BLAW 703 Exam 1 Ch 35-40

corporation

-A corporation is owned by shareholders who elect a board of directors to manage the business, thus ownership & management of a corporation may be separate -Shareholders have limited liability for the obligations of the corporation -The corporation is a legal and tax-paying entity for federal income tax purposes (Exception: Subchapter S corporations) -Advantages: shareholders enjoy limited liability for corporate obligations, perpetual existence, ability to raise large amounts of capital -Disadvantages: greater formality required for formation and operation, double-taxation, complexity of structure

Dissociation of LP or LLLP

-A limited partner dissociates upon limited partner's death, withdrawal, or expulsion from partnership -A dissociated limited partner is not a limited partner, has no rights as a limited partner, and is treated as a mere transferee of the dissociated limited partner's transferable interest -ULPA treats dissociation of general partners as RUPA treats partner dissociations in a partnership -A general partner's express and implied authority to act for the limited partnership terminates upon dissociation, the partner may retain apparent authority -A dissociated general partner will remain liable on a limited partnership obligation incurred while a partner unless creditor agrees to a release of liability -ULPA states that a limited partnership (or LLLP) is not dissolved, wound up, or terminated merely because a partner dissociated from the limited partnership -When a limited partnership dissolves, winding up follows automatically by the general partners

Creating an LP or LLP

-A limited partnership (or LLLP) may be created by complying with the applicable state statutes, but requirements are minimal -A certificate of limited partnership must be executed (signed by all general partners) and submitted to the secretary of state

Distribution of members of LLC

-A member in an LLC has the right is to receive distributions (usually profits) -ULLCA states that members share profits and other distributions equally, regardless of differences in their capital contributions

Ownership Interests of LLC Members

-A member's ownership interest in an LLC is the member's personal property (Limited ability to sell or transfer LLC rights) -A member may transfer the distributional interest in the LLC to another person (Transferee not a member, but receives right to partnership distributions Limited right of transfer may be altered in the operating agreement)

Rights of LP and LLLP Partners

-A partner may contribute any property or other benefit to the limited partnership -Under ULPA, profits and losses are shared on the basis of the value of each partner's capital contribution unless there is a written agreement to the contrary ULPA of 2001 requires few actions to be approved by all the partners -ULPA is clear that limited partners have no inherent right to vote on any matter -Default rule is that no new partner may be admitted unless each partner has consented to the admission

Borrowing Money

-A partner may not borrow money in the partnership's name without express, implied, or apparent authority -A partner in a trading partnership (with inventory) has implied and apparent authority to borrow money for partnership -A partner of a nontrading partnership (services) has no implied or apparent authority to borrow money

Negotiable Instruments

-A partner with authority to borrow money has authority to issue negotiable instruments (e.g., promissory notes) for that purpose -If a partner's name is on a checking account signature card filed with a bank, the partner has express authority to draw checks -Partners have authority to negotiate or transfer instruments (e.g., checks) for the partnership

Partners Joining Partnership

-A partnership agreement generally states terms under which a new partner is admitted to a partnership -In absence of a partnership agreement, RUPA sets rules for partner's admission and rights and duties upon admission: (New partner fully liable for all partnership obligations incurred after admission as partner, but no liability for obligations incurred before admission as partner)

Liability for Misrepresentations

-A principal may be liable for agent's false statements directly (intentionally or negligently) or vicariously (agent authorized to make true statements on the subject) -Example: misrepresentation about the safety of medical devices by sales personnel

Limited Liability Limited Partnership (LLLP)

-A variant of a limited partnership is the limited liability limited partnership (LLLP) which offers limited liability status for all its partners, including general partners -Except for liability of general partners, limited partnerships and LLLPs are identical

Effect of Agency Termination

-After agency terminates, agent's express and implied authority ends -(Ex-agents may retain apparent authority that could bind a former principal) -Actual notification would be a written or oral statement to specific third parties with whom the principal has dealt. Defamatory statements should be avoided, but factual statements are good business practice. -Constructive notification (for all other parties that are not third parties who have previously dealt with the agent or who have begun to deal with the agent) generally is publication in a newspaper, but may also be removing the "accoutrements" of the cloak of agency: changing locks or business cards, making sure the former agent returns clothing or keys, etc.

Implied Authority

-Agent has implied authority to do whatever it is reasonable to assume that the principal wanted the agent to do given principal's statements and surrounding circumstances -Example: a person hired as general manager in a restaurant will have broad authority to run the business while a person hired as a cashier will have limited authority

LLC Tort and Contract Liability

-An LLC is liable for the contractual obligations incurred by its members or managers acting within their express, implied, or apparent authority -An LLC is also liable for the torts and other wrongful acts of managing members and other managers acting within their authority

Taxation of the LLC

-An LLC may elect to be taxed like a partnership or a corporation for federal income tax purposes -As partnership, the LLC pays no federal income tax and all -LLC income and losses are reported by the owner-members on their individual income tax returns

Liability of Members of LLC

-An LLC member has no individual liability on LLC contracts, unless LLC contracts signed in a personal capacity (e.g., as a surety) -A member's liability is usually limited to the member's capital contributions -A member is liable for torts s/he committed while acting for the LLC

Power to Convey Real Property

-An individual partner's transfer of real property owned by a partnership will bind the partnership if expressly, impliedly, or apparently authorized, or ratified by the partnership -A partner has implied and apparent authority to sell real property if the partnership sells real property in the usual course of the partnership business

Management of the LLC

-Articles of organization must state whether the LLC is member-managed or manager-managed (If manager-managed, initial managers must be named_ -An LLC probably will have an operating agreement covering how members will share profits, manage the LLC, and withdraw from the LLC

Distribution of assets of an LLP

-Asset distribution rules modified for limited liability partnership since in an LLP most partners have no liability for partnership obligations -If a partner committed malpractice or another wrong for which LLP statutes do not provide liability protection, the partner must contribute funds to the partnership

Creation of the LLC

-At least one person (organizer) must file the articles of organization with a secretary of state (Articles must include LLC name, duration, and the name and address of its registered agent) -Owners of an LLC are members (An individual, partnership, corporation, or another LLC may be a member of an LLC An LLC is an entity separate from its members)

Dissolution of LLC

-Dissolution of an LLC is similar to that of an LLP or partnership -When an LLC dissolves, any member who has not wrongly dissociated may wind up the business -After all the LLC assets sold, proceeds distributed first to LLC creditors, then members' contributions are returned -Any remaining proceeds are distributed in equal shares to the members

Transferrable Interest of LP or LLLP

-Each partner in an LP or LLLP owns a transferable interest in the limited partnership as personal property -A partner's transfer of his transferable interest has no effect on his status as a partner, absent a contrary agreement

Duties of Partners to Partnership and Each Other-Duty of Care

-Each partner owes a duty of care in doing partnership business -A partner isn't liable to the partnership for honest errors in judgment (negligence), but is liable for losses resulting from gross negligence, reckless conduct, intentional misconduct, or a knowing violation of law -A partner must make business decisions that s/he has a reasonable belief are in the best interests of the partnership -A partnership agreement may alter the duty of care, but may not eliminate duty

Management Powers

-Every partner in a partnership or LLP is a general manager of the business -Thus, by implied authority, a partner binds the partnership and partners for acts within the ordinary course of business -Agreement among partners may expand, restrict, or eliminate a partner's implied authority -A partner's implied authority may not contradict a partner's express authority created by agreement of the partners -A partner's express and implied authority together constitute actual authority

LLP as Entity

-For contract obligations, only LLP is liable -For tort obligations, LLP is liable as well as the partner who committed the tort (Innocent LLP partners bear no liability)

Contract Liability of Principal

-Generally, a principal is liable on a contract made by the agent if the agent had express, implied, or apparent authority to make the contract. -Even if the agent lacks authority to contract, a principal may become bound to contract obligations by ratifying a contract made by an unauthorized agent.

General partner of LP or LLLP Duties

-Has same right to manage and same agency powers as a partner in an ordinary partnership, including the duty of care -Has no right to compensation beyond his share of the profits unless by an agreement -Is in a position of trust and therefore owes fiduciary duties to the limited partnership and the other partners -A partner may be both a general and limited partner (which is rare)

Non-Partners Generally Not Liable to Third Parties

-If a third person deals with two or more people who seem to be partners and is harmed, the third person may sue to recover damages from both of the apparent partners -RUPA Section 308(e): "persons who are not partners as to each other are not liable as partners to other persons."

Implied Warranty of Authority

-If agent contracts for a competent and existing principal but lacks authority, the principal is not bound -The result is unfair to a third party, so the agent is bound on the theory of an implied warranty of authority to contract -an agent is NOT liable for making an unauthorized contract if any of the following applies: 1. the third party actually knows that the agent lacks authority 2. the principal subsequently ratifies the contract 3. the agent adequately notifies the third party that the doesn't warrant his authority to contract

Management Decisions

-In general, management decisions in the ordinary course of partnership business are by majority rule, one vote per partner (Unless otherwise expressed by agreement) -Some decisions not in the ordinary course of business require unanimous consent (Example: a decision to expand or bring in another partner)

Acts not causing dissociation:

-Partner's transfer of transferable partnership interest -Creditor obtaining a charging order -Adding a partner -Disagreements between partners

General Partnership Liability for Torts & Crimes

-Partners and the partnership are liable: 1.) When a partner commits a breach of trust 2.) For a partner's negligence (generally) -When a partnership and partners are held liable for a partner's tort, they may recover the amount of their vicarious liability from the wrongdoing partner.

Duties of Partners to Partnership and Each Other-General Duties

-Partners have duties to serve, account for use or disposal of partnership funds, act within actual authority, avoid interests adverse to the partnership, disclose material information, and maintain the confidentiality of partnership information -Exception: "silent" partners do not serve -Partners may compete with the partnership only upon the consent of other partners

LP or LLLP withdrawing

-Partners have the power to withdraw from the limited partnership at any time, but ULPA gives the partners no right to withdraw, absent a contrary provision in the limited partnership agreement -Under ULPA, a withdrawing partner has no right to receive the value of the partnership interest

If business continues

-Partners may choose not to seek dissolution and winding up after dissociation -When the business of a partnership is continued, creditors of the partnership continue as creditors of the person or partnership continuing the business. -Original partners remain liable for obligations incurred prior to dissociation (Including dissociated partners; Liability may be eliminated by the process of novation)

Compensation of Partners

-RUPA states that a partner is not entitled to salary or wages, even if disproportionate time spent conducting partnership business (A monthly draw is allowable) -Instead, partner compensation is a share of business profits, offset by shared losses (Shared equally unless agreement to the contrary)

Distribution of assets

-Remaining proceeds from sale of assets will be distributed to the partners according to the net amounts in their capital accounts 1.) Partner's capital account is credited (increased) for capital contributions partner made to partnership plus partner's share of profits 2.) Partner's capital account is charged (decreased) for partner's share of partnership losses

Liability for Torts & Crimes

-Respondeat superior doctrine of agency law may be applied to determine liability of partners and the partnership for torts of a partner and partnership employees -Partnership and partners are liable jointly and severally for torts of a partner committed within ordinary course of partnership business

Liability of Torts of Independent Contractors

-Since a principal does not control the work of an independent contractor, a principal is not liable for an independent contractor's torts except: -A principal may be directly liable for negligent retention of an independent contractor (e.g., hiring a dangerously incompetent independent contractor) -A principal is liable for harm resulting from an independent contractor's failure to perform a nondelegable duty or harm resulting from hiring dangerously incompetent contractors -Professionals and those with special artistic or technical skills tend to have nondelegable duties -A principal is liable for an independent contractor's negligent failure to take special precautions to conduct highly dangerous or inherently dangerous activities

Dissociation

-The Revised Uniform Partnership Act (RUPA) defines dissociation as a change in the relation of partners caused by any partner ceasing to be associated in the carrying on of the business: 1.) A partner's retirement, death, or expulsion 2.) A bankruptcy filing -Dissociation starts the process of dissolution, winding up (liquidation), and termination of a partnership -A partner has the power - but not necessarily the right - to dissociate from the partnership at any time, such as by withdrawing from the partnership (A partnership agreement may provide for a right of dissociation)

The LLP and Tort Liability

-The limited liability partnership (LLP) was created to reduce personal liability of professional partners (An innocent partner of an LLP has no liability for malpractice of partners ) -LLP partners also have no personal liability for debts of the business, such as an invoice, leases, or loans

Dissolution and Apparent Authority

-To eliminate apparent authority of winding up partner to conduct business in ordinary way, the partnership must ensure one or more of these occur: 1.) Third party knows or has reason to know partnership has been dissolved 2.) Third party received dissolution notification by delivery of communication to third party's place of business 3.) Dissolution has come to the attention of the third party 4.) A partner filed a Statement of Dissolution with the secretary of state limiting the partners' authority during winding up

Mergers and Conversions

-ULPA and the RULLCA permit limited partnerships and LLCs to merge with other businesses, including other LLCs, limited partnerships, and corporations, or to convert to another business form -All partners or members must consent to the plan of merger or conversion

General Partnership as Entity

-Under RUPA, a partnership may sue or be sued in its own name -Partners also may be sued since they are jointly and severally liable for partnership obligations (contract or tort) -If partnership and individual partners sued, any judgment must first be satisfied from partnership assets, then from personal assets of the partners sued

Member-managed LLC

-Under the ULLCA, an LLC must choose to be member-managed or manager-managed -Each member in a member-managed LLC shares equal rights in the management of the business and each member is an agent of the LLC with implied authority to carry on its ordinary business -The LLC operating agreement may modify ULLCA default rules by granting more power to some members 1.) Creating a class of members whose approval is required for certain contracts 2.) Members share power based on capital contributions -Managers in a manager-managed LLC are elected and removed by a vote of a majority of LLC members -A manager's powers to act for the LLC are similar to a member's power in a member- managed LLC

Dissociation of LLC

-Under the ULLCA: 1.) Members dissociate from an LLC in ways similar to those by which a partner dissociates from a partnership or LLP under RUPA 2.) A partner has power to dissociate by withdrawing from the LLC at any time -As in partnership, a member's dissociation may be wrongful or nonwrongful -Dissociation terminates a member's status as a member, and a dissociated member is treated as a transferee of a member's distributional interest

Restricting Implied Authority

-When a partner's implied authority is restricted or eliminated, the partnership risks the possibility that apparent authority to do a denied act will remain -Partners may give notice of a partner's authority or limitation of authority by filing a Statement of Partnership Authority or Statement of Denial with the secretary of state or the real estate recording office

Buyout

-When partnership continues, partnership is required to purchase dissociated partner's partnership interest -RUPA governs the amount and timing of a buyout of dissociated partner's interest, or the partnership agreement may specify how to value the partnership

Ratification

-a principal becomes obligated for an unauthorized act done by an agent or person posing as an agent -(Act in question usually is contract creation) -May be express or implied -Basic contract law applies 1. Act ratified must be one that was valid at the time it was performed 2. Principal must have been in existence at the time the agent acted 3. Agent must have indicated to the third party that she was acting for a principal and not herself 4. The principal must have legal capacity at the time of ratification 5. The principal must have knowledge of all material facts regarding the prior act or contract at the time it's ratified 6. The principal must ratify the entire act or contract 7. In ratifying, the principal must use the same formalities required to give the agent authority to execute the transaction

Apparent Authority

-arises when principal's conduct leads a third party to believe that an agent (who lacks actual authority) is authorized to act a certain way and the third party reasonably relies on the appearance (cloak) of authority. -To protect third parties, agency law allows agents to bind a principal on the basis of apparent authority

Limited liability company (LLC)

-business form intended to combine the nontax advantages of corporations with the favorable tax treatment of partners -An LLC is owned by members, who may manage themselves or retain a manager to run the business -Members have limited liability for the obligations of the LLC

partnership

-form of business organization; an association of two or more persons to carry on a business as co-owners for a profit -A partnership is a legal entity but not a federal tax-paying entity; thus all income or loss must be reported on an individual partner's federal income tax return whether or not distributed or allocated to the partners -Advantages: relatively easy to create, has a legal entity but individual taxation, partners control the business, partners take all gain, flexible structure -Disadvantages: partners bear all risk of loss jointly and severally, different levels of liability to partners depending on sub-form, may be created as a general partnership by default (unintentionally)

sole proprietorship

-form of business under which one person owns and controls the business -A sole proprietorship has only one owner and is an extension of its owner -It is not a legal entity and cannot sue or be sued, so creditors/claimants sue the owner -Advantages: no formalities, taxes flow to owner, owner takes all profit and control -Disadvantage: owner bears all risk of loss

Direct Liability

-principal himself is at fault, and there is no need to impute liability to him -Example: sales agent merely applied the dealership's deceptive sales policies -Examples: 1. Giving the agent improper or unclear instructions 2. Failing to make and enforce appropriate regulations to govern the agent's conduct 3. Hiring an unsuitable agent 4. Failing to discharge an unsuitable agent 5. Furnishing an agent with improper tools 6. Carelessly supervising an agent

Estoppel

-that state of affairs that arises when one is forbidden by law from alleging or denying a fact because of his previous action or inaction -A person may be liable for an actor's transaction with a third party who justifiably is induced to make a detrimental change in position because he believed the actor had authority -Intentional -Having notice of such belief and failing to take steps to notify the third person of the facts

Intervening events that occur after an agent's contract but before the principal's ratification that may cut off the principal's power to ratify:

1. The third party's withdrawal from the contract 2. The third party's death or loss of capacity 3. The principal's failure to ratify within a reasonable time 4. Where it would be inequitable to bind the third party

wrongful dissociation

1.) Withdrawal of a partner that breaches an express provision of partnership agreement 2.) Withdrawal of a partner before the end of the partnership's term or completion of its undertaking 3.) A partner's filing a bankruptcy petition or being a debtor in bankruptcy 4.) Judicial expulsion of a partner by request of partnership or another partner for: -Partner's wrongful conduct that adversely affects partnership business -Partner's wilfull and persistent breach of fiduciary duties or the partnership agreement -Partner's conduct makes it unreasonable to conduct partnership business with the partner

Partnership Creation

A partnership is a voluntary and consensual relationship and may exist by law even if the parties entered into it inadvertently, without considering whether they had created a partnership.

Capacity

A person has the capacity to be a principal if that person has capacity to do the acts for which the agent has been retained.

Principal's Tort Liability

A principal may be liable for a tort in four circumstances: -Direct liability for torts -Respondeat superior -Independent Contractors (certain conditions) -Misrepresentation

Undisclosed Principal

A principal that a third party lacks knowledge or reason to know both the principal's existence and the principal's identity. The third party may hold an agent liable on contracts made for an undisclosed principal.

Disclosed Principal

A principal that third party knows or has reason to know that the agent is acting for a principal and the principal's identity. An agent who represents a disclosed principal is not liable on authorized contracts made for such a principal

Duties of Principal to Agent

A written agency contract normally states the duties the principal owes the agent, but law implies certain duties on the principal: -To compensate the agent -To reimburse the agent for money spent in the principal's service -To indemnify the agent for losses suffered in conducting the principal's business

James was a partner in a three-person law partnership without a partnership agreement. Medical bills forced James to file for personal bankruptcy. James has: A.) Engaged in wrongful dissociation B.) Engaged in nonwrongful dissociation C.) Engaged in wrongful dissolution D.) Engaged in nonwrongful dissolution

A.) Engaged in wrongful dissociation

Manuel asked his friend Sunil, a good salesman, to sell his car and Sunil agreed. Does an agency relationship exist? A.) Yes, Sunil is an agent for Manuel B.) Yes, but only if there is a written contract describing the agency's purpose C.) No, since friends cannot engage in an agency relatioship D.) No, unless Sunil sells Manuel's car

A.) Yes, Sunil is an agent for Manuel

Dissolution of LP or LLLP

After general partners have liquidated the assets, proceeds are distributed first to creditors and if proceeds exceed creditors' claims, the remainder is paid to the partners in the same proportions that they shared distributions

Termination

After partnership assets have been distributed, termination of the partnership occurs automatically

Winding up and distribution of assets

After partnership assets have been sold during winding up, proceeds are distributed to those who have claims against the partnership (Includes partners, but creditor claims satisfied first)

Duty of Loyalty

Agent must (1) avoid conflicts of interest with the principal, (2) maintain confidentiality of information received from the principal

Tort Liability of Agent

Agents liable for their torts except when: -Agent exercises a privilege of the principal (e.g., uses an easement) -Agent takes privileged action to defend his person or principal's property -Agent makes a false statement in conduct of principal's business but doesn't know the falsity of the statements -Third parties are injured by defective tools or instrumentalities furnished by the principal

Other Agent Duties

Agents must obey the principal's reasonable instructions for agency business, exercise the degree of care and skill standard for the job, promptly communicate to the principal matters reasonably relevant or material to the agency business, and duty to account

Principals have the following duties to agent: Duty to compensate Duty to reimburse for reasonable expenses for doing agency business Duty to indemnify the agent for losses suffered due to agency's business Both A and B All of the above

All of the above

Agency Authority

An agent can bind his principal only when the agent has authority to do so. Two forms: actual or apparent authority

Contract Liability of Agent

An agent's liability for a contract depends on the nature of the principle: -Agent who represents a disclosed principal is not liable on contracts made for the principal -Agents are liable on contracts made for a partially disclosed principal unless parties agree otherwise -An agent is liable to third parties on contracts made for an undisclosed principal

Creation of Agency

Anybody may be an agent or principal, but the agreement is voidable by minors and the mentally incapacitated. Certain duties are non-delegable.

James invested in a partnership and receives profit sharing, but has no right to vote or make management decisions. James is: A.) A limited member in an LLC B.) A limited partner in an Limited Partnership C.) A member in a member-managed LLC D.) A general partner in an LLLP

B.) A limited partner in an Limited Partnership

Greg, Pat, and Oprah were partners in a music store. Greg transferred his transferable partnership interest to his nephew. Greg: A.) Engaged in wrongful dissociation B.) Has exercised a partnership right C.) Engaged in nonwrongful dissociation D.) None of the above

B.) Has exercised a partnership right

Carl owned a a pizza business and employed Zip to deliver pizzas. Carl knew that Zip occasionally drank beer while driving, but didn't fire Zip. Zip injured Dan while delivering pizzas and driving drunk. Is Carl liable to Dan for Zip's conduct? A.) No, only Zip is liable. Drunk driving was not within the scope of employment B.) Yes, since Carl knew about Zip's drinking and negligently retained Zip

B.) Yes, since Carl knew about Zip's drinking and negligently retained Zip

Carl's Pizza hired Miller to be general manager. Miller hired Sam for pizza prep work. In general, would Carl's Pizza be obligated to honor the contract with Sam? A.) No; only the owner of Carl's Pizza can hire Sam, thus Sam's contract is void B.) Yes; Miller acted with implied authority since he is general manager and Carl's Pizza must honor Sam's employment contract

B.) Yes; Miller acted with implied authority since he is general manager and Carl's Pizza must honor Sam's employment contract

Two accountants formed Caine & Able, LLP. The partnership and each partner was sued for Able's alleged negligence. Who might be liable? A.) Only Able due to his negligence B.) Only the partnership, Caine & Able C.) The partnership and Able D.) The partnership and either partner, jointly or severally

C.) The partnership and Able

The partnership interest includes a partner's: A.) Management and other rights participation B.) Share of profits and losses and right to receive partnership distributions C.) Ownership interest in partnership capital D.) both A and B E.) none of the above

D.) both A and B

A partner in a trading partnership has what type(s) of authority for borrowing money? A.) Express authority B.) Implied and apparent authority C.) Actual authority D.) Implied authority E.) All of the above

E.) All of the above

Actual Authority

Express or implied

A principal is never liable for an independent contractor's torts.

False. A principal may be liable for an independent contractors torts in certain circumstances.

To be considered actual authority, the authority must be expressed in words orally or in writing.

False. Actual authority may be either express or implied.

All employees are agents, and all agents are employees.

False. All employees are agents, but not all agents are employees. A real estate agent for a home seller is not the seller's employee. However, a realtor working for a real estate company will be the real estate company's employee.

All duties are delegable.

False. Certain duties are non-delegable, such as those that are unique.

For contract obligations of an LLP, only the partners are liable.

False. For contract obligations of an LLP, only the LLP is liable.

Partners may compete with the partnership as long as it does not harm the partnership.

False. Partners may compete with the partnership only upon the consent of partners.

Partners owe to the partnership and each other an ordinary degree of loyalty

False. Partners owe to the partnership and each other the highest degree of loyalty.

Partnership capital belongs to the individual partners in equal shares.

False. Partnership capital belongs to partnership as an entity

Winding up is a change in the relation of partners caused by any partner ceasing to be associated in the carrying on of the business.

False. The description refers to dissociation.

Dissociation is the orderly liquidation of the partnership assets and the distribution of the proceeds to those having claims against the partnership.

False. The description refers to winding up.

General partners and limited partners are the same except in regard to how distribution of profits occur.

False. The difference is in the degree of liability. General partners contribute capital, manage the business, share in profits, and possess unlimited liability for its obligations. Limited partners contribute capital and share profits, but possess no management powers.

An agent is always liable for his own torts.

False. There are exceptions to the general rule.

To create an LLC, articles of limited liability must be filed.

False. To create an LLC, articles of organization must be filed.

Under the ULLCA, an LLC must choose to be partner-managed or manager-managed.

False. Under the ULLCA, an LLC must choose to be member-managed or manager-managed

When a partner dissociates, dissolution is the required next step.

False. When a partner dissociates, dissolution may be the next step.

Duties of Agent to Principal

Fiduciary Duty Duty of Loyalty Agent's duty to obey instructions Agent's duty to act with care and skill Agent's duty to provide information Agent's duties of segregation, record-keeping, and accounting Duty not to receive a material benefit Duty of good conduct

Scope of Employment

Generally an employee's conduct is within the scope of employment if the conduct meets each of four tests: -Conduct was of the kind that the employee was employed to perform -Conduct occurred substantially within the authorized time period -Conduct occurred substantially within the location authorized by the employer -Conduct was motivated at least in part by the purpose of serving the employer

winding up

Orderly liquidation of partnership assets and the distribution of proceeds to those having claims against the partnership

Partnership Creation-Mining

Persons who cooperate in the working of either a mine or an oil or gas well are treated as a mining partnership if there is: -Joint ownership of a mineral interest -Joint operation of the property -Sharing of the profits and losses Does not require physical participation in operations but must be more than merely financing the development of the mineral interest.

Partners Joining LLP

RUPA states that a new partner in an LLP incurs no liability for any LLP obligations, whether incurred before or after admission, beyond new partner's capital contribution unless new partner committed malpractice or other wrong (and incurs personal liability)

Duties of Partners to Partnership and Each Other

Revised Uniform Partnership Act (RUPA) states that partners owe to the partnership and each other the highest degree of loyalty and must act consistently with the obligation of good faith and fair dealing (a fiduciary relationship)

Termination by operation of law includes:

Serious breach of the agent's duty of loyalty Principal's permanent loss of capacity or agent's loss of capacity to perform agency business Change in value of agency property or subject matter (including loss or destruction) Changes in law making the agency illegal Changed business conditions or outbreak of war Impossibility of performance by the agent Death or bankruptcy of principal or agent Exception: if agent's power is coupled with an interest, agency does not terminate by the principal's revocation, loss of capacity by principal or agent, or death of either principal or agent

Termination of Agency

Termination by act of the parties includes: -At a time or event stated in the agreement -When agency was created to achieve a special purpose and the purpose was achieved -By mutual agreement of the parties -At the option of either party

A general partnership is liable for a partner's negligence.

True

A partner with authority to borrow money has authority to issue negotiable instruments.

True

A partnership may sue in its own name.

True

Agency is a fiduciary relationship.

True

Agency may be created unintentionally.

True

Agents may bind a principal on the basis of apparent authority.

True

An agent's duty of confidentiality continues after the agency ends.

True

Apparent authority arises if communications by principal to third party creates reasonable appearance of authority in the agent.

True

In general, management decisions in a partnership are decided by majority rule.

True

In winding up, remaining proceeds from the sale of assets will be distributed to the partners according to the net amounts in their capital accounts

True

Partnership is an "association of two or more persons to carry on as co-owners a business for profit."

True

T/F: Agency is a contract in which an agent is authorized to act on behalf of, and under the control of, a principal.

True

The Revised Uniform Partnership Act (RUPA) is a model partnership statute.

True

The doctrine of respondeat superior means that a principal is liable for torts committed by employees acting within the course and scope of employment.

True

Under the ULLCA, members dissociate from an LLC in ways similar to those by which a partner dissociates from a partnership or LLP under RUPA.

True

When a partnership continues, the partnership must purchase the dissociated partner's partnership interest

True

A partner is liable to the partnership for losses resulting from gross negligence or reckless conduct.

True. A partner isn't liable to the partnership for honest errors in judgment (negligence), but is liable for losses resulting from gross negligence, reckless conduct, intentional misconduct, or a knowing violation of law.

If a principal fails to inform the agent about a defect in the product, the principal will be directly liable for an agent's torts.

True. A principal may incur direct liability for an agent's torts because the principal is at fault and liability need not be imputed.

An LLC may be taxed like a corporation for federal income tax purposes

True. An LLC may elect to be taxed like a partnership or a corporation for federal income tax purposes.

Winding up partners have apparent authority to conduct business as they did before dissolution

True. However, this may be altered by taking particular actions.

An LLC member is liable for torts s/he committed while acting for the LLC

True. Of course this is really a trick question since every person is always liable for his or her own torts, thus the only question that really arises is whether the company will also be liable for such torts.

If an agent contracts for a legally existing and competent principal but lacks authority to enter contracts, the principal is not bound.

True. Thus, agent is bound on the theory of an implied warranty of authority to contract.

Partners and Ownership

When a partnership or limited liability partnership is formed, partners contribute cash or other property - partnership capital - to the partnership (Belongs to partnership as an entity) Tangible and intangible property acquired by a partnership presumptively belongs to the partnership as an entity rather than individual partners

Winding up partner authority

Winding up partner has implied authority to do those acts appropriate for winding up the partnership business and apparent authority to conduct business as s/he did before dissolution

exculpatory clause

a clause in a contract or trust instrument that excuses a party from some duty

charging order

a court's order granting rights in a partner's transferable interest to a personal creditor of the partner; a creditor with a charging order is entitled to the partner's share of partnership distribution

partnership interest

a partner's ownership interest in a partnership which embodies the partner's transferable interest and the partner's mgmt and other rights

transferrable interest

a partner's voluntary transfer of her transferable interest to another person, such as the partner's creditor, giving the transferee the right to receive the partner's share of distribution from the partnership

Undisclosed principal

a principal is undisclosed when the third party lacks knowledge or reason to know both the principal's existence and the principal's identity. The third party may hold an agent liable on contracts made for an undisclosed principal.

Unidentified principal

a principal is unidentified if the third party knows or has reason to know that the agent is acting for a principal but lacks the knowledge or reason to know the principal's identity. An agent is liable on contracts made for unidentified principal.

respondeat superior

a principal who is an employer is liable for torts committed by agents who are employees and who commit the tort while acting within the scope of their employment

Agency

a two-party relationship in which one party (agent) is authorized to act on behalf of, and under the control of another party (principal)

Fiduciary Duty

an agent has this duty to act loyally for the principal's benefit in all matters connected with the agency relationship

Nonexistent Principal

an agent who purports to act for a legally nonexistent principal is personally liable when the agent knows or has reason to know the principal doesn't exist

purported partners

appearance of partnership when there is no partnership; it arises when a person misleads a second person into believing that the first person is a partner of a third person; a theory that allows the second person to recover from the first person all reasonable damages the second person has suffered due to his reliance of the appearance of partnership

Implied Ratification

arises when the principal's conduct justifies a reasonable assumption that he consents to the agent's act

Dissolution

begins the winding up process

Limited Partners

contribute capital and share profits, but possess no management powers; Liability limited up to amount of the investment in the business

General Partners

contribute capital, manage the business, share in profits, and possess unlimited liability for its obligations

Express Authority

created by the principal's actual words (written or oral) Example: "I want to hire you as my real estate agent to sell my house."

Non wrongful dissociation

does not violate a partnership agreement and includes events such as the death or retirement of a partner, or a partner's withdrawal in accordance with the partnership agreement

joint venture

form of business organization identical to a partnership, except that it's engaged in a single project, not carrying on a business

limited partnership

form of business organization that has 1+ general partners who manage the business and have unlimited liability for the obligations of the business and 1+ limited partners who do not manage and have limited liability

Principal

in agency law, one under whose direction an agent acts and for whose benefit that agent acts

Nondelegable obligations

making statements under oath, duties, special and unique talent

Express Ratification

occurs when the principal manifests assent that his legal relations be affected, such as stating orally that he wishes to be bound by a contract that has already been made

Agent

one who acts under the direction of a principal for the principal's benefit in a legal relationship known as agency

partnership capital

partners' contribution

limited liability partnership (LLP)

partnership that has elected to obtain limited liability for its partners by filing with the secretary of state

revocation

the recalling or voiding of a prior action; in contract law, the withdrawal of an offer by the offeror prior to effective acceptance by the offeree