lumberjack, and opens his own lumbermill in competition with Lumberjack. Has Mack breached a duty to Lumberjack?

Yes, by not scrapping the dismantled equipment as directed, Mack made use of it for his own purposes without Lumberjack's consent.

Under ULPA, can a general partner cause the dissolution of the partnership? What can the limited partners do to avoid dissolution?

Yes, by withdrawing. But under ULPA, if the other partners want to continue (and there is at least one continuing general partner), the partners have 90 days to do so.

Big Co.'s board would like to hire Jones to be their CEO. Jones has made clear that Jones will not accept the position absent the corporation purchasing insurance to cover any liability Jones would have as CEO including breaches of the duty of loyalty and the duty of care. Is it legally permissible for Big Co. to purchase such insurance?

Yes, corporations have broad rights to purchase insurance to protect board members and officers from liability arising out of their position on the board or as an officer.

West Plumbing Corp. provides residential plumbing services across South Florida employing 100 plumbers, 20 plumber-assistants, 10 office staff, 3 administrators, and its CEO Ms. West. The board has been asked to approve a donation of $10,000 to a local woman's shelter. The board has come to you to ask whether such a loan is permissible. You tell them . . .

Yes, donations for the public welfare or for charitable purposes are permitted.

Under ULPA do general partners have equal right to manage the partnership?

Yes, each general partner has equal rights in the management and conduct of the limited partnership's activities and affairs. ULPA § 406(a)

BigCo employs Austin as a manager. Austin discovers that the state BigCo is incorporated in has dissolved BigCo because BigCo neglected to file its annual report. Austin files a document in that state reserving the name "BigCo, Inc." Austin's intent is to use the name in negotiations with BigCo over the terms of Austin's employment knowing that BigCo cannot now reincorporate under its original name and that it will be costly for BigCo to do business under a new name. Has Austin breached a duty to BigCo?

Yes, he has misappropriated its name (for which it has a property interest) for his own purposes.

QuickClean, Inc. is a commercial cleaning service that maintains a list of customers and prospective customers including relevant particulars about each customer. QuickClean's list would be of competitive use to others. QuickClean keeps the list on a computer accessible only by high-level employees within the organization. Fritz, QuickClean's general manager, who wishes to establish a competing cleaning service, retains a hard copy of the list that QuickClean gave to Fritz to use in Fritz's work. Fritz resigns, taking the list and planning to use it to solicit business for Fritz's new competing firm. Has Fritz breached a duty to QuickClean?

Yes, he took QuickClean's property, the hard copy of the list, for his own purposes.

From January 1, 2018 to January 1, 2020, Smith was a shareholder of Medium Inc. During that time, the CEO violated her fiduciary duties to the financial detriment of Medium Inc. On December 1, 2019, Smith demanded that the board take action. On January 1, 2020, the board rejected the demand. Smith filed a derivative complaint on February 2, 2020. Medium has moved for summary judgment on the grounds that Smith lacks standing. Should the Court grant Medium Inc.'s motion?

Yes, here Smith was a shareholder at the time of the injury but was not a shareholder at the time the action was commenced.

Carbuncle has been a member of the board of SJQ, Inc. since 2012. On January 1, 2018, after an extensive search, the board hired Smith as SJQ's CEO. Smith's time as CEO was a disaster for SJQ which, for the first time in its history, lost money. Smith was fired August 1, 2019. Shortly thereafter, it was discovered that Smith had lied about Smith's qualifications. On October 1, 2019, Carbuncle was sued by shareholders claiming that Carbuncle, as a member of board, had breached his duty of care in hiring Smith. By September 1, 2020, the case against Carbuncle was dismissed by the court on summary judgment.Must SJQ reimburse Carbuncle for the $300,000 spent by Carbuncle to defend the suit?

Yes, here we have a person who was sued because he was a director of the organization and was wholly successful on the merits. In that circumstance, Florida law mandates that SJQ indemnify Carbuncle.

Quincy is the CEO of Big Co. which has a water treatment contract with City. Quincy decided not to upgrade the water treatment plant in 2019 based on an expert's report that while the water quality had fallen, it was not expected to exceed limits set by the Clean Water Act for two years. In October 2019, the EPA discovered that the water discharged by the plant was in violation of the Clean Water Act subjecting both Quincy and Big Co. to criminal penalties. Quincy has requested that Big Co. indemnify Quincy in the coming criminal proceeding. Big Co.'s board is predisposed to do so, but has come to you for advice. May Big Co. indemnify Quincy?

Yes, here we have an officer who acted in good faith (expert's report) and likely with the company's best interest in mind (delaying unnecessary expenses is good for the company). In addition, while this is a criminal proceeding, the director had no reason to believe the conduct was unlawful (expert's report).

Same facts. But now Smith's withdrawall is in violation of the partnership agreement and causes the partnership $50,000 in damages. Is Smith liable to the partnership?

Yes, in this circumstance, Smith will be liable to the partnership.

Can shareholders take action without a meeting?

Yes, provided that the action is taken by the holders of outstanding shares of each group entitled to vote on the action having not less than minimum number of votes necessary to authorize the action. Yes, if the minimum or more of shareholders of each voting group entitled to vote authorize the action.

Can an agent act for two principals who may have interests that are adverse to each other and for which the two agencies may also be adverse?

Yes, provided the agent (1) deals in good faith with each principal, and (2) discloses to each principal that (a) the agent acts for the other principal and (b) all facts that would reasonably affect the principal's judgment, and (3) deals fairly with each principal. Restatement (3rd) Agency § 8.06(2)

Paul allows his 14-year-old son Arnold to use Paul's computer (which has internet access). In Paul's and Arnold's jurisdiction the age of majority is 18. Paul has set up his Amazon account to allow purchases to happen using the One-Click feature. With Paul's consent, Arnold uses the computer and the Amazon One-Click feature to purchase a book. Is Paul bound by Arnold's purchase (can Arnold be an agent of Paul)?

Yes, relative to the purchase of the book, Arnold is an agent of Paul despite Arnold's youth. According to the Restatement (Third) Agency § 3.05 any person may ordinarily be empowered to act so as to affect the legal relations of another.

Owner of a used-car lot employs Manager as its general manager. Manager's duties include contracting with suppliers of used cars to replenish Owner's inventory. Supplier gives Manager a three-year-old BMW, stating, "This is a gift from me to you in gratitude for our good relationship." Is Manager subject to liability to Owner?

Yes, the car Manager received from Supplier is a material benefit that Manager acquired in connection with transactions Manager conducted on Owner's behalf.

Ida represents Prudential Insurance Co. and solicits applications for insurance policies to be issued by it. Ida submits an application for life insurance completed by Terry to Prudential. After submitting the application but before Prudential issues a policy to Terry, Ida learns that Terry's health has deteriorated substantially but does not notify Prudential. Has Ida breached any duty to Prudential?

Yes, the duty to use reasonable efforts to provide information material to the transaction being contemplated by Prudential Insurance Co. As Ida knows this is information that Prudential would desire to have in determining whether to issue a policy of life insurance to Terry, Ida has a duty to use reasonable effort to provide this information to Prudential.

FarmCo owns 4 million acres of corn fields. It authorizes Nitro-Gen Co to purchase fertilizer for FarmCo in Nitro-Gen's name. Nitro-Gen enters into a contract with FertilizerIsUs, Inc. to purchase nitrogen based fertilizer that will be used by FarmCo. The agreement does not name or mention FarmCo or that Nitro-Gen is acting on behalf of another party. When FertilizerIsUs tries to deliver the fertilizer to Nitro-Gen, it discovers Nitro-Gen is out of business. Can FertilizerIsUs require FarmCo to satisfy the contract?

Yes, the fact that the principal was undisclosed is not relevant. The principal is bound by Nitro-Gen's actual authority.

Smith, Jones, and Quincy are members of a limited liability company that is member-managed. Smith has historically mainly been an uninvolved member but now wishes to take an active role in the managing of the company. Assuming the operating agreement is silent on this, does Smith have a right to do so?

Yes, this is a member-managed LLC, so Smith has a right to participate in the management of the LLC.

Smith purportedly as purchasing agent for Happy-Sleep, Inc. (a mattress company) enters into an agreement with FullFoam Inc. to purchase foam on behalf of Happy-Sleep, Inc. But Happy-Sleep, Inc. does not exist yet because the founders have not filed the appropriate paper work. Smith, as one of those founders, is aware of this fact. Is Smith a party to this contract?

Yes, unless Company B (the third party) agrees otherwise, a person who makes a K with a third party "as an agent of a principal" becomes a party to the K if the purported agent knows or has reason to know that the purported prcinipal does not exist or lacks capacity to be a party to a Contract. Company A does not exist yet, and therefore, cannot be a party to the contract.

(Same facts) Jones is the CFO of SJQ, Inc. As CFO he oversaw the corporation's finances. Ethelbert was a manager in the accounting department and, over the course of two years, managed to embezzle nearly $3 million before disappearing with all of the money. Jones, as CFO, failed to discover the embezzlement and is being sued by a group of shareholders for a breach of the duty of care. The lawsuit is in the discovery stage and Jones has already paid $50,000 in attorney's fees. Jones has asked the Board to reimburse Jones for the $50,000 spent and advance Jones another $50,000 to give as a retainer to Jones' attorney. The Board has decided not to do so and Jones has sued in court asking the court to order the board to reimburse him for expenses paid and advance him funds for anticipated litigation. Can a court force the corporation to do so?

Yes, unless the Articles of Incorporation specify that indemnification is not allowed.

Same facts but now instead of selling fresh poultry, Arnold's home-based business consists of arranging for the transportation of food products to retailers in exchange for commissions. Some of Arnold's customers are food distributors who are competitors of FoodCo. Is Arnold in breach of a duty to FoodCo?

Yes, without FoodCo's knowledge or consent, Arnold owns and operates a business that provides assistance to direct competitors of FoodCo.

Does a parent corporation owe fiduciary duties to subsidiary-corporations when there are parent-subsidiary dealings?

Yes.

Can a partner waive the right to have the partnership business wound up after an event which triggers dissolution?

Yes. At any time after the dissolution of a partnership and before the winding up of its business is completed, all of the partners, including any dissociating partner other than a wrongfully dissociating partner, may waive the right to have the partnership's business wound up and the partnership terminated.

Agent enters into a contract with Third Party on behalf of Principal. Agent and Principal are both aware that Third Party would not enter the contract were Third Party to know that Principal was involved. As a result, when Third Party asks if Principal is involved, Agent denies acting on behalf of a principal. If Third Party finds out that Principal is the principal, may Third Party avoid the contract?

Yes. When an agent, who makes a contract or conveyance on behalf of an undisclosed principal, falsely represents to the third party that the agent does not act on behalf of a principal, the third party may avoid the contract or conveyance if the principal or agent had notice that the third party would not have dealt with the principal.

PacificaBank employs Albert as a loan officer. PacificaBank gives Albert substantial discretion to determine whether to make any particular loan. PacificaBank also tells Albert not to exceed a limit of $500,000 in commercial loans to any one customer. Albert makes a loan on PacificaBank's behalf to Tri-Corp. in the amount of $1 million, honestly believing that Tri-Corp. is a good credit risk and will be a good source of additional business for PacificaBank. Albert believes that PacificaBank does not intend Albert's lending limit to restrict Albert's lending authority when Albert harbors such beliefs about a particular borrower. Is Albert subject to liability to PacificaBank if Tri-Corp fails to repay its $1 million loan?

Yes. Albert did not comply with PacificaBank's unambiguous instructions. It is not a defense for Albert that he believed in good faith that PacificaBank's instructions should be disregarded.

Caesar owns five dogs. He hired Alice to take care of them while Caesar was gone. Alice allows people to walk the dogs, for free, as stress relief. These walks are quite beneficial to the dogs. Is Alice liable to Caesar?

Yes. An agent who has possession of property of the principal has a duty to use it only on the principal's behalf, unless the principal consents to such use. Here Alice used the dogs for her purposes, not Caesar's. As a result, she is liable to Caesar for the value of dog-walking even though she did not charge anything.

Bikes Inc. retains SteelBuyers Inc. as a purchasing agent to buy steel for Bikes. SteelBuyers is authorized by Bikes to buy on terms that commit Bikes to pay for the material when it arrives at Bikes' facility. SteelBuyers has purchased steel many times from Foundry Works. Bikes terminates SteelBuyers' actual authority. Foundry Works has no notice of the termination. Relative to Foundry Works, does SteelBuyers have authority to purchase steel on behalf of Bikes Inc.?

Yes. Apparent authority ends when it is no longer reasonable for the third party with whom an agent deals to believe that the agent continues to act with actual authority.

Pat employs Ava to manage his tavern, directing Ava to represent that she is the owner, and to purchase no goods for the business except ales and bottled water. Any other goods for sale are to be supplied by Pat directly. Ava purchases cigars from Tom for the business. Is Pat liable to Tom for the price of the cigars even though Pat expressly directed Ava not to purchase anything but ales and water for the tavern?

Yes. Because Pat directed Ava to represent that she was the owner, Pat is liable to Tom for the price of the cigars.

Pat owns a business delivering packages for local business to their customers. She employs Ava to manage this business, permitting Ava to represent herself as the owner. Pat directs Ava to make no settlements with clients for losses in excess of fifty dollars, until after consultation with Pat. Tom claims that he has suffered a loss by the negligence of one of the delivery drivers. Ava agrees, without consultation with Pat, to reimburse Tom by payment of $75. Is Pat liable to Tom for the $75?

Yes. Because Pat permitted Ava to represent that she was the owner, Pat is liable to Tom for the payment of $75.

Smith hires Jones to sell a painting "Les Femmes d'Alger" by Picasso for him. Jones is to receive a percentage of the sale price as commission. Jones agrees to advertise the property and devote energy to finding a buyer. Smith grants Jones a power of attorney authorizing Jones to sell the painting. The power of attorney is irrevocable for one year. Jones fails to take any action to sell the painting. After three months, Smith tells Jones that Smith is revoking Jones' authority. Is Jones' authority terminated?

Yes. Notwithstanding any agreement between principal and agent, an agent's actual authority terminates if the agent renounces it by a manifestation to the principal or if the principal revokes the agent's actual authority by a manifestation to the agent.

Paul has two coagents, Arnie and Bob. Paul knows that Bob, acting without actual or apparent authority, has represented to Tom that Arnie has authority to enter into a transaction that is contrary to Paul's instructions. Tom does not know this nor can Tom establish conduct by Paul on the basis of which Tom could reasonably believe that Arnie has the requisite authority. Tom can, however, establish that Paul had notice of Bob's representation and that it would have been easy for Paul to inform Tom of the limits on Arnie's authority. If Tom detrimentally and justifiably changes position in reliance on Bob's representation by making a substantial down payment, can Tom hold Paul responsible as Bob's principal?

Yes. Paul will be estopped from denying Bob's representation.

Same facts as previous hypothetical. Due to Smith's wrongful dissociation, the partnership suffers $8,000 in new costs due to having to refinance certain loans and delays in completing the project. Can Jones and Carbuncle recover any of the new costs from Smith?

Yes. Smith is liable to the partnership for damages caused by the wrongful dissociation. RUPA 602(c)

If a person makes a K with a 3P on behalf of a principal, but lacks such authority, have they breached any warranty to the third party? What is the exception to this rule?

Yes. They breach an implied warranty of authority to the third party unless 1. the principal or purported principal ratifies the act; or 2. the person gives notice to the third party that no warranty of authority is given; or 3. the third party knows that the person acts without actual authority.

Pat hired Angie as his personal accountant on January 1, 2020 with responsibility for keeping Pat's books and filing his taxes. The employment was at will. On March 1, Pat died. On March 4th, before learning of Pat's death, Angie filed Pat's taxes on his behalf. Did Angie act with authority in filing Pat's taxes?

Yes. When a principal (natural person) dies, his/her agent's actual authority terminates when the agent has notice of the principal's death. In this case, Angie acted before she had notice of Pat's death.

Fritz and Lutz are also concerned about another committee the Chair has created. This committee has been given the power to amend the bylaws. Fritz and Lutz believe committees are not empowered to do so. Are Fritz and Lutz correct?

Yes. a board committee may not: (a) Authorize or approve the reacquisition of shares unless pursuant to a formula or method, or within limits, prescribed by the board of directors. (b) Approve, recommend to shareholders, or propose to shareholders action that this chapter requires be approved by shareholders. (c) Fill vacancies on the board of directors or on any board committee. (d) Adopt, amend, or repeal bylaws.

How do you know when and where an annual meeting will be held?

You look to the bylaws. But the location can be stated in the notice of annual meeting provided the location is not inconsistent with the bylaws. If no place is fixed by the bylaws or stated in the notice, the annual meeting is held at the corporation's principal office.

If you win a judgment, but the other party won't pay or perform pursuant to the judgment, what must you do?

You will have to file an action with the court seeking execution of the judgement. The court will then order some relief (e.g., garnishment, judicial sale of debtor's property)

if a corporation chooses to obligate itself in advance of any legal proceeding to indemnify or advance expenses to a director or officer

a corporation may, (a) by a provision in its articles of incorporation, (b) limit any of the rights to indemnification or advance for expenses created by or pursuant to this chapter.

Can a corporation choose to obligate itself to advance expenses or indemnify a director or officer (beyond what is permitted or required by statute) before an act or omission of a director or officer gives rise to a legal proceeding? if so, how?

a corporation may, (a) by a provision in its articles of incorporation, bylaws or any agreement, (b) or by vote of shareholders or disinterested directors, or otherwise, (c) obligate itself in advance of the act or omission giving rise to a proceeding (d) to provide any other or further indemnification or advancement of expenses to any of its directors or officers.

What is a derivative action?

a derivative action is one in which a shareholder brings a lawsuit against a third party on behalf of a corporation. Usually the lawsuit is against insiders in the corporation, but it can be against third parties.

What is a fiduciary relationship?

a relationship in which one party agrees to act for another's benefit.

What is a business opportunity that belongs to the entity?

a. Any opportunity to engage in a business activity of which the fiduciary becomes aware, A. In connection with the performance of functions as a fiduciary, or B. The fiduciary should reasonably believe the person offering the opportunity expects it to be offered to the beneficiary, or C. Through the use of the beneficiary's information or property, if the resulting opportunity is one that the fiduciary should reasonably expect to believe would be of interest to the beneficiary, or 2. Any opportunity to engage in a business activity of which a fiduciary becomes aware and knows is closely related to a business in which the beneficiary is engaged or expects to engage.

What problem is solved by the imposition of fiduciary duties in agency and business relationships?

agency cost problem

With respect to his or her principal, an agent has a duty to comply with what?

all lawful instructions received from the principal . . . concerning the agent's actions on behalf of the principal.

What is the general rule for a partner's liability for partnership obligations?

all partners are liable jointly and severally for all obligations of the partnership unless otherwise agreed by the claimant or provided by law.

when will notification given by an agent be imputed to his principal?

an agent with actual or apparent authority to give a notification can give it, and it will be legally effective as against the principal, even if the principal is unaware of it and even if it was given contrary to an explicit instruction by the principal not to give it (that is, so long as it was still made with apparent authority).

What does good faith mean?

an honest belief the absence of malice the absence of design to defraud or to seek an unconscionable advantage. . . . An honest intention to abstain from taking any unconscientious advantage of another, even through technicalities of law.

Transfer of partnership property (A)(1) If property is held in name of partnership, then it may be transferred by

an instrument executed by a partner in the partnership name.

Transfer of partnership property (A)(2) If property is held in name of one or more partners AND transferring instrument indicates existence of partnership, then it may be transferred by

an instrument executed in the partners' names

When does apparent authority exist?

apparent authority exists when a third party: 1. reasonably believes 2. the agent or other actor has authority to act on behalf of the principal, and 3. that belief is traceable to the principal's manifestations to the third party.

If the principal agrees to not give interim instructions or interfere with the agent's discretion and subsequently does so, what does this possibly constitute?

breach of K; may subject the principal to liability to the agent

How is a sole proprietorship formed?

by selling a product or performing a service

Even if a principal and agent agree to the contrary (no interim instructions/interference with agent's exercise of discretion), an agent still has a duty to do what?

comply with lawful instructions received from the principal.

Does a board committee have authority to dismiss derivative litigation even if some of its members are defendants?

courts have consistently held that the business judgment rule applies where some directors are charged with wrongdoing, so long as the remaining directors making the decision are disinterested and independent.

What three purposes does the demand requirement serve?

decreases litigation helps corporate management does not prevent legitimate litigation

When will a principal's manifestation of assent to the ratification of a contract not constitute acutal ratification?

even if the purported principal's conduct otherwise manifests intent to ratify, that conduct will not constitute ratification if the principal lacked knowledge of facts material to the underlying act to be ratified. See §4.06.

What is express authority?

express authority is that specifically mentioned by the principal in setting out the extent of the agent's duties

Although no formalities exist as to formation of a sole proprietorship, what compliance requirements might a sole proprietor face?

filing a fictitious name (dba) licensing/training

When can a partnership recover partnership property from a transferee?

if it proves that execution of the instrument of initial transfer did not bind the partnership under Section 301 and: (1) as to a subsequent transferee who gave value for property transferred under subsection (a)(1/2), proves that the subsequent transferee knew or had received a notification that the person who executed the instrument of initial transfer lacked authority to bind the partnership; or (2)as to a transferee who gave value for property transferred under subsection (a)(3), proves that the transferee knew or had received a notification that the property was partnership property and that the person who executed the instrument of initial transfer lacked authority to bind the partnership.

What happens if an agent falsely denies the existence of his or her principal when dealing with a third party?

if the agent falsely denies the principal's existence, and either principal or agent had "notice" that the third party would not have dealt with the principal, then the contract is voidable at the third party's instance. Notice here means that they were aware of facts that would have led a reasonable person to infer

When will separate corporate identities of subsidiary or affiliate corporations be ignored?

if the formalities of separate corporate procedures for each corporation are not observed.

When will a director or officer who has been advanced funds or reimbursed for expenses be required to pay the money back to the corporation?

if: (a) The individual is not entitled to mandatory indemnification; and (b) the individual's conduct fails to qualify for permissive indemnification, or (c) indemnification is prohibited by law unless pursuant to court order.

Transfer of partnership property (A)(3) If property is held in name of one or more persons AND partnership is not noted on the instrument, then it may be transferred by

instrument executed in those persons' names.

What liability do people in Florida have when they purport to act on behalf of a corporation, knowing that there was no such corporation?

joint and several liability for all liabilities created while so acting.

Re: the general rule for a partnership's tort liability, what do the words "other actionable conduct" mean? "with authority of the partnership"?

no-fault torts. Makes apparent authority actionable in addition to actual authority.

once a plaintiff sends a demand letter, can they then later plead futility?

not on the same set of facts

When will notification given to an agent be imputed to his principal? Exception?

notification made to an agent will be imputed to the principal so long as the agent had actual or apparent authority to receive the notification, unless the third party is aware of the agent's adversity to the principal.

When does an act of a partner, which is not apparently for carrying on in the ordinary course the partnership business or business of the kind carried on by the partnership, bind the partnership?

only if the act was authorized by the other partners.

when will liability for a lack of good faith arise out of failure to exercise oversight?

only when there is an utter failure to attempt to assure a reasonable information and reporting system exists.

What is the important caveat to the first presumption: "property purchased with partnership funds is presumed to be partnership property, notwithstanding the name in which title is held"?

partnership property held in the name of individual partners, without an indication of their capacity as partners or of the existence of a partnership, that is transferred by the title-holding partner(s) to a purchaser without knowledge that it is partnership property, is free of any claims of the partnership (kind of like a good-faith-purchaser-for-value) I think this is category A2.

How do you form an LLC in Florida?

person representing the company must deliver signed articles of organization to the Division of Corporations.

Proof of what concerning a committee's investigation to determine whether it should dismiss derivative litigation might raise questions of good faith or fraud?

proof that the investigation has been so restricted in scope, so shallow in execution, or otherwise so pro-forma or halfhearted as to constitute a pretext or sham, consistent with the principles underlying the application of the business judgment doctrine,

What is included in a partner's duty of care?

refraining from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law.

What is the general partner's duty of care to the limited partnership?

refraining from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law.

If an agent with actual authority makes a K on behalf of an undisclosed principal, who are the parties to the K? who is not?

the agent and third party, and unless excluded by the K, the principal is as well.

What is the agent always liable for?

the agent's own torts

A partnership may file a statement of partnership authority, which may, but is not required to, state:

the authority, or limitations on the authority, of some or all of the partners to enter into other transactions on behalf of the partnership and any other matter.

We already know that ratification does not immunize directors from liability for transactions that implicate the duty of loyalty. But if a transaction is approved or ratified, what effect does that have?

the burden shifts to the plaintiff to prove the transaction was not fair.

When challenged, what would such a committee need to prove that it's decision to dismiss derivative litigation is lawful?

the committee will have to show that they chose the investigative methods in good faith.

if a contract implies self-dealing, what must a director show to avoid liability?

the director of corporation A must show that the failure to enforce the contract was intrinsically fair to the minority shareholders of corporation B.

What is the implied warranty of authority of an agent?

the implied warranty of authority is the purported agent's promise that he/she has authority as an agent of the principal in a given matter.

Why are courts suspicious of the rule that courts should just apply a business judgment rule to assess decisions by corporations to dismiss derivative actions?

the inherent conflicts of interest that arise in the corporate setting regardless of the independence of the committee members. They may be more empathetic because they are also director/officers.

Despite any contract between P&A, a principal always has the power to control what?

the power to control every detail of the agent's performance.

If an agent with actual/apparent authority makes a K on behalf of a disclosed principal, who are the parties to the K? who are not parties to the K?

the principal and the third party the agent is not a party to the contract unless the agent and third party agree otherwise.

If an agent with actual/apparent authority makes a K on behalf of an unidentified principal, who are the parties to the K? who is not?

the principal and the third party the agent is a party to the K, unless the agent and principal agree otherwise.

In any such case, the corporation has the burden of proof regarding what?

the qualifications, good faith, and reasonable inquiry of the group making the determination.

What is a third party entitled to as a remedy is a party they dealt with is estopped from denying the existence of an agency relationship?

the third party will be entitled to a measure of damages based only on a reliance interest, and not expectation damages.

How does the corporation decide on the record date for a special meeting?

then the record date is the date the first shareholder delivered his/her demand to the corporation.

What is a director or officers duty of loyalty when they are on both sides of a transaction? (Director or officer for both companies)

they are required to demonstrate utmost good faith and the most scrupulous inherent fairness of the bargain.

When is a K not voidable by a third party on the basis that the agent denies the existence of his principal?

when the third party may have demanded different terms (not told I'm selling a home to a mega-rich person)

When becoming informed in connection with a decision-making functions, or devoting attention to oversight function, members of the BOD or a board committee shall discharge their duties how?

with the care that an ordinary prudent person in a like position would reasonably believe appropriate under similar circumstances.

What are common lawsuits covered by D&O insurance?

•Shareholder suits over company or stock performance. •Creditor or investor suits over mismanagement of fiduciary duties which might result in financial losses or bankruptcy. •Misuse of company funds. •Misrepresentation in your company's prospectus. •Theft of intellectual property. •Decisions that exceeded the authority granted to a company officer. •Failure to comply with workplace laws. •Employment practices and HR issues. •Pollution and other regulatory claims. •Cyber liability, including data breaches.

Smith, Jones, Carbuncle, and Xenith are partners in a limited partnership with Smith as general partner and Jones, Carbuncle, and Xenith as limited partners. Smith decides to withdraw resulting in dissolution of the partnership. Assume the assets to be distributed are $1 million. If Smith provided 50% of the capital, Jones provided 30%, and Carbuncle and Xenith each provided 10%, how much would each get?

•Smith $500,000 •Jones $300,000 •Carbuncle $100,000 •Xenith $100,000

Who can call a special shareholder's meeting?

•The board of directors, •Anyone authorized in the bylaws or articles of incorporation, •Request of some percentage (in Florida 10%-50%) of shareholders with votes entitled to be cast on the issue, and •The court.

Fl. Stat. § 607.0732 enables corporations, upon unanimous consent of all shareholders to:

•restrict the power of, or eliminate entirely, the board of directors; •authorize distributions whether or not in proportion to a shareholder's ownership of shares; •establish who will serve as an officer or director, as well as the term of office; •establish rules regarding the exercise of voting rights by shareholders; •establish rules for the transfer or use of corporate property by shareholders, directors, and officers; •establish which officers, directors, shareholders, or combinations thereof may exercise corporate powers or manage the corporation; •require dissolution upon the occurrence of a specified event; •imposes liability on shareholder for attorney fees in certain internal claims; •Establish a method (in lieu of judicial dissolution) for breaking a deadlock among directors or shareholders; and •set forth any other duty, obligation, or benefit that does not otherwise violate the Business Corporations Act.