Acc 302 Test 3 Essay
Discuss the fundamental rules of contractual liability between a principal and the third party
a. A disclosed principal and the third party are contractually bound if the agent acts within her actual or apparent authority in making the contract. b. A partially disclosed principal and the third party are contractually bound if the agent acts within her actual or apparent authority in making the contract. c. An undisclosed principal and the third party are contractually bound if the agent acts within her actual authority in making the contract unless (a) the terms of the contract exclude the principal or; (b) the principal's existence is fraudulently concealed. d. No principal is contractually bound to a third party if the agent acts without any authority, unless a disclosed or partially disclosed principal ratifies the contract.
a. What is a fiduciary? b. What are the implications of an agent's fiduciary obligation? What is an agent prohibited from doing as a result of this obligation? Explain.
a. A fiduciary is someone who acts for someone else's benefit while placing one's own interests secondary to that person's interests. A fiduciary relationship is one arising out of trust and confidence and involves the utmost loyalty and good faith. b. An agent must always act in a way that benefits the principal and not in a way where the agent benefits to the detriment of the principal. An agent is prohibited from doing anything that provides the agent a secret profit. An agent may not represent both a buyer and a seller, without the buyer and seller having knowledge of and agreeing to the agent's dual role. An agent must disclose to the principal business opportunities the agent learns of that are within the scope of the principal's business. An agent may not use or disclose confidential information obtained in the course of the agency for his own benefit or contrary to the interest of the principal. An agent may not compete with the principal or assist the principal's competitors. The agent may not use the principal's property for the agent's or a third person's benefit.
Discuss the business judgment rule.
The business judgment rule precludes imposing liability on directors or officers for honest mistakes of judgment. To benefit from the business judgment rule, officers and directors must make an informed decision, in good faith, without any conflict of interests, and have a rational basis for believing it was in the corporation's best interests
How does the Revised Act define the term "distribution"?
"A direct or indirect transfer of money or other property (except for its own shares) or incurrence of indebtedness by a corporation to or for the benefit of its shareholders with respect to any of its shares. A distribution may be in the form of a declaration or payment of a dividend; a purchase, redemption, or other acquisition of shares; a distribution of indebtedness; or otherwise." Neither a stock dividend nor a stock split is a distribution.
What are the principal attributes of a corporation?
(a) It is a legal entity. (b) It owes its existence to a state, which also regulates it. (c) It provides limited liability to its shareholders. (d) Its shares of stock are freely transferable. (e) Its existence may be perpetual. (f) Its management is centralized. (g) In some cases, it is considered a person; and (h) In some cases, it is considered a citizen.
Southern Furniture Co. hired Chuck to drive a company truck and deliver furniture. Chuck had a spotless driving record and did well on his driving test. Belinda ordered a chair from Southern Furniture Co. and arranged for its delivery on her lunch hour. Belinda was at home when Chuck delivered the chair. After delivering the chair, Chuck brutally raped Belinda, causing severe physical and psychological injuries. Chuck was convicted in the criminal courts. During the trial it was revealed that Chuck had been in a mental institution for the criminally insane for two years because he had brutally assaulted his mother and other women. He also had a lengthy criminal rap sheet involving theft crimes. Belinda sought compensation for her physical and psychological injuries from both Chuck and Southern Furniture Co. in civil court. Discuss what the probable outcome of this case would be with regard to the issues of: (a) respondeat superior and (b) general tort liability of principals for the unauthorized acts of their agents
(a) Respondeat superior-An employer may be liable for the unauthorized torts committed by an employee, even acts that are in flagrant disobedience of the employer's instructions, if the tort was committed within the scope of employment. The question then becomes whether Chuck's act is sufficiently connected with his employment and in the scope of his employment to cause Southern to be held liable under respondeat superior. According to Rubin v. Yellow Cab Co., the answer would be no. (Here the student could discuss the relevant facts and how they are similar to Rubin.) (b) General tort liability of principals for the unauthorized acts of their agents-With this Belinda would probably recover. Southern was negligent or reckless in hiring, supervising, or controlling its employee.
Paul is a truck driver who owns his own truck and delivers loads to various companies for nine months out of the year. For the hard winter months, Paul goes to Key West to "put his feet in the sand." One evening while delivering a load for Emblem Helicopter Parts Co., Paul got into a "little scuffle" with a rowdy trucker who was giving Nell, a waitress at the DewDrop Inn Cafe, a hard time. Paul knocked out five of "Rowdy's" teeth. Rowdy is suing Paul and Emblem for his injuries. Discuss whether Rowdy will win against Emblem on the issue of: (a) respondeat superior and (b) unauthorized acts of agents.
(a) Respondeat superior-No. Paul is an independent contractor because he works for many companies and directs his own working time. (b) Unauthorized act of an agent. Paul is probably not an agent; however, if he were an agent, without any negligence evident on the part of Emblem in their hiring, supervising, controlling or training, then Rowdy would not win on this issue.
How does the management structure of a closely held corporation differ from that of a publicly traded corporation?
A close corporation is one whose shares are closely held by members of a family or relatively few persons. The management structure is much like that of a sole proprietorship or a partnership. A close corporation has a single shareholder or a closely knit group of shareholders, which eases the management task. A publicly traded corporation, on the other hand, may have hundreds or even thousands of shareholders. These shareholders are usually complete strangers. The management of a publicly traded corporation is much more complex than that of a close corporation, simply because of the increased number of shareholders and because of the public accessibility of the stock.
What is the effect on liability of a limited partner who participates in the management of the partnership? What activities may a limited partner perform without affecting liability?
A limited partner who participates in the control of the business is liable only to those persons who transact business with the limited partnership reasonably believing, based on the limited partner's conduct, that the limited partner is a general partner. The RULPA lists certain activities that constitute a "safe harbor" and that a limited partner may carry on without being deemed to have taken part in control of the business. They include: (a) being a contractor for, or an agent or employee of, the limited partnership or a general partner; (b) consulting with and advising a general partner; (c) acting as surety for the limited partnership; (d) approving or disapproving an amendment to the partnership agreement; and (e) voting on various fundamental changes in the limited partnership
Explain the reasons why the accountability of the management of a corporation is a cultural issue
A relatively small number of large, publicly held corporations own the great bulk of the industrial wealth in this country. This concentration of control, wealth, and power raises social, economic, and ethical concerns. The actions of these corporations affect the national economy, employment policies, health and safety of workers and the environment, the quality of products, and the effects of overseas operations.
Discuss the nature of agency, including the scope of agency purposes.
Agency is a consensual relationship between two persons, a principal and an agent, through which the agent is authorized to act for and on behalf of the principal.The agent represents the principal in business dealings with a third person. The agent acts for and in the name and place of the principal, with the result the same as if the principal had dealt directly with the third person. Within the scope of the authority granted by the principal, the agent may negotiate the terms of contracts with others and bind the principal to such contracts. The negligence of an agent who is an employee in conducting the business of the principal exposes the principal to possible tort liability. As a general rule, a person may do through an agent whatever business activity he may accomplish personally. However, a person may not appoint an agent to perform acts so personal that their performance may not be delegated.
Describe an LLC and the rights of its members
An LLC (limited liability company) is a noncorporate business organization that provides limited liability to all of its owner/members and permits all of its members to participate in management of the business. It must be formed in substantial compliance with a state's LLC statute. A member has no property interest in property owned by the LLC, but a member does have an interest in the LLC, which is personal property. A member's interest includes two components: (a) a financial interest, which is the right to share profits and receive distributions; and (b) a management interest, which consists of all other rights granted to a member by the LLC operating agreement and the LLC statute. The management interest typically includes the right to manage, vote, obtain information, and bring enforcement actions.
Identify three ways an agent may agree to become liable on a contract between the principal and the third party.
An agent may agree to become liable by: (a) making the contract in his own name; (b) co-making the contract with the principal; or (3) guaranteeing that the principal will perform the contract between the third party and the principal. In all of these situations, the agent's liability is separate from the principal's unless the parties agree otherwise
What is an independent contractor? Can an independent contractor also be an agent? Explain.
An independent contractor is someone who contracts to do something for another but is not controlled in the details of physical conduct used in performing the job. An independent contractor may or may not be an agent. Agents who are not employees are independent contractors. Real estate and collection agencies generally occupy agency status and as such would have the normal duties of an agent.
Compare and contrast ratification and adoption of unauthorized contracts.
Both ratification and adoption are means of affirming prior unauthorized acts. Ratification binds the principal and the third party as if the purported agent had initially acted with actual authority. Once made, ratification is irrevocable. Ratification frees the agent from liability to the principal for acting without or beyond authority. The agent is also freed from liability to the third party for inducing the third party to enter the contract without the principal's authority. Adoption is the act of a corporation to affirm a preincorporation contract made on its behalf. The corporation, in addition to the promoter, becomes bound. Adoption differs from ratification because it is not retroactive and does not release the promoter from liability. The majority of states do not allow a corporation to ratify a promoter's contracts because the corporation did not exist when the contracts were made.
Discuss the similarity between a management buyout and a cash-out combination
Cash-out combinations are used to eliminate minority shareholders by forcing them to accept cash or property for their shares. Management buyouts are transactions where existing management increases its ownership of a corporation and eliminates the public shareholders
Name the classifications of corporations.
Corporations may be classified as public or private, profit or nonprofit, domestic or foreign, publicly held or closely held, subchapter S, and professional
Discuss whether officers and directors may entrust important work to others and their potential liability if they do
Directors and officers are permitted to entrust important work to others. If they have selected employees with care, the officers and directors are not personally liable for negligent acts or willful wrongs of those they selected. A reasonable amount of supervision is required. If an officer or director knew or should have known or suspected that an employee was incurring losses through carelessness, theft, or embezzlement, the officer or director will be held liable for such losses. The 1999 amendments to the Revised Act have a provision entitling a director to rely on the performance of board functions properly delegated by the board to officers, employees, or a committee of the board of which the director is not a member unless the director has knowledge that makes reliance unwarranted
Discuss the duties of general partners to limited partners
General partners have a fiduciary duty to limited partners. General partners owe the limited partners a duty of reasonable care in the management of the business but may not be held liable for mistakes made or losses incurred in the good faith exercise of reasonable business judgment.
Discuss what happens to a corporation after dissolution and what protection is afforded creditors of the corporation
Dissolution requires that the corporation devote itself to winding up its affairs and liquidating its assets. After dissolution, the corporation must cease carrying on its business except as is necessary to wind up. When a corporation is dissolved, its assets are liquidated and used first to pay the expenses of liquidation and its creditors according to their respective contract or lien rights. Any remainder is proportionately distributed to shareholders according to their respective contract rights. Statutory provisions governing dissolution and liquidation usually include the following safeguards to the interests of the corporation's creditors: mailing of notice to known creditors, general publication of notice, and preservation of claims against the corporation.
Discuss what is required in most states to form a corporation
Formation of a corporation must comply with state statute. The procedure begins with the promotion of the proposed corporation by its organizers/promoters, who procure offers to buy stock and prepare incorporation papers. Incorporators must file articles of incorporation, or a charter, with the state. This document then becomes the basic governing document of the corporation as long as the provisions are legal. An organizational meeting is held to issue stock, adopt bylaws, appoint officers, and carry on other business. If the articles do not name the corporation's initial directors, the incorporators hold the organizational meeting to elect directors, and either the incorporators or the directors complete the organization
Dan, an agent for Ramona, sees what he thinks is a good deal for Ramona. Without asking whether he has authority to negotiate the deal, Dan enters into a contract on Ramona's behalf. Ramona says later that she isn't interested. Is Ramona liable on the contract? Is Dan liable on the contract? Explain
If Dan has express, implied, or apparent authority, Ramona would be liable on the contract. If the third party has not changed position at the time that Ramona repudiates the contract, she may be able to minimize any damage claim. If the contract is within the scope of his authority and the principal is disclosed, Dan is not liable unless he personally guaranteed Ramona's performance. The reason is that an agent is not personally intended as a party to a contract. If the contract is outside his scope of authority, Dan has breached the warranty of authority and is liable.
Jesse purchases 50 shares of Mountain Ridge Corporation stock. Explain what, if any, liability Jesse has to the corporation or its creditors with respect to the shares.
Jesse, as a purchaser of shares, is responsible to pay the corporation either the consideration for which the shares were authorized to be issued or the consideration specified in the preincorporation stock subscription. When the corporation receives that consideration, the shares are fully paid and nonassessable. Beyond this payment, Jesse has no liability to the corporation or its creditors with respect to the shares. If Jesse were a transferee who acquired the shares in good faith and without knowledge or notice that the full consideration had not been paid, he would not be personally liable to the corporation or its creditors for the unpaid portion of the consideration.
What are the liabilities of a limited partner in a limited partnership
Limited partners are liable only to the extent of their capital contributions unless they fail to comply with the statutory requirements of a limited partnership, their surnames are in the partnership name, or they take part in control of the business. In those circumstances, they will have unlimited liability.
Jasmine owns a controlling interest in the Hardwick Company. Explain her responsibilities if she wants to privately sell her interest
One or a few shareholders who own a controlling interest in a corporation may privately negotiate a sale of that interest. The courts require that these transactions be made with due care. Jasmine must make a reasonable investigation so as not to transfer control to purchasers who wrongfully plan to steal the corporation's assets or to act against its best interests. If she receives a premium for the block of shares that convey control, almost all courts today would permit her to keep the amount received rather than requiring her to turn the premium over to the corporation.
Discuss preemptive rights. Are preemptive rights more important in a closely held corporation or in a publicly held corporation? Explain
Preemptive rights are a shareholder's rights to purchase a pro rata share of new stock. Preemptive rights are more important in a closely held corporation than in a publicly traded one. This is because a closely held corporation usually has only a few shareholders, and the proportionate share owned by each shareholder is significant in determining who will control the corporation. In the absence of preemptive rights, a shareholder may be unable to prevent a dilution of his ownership interest in the corporation.
Discuss the use of and types of stock options.
Stock options entitle their holders to purchase from the corporation shares of a specified class or classes of stock. A stock warrant is a type of stock option that typically has a longer term and is freely transferable. A stock right is a short-term warrant. The board of directors determines the terms upon which stock rights, options, or warrants are issued; their form and content; and the consideration for which the shares are to be issued. Stock options and warrants may be used in incentive compensation plans for directors, officers, and employees. They may also be used to help a corporation raise capital by making one class of securities more attractive by including in it the right to purchase shares in another class.
When is a principal liable for her own conduct in tort involving the use of agents?
Such liability may arise in two primary ways. A principal is directly liable in damages for harm resulting from directing an agent to commit a tort. Second, the principal is directly liable if she fails to exercise care in employing competent agents.
What powers does a corporation normally possess?
The general powers granted by incorporation statutes typically include: (a) perpetual succession; (b) to sue and be sued in its corporate name; (c) to acquire and dispose of property; (d) to make contracts, borrow money, and secure its obligations; (e) to lend money; (f) to be a partner in a partnership; (g) to conduct its business in this and other states; (h) to establish pension, profit sharing, and other plans; and (i) to make charitable donations. The Revised Act makes a general grant of power to all corporations to do all things necessary or convenient to carry out its business and affairs
Compare the respective roles of the officers, board of directors, and the shareholders of a corporation. Who runs the corporation? Explain your answer and give examples
The officers of a corporation handle the day-to-day business affairs of the company. They are considered agents of the corporation, and are selected by the board of directors. Because of this, officers answer to the board of directors rather than directly to the shareholders. The board of directors sets the broad guidelines by which a corporation operates. They are responsible for making decisions about overall policy. Directors declare dividends, authorize major corporate contracts, appoint or remove officers and set salaries, and issue authorized shares of stock. Directors are obligated to be honest and loyal in their actions. Though individual directors aren't agents of the corporation, when they act as a unit (board), they are. Shareholders own the corporation. The only ways, however, shareholders can exercise influence over corporate policy is through the election of the board of directors, approval of extraordinary matters, and the right to bring suits to enforce these rights. Shareholders don't have a direct voice in policy decisions. Shareholders are neither agents nor managers of the corporation
The Elm Street Partnership is a limited partnership in which Arlo is the sole general partner and Barbara and Charles are the limited partners. Now the partnership is being dissolved, and Barbara wants her money. The partnership creditors include Charles, for a $1,000 loan, in addition to his capital contribution. In what order should the partnership assets be distributed?
The priorities for distribution of assets upon dissolution of a limited partnership are as follows: (1) creditors, including partners who are creditors; (2) partners and ex-partners in satisfaction of liabilities for unpaid distributions; (3) partners for return of their capital contributions unless otherwise agreed; and (4) partners for their partnership interests in the proportion in which they share distributions unless otherwise agreed. No distinction is made between a general and limited partner in these distributions unless the partnership agreement so provides.
Name the two basic types of authority with regard to agents and explain the difference between them.
The two basic types of authority are actual and apparent. Actual authority exists when the principal gives actual consent to the agent. It may be either express or implied. Apparent authority is based upon acts or conduct of the principal which leads a third person to believe that the agent has actual authority, upon which belief the third person justifiably relies. In either case, such authority is binding and confers upon the agent the power and right to create or affect the principal's legal relations with third parties.
What are the two major issues regarding payment for shares?
Two major issues arise regarding payment for shares. First, what type of consideration may the corporation validly accept in payment for the shares and, second, who shall determine the value to be placed upon the consideration the corporation receives in payment for shares. The Revised Act greatly liberalized the rules for type of consideration by specifically validating for the issuance of shares consideration consisting of any tangible or intangible property or benefit to the corporation, including cash, services performed, contracts for future services, and promissory notes. Determining the value to be placed on the consideration that stock purchasers will exchange for shares is the responsibility of the directors. However, under the Revised Act, the articles of incorporation may reserve to the shareholders the powers granted to the board regarding the issuance of shares.
What is the doctrine of ultra vires? What is the effect of an ultra vires contract?
Ultra vires acts are without legal authorization, because the act is not within the scope and type of acts that the corporation is legally empowered to perform. Traditionally, ultra vires acts were unenforceable as null and void. Today, courts allow the ultra vires defense when the contract is wholly executory on both sides. Most corporate statutes today give corporations broad powers and most corporate charters use general language to outline the activities in which the corporation proposes to engage. Thus, the doctrine is of less importance today than in the past.
a. In general, what is considered a fundamental change in a corporation? Give three examples of what would be considered a fundamental change. b. Who proposes such fundamental changes? Who must approve them? Explain. c. Brian is a minority shareholder in Gryath, Inc. He opposes a fundamental change that is approved and implemented. What rights does he have?
a. A fundamental change alters the basic structure of a corporation. Fundamental changes include charter amendments, the sale or lease of all or substantially all of a corporation's assets, mergers, consolidations, compulsory share exchanges, and dissolution of the corporation. b. While board members or shareholders may propose the change, shareholders give approval for fundamental changes. c. If Brian dissents and strictly complies with provisions in the corporate statute, he is entitled to receive the fair value of his shares, plus accrued interest. In order to perfect his right to payment for his shares, a dissenting shareholder must make a written demand within the prescribed time period. A dissenting shareholder that complies with all of the applicable requirements is entitled to an appraisal remedy.
a. What is a quorum of the board of directors for purposes of conducting corporate business? What does the Revised Act say with regard to a quorum? What is a supermajority requirement? b. The directors of Bigkey, Inc. can't decide whether to declare a dividend, so the board appoints a committee consisting of the president of the corporation, the vice president of the corporation, and the treasurer to decide whether to pay a dividend. If the committee wants to declare a dividend, the directors say the officers can pay it immediately before the next board meeting. Is this a permissible delegation of corporate authority? Explain.
a. A quorum is the minimum number required to be present at a meeting to transact business. A majority of the board members constitutes a quorum. Most states do not allow a quorum to be set at less than a majority, but the Revised Act and some states allow the bylaws or articles of incorporation to authorize a quorum consisting of as few as one-third of a board's members. A supermajority requirement is a requirement that more than a simple majority vote in favor of certain items for them to pass. Closely held corporations sometimes require a supermajority or unanimous vote of the board for some matters. b. A committee to act on behalf of the board, to be properly formed, must be made up of all directors, not officers. Even if the committee is properly formed, there are certain exceptions to the general rule that committees may exercise the authority of the board. A committee cannot declare a dividend; only the board can. The committee could, however, make a recommendation on the matter.
a. Explain how an agency relationship comes to an end. b. Is an agency relationship ever irrevocable? Explain.
a. Agency is terminated by: (1) acts of the parties (time lapse, purpose achieved, an agent's renunciation of authority, mutual agreement to terminate, a principal's revocation of authority); or (2) operation of law (death of the agent or death of the principal upon notice to the agent, incapacity of the principal upon notice to the agent, changed circumstances). Termination of agency means the agent no longer has the authority to bind the principal. b. Yes, an agency coupled with an interest is irrevocable, even when death of the principal or incapacity of the creator or holder of the power occurs. The reason is that interest is not created for the benefit of the principal. It occurs when the agent has a security interest in the subject matter of the agency.
a. When may the attorney general of a state seek judicial action to dissolve a corporation? c. When may the creditors of a corporation seek to dissolve it?
a. An attorney general may seek to dissolve a corporation if the corporation obtained its charter through fraud or has continued to exceed or abuse its authority. c. A creditor may bring a court action to dissolve the corporation on showing that the corporation has become unable to pay its debts and obligations as they mature in the regular course of its business and either (a) the creditor has reduced his claim to a judgment and an execution issued on it has been returned unsatisfied; or (b) the corporation has admitted in writing that the claim of the creditor is due and owing.
b. What is an undisclosed principal? b. What is a partially disclosed principal? c. What liability does an agent have to a third party when the principal is either undisclosed or partially disclosed? d. Dale is asked to be an agent for Phil, but Phil does not wish third parties to know that Dale represents him. In light of your answer to part (c), why would Dale want to be an agent for Phil? Why would Phil wish that third parties not know his identity? Explain.
a. An undisclosed principal is not known to the third party. The third party believes it is dealing personally and solely with the agent. b. A partially disclosed or unidentified principal exists where the third party knows an agency relationship exists, but doesn't know who the principal is. c. If the principal is partially disclosed or undisclosed, the agent is liable. d. Assuming Phil has adequate finances, it makes little difference to Dale whether his principal is disclosed or undisclosed. As long as Dale acts within his scope of authority, Phil is bound to perform on the contract. However, if Phil is financially shaky and cannot honor his commitments, Dale must be aware he has personal liability on all contracts in which Phil was an undisclosed principal, in which case the contracting party may look to Dale for payment on the contracts. Dale is entitled to indemnity from Phil, but Phil may file bankruptcy. Phil may wish to remain undisclosed in order to effect a transaction that is more beneficial to him.
Fyloff, Inc. would like to pay a dividend to its shareholders. It has only been in business a few years and does not yet have any retained earnings. However, it has a new product, which is breaking all sales records. This quarter, it anticipates about $3 million in earned surplus. It should be able to pay all of its bills as they become due. Under which of the following tests would Fyloff be able to pay a dividend? Explain each test. a. Earned surplus test b. Surplus test c. Net asset test
a. No dividend could be paid under this test, because the corporation does not have any earned surplus. A profit during only one quarter does not constitute an earned surplus. Earned surplus is defined as undistributed net profits, income, gains, and losses from the date of incorporation, i.e., retained earnings. This is the most restrictive of the various tests, but it is still followed by many states. b. It is not clear from the facts whether a dividend could be paid under this standard, but it probably could not. Surplus consists of the excess of net assets over stated capital. Surplus could consist of a capital surplus; it need not have been "earned" from the business of the corporation. Thus, this test is slightly more liberal than the earned surplus test. In all likelihood the corporation would be unable to meet this standard and would thus be unable to pay a dividend. c. It is not clear from the facts whether a dividend could be paid under the net asset test, but as with the surplus test, it probably could not. Net assets consist of total assets minus total debts. The MBCA as amended in 1980 and the Revised Act have adopted this test. It permits dividends to be paid unless the corporation's total assets after payment of the dividend would be less than the sum of its total liabilities and the maximum amount that would then be payable for all outstanding shares having preferential rights in liquidation. Not enough information is given here to determine whether the test has been met, but the facts seem to imply that it has not.
a. Action Corporation purchases all of the assets of the Bell Corporation. After the purchase, a creditor of the Bell Corporation asserts that, by buying the assets of the Bell Corporation, Action has automatically assumed all of Bell's obligations. Is he correct? Explain. b. Dicton Corporation is merged into the Crag Corporation. One of Dicton's creditors was not paid before the merger occurred. The creditor demands payment from the board of directors of the Crag Corporation. The board says that because the Dicton Corporation no longer exists, Crag has no obligation to the creditor. Who is right? Explain your answer.
a. No. The acquiring corporation, Action, is simply extending its ownership and control over more assets. b. The Dicton creditor is correct. In a merger, the surviving corporation assumes liability for the debts of the merged corporation. Therefore, Crag is liable.
Identify the following parties and relationships. a. Patricia hires Andrew, an attorney, to negotiate a contract to purchase some property. She agrees to pay him $75 an hour for his services, and he agrees to use his own office and secretarial staff to negotiate and draft the agreement. b. Mel owns a retail store. He hires Sarah to work for him as a clerk in the home furnishings department. c. Carl is the general contractor for the construction of a large office complex. Carl hires Ed's Electric Company to do all of the wiring for the building. d. Incellmed Corporation hires Bob as an outside salesman and instructs him to call on customers in a specified territory and to solicit orders for their products. e. Marlin, who is the owner of Marlin's Department Store, hires Melissa as the general manager of his new branch in the Hillridge Mall.
a. Patricia is a principal, and Andrew is an independent contractor. Patricia is not an employer and Andrew is not an employee, because Andrew has his own office and controls the method and manner of the job performance. b. Mel is an employer, and Sarah is an employee. She is probably an agent only for the limited scope of her sales duties. c. Carl is the principal, and Ed is an independent contractor, but he is probably not an agent. d. Incellmed is the principal, and Bob is the agent. Incellmed is probably also an employer, and Bob an employee. e. Marlin (or Marlin's Department Store) is the principal and also the employer, and Melissa is an agent and also an employee.
Discuss whether the principal is liable in each of the following situations. a. Patricia hires Andrew, an attorney, to negotiate a contract to purchase some property. She agrees to pay him $75 an hour for his services, and he agrees to use his own office and secretarial staff to negotiate and draft the agreement. One day, Andrew is driving his own automobile to a meeting with Edward to discuss the purchase of the land that he owns. Andrew drives too fast for conditions and has a minor traffic accident that results in $600 damage to the other vehicle. b. Mel owns a retail store. He hires Sarah to work for him as a clerk in the home furnishings department. Mel instructs Sarah to make certain representations to customers regarding a microwave oven. Mel knows these misrepresentations are false, but Sarah does not. Henrietta buys a microwave from Sarah in reliance on the misrepresentations. c. ABC Inc. hires Keith as an outside salesman and instructs him to call on customers in a specified territory and to solicit orders for its products. One day Keith is driving the company car a little too fast for conditions on his way to call on a client. He accidentally drives the wrong way on a one-way street and has an accident with another vehicle that results in $6,000 in property damage and $30,000 in medical expenses. d. The A & B Machine Company (ABMC) hires John as an outside salesman for its computers. It sets high sales quotas for him and instructs him to beat up salesmen from competing firms in order to keep them away from ABMC customers. In order to meet his monthly sales quota, John roughs up Ralph, who is a salesman for a competing firm and then tells Ralph to find his own customers and to stay away from John's territory.
a. Patricia is the principal and Andrew is an independent contractor. Andrew's accident was caused by his own negligence. Under the doctrine of respondeat superior, a principal is held liable for the negligence of her agent. However, because Andrew is an independent contractor, the doctrine would not apply here, and Patricia is not liable. b. Mel is liable, because he is a principal who has authorized his agent to commit a tortuous act with respect to the property or person of another. c. Even though Keith's acts were unauthorized by ABC, under the doctrine of respondeat superior, the company will be liable for Keith's negligent driving within the scope of his employment. d. ABMC is liable for the intentional torts of assault and battery committed by John, because it instructed him to beat up competing salesmen and because the tort is so reasonably connected with John's employment as to be within the scope of his employment. John is also liable for these intentional torts. Both ABMC and John may also have criminal liability for John's actions.
Identify each of the following corporations by type. a. Dr. Smith and Dr. Jones are both medical doctors who practice together. They incorporate their medical practice so that they can offer themselves and their employees better employment benefits. b. A group of concerned citizens obtains a corporate charter from the state to form a local Water Planning and Management Corporation that is authorized to do water planning on a local level and to grant permits for such purposes as the installation of ditches, and the encouragement of good water usage practices in their jurisdictional area. c. Agatha and Betty, who are sisters, form a corporation in which they are the sole shareholders. They plan to operate a large retail store that sells collectibles. Agatha is the president and Betty is the chairperson of the board of directors. d. Bill and Carl form a corporation to prevent spouse and child abuse. The corporation operates a shelter for battered women and homeless children. e. Zeron Corporation is incorporated in the State of West Virginia. It decides to expand its business to Kentucky. What type of corporation is it in West Virginia? What type of corporation is it in Kentucky?
a. Smith and Jones have a professional corporation. b. The Water Planning and Management Corporation is a public corporation. c. Agatha and Betty have formed a for-profit, closely held corporation. d. Bill and Carl have formed a nonprofit corporation. e. Zeron is a domestic corporation in West Virginia and a foreign corporation in Kentucky
a. Who selects the officers of a corporation under most state corporate statutes? Who removes them? Explain. b. What duties do the officers and directors of a corporation owe to the corporation? Explain.
a. Under most state statutes, the officers of a corporation are both selected and removed by the board of directors. Though shareholders can voice their disapproval in a particular officer, the only people with the authority to select and remove officers are board members (when they act as a unit). b. Directors and officers owe the duties of obedience, diligence, and loyalty to the corporation. The duty of obedience involves the directors and officers acting within their respective authority. The duty of diligence means the directors and officers must exercise ordinary care and prudence. The duty of loyalty is a fiduciary duty to the corporation and to its shareholders. Directors and officers are obligated to be honest and to use prudent business judgment in the conduct of corporate affairs. They are also expected to attend board meetings and become informed on corporate matters. Officers and directors must disclose fully any corporate opportunity or any possible conflict of interest that may arise in any transaction. Over and above all these duties, officers have the duty of managing daily business affairs in the corporation's best interest.
Identify and give the basic characteristics of each of the following specialized types of corporations. a. Professional corporations b. Public corporations c. Nonprofit corporations
a. Used by doctors, dentists, lawyers, accountants, or other duly licensed professionals and formed much the same as ordinary business corporations. b. Formed to administer a unit of government (cities, towns) or created by the government to conduct public business (TVA, postal service). c. Usually private corporations, operate not for profit, dividends not paid, follow corporation statutes (state), individual members not personally liable. These corporations may make a profit, but it may not be distributed to its members, directors, or officers; the profit must be used for the charitable, educational, or scientific purposes for which the corporations were formed.
a. Ron wants to buy all of the stock of Quagmar, Inc. He approaches the officers and directors and offers to pay them $200 per share for each of the shares they hold. The officers and directors agree and then convince the majority of shareholders to sell their stock for $100 per share. Do the other stockholders have a cause of action against the officers and directors? Explain. b. Arthur, Bob, and Clark are three of the five board members of Krescent, Inc. One day they meet by chance for breakfast and decide to transact some corporate business while they are all together. If they decide to declare a dividend and to purchase another building for the corporation at this meeting, will their actions be binding on the corporation? Explain. Is this a meeting of the board of directors according to the Model Act? Explain your answer.
a. Yes. The officers and directors have a fiduciary duty to the corporation. In this case, personal interest was put ahead of company interests. b. No. All board members are due advance notice of any meetings. It would not be an authorized meeting at which company business could be conducted.
b. When may the shareholders of a corporation seek to dissolve it?
b. The corporation may be dissolved by voluntary action on the part of all the holders of the outstanding shares of stock; or by voluntary action by the corporation, pursuant to a resolution of the board of directors approved by the affirmative vote of the holders of a majority of the shares of the corporation entitled to vote at a meeting of the shareholders duly called for this purpose. The Statutory Close Corporation Supplement to the MBCA gives the shareholders, if they so elect in the articles of incorporation, the power to dissolve the corporation. Shareholders of a corporation may also bring court action to dissolve a corporation when it is established that the directors are deadlocked in the management of corporate affairs and the shareholders are unable to break the deadlock and that irreparable injury to the corporation is being suffered or is threatened; that the acts of the directors or those in control of the corporation are illegal, oppressive, or fraudulent; that the corporate assets are being misapplied or wasted; or that the shareholders are deadlocked and have not elected directors for at least two consecutive annual meetings.
