Business Associations - Hypos, Examples, Questions, Problems, Etc.

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What are the key attributes of the corporate form?

-Separate entity -Perpetual existence -Limited liability -Centralized management -Transferable ownership interests

What fiduciary duties are owed by managers in a manager-managed LLC?

-The managers of a manager-managed LLC have a default duty of care and loyalty* -Usually, members of a manager-managed LLC have no duties to the LLC or its members by reason of being members

What are Agency Costs?

Costs associated with efforts to ensure that the agent is always acting in its principal's best interests (Discipline, monitoring, etc.)

For partnership by estoppel, the third party plaintiff must establish that:

RUPA § 308 1. The person sought to be charged as a partner made a representation, either bywords or conduct, purporting to be a partner, or consented to being represented by another as a partner; and 2. The third party relied on this representation in entering into a transaction with the actual or purported partnership (= a change of position with consequent injury in reliance on the representation) .3. Based on the reliance, enters into a transaction with the actual or purported partnership

What are the rules on partnership property?

RUPA § 401(i): "A partner may use or possess partnership property only on behalf of the partnership." RUPA § 501: "A partner is not a co‑owner of partnership property and has no interest in partnership property which can be transferred, either voluntarily or involuntarily." RUPA § 502: "A transferable interest is personal property."• Comments: "Absent a contrary provision in the partnership agreement or the consent of the partners, a' transferable interest' is the only interest in a partnership that can be transferred to a person not already a partner." RUPA § 102(23) defines a "transferable interest" as "the right, as initially owned by a person in the person's capacity as a partner, to receive distributions from a partnership, whether or not the person remains a partner or continues to own any part of the right. The term applies to any fraction of the interest, by whomever owned." RUPA § 503:- A transfer does not by itself cause a person's dissociation or dissolution of the partnership business.- A transfer does not entitle the transferee to participate in the management or conduct of the partnership.- A transferee has the right to:• receive, in accordance with the transfer, distributions to which the transferor would otherwise be entitled; and• seek under § 801(5) a judicial determination that itis equitable to wind up the partnership business. RUPA § 504: Partner's transferable interest subject to charging order

Regarding the duty of information disclosure, the partnership shall furnish to each partner:

RUPA § 408(c) (1) without demand, any information concerning the partnership's business, financial condition, and other circumstances which the partnership knows and is material to the proper exercise of the partner's rights and duties under the partnership agreement or this[act]...; and (2) on demand, any other information concerning the partnership's business, financial condition, and other circumstances, except to the extent the demand or the information demanded is unreasonable or otherwise improper under the 23

The fiduciary duty of loyalty of a partner includes the duties:

RUPA § 409(b) (1) to account to the partnership and hold as trustee for it any property, profit, or benefit derived by the partner (A) in the conduct or winding up of the partnership's business; (B) from a use by the partner of the partnership's property, or (C) from the appropriation of a partnership opportunity. (2) to refrain from dealing with the partnership . . . as or on behalf of a person having an interest adverse to the partnership; and (3) to refrain from competing with the partnership

The duty of care is to:

RUPA § 409(c) Refrain from engaging in grossly negligent or reckless conduct, willful or intentional misconduct, or a knowing violation of law

If no agreement for the buyout price of a dissociated partner's interest has been reached by 120 days after a written demand for the payment

Then the partnership must pay the default buyout amount

What are the three exclusive means of enforcing the Ultra Vires Doctrine?

There are 3 exclusive means of enforcement for the Ultra Vires Doctrine (DGCL § 124): 1.) In a proceeding by a stockholder against the corporation to enjoin a proposed ultra vires act; 2.) in a corporate suit against directors and officers for taking unauthorized action (the directors and officers can be enjoined or held personally liable for damages); 3.) The state attorney general can seek involuntary judicial dissolution if the corporation has engaged in unauthorized transactions.

Ratification is not effective if:

There has been a material change in circumstances that would make it inequitable to bind T, unless the T chooses to be bound (Rest. §§ 3d 4.02-4.07)

How is profit allocation for an LLC established?

Typically addressed in the operating agreement (usually pro rata basis according to contribution)

Where is the allocation of profits and losses specified for an LLC?

Typically provided in the operating agreement Profits and losses may be allocated differently

What is the default rule for partnership management?

§ 401(h): "Each partner has equal rights in the management and conduct of the partnership's business § 401(k): A difference arising as to a matter in the ordinary course of business may be decided by a majority of the partners. 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.

Explain What A Derivative Lawsuit is:

•-Lawsuit filed by a member on behalf of the LLC, claiming that the managers breached their duties owed to the LLC. •-Any recovery from the managers goes to the LLC. •-The member represents the LLC to vindicate the interests of all members

Explain What A Direct Lawsuit is:

•-Lawsuit filed by a member on his/her/its own behalf claiming direct harm to the member caused by a liable party within the LLC's management. •-Any recovery goes to the member. •-The member represents its own interests.

A Principal has direct tort liability to Third Parties when:

•A acts with actual authority to commit tort or P ratifies A's conduct •P is negligent in selecting, supervising, or otherwise controlling A •P delegates performance of a duty to use care to protect persons or property and A fails to perform duty (aka "nondelegable duty") •Activity contracted for is inherently dangerous (e.g., demolition, blasting)

What is an "employee" for purposes of vicarious liability?

•A has power to act on P's behalf •P controls results and physical conduct = P liable if within scope of employment

What is an "Independent Contractor" for purposes of vicarious liability?

•A has power to act on P's behalf •P sets forth desired results but does not control physical conduct =P not liable except in special cases [see P's direct liability]

What are the bases for contract liability of a principal to third parties?

•Actual authority •Apparent authority •Undisclosed principals (Rest. 3d.) (formerly broader concept of "inherent agency power" in Rest. 2d) •Ratification •Estoppel

What is express agency?

•An agency that occurs when a principal and an agent expressly agree to enter into an agency agreement with each other E.g., exclusive agency contract, power of attorney

An LLC's operating agreement may NOT change:

•Cannot vary the law applicable under [the statute]; •Cannot vary the [LLC's] capacity...to be sued and sue in its own name; •Cannot vary any statutory provision pertaining to registered agents or records authorized or required to be filed with the Secretary of State; •Alter or eliminate the duty of loyalty and the duty of care (unless a method of authorization is identified related to a specific transaction or act is authorized after full disclosure); •Eliminate contractual obligation of good faith and fair dealing; •Relieve or exonerate a person from liability for conduct involving bad faith, willful or intentional misconduct or knowing violation of law; •Unreasonably restrict information rights of members and managers (but can impose reasonable restrictions or define remedies for breach); •Unreasonably restrict statutory rights of a member to maintain a direct or derivative action; •Vary the statutory provisions concerning a special litigation committee •Vary statutory provisions concerning dissolution and winding up of the company; •Vary certain rights and requirements related to mergers •Restrict the rights of a person other than a member or manager

What is the default rule for profit/loss allocation in an LP?

•Default rule is that partners in a LP share profits and losses in proportion to their respective capital contributions.

What are the two possible default rules used by statutes, when there is a distribution declared?

•Distributions on a pro rata basis per the ownership interests in the company (percentage or units) (e.g., CA § 18-504). •Equal share rules (per capita) like partnership (e.g., RULLCA § 404).

List out what the agent's duties to the principal in an agency relationship are:

•Duty of loyalty •Duty not to acquire a material benefit from a T for actions taken on behalf of P or through A's use of position •Duty not to act as adverse party to P •Duty to refrain from competing with P during agency relationship •Duty of confidentiality (during and after agency relationship) •Duty not to use P's property for A's own purposes •Duty to act in accordance with any contract with P •Duty of care, competence, diligence •Duty to act only within scope of actual authority and duty to obey •Duty of good conduct •Duty to notify P of info that A knows or has reason to know P would want to know

What to Include in the Operating Agreement of An LLC:

•Each member's interest in the company •Rights and Duties of Members -> Management Structure -> Management Rights -> Voting Rights •Allocation of Profits •Allocation of Losses •Transferability of Membership Interests •Mechanisms to Amend the Operating Agreement •Exit Provisions -> Withdrawal -> Dissociation -> Dissolution

What is the default taxation choice for a Limited partnership?

Pass through taxation

What is the default taxation choice for a Manager-managed LLC?

Pass through taxation

What is the default taxation choice for a Member-managed LLC?

Pass through taxation

What is the default taxation choice for a S Corporation?

Pass through taxation

What type of liability does a Limited partnership have?

LP - Limited GP - Joint/Several (unless LLLP)

Who makes the management decisions in a Limited Partnership?

LP - Ltd GP - Manage

What is a partnership?

"[A]n association of two or more persons to carry on as co-owners a business for profit..." A general partnership can be formed without any filing with the state. Once such association occurs, general partnership law determines the parties' relative rights and duties Sources of law: model statutes adopted by states =UPA (1914) or RUPA (1997) (harmonized 2013),and case law interpreting the statute.2

What are the two main approaches to determining whether a tort occurred within the scope?

(1) "Motive" or "Purpose" Test (2) Foreseeability Test

A principal is directly liable to a third party for an agent's tort when:

(1) A acts with actual authority to commit tort or P ratifies A's conduct (2) P is negligent in selecting, supervising, or otherwise controlling A (3) Non-Delegable Duty -> P delegates performance of a duty to use care to protect persons or property and A fails to perform duty (4) Activity contracted for is inherently dangerous (e.g., demolition, blasting)

A principal is vicariously liable to a third party for an agent's tort when:

(1) A is an employee who commits a tort while acting within scope of employment (2) A commits a tort when acting with apparent authority in dealing with T on, or purportedly on behalf of P

What are the ways that actual authority could be terminated?

(1) Agreement of parties (2) By lapse of time (3) Any time by either party after notice (4) By change of circumstances that should cause A to realize P would want to terminate authority (5) Fulfillment of the purpose of the agency relationship: i.e., completion of task (6) By operation of law

Conduct by A that would otherwise breach which duties doesn't constitute a breach if P consents:

(1) Duty of loyalty; (2) Duty not to acquire material benefit from a T; (3) Duty not to act adverse or compete; (4) Duty of confidentiality

How can third party plaintiffs hold non-partners liable as if they were partners under partnership by estoppel?

(1) Person sought to be charged as a partner made a representation, by words/conduct, purporting to be partner, or consented to being represented by another as partner; and (2) Third party relied on representation in entering into trans. w/ actual or purported partnership (= change of position w/ consequent injury in reliance on representation) (3) Based on the reliance, enters into a transaction with the actual or purported partnership

A person is liable, on the basis of estoppel, to the Third Party who was justifiably induced to detrimentally rely on an actor if:

(1) The alleged P intentionally or carelessly caused such belief, or (2) Alleged P was on notice and didn't take reasonable steps to notify them of the facts

What does a partner's capital account reflect?

(1) Their contributions (money plus the value of any other property); (2) Their share of profits; (3) Any distributions (taking a "draw"); and (4) Their share of losses

When a corporation's director is alleged to have violated their duty of care to the company, the court will uphold the decisions of a director as long as they are med:

(1) in good faith, (2) with the care that a reasonably prudent person would use, and (3) with the reasonable belief that the director is acting in the best interests of the corporation.

A partnership is responsible for the torts committed by partners...

(1) in the OCB OR (2) with actual or apparent authority of the partnership

In cases of estoppel, a person is liable to T who was justifiably induced to detrimentally rely on an actor if:

(1) the alleged P intentionally or carelessly caused such belief, or (2) alleged P was on notice and didn't take reasonable steps to notify them of the facts Rest. 3d § 2.05

Alex and Barb, platonic friends since childhood, have begun a newsletter or "zine" for fans of their local music scene. Though they've kept their day jobs, they spend most of their free time together producing the 'zine, which they create each week in the garage of the house they rent together. They distribute it for free but earn revenue through sales of advertising, and more often than not break even or even turn a small profit. Their dreams are much bigger, though, and plan for it eventually to be their sole employment. The 'zine was initially Alex's idea, and he put the first several issues together by himself in his dorm room while still in college. When he told Barb about it, she asked if she could help, and said "Just tell me what to do . . . I don't know anything about this kind of stuff, so I'll just do whatever you tell me to do." They then bought some printing equipment to do a more professional job, decid

(B) is probably correct Although Barb might be merely an employee, the fact pattern probably favors partnership. They did business together as they both participated in production, distribution, and other important business matters, they split the costs of many expenses and have a joint account, and therefore have manifested an intent to do business and share profits

Ratification can occur by:

(a) manifesting assent that the act shall affect the person's legal relations; or (b) conduct that justifies a reasonable assumption that the person so consents. (Express / implied) (Rest. §§ 3d 4.02-4.07)

Profit sharing does not create presumption of a Partnership IF profits were received in payment for:

(i) A debt (ii) For services of an IC or compensation to employee (iii) Rent (iv) An annuity or other retirement/health benefit (v) Interest or other loan charge (vi) Sale of the goodwill of a business or other property Partnership by Agreement RUPA §202 (c) (3) (A) - (F) (2013)

What is Termination in a partnership?

- Occurs once the winding up process is completed; No filing or "magic words" required

What are the taxation choices for an LLC?

- Pass through (default) or - Double Tax

A partner will be deemed to have wrongfully dissociated if:

- The dissociation is in breach of an express term of the partnership agreement; or - The partnership is for a definite term or particular undertaking and the partner withdraws, is expelled, or becomes bankrupt before the end of the term or completion of the undertaking (with limited exception). Wrongful Dissociation (RUPA § 602)

Each partner has an account that is a running balance reflecting:

- their contributions (money plus the value of any other property), - their share of profits, - any distributions (taking a "draw"), and- their share of losses

What are Limited partners in an LP?

-> Silent/passive partners without management rights. Not personally liable unless they participate in management or control of the LP (old "control rule"); current uniform act has modified to not personally liable except in extraordinary circumstances

What are the key characteristics of an LLC?

-> Tax advantages (can choose to be taxed like a partnership or a corporation; partnership = pass-through tax) -> Limited liability -> Flexibility

What fiduciary duties are owed by members in a member-managed LLC?

-All members of a member-managed LLC have a default duty of care and loyalty**

Describe how parties may terminate actual authority any time by either party after notice:

-At common law, presumed "at will" relationship so either party may terminate (terminology is a "revocation" by P or "renunciation" by A). Note this power exists even though the party exercising the power may be in breach of the agency contract, if one. -Exception where "power given as security" (Rest. 3d §§ 3.06-3.10, 3.12)

When does an agreement between parties terminate actual authority by lapse of time?

-At the end of a specified time, or if none, then within a reasonable time period (Rest. 3d §§ 3.06-3.10, 3.12)

What are the Agent's obligations to the Principal in an agency relationship?

-Fiduciary duties of care & loyalty -Duties related to information (Rest. 3d §§ 8.01-8.11)

Depending on the act of dissociation, 1 of 2 consequences will occur

-If the event is listed in RUPA § 801, then dissolution is triggered If the event is not listed in RUPA § 801, then a buyout will occur pursuant to RUPA § 701 and the partnership business continues

How are decisions reached in a member-managed LLC?

-Most matters (ordinary course of business) are decided by majority vote -States vary regarding whether the default allocation is one-person/one-vote or by ownership interests in the company (percentage or units)

What are the Principal's obligations to the Agent in an agency relationship?

-P has a duty to indemnify A for the terms of any contract between them, when A makes a payment within the scope of actual authority, or that is beneficial to P unless A acts officiously in making the payment, or when A suffers a loss that fairly should be borne by P in light of their relationship. (Rest. 3d § 8.14) -P has a duty to deal with A fairly and in good faith... (Rest. 3d § 8.15)

Supermarket fires a manager responsible for purchasing fish for the supermarket's fish department. 1.) Is actual authority terminated? 2.) If the manager subsequently orders another shipment of fish on the supermarket's behalf, must the supermarket pay? 3.) How can it terminate the apparent authority?

1.) 2.) 3.)

What are the methods of terminating actual authority?

1.) Agreement by parties 2.) By lapse of time 3.) Any time by either party after notice 4.) By change of circumstances that should cause A to realize P would want to terminate authority: -> E.g., destruction of subject matter of the authority, drastic change in business conditions, change in relevant laws 5.) Fulfillment of the purpose of the agency relationship: -> i.e., completion of task 6.) By operation of law: -> Termination occurs automatically; e.g., upon death or loss of capacity of either A or P, such as dissolution of a corporation or insanity of a person. (Rest. 3d §§ 3.06-3.10, 3.12)

What are the three kinds of default rules?

1.) Majoritarian default -Most parties would agree to this. -Example: "At will" employment. 2.) Tailored default -Fits these parties. -Example: Disclose "material" info. 3.) Penalty default -Not many parties would agree to this. -Example: Permit employees to leave and compete.

What are the three elements of an agency relationship?

1.) Mutual Assent 2.) Control 3.) Acting on behalf of a principal

What are the two possible results of dissociation?

1.) The partnership continues (Not under the UPA) a.) Leaving Partner is bought out by remaining partners b.) Could have damages for leaving (e.g., term partnership) 2.) Partnership dissolves

How many members are enough to form an LLC under: 1.) RULLCA 2.) Some State LLC Statutes

1.) Under RULLCA one member enough 2.) Some states require at least two members

Mr. Sharma is a friend of Mr. Mathur, who, along with Ms. Watson, is a partner in a pharmaceutical firm—Health First. On Mr. Mathur's request (forgetting to inform Ms. Watson of the request), Mr. Sharma accompanies him to a business meeting with Wellness Pharmaceuticals and actively participates in the process of negotiation for a business deal and gives the impression that he is also a partner in Health First. 1.) If credit is extended to Health First on the basis of these negotiations, could Mr. Sharma be liable for repayment of the debt? 2.) Is Health First liable for repayment?

1.) Yes, although only one of the partners consented to Mr. Sharma representing the partnership, Mr. Sharma's and Mathur are jointly and severally liable for the debt 2.) Health First would not be liable as a partnership because Ms. Watson did not consent (she didn't know) to Mr. Sharma being represented as a partner. (If she consented, then yes with Mr. Sharma still liable as a partner would be) Analysis: Were there representations by person purporting to be a partner OR consent to be represented as a partner? -> Yes, by attending the meeting together, engaging in negotiations, and "giving the impression that he is a partner" Mr. Sharma represents himself as a partner Did the third party rely on the representation? -> Yes because credit was extended based on the negotiations that included Mr. Sharma being represented as a partner Based on the reliance, did the third party enter into a transaction with the actual or purported partnership? -> Yes, Wellness Pharmaceuticals extended credit to Health First. Partnership By Estoppel Example - PPT 3, Slide 16

The X Corp board chair emails the directors notifying them of a meeting about the possible contract. The notice is: a.) Valid if sent 48 hours before the meeting b.) Valid if sent 24 hours before the meeting c.) Not valid because it does not describe reason for meeting

Which statement is false? a.) An agent can create his own authority b.) Third parties can rely on reasonable appearances of corporate authority c.) Third parties sometimes must investigate whether the corporation's board gave its approval

At the meeting, with three directors present in person and one by "speaker" phone, one of the directors leaves. a.) The quorum is broken and no business can take place b.) The quorum is not broken since ¾ are still there c.) The meeting can proceed -- there was initially a quorum

A If there are seven directors in total

What is the basis for contract liability under the theory of Apparent Authority?

A acts beyond the scope of their actual authority or where there isn't a true agency relationship

What is a Corporation?

A business entity where investors come together and seek common management

What is a Partnership?

A business entity where the parties have equal financial and management rights

What is dissociation?

A change in the relationship of the partners caused by any partner ceasing to be associated in the carrying on of the business

If Agent breaches any of the Duties of Loyalty, Not to Acquire Material Benefit from a T, Not to Act Adverse or Compete, or Confidentiality, without the consent of the fully informed Principal, who is liable to who?

A could be liable to P for any resulting damage Could be liable to disgorge to P any profit made by A in breach of duty Gen. Auto. Mfg. v. Singer

A person that becomes a partner is not personally liable for:

A debt, obligation, or other liability of the partnership incurred before the person became a partner

What is the Business Judgment Rule?

A director of a corporation is immune from liability when a plaintiff sues on grounds that the director violated the duty of care to the corporation so long as the director's actions fall within the parameters of the rule. Practically, the business judgment rule is a presumption in favor of the board "Questions of policy of management ... are left solely to their honest and unselfish decision ... and the exercise of them for the common and general interests of the corporation may not be questioned"

What is an Agent?

A fiduciary with respect to matters within the scope of the agency relationship

Unless the articles of incorporation or bylaws require:

A greater number [but no less than one-third], a quorum of a board of directors consists of ... a majority of the ... directors. MBCA § 8.24. QUORUM AND VOTING

What is a Limited Liability Company?

A hybrid organization that provides the flexibility to create a firm with both corporate attributes (such as limited liability) and partnership attributes (such as non-transferable shares)

What is vicarious liability/respondeat superior in the context of an agency relationship?

A is an employee who commits a tort while acting within the scope of employment [§ 7.07]

A Principal has vicarious tort liability to Third Parties when:

A is an employee who commits a tort while acting within the scope of employment [§ 7.07] A commits a tort when acting with apparent authority in dealing with T on or purportedly on behalf of P [§ 7.08]

If the A acted without authority or exceeded the scope of authority, and P did not ratify, who is liable to T for breaching the implied warranty of authority?

A is liable to T for breaching the implied warranty of authority. A may also be liable for fraud if intentionally misrepresented his or her authority. Rest. 3d § 6.10

If the A acted without authority or exceeded the scope of authority, and P did not ratify, what liability is a result?

A is liable to T for breaching the implied warranty of authority; A may also be liable for fraud if intentionally misrepresented his or her authority

What is a Derivative Suit?

A lawsuit brought by a shareholder or group of shareholders on behalf of the corporation against the corporation's directors, officers, or other third parties who breach their duties The claim of the suit is not personal but belongs to the corporation

What does a lawyer's opinion express?

A lawyer's conclusion as to how relevant law applies to a given state of facts

What is a Joint Venture?

A partnership with a limited duration or scope, unless it has been organized in a different form

What is an Outside Director?

A person who generally does not have any affiliation with the corporation, other than his or her role as a director

What is an Inside Director?

A person who is both a director and a corporate employee - such as when the company's CEO (an employee) also serves as a director on the board

What are Risk Neutral individuals?

A person who will cooly calculate probabilities and returns, and makes decisions based solely on expected returns

What is the Business Judgment Presumption?

A presumption in favor of the board, presuming that their decisions were made in good faith, with the care that a reasonably prudent person would use, and with the reasonable belief that the director is acting in the best interests of the corporation

What is a Direct Suit?

A shareholder can bring a direct suit against a director or officer if the corporation breached its duty and caused their actual injury Once the damage is awarded, it will be paid to the shareholder

What is a Purpose Clause?

A statement describing the business the corporation is to conduct

What does the Ratification Doctrine allow for?

Allows a person to retroactively bind herself to a contract entered into purportedly on her behalf, even though the agent or purported agent was not acting with authority at the time he entered into the contract

Ben is Jane's full time assistant. Jane instructs Ben to order three brand new computers from Computers, Inc ("CI"). Jane provides Ben with all of her personal information, including her credit card number, date of birth, home address and all relevant passwords. She also emails a letter to CI, authorizing Ben to make computer purchases on her behalf in amounts up to $10,000 in any calendar year. In January Ben orders three refurbished computers from CI in Jane's name, for a total purchase price of $5,000. When Ben purchases them, he is told that all purchases of refurbished computers are nonrefundable, but Ben is so excited to get them for half price he agrees to the deal without talking to Jane first. When Jane sees that the computers are refurbished, she is furious. She calls CI and demands that she be allowed to return the refurbished computers. CI says, "A deal is a deal. We will not refund your money." Jane call

A) Yes, because Anthony had authority to act on her behalf.

Imagine a three-person partnership of A, B, and C: A contributes 70% of the partnership capital, B contributes 20%, and C contributes 10%. Under the default rule, what would their voting power in management decisions be?

A, B, and C would each have ONE EQUAL vote

The common-law definition of agency requires as an essential element that the agent consent to:

Act on the principal's behalf, as well as subject to the principal's control

A principal is subject to vicarious liability for a tort committed by an agent in dealing or communicating with a third party on or purportedly on behalf of the principal when:

Actions taken by the agent with apparent authority constitute the tort or enable the agent to conceal its commission Rest. 3d § 7.08

Ratification creates the effects of:

Actual authority (Both P and T are bound by the contract and the purported A is discharged) (Rest. §§ 3d 4.02-4.07)

What is the method of determining whether a manager acted outside the scope of authority in a manager-managed LLC?

Agency principles apply to the authority granted to the manager in the operating agreement (like a director/officer of Corp): •Whether the person is a manager is first analyzed and then •Whether the person had actual or apparent authority. (like in agency law) •If the manager acts outside the scope of authority can be personally liable

Under Common Law principles, when does an Agent's actual authority to bind the principal end?

Agent's actual authority to bind the principal ends when the agency ends

All partners are liable jointly and severally for:

All debts, obligations, and other liabilities of the partnership unless otherwise agreed by the claimant or provided by law

What is the requirement for a change to a General partnership to occur?

All partners agree

What is the requirement for a change to a Limited partnership to occur?

All partners agree

When an Agent acting with actual or apparent authority makes a contract on behalf of a unidentified principal, who is a party to the contract?

All three - principal, agent, and third party - are all parties to the contract unless the agent and the third party agree otherwise regarding the agent's liability

When is the Agent liable To a Third Party harmed by their tortious conduct?

An A 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

What is Implied Agency?

An agency relationship can be implied from the conduct of the parties There doesn't have to be specific mention of "agency" or a written agreement for an agency relationship to exist

What are the Duties Related to Information?

An agent has a duty to provide information to the principal that the agent knows or has reason to know that the principal would wish to have, as well as to provide the facts that are material to the agent's duties to the principal

What is an Employee in the context of vicarious liability?

An agent whose principal controls or has the right to control the manner and means of the agent's performance of work A gratuitous A may be an employee

What is an employee in the context of an agency relationship?

An agent whose principal controls or has the right to control the manner and means of the agent's performance of work" A gratuitous agent may be an employee

An assignee of a financial interest in an LLC may acquire other rights only by:

An assignee of a financial interest in an LLC may acquire other rights only by being admitted as a member of the company if all the remaining members consent or the operating agreement so provides

What is the "Motive" or "Purpose" Test?

An employee acts within scope of employment when performing work assigned by employer or engaging in course of conduct subject to employer's control; An employee's act is not within the scope of employment when it occurs within an independent course of conduct not intended by employee to serve any purpose of employer

An employee acts within the scope of employment when:

An employee acts within the scope of employment when performing work assigned by the employer or engaging in a course of conduct subject to the employer's control. An employee's act is not within the scope of employment when it occurs within an independent course of conduct not intended by the employee to serve any purpose of the employer." (Rest. 3d § 7.07 (2))

What is the concept of "Frolic and Detour"?

An employee might be taking an action incidental to that instructed by the employer and still be held to have acted within the scope of employment

What is a Fiduciary?

An individual, like an agent/partner/director, who stands in a special relation of trust, confidence, or responsibility in certain obligations to others

When will an Ultra Vires Act be enjoined?

An ultra vires act will be enjoined only if equitable to do so; Generally means that an act involving an innocent third party (e.g., one who didn't know the action was ultra vires) will not be enjoined

(1) Is an act within the scope of an employee's employment if the act is so closely connected with what the employee is employed to do, and so reasonably incidental to that work, that the act can be viewed as a method of carrying out the objectives of the employee's employment? (2) In Utah, is a ski-area operator immune from liability pursuant to the state's Inherent Risk of Skiing Statute if it fails to exercise ordinary care and eliminate a known and unnecessary hazard that causes injury to a patron?

Answer #1 = Yes. The determination of whether an employee is acting within the scope of his or her employment is based on three factors: (1) whether the employee's conduct occurred while the employee was engaging in duties assigned by the employer and going about the employer's business, rather than engaging in personal tasks; (2) whether the employee's conduct occurred during work hours and in the physical space of employment; and (3) whether the employee's conduct was at least partially motivated by serving the employer's interest. If an employee takes a personal detour while performing his or her work duties but then is involved in an accident after resuming work, the court looks to how significantly the employee's personal detour deviated from his or her work duties. If the deviation was substantial, then the employee is considered to have abandoned his or her employment and was thus acting outside the scope of employment at the time of the accident. Whether an employee is acting within the scope of his or her employment is a fact question and must be decided by the factfinder unless the employee's activity is so clearly either inside or outside the scope of employment that the judge can decide the issue as a matter of law Answer #2 = No. In Utah, a ski-area operator is not immune from liability pursuant to the state's Inherent Risk of Skiing Statute if it fails to exercise ordinary care and eliminate a known and unnecessary hazard that causes injury to a patron. According to state law and as a matter of public policy a person generally may not recover from a ski-area operator for injuries resulting from the inherent risk of skiing. Utah Code Annotated 78-27-52(1) defines "inherent risk of skiing" to include those dangers which are an integral part of the sport including, but not limited to, changing w

A partner who wrongfully dissociates is liable to the partnership for:

Any damages caused by the dissociation, § 701(c), and is not entitled to payment of the buyout price until the expiration of the term unless the person establishes to a court that earlier payment will not cause undue hardship to the business of the partnership, § 701(h).

The buyout price is reduced by:

Any damages incurred by wrongful dissociation and payment could be deferred at end of term partnership.

Upon the ratification of a contract, who is bound to it?

Both parties are bound following a valid ratification

Unless the articles of incorporation or bylaws provide otherwise, the board of directors may permit any or all directors to participate by:

Any means of communication by which all directors participating may simultaneously hear each other during the meeting MBCA § 8.20. MEETINGS

Apparent authority ends when:

Apparent authority ends when it is no longer reasonable for T to believe that A continues to act with actual authority The test is whether T knows or reasonably should have known of the termination of A's authority (Rest. 3d § 3.11)

What is an "Unqualified" (sometimes called flat or clean) opinion?

Applies the law to the facts and reach a clear legal conclusion free from doubt

What is required to be filed to form an LLC?

Articles of Organization/Certificate of Organization

As a matter of default, are initial capital contributions required from partners?

As a matter of default, initial capital contributions are not required from partners

How does a General partnership form?

Association or By filing LLP (Agreement)

At common law, what powers were a corporation limited to?

At common law, a corporation was limited to the powers enumerated in the purpose clause of its charter

Where does the RUPA require that a partnership keep its books and records at?

At its principal office

Unless the articles of incorporation or bylaws provide for a longer or shorter period, special meetings of the board of directors must be preceded by:

At least two days' notice of the date, time, and place of the meeting. The notice need not describe the purpose of the special meeting unless required by the articles of incorporation or bylaws MBCA § 8.22. NOTICE OF MEETING

Corporate offices and the duties entailed are most likely to be found in - a.) The articles of incorporation, which can be amended only with shareholder approval b.) The bylaws, which the board can amend c.) The officers' employment agreements, which cannot be amended unilaterally

The CEO of Products, Inc. is thinking that the company should acquire Widgets Corp. Is Products bound when - a.) CEO hires consulting firm to look at widgets market b.) CEO hires law firm to work on deal c.) CEO agrees with Widgets Corp. on buyout plan

When the P is undisclosed, who is liable?

Both the P and A are liable on the contract (unless excluded/otherwise agreed) Almost always the same when the P is unidentified Rest. 3d §§ 6.02, 6.03

A person that becomes a partner is not personally liable for a debt, obligation, or other liability of the partnership incurred....

Before the person became a partner

What is the requirement for a change to a S Corporation to occur?

Board + Shareholder majority

What is the requirement for a change to a C Corporation to occur?

Board + Shareholder majority (PHC*)

Who makes the management decisions in a S Corporation?

Board of Directors

Who makes the management decisions in a C Corporation?

Board of Directors (PHC*) * = Manadatory

Who has contract liability under the theory of undisclosed principal authority?

Both P and A are bound

When the Principal is undisclosed or unidentified, generally speaking, who is liable?

Both the Principal and Agent are liable on the contract, unless excluded/otherwise agreed Almost always the same when the P is unidentified

What is the default rule for partnership sharing of profits and losses under the RUPA?

By default, a 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) (1997 version; 2013 uses the term" distributions"). So the default = equal share of profits and losses in proportion Amount of capital investment IRRELEVANT

How does a C Corporation form?

By filing (Agreement)

How does a Limited partnership form?

By filing (Agreement)

How does a S Corporation form?

By filing (Agreement)

How does a manager-managed LLC form?

By filing (Agreement)

How does a member-managed LLC form?

By filing (Agreement)

Identify which agency "principle" applies when the Products CEO hired the law firm - though the board had told him not to. a.) Actual authority b.) Implied authority c.) Apparent authority d.) Ratification

In a transaction that is extraordinary, the corporation: a.) Cannot be bound b.) can be bound only if there is actual authority c.) Can be bound if the third party relies on the agent's apparent authority

The 7 directors of X Corp learn of a great business deal, but aren't all available. Is the deal approved when: a.) Five directors sign the deal/contract b.) Seven directors sign a "consent" to the contract c.) Seven directors sign a "consent" authorizing President to sign contract, and he does

The board can delegate its authority to: a.) The executive committee to decide all matters b.) The financial committee to declare dividends c.) The nomination committee to nominate directors

Who bears the burden of proving that a partnership has formed?

Party alleging the partnership

There is a quorum on the 7-person board if three directors are present in person and another is present: a.) By regular phone b.) By Skype (though director's laptop speaker doesn't work) c.) By cell phone with "speaker" feature

C Really, A or C

A, B, C, and D are shareholders in a closely held corporation. A owns 49% of the corporation, B owns 10%, C owns 21% and Da owns 20%. A, B, C, and D are also the only four directors of the corporation. In a vote at a validly held meeting of the company's board of directors to determine whether to approve a standard contract with a new supplier, A and C vote yes. B and D vote no. Is the contract approved? A) Yes, because A and C, together hold 70% of the corporation. B) No, because such a vote would require unanimous approval. C) No, because only two of the four directors voted yes. D) Yes, because half of the directors voted yes

C) No, because only two of the four directors voted yes

Michelle is Simon's agent. Simon instructs Michelle to enter into a contract with Dan on Simon's behalf. Michelle identifies herself to Dan as Simon's agent and then enters into the contract requested by Simon, signing the contract as "Michelle, agent for Simon." Who is bound to Dan? A) Michelle alone. B) Michelle and Simon. C) Simon alone. D) No one, unless Simon ratifies the contract.

C) Simon alone

The Los Angeles Machine Company ("LAMC") is a major producer of industrial machinery. In order to save costs, its Board of Directors decides to relocate the factory to a fairly remote area in the Mojave Desert. Because LAMC relies on its skilled labor force, it is reluctant to lay off all of its employees or lose them in the move. At the same time, the prospect of moving from LAMC's urban location to a remote desert area will be unattractive to many of the company's employees. After a lengthy and detailed process of study, the Board decides to build a "company town" surrounding its new factory. Houses are built for employees and sold to them at cost, stores are built to provide a variety of consumer goods at reasonable prices, and a new entertainment complex is constructed, with sports and theater facilities that the Board expects to be used by employees as well as for sports and entertainment events sponsored by the

C) is the correct answer This action will be likely based on breach of the duty of care, which means the directors will have the benefit of the business judgment rule. Here, the directors spent time studying the new plan, analyzed pros and cons, and the final proposal is a comprehensive response to their discussions and study. Therefore, it will likely fall under the business judgment rule and the stockholder will lose

How can a manager-managed LLC be structured?

Can be structured as a committee, "board of managers," a CEO, etc. Some statutes require that the choice be specified in the articles/certificate of organization

What can a partnership agreement for general partnerships do?

Can: - Change governance rules (i.e., voting and mgmt rights) - Define the scope of fiduciary duties, so long as "not manifestly unreasonable" - Establish financial rights between partners (during, at dissolution, or upon termination) -> E.g., can address a "buy-out," valuation, continuation

What cannot a partnership agreement for general partnerships do?

Cannot: - Completely eliminate fiduciary duties/right to accounting - Alter third parties' rights - For full list, see RUPA § 103/105

Are capital contributions are required by all members of an LLC?

Capital contributions are not required by all members

What are the characteristics of an LLLP?

Combination of LLP and LP Same as LP, but general partners have limited liability Have to file with the state to secure limited liability Both classes of partners have pass through taxation

What are the categories of corporate securities?

Common stock -> Authorized -> Issued -> Outstanding Preferred stock Debt -> Bonds -> Debentures ->Notes

The definition of agency requires that an agent-to-be and a principal-to-be:

Consent to their association with each other

What is a "Qualified" opinion?

Contain exceptions or limitations that are not customary for the particular type of opinion Ex.) Based on my review of the relevant documents, the President has authority to enter into the Transaction on behalf of the Corporation

Pria owns a diner. AJ is her real estate broker. Pria sent an email to Ted stating that she directed AJ to sell the diner. Ted claims that AJ entered into a contract on Pria's behalf to sell the diner to him. Suppose Ted seeks to prove the existence of authority for AJ to sell him the diner. What type of authority is Ted trying to establish?

Contract Liability - Apparent Authority Analysis: Who is the Principal? -> Pria Who is the Agent? -> AJ Was it reasonable for Ted to believe AJ had authority based on Pria's manifestations? -> Yes, a reasonable person in Ted's position (third party) would believe that Pria gave AJ authority to act on her behalf to sell the diner based on the email Ted received from her(manifestation traceable to the principal)

What are the incidental/implied powers that most modern corporation statutes expressly grant?

Corporate managers, in the absence of express restrictions, have discretionary authority to enter into contracts and transactions reasonably incidental to its business purpose, which may be broadly defined (DGCL §§ 121, 122)

Do corporations need to specify their purpose or list their specific powers?

Corporations need not specify a single purpose, nor do they need to list their specific powers

Brian is Nicki's agent. In the scope of Brian's employment for Nicki, Brian commits a tort, injuring Emily. Emily sues Nicki, and a court finds Nicki is vicariously liable for Emily's injuries in an amount of $100,000. Nicki then sues Brian to recover the $100,000. Will Brian or Nicki likely prevail in the suit? A) Brian will win because agents are not liable for torts that occur within the scope of their employment. B) Nicki will win but only if she can show that Brian's conduct in committing the tort reached the level of recklessness or gross negligence; simple negligence is not sufficient. C) Brian will win because a principal has a duty to indemnify an agent for costs incurred by the agent arising out of the agency relationship. D) Nicki will win because Brian is liable for his negligent acts even if he was acting as an agent

D) Nicki will win because Brian is liable for his negligent acts even if he was acting as an agent

Mike is a director on the board of directors for TheCorp, which has stores throughout the state. One day Mike hears about some improper actions taking place in one of Thecorp's stores located in the city. Mike drives to the city store and discovers that, Yoshi, the manager of the store, has been treating all of the other store employees badly, and all of the city store employees are threatening to quit. Mike fires Yoshi and tells the other city store employees that Thecorp will be giving them a 3% raise to compensate for Yoshi's bad behavior. Does Mike have the power to take these actions? A) Yes, because they are reasonable and in the ordinary course of business. B) No, because they are neither reasonable nor in the ordinary course of business. C) Yes, because Mike is a TheCorp director. D) No, because Mike is just one of TheCorp directors

D) No, because Mike is just one of TheCorp directors

Bob runs an auto shop. State and federal law require him to dispose of used motor oil properly, which in Bob's case meant that he had to haul it himself to the dump and pay to have it recycled. Recently Bob was contacted by Phillip, who has begun a new business serving local auto shops by collecting and recycling used oil. Phillip convinces Bob that he can dispose of Bob's used oil more cheaply than he can do it himself, because Phillip can take advantage of volume discounts w/ recycling companies. Bob agrees to the service and agrees to pay Phillip on a monthly basis to pick up all the used oil he collects. The relationship between Bob and Phillip is most likely: (A) Principal and agent in which Bob is principal (B) Contract in which fiduciary duties apply. (C) Principal and agent in which Phillip is employee. (D) None of the above

D) None of the above. (D) is correct because Bob and Phillip have merely entered into an arm's-length contract. (A) and (C) are incorrect because no facts indicate agreement that Phillip would act on Bob's behalf or subject to his control, so the relationship is not an agency. (B) is incorrect because nothing in the contract itself imposed fiduciary duties on the parties, and in the absence of agency, mere contracting parties owe no fiduciary duties

Vin is planning to form a corporation to deliver groceries from small family owned markets. Vin's attorney tells him that the corporation will be formed in two days. Four days later Vin hires a driver and starts taking delivery orders. The next day, Vin's driver hits a pedestrian while delivering groceries for the corporation, and the pedestrian sues Vin personally. It turns out that Vin's corporation was never formed because Vin's lawyer was hospitalized. None of this information was known to Vin until after the pedestrian was hit. In the suit by the pedestrian against Vin: A) Vin will be personally liable since the corporation was never formed. B) Vin may be able to avoid personal liability by arguing corporation by estoppel. C) Vin may be able to avoid personal liability by arguing that the negligent acts of his employee occurred outside the scope of employment. D) Vin may be able to avoid personal liabilit

D) Vin may be able to avoid personal liability by arguing that he had a de facto corporation

D) is correct The indication that they share profits and losses is that the proceeds are deposited into and expenses paid from a joint checking account. And Alex and Barb appear to have made capital contributions by paying for equipment together

What is the default distribution rule for an LLC under the Delaware LLCA?

Default rule - allocated pro rata according to the member contribution Delaware LLCA § 18-504

What is the default distribution rule for an LLC under the RULLCA?

Default rule - distributions must be made in equal shares (per capita) RULLCA § 404 (a)

Where do businesses that expect to have national operations or sell stock to public investors tend to incorporate?

Delaware

What is the default loss allocation rule under the Delaware LLCA rule?

Delaware LLCA rule - allocated pro rata according to the member contribution

What is the default form of taxation for an LLC?

Pass through taxation

Who makes the decision in a manager-managed LLC?

Decisions exclusively made by the manager or by a majority of the managers if more than one RULLCA §407 (c)(1)

What is the default profit allocation rule under the Delaware LLCA rule?

Delaware LLCA rule - allocated pro rata according to the member contribution

What is the default rule for allocation of profits and losses of an LLC in Delaware?

Delaware default: Allocate profits and losses on a pro rata basis per the ownership interests in the company (percentage or units) (DLLCA § 18-503).

What situations/events are Delaware's default rules provide dissolution for?

Delaware provides default rules for dissolution upon any of the following: -At the time, or upon the happening of events, specified in the operating agreement; -Unless otherwise provided in the operating agreement, upon the vote or consent of members who own more than 2/3 of the then-current percentage interests in the LLC; -Within 90 days of an event that terminated the membership of the last remaining member (with limited exceptions); or -Upon the entry of a decree of judicial dissolution.

Explain what a Derivative suit is and how it works:

Derivative Suit -> An action in equity brought by a shareholder on behalf of the corporation •-Lawsuit filed by a member on behalf of the LLC, claiming that the managers breached their duties owed to the LLC. •-Any recovery from the managers goes to the LLC. •-The member represents the LLC to vindicate the interests of all members -> The action is brought against the corporation as a nominal defendant, and the plaintiff-shareholder (and his lawyer) controls prosecution of the suit against other defendants such as directors or officers -> Any recovery belongs to the corporation for whose benefit the suit has been brought Shareholder -> Corporation -> Fiduciaries ^On behalf of corporation^ ^Violation of Corporate Duties^

What is different about membership in Delaware, when compared to the RULLCA?

Different in Delaware: members are agents, even if manager managed Delaware has pro rata voting (same share as profits or contribution)

What is the voting power structure for a S Corporation?

Directors Fund'tal tx

Directors of a corporation are bound to act in:

Directors of a corporation are bound to act in the best interest of the shareholders

Can directors of a corporation take steps designed to perpetuate their own power at shareholder expense, if the maneuvers used are technically permitted by statute?

Directors of a corporation may not take steps designed to perpetuate their own power at shareholder expense, even if the maneuvers used are technically permitted by statute.

What is the voting power structure for a C Corporation?

Directors* Fund'tal tx* * = Manadatory

What does the dissociated partner in a partnership get?

Dissociated partner gets greater of: liquidation value or value of running the business (e.g., selling inventory).

Does dissociation cause a dissolution and winding up of the partnership business?

Dissociation does not necessarily cause a dissolution and winding up of the partnership business

Distributions to members of an LLC are prohibited if it would preclude the company from:

Distribution Prohibited if it would preclude the company from paying its bills as they become due or render the company insolvent RULLCA § 405 (a)(1)-(2).

In a manager-managed LLC, does a manager have to be a member?

Do not need to be a member to be a manager RULLCA §407 (c)(5)

How can actual authority be terminated by a change of circumstances that should cause A to realize P would want to terminate authority?

E.g., destruction of the subject matter of the authority, a drastic change in business conditions, change in relevant laws

Except to the extent that the articles of incorporation or bylaws require that action by the board of directors be taken at a meeting, action by the board of directors may be taken without a meeting if:

Each director signs a consent describing the action to be taken and delivers it to the corporation MBCA § 8.21. ACTION WITHOUT MEETING

What is the voting allocation like in a manager-managed LLC?

Each manager has equal votes RULLCA §407 (c)(2)

Who can terminate the agency relationship?

Either of the parties

Express agency contracts can be:

Either oral or written unless the Statute of Frauds stipulates that they must be written

What is the result of Partnership By Estoppel being used successfully?

Either the purported partner is liable or the entire partnership is liable

What is the voting power structure for a General partnership?

Equal voting

What is the voting power structure for a Manager-Managed LLC?

Equal voting

What is the voting power structure for a Member-Managed LLC?

Equal voting

What is the exception to the general rule of limited liability for an LLC?

Exception: Some courts have imported "veil piercing" concepts into LLC law Some courts have pierced the LLC veil of limited liability to reach the personal assets of members under circumstances similar to those under which courts would pierce the veil of a corporation

True or False: At the meeting, one of the directors says, "Thank goodness that Mary called me. I never got the notice of the meeting." Turns out the notice was never sent to the director. Meeting is no good.

False

True or False: Shareholders have the authority to act for the corporation

False

True or False: Under MBCA, a director can be present by Skype only if authorized in the bylaws

False

True or False: The person who sets the agenda for and conducts board meetings is known as the "board chair." This person may not also be the CEO

False

True or false: Agency law generally can be ascertained by looking at Uniform Code of Agency

False

What type of taxation does a partnership have?

Flow Through Taxation

What does an LLLP require for it to be formed?

Forming a LLLP requires filing a form with the secretary of state. The partnership name must have a signifier - i.e., "LLLP"

What does an LLP require for it to be formed?

Forming a LLP requires filing a form with the secretary of state. The partnership name must have a signifier - i.e., "LLP"

Once partnership association occurs:

GP law determines the parties' relative rights and duties

What types of partners does a Limited Partnership have?

General partners -> General partners manage the business and have the power to bind the partnership. They are personally (and jointly and severally) liable for the partnership debts. Limited partners -> Silent/passive partners without management rights. Not personally liable unless they participate in management or control of the LP (old "control rule"); current uniform act has modified to not personally liable except in extraordinary circumstances

What are General partners in an LP?

General partners manage the business and have the power to bind the partnership. They are personally (and jointly and severally) liable for the partnership debts.

What is the general rule of limited liability for an LLC?

General rule: No member or manager of a limited liability company is obligated personally for any debt, obligation, or liability of the LLC solely by reason of being a member or acting as a manager of the limited liability company (RULLCA § 304)

A and B agree to form a law partnership, which they constitute as an LLP by filing the appropriate papers. B litigates a products liability case; one of the firm's associates (an employee) misses a filing deadline, and the case is dismissed. The client brings a malpractice action against the LLP, and against A and B. Would A, B, or the LLP be liable to the client?

Generally, only the LLP would be liable, not A or B. But this is a professional LLP, and in many states, B might be liable as supervisor

Can the default rules set out by the provisions of the RUPA be altered by agreement?

Generally, yes

If one partner pays off a partnership obligation:

He is entitled to indemnification

An A who enters into a contract on behalf of another impliedly warrants that:

He or she has the authority to do so, unless A gives notice that no warranty of authority is given, or T knows that A acts without actual authority Rest. 3d § 6.10

When the P is fully disclosed and A is acting within the scope of authority, P is liable to the T. A is not liable. What is the exception?

If A intends/agrees to be bound to the contract (The rules on contract liability are default rules that can be overridden by express or implied agreement between A and T) Rest. 3d § 6.01

What is the default rule for partnership termination?

If a person is dissociated as a partner without dissolution resulting...the partnership shall cause the person's interest in the partnership to be purchased for a buyout price (b) The buyout price of the interest of a person dissociated as a partner is the amount that would have been distributed to the person [under a dissolution situation] if, on the date of dissociation, the assets were sold and the partnership were wound up, with the sale price equal to the greater of: (1) the liquidation value; or (2) the value based on sale of the entire business as a going concern without the person.

If an individual is a member and a manager, what does dissociation do?

If both a member and manager, dissociation removes the member as manager RULLCA §407 (c)(5)

Can a partner in a Limited partnership withdraw without the partnership being liquidated?

If it's a limited partner, yes If it's a general partner, no - Withdrawal of a general partner causes the partnership's assets to be forcefully liquidated

If a member is no longer a manager following dissociation, does that dissociate them from the LLC?

If member is no longer manager, that alone does not dissociate him/her from the LLC

What is a "Reasoned" (or Explained) opinion?

Include the lawyer's reasoning, along with stating legal conclusions

What is the default taxation choice for a C Corporation?

Income (Zero Out)

Ratification is ineffective if it would be:

Inequitable to the third party as a result of a material change in circumstances or if a third party has already manifested an intention to withdraw from the transaction

If a corporation is defective post-incorporation, the corporation had been formed but dissolved by the Secretary of State, who is liable to third parties?

Insider liable on "corporate contract"?

If a corporation is defective post-incorporation, the corporation had been formed but misused, who is liable to third parties?

Insiders liable to third parties (PCV)?

What are some methods of risk management/risk mitigation?

Insurance: premium, deductible, co-pay Diversification: different risks, correlation Internal allocation: self, within corporation Externalization: limited liability, other externalities

Where does the Ultra Vires Doctrine apply?

It applies only where the certificate of incorporation states a limitation

Does a partnership agreement need to be written, oral, or implied under the RUPA?

It can be written, oral, or implied (Doesn't matter) unless the Statute of Frauds requires otherwise

When an Agent acting with actual or apparent authority makes a contract on behalf of a disclosed principal, who is a party to the contract?

It is only P and T who are parties to the contract; A isn't unless agreed

What is the result of the Estoppel Doctrine in terms of contract liability?

It is simply a doctrine that prevents a principal or purported principal from avoiding an obligation by arguing that no authority existed at the time the agent or actor entered into a contract

Does partnership association need to be voluntary or be with the partners' knowledge or intent to form?

It must be voluntary It does NOT need to be with the partners' knowledge or intent to form

What must be included when filing the Articles of Organization/Certificate of Organization to form an LLC?

It must include: •Name of the Business •Address of Principle Office •Name and Address of LLC's Agent •Purpose of the LLC •Description of the Type of Business Activity •If Will Be Manager-Managed

A Principal's inaction creates apparent authority when:

It provides a basis for a third party reasonably to believe the P intentionally acquiesces in the A's representations or actions

An undisclosed principal is liable for:

Its agent's actions-acting without actual authority - if a third party detrimentally relies on the agent and the principal has notice and does not take reasonable steps to notify the third party of the facts Rest. 3d § 2.06

What type of liability does a General partnership have?

Joint / several LLP - Limited (supervise)

What are the LLC Statutory requirements on capital contributions?

LLC statutes do not require any minimum amount of capital to be contributed to an LLC, nor do all members need to make capital contributions Members are free to decide among themselves how much cash, property, or services, if any, each member will contribute

Are LLCs subject to the restrictions applicable to S corporations (e.g., 100 shareholders, U.S. citizens or residents)?

LLCs are not subject to the restrictions applicable to S corporations (e.g., 100 shareholders, U.S. citizens or residents).

What type of liability does a C Corporation have?

Limited (PCV*)

What type of liability does a S Corporation have?

Limited (PCV*)

What type of liability does a manager-managed LLC have?

Limited (PCV*)

What type of liability does a member-managed LLC have?

Limited (PCV*)

Where do firms that expect to operate locally tend to incorporate?

Locally

What does a determination of actual authority look at?

Looks at A's reasonable belief based on P's express manifestations, and includes acts necessary or incidental to accomplish P's objectives, as A reasonably understands (incl. custom or past dealings). (Rest. 3d §§ 2.01-2.02)

A principal is subject to liability upon contracts made by an agent acting within his authority if:

Made in proper form and with the understanding that the principal is a party Rest. 2d § 144

What is the effect of limited liability?

Makes participants liable only to the amount they invest

How are managers chosen and how can they be terminated, in a manager-managed LLC?

Manager chosen by majority vote of members and can be removed by majority vote of members without notice or cause. RULLCA §407 (c)(4)

Who makes the management decisions in a Manager-Managed LLC?

Manager(s)

What is the default form of LLC management under the RULLCA?

Member Managed

Describe a derivative suit in the context of a member-managed LLC:

Member may bring an action on behalf of the LLC to recover a judgment in its favor if the members with authority to bring the action refuse to do so

How do members figure out capital contributions?

Members agree amount each member will contribute (cash, property or services) or no contribution at all

Who can be a member of an LLC?

Members can be natural or legal persons

Who makes the management decisions in a Member-Managed LLC?

Members have equal voting power / Agent

Do members of an LLC have a statutory right to compel a distribution?

Members have no statutory right to compel a distribution - go by rules in the operating agreement

What are the management structure choices for an LLC?

Members of an LLC can choose member-managed or manager-managed

Lawyer Laura is a partner in the partnership of Dumas & McPhail, which has multiple other partners. Laura enters into an agreement in which she purports to sell all of her rights in the partnership to Travis, a third party. Does Travis become a partner in the firm?

No, Travis does not become a partner because his rights as a transferee are limited to only the distributions that Laura would have received What rights is a third party entitled to? -> The third party is only entitled to distribution rights, no management or information rights

Michael, Dwight, and Andy form a partnership to run a bakery. All agree between themselves that Michael shall have the exclusive authority to order supplies, Dwight shall have exclusive authority to handle advertising, and Andy shall have exclusive authority to hire help for the partnership. Could the partnership be liable on a contract Michael entered into to set up a retirement plan for their employees?

NO, the partnership is not liable. The transaction was not made in the OCB and is not typical and Michael did not have actual authorization. If the partners gave Michael actual authority to set up the retirement plans then yes, the partnership bakery would be bound. Analysis: Was the contract made in the ordinary course of the business or is transaction typical for that business? -> NO, setting up a employee retirement plan is not in the ordinary course of business, nor is it a typical transaction for a bakery Was the partner actually authorized to enter into the transaction? -> No, the facts to not state any actual authority granted to Michael to set up the retirement plans

Are services rendered by a partner considered capital?

Does termination of actual authority end any apparent authority held by the Agent?

Is there partial ratification?

No (Rest. §§ 3d 4.02-4.07)

Does a board of directors' refusal to call a shareholder meeting when not required under corporate bylaws, in and of itself, constitute an impairment of shareholders' voting rights?

No A board of directors' refusal to call a shareholder meeting when not required under corporate bylaws, in and of itself, does not constitute an impairment of shareholders' voting rights. The actions of directors can be nullified if it is found that they have violated their fiduciary duties, including by acting inequitably. Although the impediment of a shareholder vote can be deemed inequitable under certain circumstances, the issue must be examined in context

Do agreements intended to protect the financial interests of creditors necessarily make them partners of a debtor firm?

No A partnership is not formed unless two or more parties are closely associated so as to be co-owners carrying on a business for profit. When, as here, creditors have executed loan documents with a debtor firm that contains provisions for the collection of collateral, this court must examine the extent to which those documents associate the creditors with the business operations of the firm. Martin v. Peyton

Does the sharing of losses have to be the same proportion as the sharing of profits?

No Does not have to be same proportion as distribution

Can one general partner restrict another partner from conducting business on behalf of a two-person partnership?

No Each partner has an equal right in the management and conduct of a partnership, and differences within a partnership are decided by a majority of the partners. However, when there are only two partners there can be no majority, and neither partner can prevent the other from binding the partnership in the ordinary course of business RULE: Ordinary matters of a partnership should be decided by a majority vote by the partners when no other agreement provides otherwise. National Biscuit Co., Inc. v. Stroud

Does Estoppel create a binding contract between the parties?

No Estoppel does not create a binding contract between the parties

Is a partner who refused to hire an additional employee liable to a co-partner for expenses incurred in hiring a new worker?

No In a general partnership, each partner has equal rights regarding the management of the ordinary affairs of the partnership. Unless there is an agreement to the contrary, differences between the partners about everyday business are to be decided by a majority of the partners. When a partnership consists of only two partners, one partner cannot unilaterally bind the partnership by incurring expenses over the objection of the other. RULE: Ordinary matters of a partnership should be decided by a majority vote by the partners when no other ragreement provides otherwise Summers v. Dooley

Does the division of losses according to a partnership agreement eliminate joint and several liability to third parties for partnership debt?

No It does not eliminate joint and several liability to third parties for partnership debt

Liquidity choice of a S Corporation??

No (Agreement) - Again, WTF does this mean??

If the certificate of organization is not filed for an LLC, what is the result?

No LLC is formed

Can a partner unilaterally agree to transfer his/her share of the partnership assets?

No because they are not the property of the partner, they are the property of the partnership

What is the default rule for loss allocation in an LLC under the RULLCA?

No default rule in the RULLCA for loss allocation

What is the default rule for profit allocation in an LLC under the RULLCA?

No default rule in the RULLCA for profit allocation

What are the characteristics of a partnership?

No federal income tax; Profits/Losses flow through to partners; Joint/Several liability

Do members or managers have liabilities for an LLC's debt, obligation, or other liability?

No liability to members or managers - liabilities are with the company itself RULLCA §304 (2013)

What is the minimum amount of capital contribution that a member of an LLC is required to contribute?

No minimum amount required

Do the members of an LLC have a statutory right to compel distributions?

No statutory right to compel distribution so the rules of the operating agreement apply

Does the formation of a GP need to have a written agreement or governmental action?

No written agreement or governmental action required

When does Implied Ratification occur?

Occurs when the person engages in conduct that justifies a reasonable assumption that the person consents to the transaction

What is the default taxation choice for a General partnership?

Pass through taxation

Lawyer Laura is a partner in the partnership of Dumas & McPhail, which has multiple other partners. Laura enters into an agreement in which she purports to sell her share of the partnership assets to Travis. Does Travis take title to those assets?

No, Travis does not take title to the assets because Laura did not have the ability to transfer something she did not have interest in since they are partnership assets What rights does a partner have in the assets of the partnership? -> While the partner has a co-owner interest in the partnership, the partner is NOT the owner or co-owner of the partnership property Can a partner unilaterally agree to transfer his/her share of the partnership assets? ->No because they are not the property of the partner, they are the property of the partnership

Jess, Nick and Schmidt are members in a member-managed limited liability company created with the purpose of manufacturing and distributing the True American game, which the three members invented along with their friend Winston. The operating agreement is silent as to management rights of the members. Eventually, Schmidt decides he wants to focus on his own life with his wife Cece, and transfers his entire ownership interests to Jess. Later, Jess wants to hire Winston as a sales consultant, but Nick objects. Jess argues with Nick saying she has management control since she obtained Schmidt's rights. Does Jess have a controlling interest?

No, Jess does not have a controlling interest because the default rule provides that she and Nick have equal voting rights, not that Jess has control with 2/3 to his 1/3. (With Schmidt they had 1/3 each and now they have ½ each). Analysis: Does the operating agreement state management rights? - No, so default rule prevails What is the default rule? - Equal voting rights among members Does the transfer increase management rights of transferee member? - No, default rule still applies: equal voting rights

No, Jess does not have a controlling interest because the default rule provides that she and Nick have equal voting rights, not that Jess has control with 2/3 to his 1/3. (With Schmidt they had 1/3 each and now they have ½ each). Analysis: Does the operating agreement state management rights? -> No, so default rule prevails What is the default rule? -> Equal voting rights among members Does the transfer increase management rights of transferee member? -> No, default rule still applies: equal voting rights

Do actions 'on behalf of' a principal entail that the principal will benefit as a result?

No, actions 'on behalf of' a principal do not necessarily entail that the principal will benefit as a result

When there are only two partners in a general partnership, can there be a majority?

No, neither partner can prevent the other from binding the partnership in the ordinary course of business

Does the withdrawal of a manager from a manager-managed LLC force the dissolution of the LLC?

No, the manager just withdraws from the LLC's voting process

Does a member-managed LLC need to be liquidated if a member dissociates from the LLC?

No, the member just withdraws from the LLC's management

Was a partner entitled to be reimbursed for hiring an employee when the other partner objecting to the hiring? Summers v. Dooley

No, the partner was not entitled to reimbursement for the hiring because the matter was not supported by a majority of the partners

Can a partner in a General partnership withdraw without the partnership being liquidated?

No, the withdrawal causes a forced liquidation of the partnership's assets

What is an Independent Director?

Not beholden to an interested party

What is a Disinterested Director?

Not financially interested in a particular corporate decision

Unless otherwise provided in this chapter (DGCL § 222), the written notice of any meeting shall be given:

Not less than 10 nor more than 60 days before the date of the meeting to each stockholder entitled to vote at such meeting DGCL § 222

What is a Detour?

Occurs if an employee is still engaged in the scope of employment but strays slightly from the assignment

When does termination occur?

Occurs once the winding up process is completed No filing or "magic words" required

When does dissociation occur under RUPA?

Occurs when a partner ceases to be associated as a partner in the partnership [RUPA § 601 (2013)] In some cases, the partnership can continue to exist after dissociation of a partner. NOT under UPA May be voluntary or involuntary. Power but not always rightful

What is wrongful dissociation?

Occurs when a partner leaves a term partnership in breach of a provision of the partnership agreement or before the end of the term or completion of the undertaking that was agreed upon

What is Partnership Dissolution?

Occurs when the partnership ceases to conduct Bus. and is the first step in terminating the partnership; Can be mutual agreement or triggered by an event

When does dissolution occur?

Occurs when the partnership ceases to conduct business and is the first step in terminating the partnership RUPA Art. 8 (2013) Can be mutual or triggered by an event

Is filing required to form an LLC?

One or more persons may act as organizers to form a limited liability company by delivering to the [Secretary of State] for filing a certificate of organization RULLCA §201 (2013)

Agency exists where:

One person (the Principal) manifests assent to another (the Agent) that A shall act on P's behalf and subject to P's control and A consents so to act. (Rest. 3d § 1.01)

Despite having joint and several liability, a partner is only responsible for:

Only responsible for his share of the partnership obligation

In cases of estoppel, who is liable?

Only the defendant is liable (and it is generally for damages rather than making the defendant a party to the contract)

Who is liable when estoppel is raised in contract liability cases?

Only the defendant is liable (and it is generally for damages rather than making the defendant a party to the contract)

What is the result of limited liability?

Outside parties that deal with the corporation must bear any loss should the corporation be unable to fulfill its obligations

Conduct by A that would otherwise breach the subsequently listed duties does not constitute a breach if: Duties: duty of loyalty, duty not to acquire material benefit from a T, duty not to act adverse or compete, duty of confidentiality

P consents, provided that A acts in good faith and discloses all material facts in obtaining the consent (Rest. 3d §§ 8.06)

When the P is fully disclosed and A is acting within the scope of authority, who is liable to the T?

P is liable to the T A is not liable Rest. 3d § 6.01

When the Principal is fully disclosed and the Agent is acting within the scope of authority, who is contractually liable to the Third party? And, what is the exception to this default rule of liability?

P is liable to the T; A is not liable Exception: If A intends/agrees to be bound to the contract

Who makes the management decisions in a General Partnership?

Partners have equal voting power / Agent

What cannot be altered in a partnership agreement?

Partnership agreement may not unreasonably restrict partner's right of access to partnership books and records; Elim. duty of care or loyalty, restrict 3rd parties rights

Third partners can sometimes hold non-partners liable as though they were partners under the concept of:

Partnership by estoppel

What are the characteristics of an LP?

Partnership with two classes of partners: LIMITED and GENERAL General: Manage business in agency relationship and have unlimited liability Limited: Do not manage business, no agency relationship and limited liability Have to file with the state to secure limited liability Both have pass through taxation

What are Risk Adverse individuals?

People preferring to avoid risk

What are Risk Seeking individuals?

People who love to bet on investments even when safer returns are available (like a bank CD paying guaranteed interest)

What does a charging order on a partnership accomplish?

Places a lien on the ownership interest of a member or partner The order directs the managing member or partnership to pay the creditor all the profits and income that are due the owner

What does the Business Judgment Rule have a presumption against?

Presumption Against -> The Duty of Loyalty "Personal transactions of directors with the corporations ... may tend to produce a conflict between self-interest and fiduciary obligation, are when challenged examined with the most scrupulous care"

What does the Business Judgment Rule have a presumption for?

Presumption For -> The Duty of Care "A director is called upon to use care, to exercise judgment, the degree of care, the kind of judgment, that one would give in similar situations to the conduct of his own affairs"

What are some sources of insurance?

Private insurance companies, future contracts

Is it in the ordinary course of business if the business is a medical practice leasing out space?

Probably not

Is it in the ordinary course of business to establish an employee benefits program?

Probably not

Is it in the ordinary course of business to take out a loan to purchase property for new maintenance facility?

Probably not

If a corporation is defective while pre-incorporation, and the parties were aware of the lack of incorporation, who is liable to third parties?

Promoter liable to third party?

If a corporation is defective while pre-incorporation, and the parties were unaware of the lack of incorporation, who is liable to third parties?

Promoter liable to third party?

What brings the corporation into existence?

Properly filing the certificate brings the corporation into existence. (DGCL § 106)

What counts as partnership property?

Property acquired by a partnership is property of the partnership and not of the partners individually. Partnership property also includes property that is either: - Acquired in the name of the partnership. - Acquired by one or more partners with a document transferring title that indicates the partner was acting in his capacity as a partner. Property purchased with partnership funds is presumed to be partnership property

A director may waive any notice by:

Providing it in writing, signed by the director entitled to the notice, and filed with the minutes or corporate records MBCA § 8.23. WAIVER OF NOTICE

If a person is dissociated as a partner without dissolution resulting in the partnership shall cause the person's interest in the partnership to be:

Purchased for a buyout price

When is estoppel raised in the context of contract liability?

Purported agent didn't have actual or apparent authority, but a court may hold defendant liable due to some fault

Does the RULLCA provide a default rule for allocation of profits and losses in an LLC?

RULLCA does not provide a default

Does the RULLCA permit for modification and/or elimination of fiduciary duties?

RULLCA permits modification, but not elimination, of fiduciary duties ("manifestly unreasonable" standard)

What are the default rules for dissociation and dissolution of an LLC under the RULLCA?

RULLCA provides for dissociation and dissolution default rules generally similar to RUPA with some big differences: - The unilateral withdrawal of a member by express will does not result in a dissolution; - There is no default provision for a buyout upon dissociation (instead the dissociated member holds interest as a transferee) - Provides different events by which a member can dissociate and also means of expelling a member (incl. where a member transfers all her interest) RULLCA thus creates more stability (like a corp) by making it far harder for a member to force a dissolution and winding up than in a partnership

What does the RULLCA requires that name must indicate when forming an LLC?

RULLCA § 112 requires that name must indicated it is an LLC

What is the default rule for transferrable interests in an LLC?

RULLCA § 502: • (a) (2) Transfer of rights on its own does not cause dissociation or dissolution/winding up •(a) (3) (A)-(B) Does not entitle transferee to management rights or information rights •(b) Transferee gets what transferor would have received •(g) Does not affect transferor's management rights or duties

What is the duty of good faith?

RUPA § 409(d) A partner shall discharge the duties and obligations under this [act] or under the partnership agreement and exercise any rights consistently with the contractual obligation of good faith and fair dealing

When is estoppel raised as a defense?

Raised where purported agent didn't have actual or apparent authority, but a court may hold the defendant liable due to some fault. The defendant is "estopped" from raising the lack of authority defense

What is Partner Dissociation?

Refers to a change in the relationship of the partners caused by any partner ceasing to be associated in the carrying on of the Bus. (may be done voluntarily or involuntarily)

What does "Piercing The Corporate Veil" mean?

Refers to a situation in which courts put aside limited liability and hold a corporation's shareholders or directors personally liable for the corporation's actions or debts

What does the term "Corporate Powers" refer to?

Refers to methods the corporation may use to achieve its purpose (e.g., power to contract and power to borrow money)

What does the Duty of Loyalty refer to?

Refers to the idea that the agent must not put his or her own interests ahead of those of the principal when the agent is acting within the agency relationship; The agent should act for the benefit of the principal in all matters connected with the agency

What does the Duty of Care, Loyalty, and Diligence refer to?

Refers to the level of care, competence, and diligence that an agent exercises; If an agent claims to have special skills or knowledge, then the agent has a duty to act with the care normally exercised by agents with such skills or knowledge

What are distributions in the context of an LLC?

Refers to the transfer of LLC property (e.g., cash) to members

What is Express Ratification?

Refers to when a person objectively manifests acceptance of the transaction, as such through oral or written statements

What does an LP require for its creation?

Requires a formal filing (a "certificate of limited partnership") to create a LP; each state has a LP statute

What does a charging order on a partner's transferrable interest require?

Requires the partnership to pay over to the person with the charging order any distribution that would otherwise be paid to the judgment debtor

The partnership is liable for any torts if:

Responsible for torts committed by partners: (1) In OCB or (2) w/ actual or apparent auth.

When an A acting with actual authority makes a contract on behalf of an undisclosed P, who are bound?

Rest. 3d § 6.03: Both P and A are bound

What are the three levels of risk tolerance?

Risk tolerance: seeking, neutral, averse

What are the three types of corporate actors?

Shareholders, directors, and officers

What is required for decisions on significant matters in an LLC?

Significant matters require unanimous consent -> E.g., merger, admission of new member, amending the operating agreement, etc...

What standard of care do LLCs use?

Some state an ordinary care standard Some state gross negligence (e.g., RULLCA)

What are the sources of law for agency?

Sources of law: -Case law (and a few states have statutory law) -Restatement (case law summary that is very persuasive and influential, but not binding)

What are the sources of law for corporations?

State Law -> Statutes Model Business Corporation Act (model act adopted by many states) Delaware General Corporation Law (DGCL) Other state statutes (California, New York, etc.) -> Case law "Private law" (corporate documents) -> Articles of incorporation (charter, certificate) -> Bylaws

[Partnership By Estoppel] Mr. Sharma is a friend of Mr. Mathur, who, along with Ms. Watson, is a partner in a pharmaceutical firm— Health First. On Mr. Mathur's request (forgetting to inform Ms. Watson of the request), Mr. Sharma accompanies him to a business meeting with Wellness Pharmaceuticals and actively participates in the process of negotiation for a business deal and gives the impression that he is also a partner in Health First. Q.1) If credit is extended to Health First on the basis of these negotiations, could Mr. Sharma be liable for repayment of the debt? Q.2) Is Health First liable for repayment?

Steps of Analysis: #1 - Were there representations by person purporting to be a partner OR consent to be represented as a partner? -> Yes, by attending the meeting together, engaging in negotiations, and "giving the impression that he is a partner" Mr. Sharma represents himself as a partner #2 - Did the third party rely on the representation? -> Yes, because credit was extended based on the negotiations that included Mr. Sharma being represented as a partner #3 - Based on the reliance, did the third party enter into a transaction with the actual or purported partnership? -> Yes, Wellness Pharmaceuticals extended credit to Health First Answer: Yes, although only one of the partners consented to Mr. Sharma representing the partnership, Mr. Sharma and Mathur are jointly and severally liable for the debt Health First would not be liable as a partnership because Ms. Watson did not consent (she didn't know) to Mr. Sharma being represented as a partner (If she consented, then yes with Mr. Sharma still liable as a partner would be) What about the partnership? -> This would not be considered an act of the partnership (thus binding the partnership) because Ms. Watson did not consent to the representation by Mr. Sharma. If Ms. Watson would have consented, yes, the partnership would be liable, and Mr. Sharma held responsible as if he were a partner -> Cannot be an agent if someone (one of the partners) does not consent

Steve and Nicole agree that Steve will contribute to the Dos Commas Partnership (who plans to rent out units) a parcel of land valued at$500k, work at the partnership up to 25 hours per week and receive 40% of the profits to be distributed. They also agree that Nicole will work as many hours as necessary, but not contribute capital and receive 60% of the profits to be distributed. They agree that 90%of the partnership profits will be distributed, retaining 10% in the partnership accounts for future investments. They incurred a loss of $20,000 this year. How should the losses be divided between Steve and Nicole?

Steve = $8,000 (40% of $20,000) Nicole = $12,000 (60% of $ 20,000) Analysis: Is there an agreement? -> Yes Does the agreement state loss shares? -> No What is the default rule? -> Partners share losses in proportion of profits What is profit division? -> 90% of profits distributed. Steve = 40% Nicole = 60%

Steve agrees to contribute to the Dos Commas Partnership (who plans to rent out units) a parcel of land valued at $500k and work at the partnership up to 25 hours per week. Nicole agrees to work as many hours as necessary, but does not contribute capital. During the next year, rental from the land accounts for 25% of the partnership's profits, and the land increases in value to $1M. If there is no agreement as to sharing profits or losses, how would the losses be divided between Steve and Nicole?

Steve = 50% Nicole = 50% Analysis: Is there an agreement? -> No, then the default rule applies What is the default rule? -> Partners share losses in proportion of profits What is profit division? -> Because no agreement, default rule applies and partners share profits equally, regardless of capital or time investment

Steve agrees to contribute to the Dos Commas Partnership (who plans to rent out units) a parcel of land valued at $500k and work at the partnership up to 25 hours per week. Nicole agrees to work as many hours as necessary, but does not contribute capital. During the next year, rental from the land accounts for 25% of the partnership's profits, and the land increases in value to $1M. If there is no agreement as to sharing profits, how would they be divided between Steve and Nicole?

Steve = 50% Nicole = 50% Analysis: Is there an agreement? -> No, then default rule applies What is the default rule? -> Partners share profits equally, regardless of capital or time investment

What is the voting power structure for a Limited partnership?

Structured by the operating agreement

Does a transfer of an interest in an LLC transfer both the member's right to receive distributions AND confer governance rights or rights to participate in management?

Such a transfer typically transfers only the member's right to receive distributions and does not confer governance rights or rights to participate in management

What is the significance of an unqualified opinion?

Such an opinion may be limited by customary assumptions or exceptions for that type of opinion, such as the assumption that the articles of incorporation on file with the State were validly filed

What is Renunciation?

Termination by the agent

What is Revocation?

Termination by the principal

How can actual authority be terminated by operation of law?

Termination occurs automatically; e.g., upon death or loss of capacity of either A or P, such as dissolution of a corporation or insanity of a person.

Does termination of actual authority does not end any apparent authority held by A?

Termination of actual authority does not end any apparent authority held by A (Rest. 3d § 3.11)

What does a valid ratification require?

That the principal or purported principal is fully aware of all material facts involved in the transaction

What happens upon ratification of a contract?

The Agent or Purported Agent is relieved of liability for a breach of duty to their Principal

In suits alleging a corporation's director violated their duty of care to the company, courts will evaluate the case based on:

The Business Judgment Rule

A and B form a logging GP -- A contributes capital and B the equipment. They do not specify in their agreement how losses will be shared. The business does not generate enough profits to cover A's capital contribution, and A asks B to share in the net losses. Must B contribute towards the loss (including the capital loss)?

The UPA controls, in the absence of an agreement. B must contribute toward the loss (including the capital loss) according to his share in the profits [Some courts give B credit for his labor.]

An act of a partner which is not apparently for carrying on in the ordinary course of the partnership's business or business of the kind carried on by the partnership binds the partnership only if:

The act was actually authorized

Does the action of deferring this company's annual meeting where no meeting date has yet been set and no proxies even solicited impair or impede the effective exercise of the franchise to any extent?

The action of deferring this company's annual meeting where no meeting date has yet been set and no proxies even solicited does not impair or impede the effective exercise of the franchise to any extent Stahl

A person may ratify an act if:

The actor acted or purported to act as an agent on the person's behalf (Rest. §§ 3d 4.02-4.07)

What is ratification?

The affirmance of a prior act done by another, whereby the act is given effect as if done by an agent acting with actual authority (Rest. §§ 3d 4.02-4.07)

If a quorum is present when a vote is taken:

The affirmative vote of a majority of directors present is the act of the board of directors unless [articles or bylaws require greater number MBCA § 8.24. QUORUM AND VOTING

When an agent acting with actual authority makes a contract on behalf of an undisclosed principal, who is a party to the contract?

The agent and third party are parties to the contract; and unless excluded, the principal is also a party to the contract

If the agent does not want to be liable on the contract, then:

The agent must disclose that she is acting on behalf of a principal and provide the identity of that principal

Historically, if a corporation engaged in conduct that was not authorized by its express or implied powers, what was the conduct deemed?

The conduct was deemed "ultra vires" and void

When does an agreement between parties terminate actual authorities?

The contract between principal and agent states when it will end or upon the happening of a specified event (Rest. 3d §§ 3.06-3.10, 3.12)

What is a Moral Hazard?

The danger that a person who does not bear a risk will not take steps to control that risk

What is the default rule regarding profits and losses in a general partnership?

The default rule is that partners receive an equal share of profits and losses in proportion to their share of the profits [RUPA Section 401(b)]

(b) A director's attendance at a meeting waives any required notice to the director of the meeting unless:

The director at the beginning of the meeting (or promptly upon arrival) objects to holding the meeting and does not thereafter vote at the meeting MBCA § 8.23. WAIVER OF NOTICE

What is the effect of an LLP?

The effect is to shield partners from personal liability for the partnership debts A partner remains personally liable for her own wrongful acts

In cases of implied agency, what is the extent of the agent's authority determined from?

The extent of the agent's authority is determined from the particular facts and circumstances of the particular situation

Is the implied contractual covenant of good faith and fair dealing waivable?

The implied contractual covenant of good faith and fair dealing is non-waivable RULLCA allows the operating agreement to prescribe standards, if not manifestly unreasonable, by which the performance of the obligation is to be measured

What is the next thing the incorporators have to do, once they bring a corporation into existence?

The incorporators have to have an organizational meeting of the incorporators or of the subscribers for shares to elect the directors, if not named in the certificate. (DGCL § 108) Also: -Appoint officers -Adopt bylaws (DGCL § 109) -Adopt pre-incorporation promoters' contracts -Authorize issuance of shares, stock certificates, corporate seal, corporate account, etc. (use a checklist to be meticulous) Plan for shareholder meeting as required

What is an operating agreement for an LLC?

The key document for an LLC It is the agreement governing the affairs of a LLC and stating the various rights and duties of the members

What is the Going Concern Value?

The value of the business as an operating entity

What, except as expressly limited by statute, sets the rules for an LLC?

The operating agreement

What can an LLC's operating agreement include regarding transferrable interests?

The operating agreement can include mgmt./governance rights to be transferred along with the economic interests Can give right to transfer in the agreement itself OR Can provide for member vote on whether to allow management/governance rights to transfer

What is required for an LLC to be manager-managed/non-member managed?

The operating agreement must expressly provide for non-member management Language in the operating agreement must specifically state "manager-managed" "managed by managers" or management "vested in managers" RULLCA § 407(a)(1)(A)-(C) (2013)

Renunciation or Revocation Is Effective When:

The other party has notice of it

If the partnership lacks funds to indemnify the partner after he pays off a partnership obligation:

The partners are required to contribute according to their loss shares

An act of a partner, including the signing of an instrument in the partnership name, for apparently carrying on in the ordinary course the partnership business or business of the kind carried on by the partnership binds the partnership, unless:

The partners did not have authority to act for the partnership in the particular matter and the person with which the partner was dealing knew or had notice that the partner lacked authority

What is Flow Through Taxation?

The partnership itself is not taxed on income and instead the profits or losses of the partnership flow through to the partners to include on their personal tax returns

What must an LP have?

The partnership must have at least one general partner and one limited partner The partnership name must have a signifier - i.e., "LP"

What are Creditors?

The people and entities that lend money to a corporation in exchange for the corporation's promise to make periodic interest payments and to return to the principal of the loan after a specified time or maturity

What is a Liquidation value?

The price one could get by selling all of the assets of the Bus.

Control is a concept that embraces a wide spectrum of meanings, but within any relationship of agency it is what?

The principal initially states what the agent shall and shall not do, in specific or general terms. Additionally, a principal has the right to give interim instructions or directions to the agent once their relationship is established

What is Winding Up in a partnership?

The process by which the partnership concludes its existence

What is winding up?

The process by which the partnership concludes its existence. Involves selling of assets, paying liabilities and settling partnership accounts [RUPA § 802 (2013)] The only purpose of the partnership after dissolution is to wind up the business

At the time of ratification, what must be the case:

The purported P must have knowledge of all material facts (or not unaware of lack of knowledge), and T must not have already withdrawn from the transaction (Rest. §§ 3d 4.02-4.07)

What is generally the remedy for estoppel in contract liability?

The remedy is generally for damages rather than making the defendant a party to the contract

The test for determining whether apparent authority has ended is:

The test is whether T knows or reasonably should have known of the termination of A's authority (Rest. 3d § 3.11)

What rights is a third party entitled to in context of transferrable interests?

The third party is only entitled to distribution rights, no management or information rights

Regarding undisclosed Principals, if the Agent was acting within the scope of authority when dealing with the Third party, who is liable?

The undisclosed P can be held liable on the basis of actual authority

Regarding undisclosed Principals, if the Agent was NOT acting within the scope of authority when dealing with the Third party, who is liable?

The undisclosed P could still be held liable

What are the ways that a Principal can monitor an Agent?

Through direct supervision or an employment contract

What is the effect of ratification?

To validate the contract as if the principal or purported principal had originally authorized it

Steve and Nicole agree that Steve will contribute to the Dos Commas Partnership (who plans to rent out units) a parcel of land valued at $500k, work at the partnership up to 25 hours per week and receive 40%of the profits to be distributed. They also agree that Nicole will work as many hours as necessary, but not contribute capital and receive 60% of the profits to be distributed. They agree that 90% of the partnership profits will be distributed, retaining 10% in the partnership accounts for future investments. The total profit generated this year was $200,000. What distribution amounts to Nicole and Steve each receive?

Total to be distributed: $180,000 (90% of $200,000) Steve = $72,000 (40% of $180,000) Nicole = $108,000 (60% of $180,000) Analysis: Is there an agreement? -> Yes, so the agreement rules apply, not the default rules What does the agreement provide? -> 90% of profits distributed Steve = 40% Nicole = 60%

What is Ordinary Course of Business?

Transactions that normally occur in furtherance of the day-to-day operations of the business A transaction that has been consistently conducted in the past activities of the business Business engages in similar transactions in the daily operations of business Does not incur liabilities outside of the day-to-day operations

True or False: All partners are liable jointly and severally for all debts, obligations, and other liabilities of the partnership unless otherwise agreed by the claimant or provided by law.

True

True or False: Not all states allow for LLLP formation

True

True or False: Suppose the board later says, "OK, let's pay the legal bill." This is ratification, as though actual authority existed from the start

True

True or False: The failure of a limited liability company to observe formalities relating to the exercise of its powers or management is not grounds for imposing liability on a member or manager for a debt, obligation or other liability of the company

True Failure to engage in company formalities does not give rise to member/ manager liability RULLCA §304 (2013)

True or False: A limited liability company is a member-managed limited liability company unless the operating agreement expressly provides otherwise

True RULLCA §407 (a) (2013)

True or False: An undisclosed principal can't rely on narrowing an agent's authority to less than what a third party would reasonably believe the agent to have under the same circumstances if the principal had been disclosed

True Rest. 3d § 2.06

True or False: You cannot cherry picking parts of an act or contract that a principal wants to ratify

True There's no partial ratification of a contract

What is joint and several liability?

Two parties (or more) are held responsible together and as individuals for liability

How is loss allocation for an LLC established?

Typically addressed in the operating agreement (usually pro rata basis according to contribution)

What is the requirement for a change to a Manager-Managed LLC to occur?

Unanimous Manager Agreement

What is the requirement for a change to a Member-Managed LLC to occur?

Unanimous Member Agreement

In a manager-managed LLC, unanimous vote of MEMBERS required to:

Unanimous vote of MEMBERS required to: (i)Amend operating agreement (i)Undertake an act outside of the ordinary course of business RULLCA §407 (c)(3)

What are the two kinds of risk?

Uncontrollable: interest rates, demand, input prices, weather Controllable: quality, safety, hard work

Allan contributes 70% of the partnership capital, Beatrice contributes 20% of the partnership capital, and Connie contributes 10%. How would you describe the rights of management of A, B, and C? (What are their voting rights?)

Under RUPA § 401 (h), each partner (A, B, and C) has one vote each related to the management of the partnership business Analysis: Is there a partnership agreement that provides for management rights? -> No, the facts do not state that there is a partnership agreement. Therefore, the default rule applies What is the rule under RUPA? -> Rupa § 401 (h) provides that each partner has equal rights in the management and conduct of the partnerships business Note -> Proportion of contribution is irrelevant under the default rule

A and B form a limited partnership to hold real estate (a shopping center). A is the limited partner and provides the capital; B is the general partner and manages the business. But their agreement specifies that A must sign all checks drafted by B. Does this specification expose A to general partner liability, under either the older or newer ULPA?

Under older ULPA, A may have crossed the line and become a general partner, exposing her to general partner liability Newer ULPA S 303 (2001), says "even if ... participates" not liable for LP debts

A and B are partners in a family GP. They have no written agreement about dissolution. A wants to end the partnership, sell (liquidate) the business assets, and then split the cash proceeds. B wants to divide the assets in-kind between them, but not sell. During the withdrawal and subsequent dissolution of an at-will GP, can a partner force the liquidation of partnership assets?

Under the UPA, a partner in an at-will GP can withdraw (causing dissolution) and share in a forced liquidation of partnership assets, provided creditors are first fully paid

A provides capital and controls day-to-day operations in B's custom auto-making business. B agrees to build a car for X, but fails to perform and disappears. X seeks to hold A liable on the contract on the theory A was B's partner, not his "banker." Did a partnership form? Is A liable to X?

Under the UPA, even if A and B did not intend to create a partnership, they become partners as a matter of law By sharing profits and control, A becomes liable to X on the contract

A and B form a GP that rents properties. Their agreement does not specify who has authority if there is a disagreement. A wants to increase rents, while B does not. A sues B for lost profits that the GP could have realized if rents had been increased. Does A or B win the lawsuit?

Under the UPA, the decision of the majority governs. If two partners are equally divided, and without an agreement otherwise, the remedy is a dissolution A's suit fails.

A operates a beauty shop and hires B as a receptionist. When B asks for a raise, they agree in writing that B will share in profits. Their agreement states they are a "partnership." What type of relationship is this?

Under the UPA, they are not co-owners and thus not partners. A contributed everything to the shop and controls the business. B's sharing in profits is only a wage increase. Their relationship is that of employer-employee, not partners

Unless directors are elected by written consent in lieu of an annual meeting as permitted by this subsection, an annual meeting of stockholders shall be held for:

Unless directors are elected by written consent in lieu of an annual meeting as permitted by this subsection, an annual meeting of stockholders shall be held for the election of directors on a date and at a time designated by or in the manner provided in the bylaws DGCL § 211 Meetings of Stockholders

Can a member assign her financial interest in an LLC?

Unless otherwise provided in the LLC's operating agreement, a member may assign her financial interest in the LLC

Can a member unilaterally resign or withdraw from the LLC before it has been dissolved and wound up?

Unless otherwise provided in the operating agreement, a member cannot unilaterally resign or withdraw until the LLC has been dissolved and wound up

Nonwaivable Provisions of A Partnership Agreement - The partnership agreement may not

Unreasonably restrict a partner's right of access to partnership books and records; Alter or eliminate the duty of loyalty, although it is permissible to make specific exceptions or carveouts provided they are not manifestly unreasonable; Alter or eliminate the duty of care, although it is possible to make alterations provided they are not manifestly unreasonable and provided they do not authorize conduct involving bad faith, willful or intentional misconduct, or knowing violation of the law; Eliminate the contractual obligation of good faith and fair dealing (but the partnership agreement may prescribe standards, if not manifestly unreasonable, by which performance of the obligation is measured)

Until when do partners have apparent authority to bind the partnership in the ordinary course of business or kind carried on by the partnership?

Until the third party knew or had notice that the partner lacked actual authority

What is the typical loss allocation for an LLC?

Usually pro rata basis according to contribution

What is the typical profit allocation for an LLC?

Usually pro rata basis according to contribution

Liquidity choice of a C Corporation??

WTF does Yes (PHC*) mean??

When is a Principal "undisclosed"?

When a third party doesn't have notice that the person they are dealing with is an agent acting on behalf of someone else

What is the basis for contract liability under the theory of undisclosed principal authority?

When an A acting with actual authority makes a contract on behalf of an undisclosed P, both P and A are bound

When is a Principal unidentified?

When an agent and a third party interact, the third party has notice that the agent is acting for a principal but does not have notice of the principal's identity

What is a Frolic?

When an employee substantially deviates from or abandons the scope of employment

When does apparent authority end?

When it's no longer reasonable for the Third party to believe that the Agent continues to act with actual authority

When is an employer vicariously liable for an employee's actions?

When the employee commits a tort while acting with the scope of employment

When does formation of an LLC occur?

When: - Certificate of Organization is effective AND - At least one person has become a member of the LLC

What is the ultra vires doctrine?

Whenever a transaction is beyond the corporation's limited purposes or powers, either party to the contract has the power to disaffirm it

Whenever stockholders are required or permitted to take any action at a meeting, what shall be given?

Whenever stockholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, if any, date and hour of the meeting DGCL § 222 Notice of meetings

What is the test to determine when apparent authority ends?

Whether T knows or reasonably should've known of the termination of A's authority

What does an Agent's liability depend on?

Whether the agent has entered into the contractual obligation with the third party on behalf of a disclosed, unidentified, or undisclosed principal

What is the foreseeability test?

Whether the employee's conduct should fairly have been foreseen from the nature of the employment or whether the risk of such conduct was typical or incidental to the employer's enterprise

What rights does a partner have in the assets of the partnership?

While the partner has a co-owner interest in the partnership, the partner is NOT the owner or co-owner of the partnership property

The buyout price of the interest of a person dissociated as a partner is the amount that:

Would have been distributed to the person [under a dissolution situation] if, on the date of dissociation, the assets were sold and the partnership were wound up, with the sale price equal to the greater of: (1) the liquidation value; or (2) the value based on sale of the entire business as a going concern without the person

Can the estoppel doctrine can apply regardless of whether an agency relationship actually existed?

Yes

Does the Duty of Confidentiality remain in force after the termination of the agency relationship?

Yes

Is it in the ordinary course of business for trucking business to purchase tires on credit for fleet of trucks?

Yes

Is it in the ordinary course of business if the business is an office building renting out modules?

Yes

Is it in the ordinary course of business to hire employees?

Yes

Is a principal liable for the actions of its agent taken within the scope of the agent's apparent authority, even if the actions exceed the scope of the agent's actual authority?

Yes A principal is liable for the actions of its agent taken within the scope of the agent's apparent authority, even if the actions exceed the scope of the agent's actual authority. Companies necessarily act through their agents. Although the existence of an agency does not vest the agent with limitless authority, under certain circumstances an agent's authority may reasonably appear broader than what is actually vested. The words or conduct of the principal, when conveyed to the third party, can establish the appearance of such authority. If the principal places the agent in a position of authority in which the agent has certain powers, it creates apparent authority for the agent. Additionally, inaction on the part of the principal when the agent deviates from her actual authority can establish the appearance that the agent's authority does allow for the agent's actions. Ophthalmic Surgeons, Ltd. v. Paychex, Inc.

Peter owns a shopping plaza and hires Alexa to manage it Is Peter liable in contract under the following circumstances: circumstances?Without express instructions, Alexa hires a janitor to clean thebuilding. Is Peter bound by the contract?

Yes Actual Implied Authority

Has an employee who operates a business that competes with his or her employer without disclosing that business to the employer committed a breach of fiduciary duty?

Yes An agent has a fiduciary duty to act in good faith and to further the interests of the principal. If an agent competes with the principal's business, the agent has violated his or her fiduciary duty and is liable to the principal for profits made in the competitive enterpris General Automotive Manufacturing Co. v. Singer

Can an agent of a corporate board of directors have authority to bind a corporation to an agreement if the board of directors takes actions that could be reasonably seen as manifesting such authorization?

Yes An agent of a corporate board of directors can have authority to bind a corporation to an agreement if the board of directors takes actions that could be reasonably seen as manifesting such authorization. An individual can have the power to bind his principal, such as a corporation, to an agreement as long as the agent acts with actual or apparent authority. An agent has actual authority if the principal manifests assent to the agent that the agent may act on the principal's behalf. The scope of the agent's actual authority is determined by how the agent could reasonably understand the corporation's manifestations and objectives. Additionally, even if an agent does not have actual authority, the agent could still bind a corporation to an agreement if the agent has apparent authority. Apparent authority is present if a third party reasonably believes that the principal directed the agent to act on the principal's behalf, and such belief is traceable to the principal's conduct

Peter owns a shopping plaza and hires Alexa to manage it Is Peter liable in contract under the following circumstances: Alexa and Peter go to a Chamber of Commerce meeting and run into Tim, who Alexa knows from high school. Alexa tells Tim that she is now working as the manager at Peter's shopping plaza. She tells Tim that they are looking to hire a company to repaint the lines in the parking. Peter says nothing. Alexa hires Tim to paint the lines. Is Peter bound by the contract?

Yes Apparent authority (and probably actual too)

Peter owns a shopping plaza and hires Alexa to manage it Is Peter liable in contract under the following circumstances: Peter tells Tim that he is looking to hire a company to repaint the lines in the parking lot and that Alexa is managing the plaza. Alexa hires Tim to paint the lines. Is Peter bound by the contract?

Yes Apparent authority (and probably actual too)

Is a co-adventurer required to inform another co-adventurer of a business opportunity that occurs as a result of participation in a joint venture?

Yes As sharers in a joint venture, co-adventurers owe each other a high level of fiduciary duty. A co-adventure who manages a joint venture's enterprise has the strongest fiduciary duty to other members of the joint venture Meinhard v. Salmon

If an employer fails to exercise ordinary care and eliminate a known and unnecessary hazard that causes injury to a third party, is the employer liable?

Yes Clover v. Snowbird Ski Resort

Does Delaware allow for the elimination of fiduciary duties if clearly and expressly provided in the operating agreement?

Yes Delaware has allowed for elimination of fiduciary duties if clearly and expressly provided in the operating agreement

Can implied authority be established by evidence showing a course of conduct between two parties which would lead an agent to reasonably believe that a principal intended the agent to have authority under the circumstances?

Yes When a principal has routinely granted an agent certain powers, implied authority is assumed when the agent exercises those powers. Implied authority is proven circumstantially when it is shown that the principal intended the agent to have such authority as was necessary to perform the duties the principal assigned Mill St. Church of Christ v. Hogan

Peter owns a shopping plaza and hires Alexa to manage it Is Peter liable in contract under the following circumstances: Peter tells Alexa to hire a company to cut the grass. Alexa does it. Is Peter bound by the contract?

Yes, Actual express authority

Lawyer Laura is a partner in the partnership of Dumas & McPhail, which has multiple other partners. Laura owes her landlord, Lou back rent so she transfers to Lou her distribution interests in the firm. The firm refuses to pay Lou so, he sues them claiming he is entitled to the distribution. Is Lou likely to prevail? What other recourse does Lou have?

Yes, Lou is likely to prevail because Laura is permitted to transfer her own distribution rights to him (it was not firm property) Lou could also secure a charging order that would create a lien over Laura's transferable interest of the distribution What rights is a third party entitled to? -> The third party is only entitled to distribution rights, no management or information rights

Does each partner have the actual authority to bind the partnership in the ordinary course of business?

Yes, each partner is an agent of the partnership

Can agency be formed expressly and/or implied by the circumstances?

Yes, it can be formed expressly and implied

Could partner #1 be held liable for a delivery made in the ordinary course of business, that the partner #2 ordered when there were no limitations on the partner #2's authority, but partner #1 told the third party he would not be personally liable for the bread? National Biscuit Company, Inc. v. Stroud

Yes, partner #1 can be liable for the deliveries because partner #2's conduct of ordering was in the ordinary course of business and there was no majority of partners that restricted his authority to do so

Michael, Dwight, and Andy form a partnership to provide legal services. Michael is sued for malpractice in negligence. Could the partnership be liable if Michael is found negligent?

Yes, the partnership is liable because the tort occurred in the OCB of a law firm and Michael had both actual and apparent authority to practice law. Analysis: Was the tort committed in the ordinary course of the business? -> Yes, practicing law is done in ordinary course of business for a law firm Did Michael have actual or apparent authority? -> Yes, as a lawyer in the firm, he would have had actual and apparent authority to practice law

Michael, Dwight, and Andy form a partnership to provide legal services. Michael was driving and texting Dwight about a case they are handling. Because he wasn't paying attention, he ran a stop light and caused and caused an accident hitting another vehicle. Could the partnership be liable for Michael's negligence?

Yes, the partnership is liable because the tort occurred in the OCB of a law firm and Michael had both actual and apparent authority to practice law. Analysis: Was the tort committed in the ordinary course of the business? -> Yes, working with other lawyers on a case is done in ordinary course of business for a law firm Did Michael have actual or apparent authority? -> Yes, as a lawyer in the firm, he would have had actual and apparent authority to practice law

Michael, Dwight, and Andy form a partnership to run a bakery. All agree between themselves that Michael shall have the exclusive authority to order supplies, Dwight shall have exclusive authority to handle advertising, and Andy shall have exclusive authority to hire help for the partnership. Could the partnership be liable on an advertising contract that Michael entered into on behalf of the partnership?

Yes, the partnership is liable. The transaction was made in the OCB and, because the third party did not know of Michael's lack of authority, the exception to liability does not apply Analysis: Was the contract made in the ordinary course of the business? -> Yes, advertising is done in OCB Is the transactions typical for that business or in OCB? -> While advertising is not the type carried on by the bakery, it is OCB Did the partner lack authority and did the third party know? -> (1) Michael did NOT have authority b/c advertising was the exclusive authority of Dwight -> But (2) facts do not state that third party knew of lack of authority

What is the criteria for determining employee status?

a)Extent of control which P may exercise over details of the work b)Is A engaged in a distinct occupation/business? c)The kind of occupation and whether the work is usually done in that locality under P's direction, or by a specialist w/o supervision? d)Skill required in the particular occupation e)Who supplies the instrumentalities, tools, and place of work for A? f)Length of time for which A is employed g)Method of payment, whether by the time or by the job h)Is the work a part of the regular business of P? i)Do the parties believe they are creating an employment relationship? j)Whether the P is in business

What is the default rule for capital contributions under the RUPA?

ach partner is credited with an amount equal to the money plus the value of any other property contributed in order to be a partner or in the person's capacity as a partner. The contributed capital itself belongs to the partnership and can be any property (real, intangible, etc.)

What are the financial rights in a Manager-managed LLC?

distributions (Ms equal)

What are the financial rights in a Member-managed LLC?

distributions (equal)

What are the financial rights in a C Corporation?

dividends (per share)

What are the financial rights in a S Corporation (CHC)?

dividends + salaries

A principal's manifestation of assent to an agency relationship may be:

informal, implicit, and nonspecific

What are the financial rights in a Limited partnership?

share distributions ($ contrib)

What are the financial rights in a General partnership?

share profits (equal)

Describe the operating agreement of an LLC:

•Freedom of contract principles prevail and operating agreement enforced or upheld •Foundational Document of the LLC •Sets forth the governance of the LLC •Can be Oral, Implied or in a record (or combination of those) -> RULLCA §102(13) (2013) •Amendments need to be approved by unanimous consent unless agreement provides otherwise.

Define what members are/membership is in an LLC?

•Membership alone does not make member an agent of the LLC. -> RULLCA §301(a) •All members participate in management. -> RULLCA §407(b)(1) •Default is that each member has equal voting rights -> RULLCA §407(b)(2) •If dispute related to OCB = majority vote -> RULLCA §407 (b)(3) •Unanimous vote required to -> Amending Operating Agreement -> Undertake action outside of OCB -> RULLCA §407(b)(4)(A)-(B)

What is a "Non-Agent" for purposes of vicarious liability?

•N-A does not have power to act on other's behalf (i.e. service provider) •Other party (not a P) may have less control over results and does not control physical conduct = No liability in agency law

What information is required to be included in the Articles of Organization/Certificate when forming an LLC under the RULLCA?

•Name of the Business •Address of Principle Office •Name and Address of LLC's Agent

What is the incorporation process?

•Select state of incorporation. •Reserve the desired corporate name by application to the secretary of state or other designated state office. •Arrange for a registered office and registered agent. •Draft, execute, and file the certificate of incorporation (aka "charter," "articles of incorporation") with the relevant state agency, according to the requirements of state law (e.g., DGCL § 102). •The DGCL requires state officials to accept certificates for filing if they meet the specifications. DGCL § 103(c). Certain filing or organization fees and any franchise tax must be paid. Note: The role of incorporators can be purely mechanical. - They sign the certificate and arrange for the filing. - If the certificate does not name directors, the incorporators select them at the first organizational meeting (to serve until first shareholder meeting). - After incorporation, the incorporators can fade away and do not need any continuing interest or role.

What are the characteristics of an LLP?

●General Partnership with partners BUT partner liability is limited (no unlimited personal liability) ●Have to file with the state to secure limited liability ●Pass through taxation

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