Business Associations
UPA §25(1):
"A partner is co-owner with his partners of specific partnership property holding as a tenant in partnership." But see §25(2)(a)-(e): A partner may not assign his interest in partnership property; a partner's right in partnership property is not subject to attachment or execution on a claim against the partner; on the death of a partner, his right in partnership property vests in the surviving partners; and a partner's right in partnership property is not subject to dower, curtesy, or allowances to widows, heirs, or next of kin.
§ 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 § 203:
"Property acquired by a partnership is property of the partnership and not of the partners individually."
MBCA §1.40 (22)
"Shares" means the units into which the proprietary interests in a corporation are divided.
Restatement 2d Agency §2.
(1) A master is a principal who employs an agent to perform service in his affairs and who controls or has the right to control the physical conduct of the other in the performance of the service. (2) A servant is an agent employed by a master to perform services in his affairs whose physical conduct in the performance of the service is controlled or is subject to the right to control by the master. (3) An independent contractor is a person who contracts with another to do something for him but who is not controlled by the other nor subject to the other's right to control with respect to his physical conduct in the performance of the undertaking. He may or may not be an agent.
UPA § 6. Partnership Defined.
(1) A partnership is an association of two or more persons to carry on as co-owners a business for profit.
Restatement 2d Agency §220. Definition of a Servant.
(1) A servant is a person employed to perform services in the affairs of another and who with respect to the physical conduct in the performance of the services is subject to the other's control or right to control. (2) In determining whether one acting for another is a servant or an independent contractor, the following matters of fact, among others, are considered:a.The extent of control, which, by the agreement, the master may exercise over the details of the work; b. Whether or not the one employed is engaged in a distinct occupation or business; c.The kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the employer or by a specialist without supervision, d.The skill required in the particular occupation, e. Whether the employer of the workman supplies the instrumentalities, tools, and the place of work for the person doing the work; f.The length of time for which the person is employed; g.The method of payment, whether by the time or by the job; h. Whether or not the work is a part of the regular business of the employer; i. Whether or not the parties believe they are creating the relation of master and servant; and j. Whether the principal is or is not in business.
RUPA §301.
(1) Each partner is an agent of the partnership for the purpose of its business. An act of a partner, including the execution 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 partner had no authority to act for the partnership in the particular matter and the person with whom the partner was dealing knew or had received a notification that the partner lacked authority.
UPA §9.
(1) Every partner is an agent of the partnership for the purpose of its business, and the act of every partner, including the execution in the partnership name of any instrument, for apparently carrying on in the usual way the business of the partnership of which he is a member binds the partnership, unless the partner so acting has in fact no authority to act for the partnership in the particular matter, and the person with whom he is dealing has knowledge of the fact that he has no such authority.
§ 91. Knowledge of Principal at Time of Affirmance.
(1) If, at the time of affirmance, the purported principal is ignorant of material facts involved in the original transaction, and is unaware of his ignorance, he can thereafter avoid the effect on affirmance. (2) Material facts are those which substantially affect the existence or extent of the obligations involved in the transaction, as distinguished from those which affect the values or inducements involved in the transaction.
General requirements to form corporation under MBCA:
(1) articles must be filed with Secretary of State (§ 1.20(b)&(i)); (2) articles must be executed and signed by either the chairman of the board of directors, or its President (or other officer); OR if directors have not been selected by an incorporator; OR if the corporation is in the hands of a receiver, trustee, or other court-appointed fiduciary, by that fiduciary (§ 1.20(f) & (g)); (3)articles must be accompanied with any payment required (§ 1.20(j)); (4) articles of incorporation must set forth a corporate name for the corporation (§ 2.02(a)); (5) articles of incorporation must set forth the number of shares the corporation is authorized to issue(§ 2.02(a)); (6) articles of incorporation must set forth the street address of the corporation's initial registered office and the name of its initial registered agent at that office (§ 2.02(a)); and (7) articles of incorporation must set forth the name and address of each incorporator.
§ 307. Actions By and Against Partnership and Partners. (c) A judgment against a partnership is not by itself a judgment against a partner. A judgment against a partnership may not be satisfied from a partner's assets unless there is also a judgment against the partner. A judgment creditor of a partner may not levy execution against the assets of the partner to satisfy a judgment based on a claim against the partnership unless the partner is personally liable for the claim under Section 306 and: (1)a judgment based on the same claim has been obtained against the partnership and a writ of execution on the judgment has been returned unsatisfied in whole or in part;
(2) the partnership is a debtor in bankruptcy; (3) the partner has agreed that the creditor need not exhaust partnership assets; (4) a court grants permission to the judgment creditor to levy execution against the assets of a partner based on a finding that partnership assets subject to execution are clearly insufficient to satisfy the judgment, that exhaustion of partnership assets is excessively burdensome, or that the grant of permission is an appropriate exercise of the court's equitable powers; or (5) liability is imposed on the partner by law or contract independent of the existence of the partnership.
RUPA § 202. Formation of Partnership. (c) In determining whether a partnership is formed, the following rules apply: (1) Joint tenancy, tenancy in common, tenancy by the entireties, joint property, common property, or part ownership does not by itself establish a partnership, even if the co-owners share profits made by the use of the property. (2) The sharing of gross returns does not by itself establish a partnership, even if the persons sharing them have a joint or common right or interest in property from which the returns are derived.
(3) A person who receives a share of the profits of a business is presumed to be a partner in the business, unless the profits were received in payment: (i) of a debt by installments or otherwise; (ii) for services as an independent contractor or of wages or other compensation to an employee; (iii) of rent; (iv) of an annuity or other retirement or health benefit to a beneficiary, representative, or designee of a deceased or retired partner; (v) of interest or other charge on a loan, even if the amount of payment varies with the profits of the business, including a direct or indirect present or future ownership of the collateral, or rights to income, proceeds, or increase in value derived from the collateral; or (vi) for the sale of the goodwill of a business or other property by installments or otherwise.
RUPA. § 101. Definitions In this [Act]:
(6) "Partnership" means an association of two or more persons to carry on as co-owners a business for profit formed under Section 202, predecessor law, or comparable law of another jurisdiction.
§ 8.03. NUMBER AND ELECTION OF DIRECTORS.
(a) A board of directors must consist of one or more individuals, with the number specified in or fixed in accordance with the articles of incorporation or bylaws.
§ 4.01. CORPORATE NAME
(a) A corporate name: (1) must contain the word "corporation," "incorporated," "company," or "limited," or the abbreviation "corp.," "inc.," "co.," or "ltd.," or words or abbreviations of like import in another language; . . . (b) Except as authorized by subsections (c) and (d), a corporate name must be distinguishable upon the records of the secretary of state from: (1) the corporate name of a corporation incorporated or authorized to transact business in this state; (2) a corporate name reserved or registered under section 4.02 or 4.03; . . .
§ 6.20. SUBSCRIPTION FOR SHARES BEFORE INCORPORATION
(a) A subscription for shares entered into before incorporation is irrevocable for six months unless the subscription agreement provides a longer or shorter period or all the subscribers agree to revocation. (d) If a subscriber defaults in payment of money or property under a subscription agreement entered into before incorporation, the corporation may collect the amount owed as any other debt.
UPA § 38(2)
(a) Each partner who has not caused dissolution wrongfully shall have, I. All the rights specified in paragraph (1) of this section, and II. The right, as against each partner who has caused the dissolution wrongfully, to damages for breach of the agreement. (b) The partners who have not caused the dissolution wrongfully, if they all desire to continue the business in the same name, either by themselves or jointly with others, may do so, during the agreed term for the partnership and for that purpose may possess the partnership property, provided they . . . pay to any partner who has caused the dissolution wrongfully, the value of his interest in the partnership at the dissolution, less any damages recoverable [for the breach]. (c) A partner who has caused the dissolution wrongfully shall have: I. If the business is not continued under the provisions of paragraph (2b) all the rights of a partner under paragraph (1), subject to clause (2a II), of this section, II. If the business is continued under paragraph (2b) of this section the right as against his co-partners and all claiming through them in respect of their interests in the partnership, to have the value of his interest in the partnership, less any damages caused to his co-partners by the dissolution, ascertained and paid to him in cash, or the payment secured by bond approved by the court, and to be released from all existing liabilities of the partnership; but in ascertaining the value of the partner's interest the value of the good-will of the business shall not be considered.
RUPA 103
(a) Except as otherwise provided in subsection (b), relations among the partners and between the partners and the partnership are governed by the partnership agreement. To the extent the partnership agreement does not otherwise provide, this [Act] governs relations among the partners and between the partners and the partnership. (b) The partnership agreement may not: (3) eliminate the duty of loyalty under Section 404(b) or 603(b)(3), but: i. the partnership agreement may identify specific types or categories of activities that do not violate the duty of loyalty, if not manifestly unreasonable; or ii. all of the partners or a number or percentage specified in the partnership agreement may authorize or ratify, after full disclosure of all material facts, a specific act or transaction that otherwise would violate the duty of loyalty; (4) unreasonably reduce the duty of care under Section 404(c) or 603(b)(3); (5) eliminate the obligation of good faith and fair dealing under Section 404(d), but the partnership agreement may prescribe the standards by which the performance of the obligation is to be measured, if the standards are not manifestly unreasonable;
§ 202. Formation of Partnership.
(a) Except as otherwise provided in subsection (b), the association of two or more persons to carry on as co-owners a business for profit forms a partnership, whether or not the persons intend to form a partnership.
§ 8.01. REQUIREMENT FOR AND DUTIES OF BOARD OF DIRECTORS.
(a) Except as provided in section 7.32, each corporation must have a board of directors.
§ 3.04. ULTRA VIRES
(a) Except as provided in subsection (b), the validity of corporate action may not be challenged on the ground that the corporation lacks or lacked power to act. (b) A corporation's power to act may be challenged: a. in a proceeding by a shareholder against the corporation to enjoin the act; b. in a proceeding by the corporation, directly, derivatively, or through a receiver, trustee, or other legal representative, against an incumbent or former director, officer, employee, or agent of the corporation; or c. in a proceeding by the attorney general under section 14.30. (c) In a shareholder's proceeding under subsection (b)(1) to enjoin an unauthorized corporate act, the court may enjoin or set aside the act, if equitable and if all affected persons are parties to the proceeding, and may award damages for loss (other than anticipated profits) suffered by the corporation or another party because of enjoining the unauthorized act.
RUPA § 504. Partner's Transferable Interest Subject to Charging Order
(a) On application by a judgment creditor of a partner . . . a court having jurisdiction may charge the transferable interest of the judgment debtor to satisfy the judgment. . . . (b) A charging order constitutes a lien on the judgment debtor's transferable interest in the partnership. The court may order a foreclosure of the interest subject to the charging order at any time. The purchaser at the foreclosure sale has the rights of a transferee.***(e) This section provides the exclusive remedy by which a judgment creditor of a partner . . . may satisfy a judgment out of the judgment debtor's transferable interest in the partnership.
RUPA § 404. General Standards of Partner's Conduct.
(a) The only fiduciary duties a partner owes to the partnership and the other partners are the duty of loyalty and the duty of care set forth in subsections (b) and (c). (b) A partner's duty of loyalty to the partnership and the other partners is limited to the following: (1) to account to the partnership and hold as trustee for it any property, profit, or benefit derived by the partner in the conduct and winding up of the partnership business or derived from a use by the partner of partnership property, including the appropriation of a partnership opportunity; (2) to refrain from dealing with the partnership in the conduct or winding up of the partnership business as or on behalf of a party having an interest adverse to the partnership; and (3) to refrain from competing with the partnership in the conduct of the partnership business before the dissolution of the partnership. (d) A partner shall discharge the duties to the partnership and the other partners under this [Act] or under the partnership agreement and exercise any rights consistently with the obligation of good faith and fair dealing. (e) A partner does not violate a duty or obligation under this [Act] or under the partnership agreement merely because the partner's conduct furthers the partner's own interest. (f) A partner may lend money to and transact other business with the partnership, and as to each loan or transaction the rights and obligations of the partner are the same as those of a person who is not a partner, subject to other applicable law.
§ 6.21. ISSUANCE OF SHARES
(a) The powers granted in this section to the board of directors may be reserved to the shareholders by the articles of incorporation. (b) The board of directors may authorize shares to be issued for consideration consisting of any tangible or intangible property or benefit to the corporation, including cash, promissory notes, services performed, contracts for services to be performed, or other securities of the corporation. (c) Before the corporation issues shares, the board of directors must determine that the consideration received or to be received for shares to be issued is adequate. That determination by the board of directors is conclusive insofar as the adequacy of consideration for the issuance of shares relates to whether the shares are validly issued, fully paid, and nonassessable.
MBCA 6.30 Shareholders' Preemptive Rights
(a) The shareholders of a corporation do not have a preemptive right to acquire the corporation's unissued shares except to the extent the articles of incorporation so provide. (b) A statement included in the articles of incorporation that "the corporation elects to have preemptive rights" (or words of similar import) means that the following principles apply except to the extent the articles of incorporation expressly provide otherwise: (1) The shareholders of the corporation have a preemptive right, granted on uniform terms and conditions prescribed by the board of directors to provide a fair and reasonable opportunity to exercise the right, to acquire proportional amounts of the corporation's unissued shares upon the decision of the board of directors to issue them. (2) A shareholder may waive his preemptive right. A waiver evidenced by a writing is irrevocable even though it is not supported by consideration. (3) There is no preemptive right with respect to: (i) shares issued as compensation to directors, officers, agents, or employees of the corporation, its subsidiaries or affiliates: (ii) shares issued to satisfy conversion or option rights created to provide compensation to directors, officers, agents, or employees of the corporation, its subsidiaries or affiliates; (iii) shares authorized in articles of incorporation that are issued within six months from the effective date of incorporation; (iv) shares sold otherwise than for money.
§ 404. General Standards of Partner's Conduct.
(b) A partner's duty of loyalty to the partnership and the other partners is limited to the following: (1) to account to the partnership and hold as trustee for it any property, profit, or benefit derived by the partner in the conduct and winding up of the partnership business or derived from a use by the partner of partnership property, including the appropriation of a partnership opportunity; (2) to refrain from dealing with the partnership in the conduct or winding up of the partnership business as or on behalf of a party having an interest adverse to the partnership; and (3) to refrain from competing with the partnership in the conduct of the partnership business before the dissolution of the partnership. (d) A partner shall discharge the duties to the partnership and the other partners under this [Act] or under the partnership agreement and exercise any rights consistently with the obligation of good faith and fair dealing.
RUPA § 401. Partner's Rights and Duties.
(b) Each partner is entitled to an equal share of the partnership profits and is chargeable with a share of the partnership losses in proportion to the partner's share of the profits. (c) A partnership shall reimburse a partner for payments made and indemnify a partner for liabilities incurred by the partner in the ordinary course of the business of the partnership or for the preservation of its business or property.
RUPA § 404
(c) A partner's duty of care to the partnership and the other partners in the conduct and winding up of the partnership business is limited to refraining from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law.
§ 403. Partner's Rights and Duties with Respect to Information.
(c) Each partner and the partnership shall furnish to a partner, and to the legal representative of a deceased partner or partner under legal disability: (1) without demand, any information concerning the partnership's business and affairs reasonably required for the proper exercise of the partner's rights and duties under the partnership agreement or this [Act]; and on demand, any other information concerning the partnership's business and affairs, except to the extent the demand or the information demanded is unreasonable or otherwise improper under the circumstances.
§ 18. Rules Determining Rights and Duties of Partners.
(e) All partners have equal rights in the management and conduct of the partnership business.
§ 401. Partner's Rights and Duties.
(f) Each partner has equal rights in the management and conduct of the partnership business.
UPA - § 18. Rules Determining Rights and Duties of Partners
(h) Any difference arising as to ordinary matters connected with the partnership business may be decided by a majority of the partners; but no act in contravention of any agreement between the partners may be done rightfully without the consent of all the partners.
RUPA § 401. Partner's Rights and Duties.
(i) A person may become a partner only with the consent of all of the partners.
RUPA - § 401. Partner's Rights and Duties
(j) A difference arising as to a matter in the ordinary course of business of a partnership may be decided by a majority of the partners. 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.
Limited Partnership
- A partnership comprised of two classes of partners, general and limited, that is formed by filing an organizational document with the state. -General partner is liability for everything other "partners" are free from liability -Limited Partner limited liability and limited say in the business
§307. Actions by and Against Partnership and Partners.
- A partnership may sue and be sued in the name of the partnership, an action may be brought against the partnership and any or all of the partners in the same action or in separate actions.
Sole Proprietorship
- Business owned by a single individual that is not operated as a corporation or other special legal form - Most basic form of business - No separation between the owner and the business - No liability protection
General Partnership
- Default formed when business is conducted by 2 or more people. - Basic form of partnership - No liability protection. You can sue either partner or BOTH. - A partnership is an association of two or more persons to carry on as co-owners a business for profit.
Limited Liability Company
- Formed by state filing separate and distinct from its owners. - Provides limited liability for ALL participants whether or not they are active in management of the business while giving flexibility in internal management.
The LP with a Corporate GP
-This is a combo business forms there are LPs and then the GP is literally a corporation, which also has limited liability for the shareholders.
Capital
1. Money or assets invested, or available for investment, in a business. 2. The total assets of a business, especially those that help generate profits. 3. The total amount or value of a corporation's stock (corporate equity).
Common Stock
A class of stock generally entitling the holder to vote on corporate matters, to receive dividends after other claims and dividends have been paid (especially to preferred shareholders), and to share in assets upon liquidation.
Preferred Stock
A class of stock generally giving its holder a preferential claim to dividends and to corporate assets upon liquidation but usually carrying no voting rights.
UPA § 27(1): Assignment of Partner's Interest.
A conveyance by a partner of his interest in the partnership does not of itself dissolve the partnership, nor, as against the other partners in the absence of agreement, entitle the assignee, during the continuance of the partnership, to interfere in the management or administration of the partnership business or affairs, or to require any information or account of partnership transactions, or to inspect the partnership books; but it merely entitles the assignee to receive in accordance with his contract the profits to which the assigning partner would otherwise be entitled.
Nissen Corp. v. Miller
A corporation which acquires all or part of the assets of another corporation does not acquire the liabilities and debts of the predecessor unless: (1) there is an express or implied agreement to assume the liabilities; (2) the transaction amounts to a consolidation or merger; (3) the successor entity is a mere continuation or reincarnation of the predecessor entity; or (4) the transaction was fraudulent, not made in good faith, or made without sufficient consideration.
Debenture
A debt secured only by the debtor's earning power, not by a lien on any specific asset.
§159. Apparent Authority
A disclosed or partially disclosed principal is subject to liability upon contracts made by an agent acting within his apparent authority if made in proper form and with the understanding that the apparent principal is a party. The rules as to the liability of a principal for authorized acts, are applicable to unauthorized acts which are apparently authorized.
§144. General Rule.
A disclosed or partially disclosed 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.
§161. Unauthorized Acts of General Agent.
A general agent for a disclosed or partially disclosed principal subjects his principal to liability for acts done on his account which usually accompany or are incidental to transactions which the agent is authorized to conduct if, although they are forbidden by the principal, the other party reasonably believes that the agent is authorized to do them and has no notice that he is not so authorized.
§194. Acts of General Agents
A general agent for an undisclosed principal authorized to conduct transactions subjects his principal to liability for acts done on his account, if usual or necessary in such transactions, although forbidden by the principal to do them.
Limited Liability Limited Partnership
A limited partnership that provides LLP like limited liability protection to some or all of the partners. It is a combo business and is not recognized in many states.
§26 Nature of Partner's Interest in the Partnership.
A partner's interest in the partnership is his share of the profits and surplus, and the same is personal property.
§ RUPA 201(a). Partnership as Entity
A partnership is an entity distinct from its partners.
§201. Partnership as Entity
A partnership is an entity distinct from its partners.
RUPA § 305(a) - Partnership Liable for Partner's Actionable Conduct
A partnership is liable for loss or injury caused to a person, or for a penalty incurred, as a result of a wrongful act or omission, or other actionable conduct, of a partner acting in the ordinary course of business of the partnership or with authority of the partnership.
Indemnity
A partnership must indemnify a partner for expenses incurred by the partner in the ordinary course of partnership business.
Liability of 3rd Parties to Principal General Rule: Mirror Rule
A third party will be liable to the principal if the agent acted with actual, apparent, or inherent authority or if the principal ratified an act of the agent.
RUPA § 503(a): Transfer of Partner's Transferable Interest.
A transfer, in whole or in part, of a partner's transferable interest in the partnership: (1) is permissible; (2) does not by itself cause the partner's dissociation or a dissolution and winding up of the partnership business; and (3) does not, as against the other partners or the partnership, entitle the transferee, during the continuance of the partnership, to participate in the management or conduct of the partnership business, to require access to information concerning partnership transactions, or to inspect or copy the partnership books or records.
Radaszewski v. Telecom Corp.
A tripartite test has been developed for analysis of the question. To "pierce the corporate veil," one must show: 1. Control, not mere majority or complete stock control, but complete domination, not only of finances, but complete domination, not only of finances, but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own; and 2. Such control must have been used by the defendant to commit fraud or wrong, to perpetrate the violation of a statutory contravention of plaintiff's legal rights; and 3.The aforesaid control and breach of duty must proximately cause the injury or unjust lost complained of.
Asset Acquisition
Acquisition of a corporation by purchasing all its assets directly from the corporation itself, rather than by purchasing shares from its shareholders.
§83. Affirmance.
Affirmance is either: (a) A manifestation of an election by one or whose account an unauthorized act has been done to threat the act as authorized, or (b) Conduct by him justifiable only if there were such an election.
Restatement 2 Agency §1.
Agency is the fiduciary relation which results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control and consent by the other so to act.
§15 Nature of Partner's Liability
All partners are liable: - Jointly and severally for everything chargeable to the partnership under section 13 and 14. - Jointly for all other debts and obligations of the partnership; but any partner may enter into a separate obligation to perform a partnership contract.
UPA § 15. Nature of Partner's Liability.
All partners are liable: (a) Jointly and severally for everything chargeable to the partnership under sections 13 and 14 [basically, tort]. (b) Jointly for all other debts and obligations of the partnership [basically, contract]; but any partner may enter into a separate obligation to perform a partnership contract. NOTE: Sections 13-15 work with section 18 to make all partners individually liable for the acts of the partnership, however, the liability is only "joint" as to contract and related claims of the partnership - this means all partners had to be joined in such an action. RUPA removes this distinction.
MBCA § 2.04. LIABILITY FOR PREINCORPORATION TRANSACTIONS
All persons purporting to act as or on behalf of a corporation, knowing there was no incorporation under this Act, are jointly and severally liable for all liabilities created while so acting. You are liable if you act within knowledge. You are liable if you act with knowledge. You are NOT liable if you didn't know.
§33. General Principal of Interpretation.
An agent is authorized to do, and to do only, what it is reasonable for him to infer that the principal desires him to do in the light of the principal's manifestations and the facts as he knows or should know them at the time he acts.
Liability of Agent to Third Party General Rule:
An agent is not liable under a contract in disclosed principal situations, but is liable in partially disclosed and undisclosed principal situations.
Bond
An obligation secured by a lien or mortgage on corporate property.
§186. General Rule
An undisclosed principal is bound by contracts and conveyances made on his account by an agent acting within his authority, except that the principal is not bound by a contract which is under seal or which is negotiable, or upon a contract which excludes him.
§8. Apparent Authority
Apparent authority is the power to affect the legal relations of another person by transactions with third person, professedly as agent for the other, arising from or in accordance with the other's manifestation to such third persons.
Rest. 2d Agency §7. Authority.
Authority is the power of the agent to affect the legal relations of the principal by acts done in accordance with the principal's manifestations of consent to him.
Liability of the Principal to Third Party
Authority is what leads to liability- this is how a principal becomes bound to a third party due to acts of an agent.
Bylaws
Bylaws generally describe how the corporation is going to be run. These are not generally required by statute, though they are critical.
Cargill, Inc. v. Hedge
Comes down to fairness
Elements of agency:
Consent by the principal and the agent, action by the agent on behalf of the principal, and control by the principal
Minutes of Meetings.
Corporations are required to have annual meetings, and "minutes" are the records of what happens during those meetings. There should generally be minutes for regular meetings, and there should be an initial set of minutes for the first meeting of the board, upon formation of the corporation.
Working capital
Current assets (such as cash, inventory, and accounts receivable) less current liabilities. Working capital measures liquidity and the ability to discharge short-term obligations.
National Biscuit Co. v. Stroud
Default Rule: partners have equal rights so a majority is required for "ordinary" decisions
UPA § 31. Causes of Dissolution.
Dissolution is caused: (1) Without violation of the agreement between the partners, (a) By the termination of the definite term or particular undertaking specified in the agreement, (b) By the express will of any partner when no definite term or particular undertaking is specified, (c) By the express will of all the partners who have not assigned their interests or suffered them to be charged for their separate debts, either before or after the termination of any specified term or particular undertaking, (d) By the expulsion of any partner from the business bona fide in accordance with such a power conferred by the agreement between the partners; (2) In contravention of the agreement between the partners, where the circumstances do not permit a dissolution under any other provision of this section, by the express will of any partner at any time . . . .
§ 3.01(a). PURPOSES.
Every corporation incorporated under this Act has the purpose of engaging in any lawful business unless a more limited purpose is set forth in the articles of incorporation.
UPA § 21. Partner Accountable as a Fiduciary.
Every partner must account to the partnership for any benefit, and hold as trustee for it any profits derived by him without the consent of the other partners from any transaction connected with the formation, conduct, or liquidation of the partnership or from any use by him of its property. This section applies also to the representatives of a deceased partner engaged in the liquidation of the affairs of the partnership as the personal representatives of the last surviving partner.
§ 103(a). Effect of Partnership Agreement; Nonwaivable Provisions.
Except as otherwise provided in subsection (b), relations among the partners and between the partners and the partnership are governed by the partnership agreement. To the extent the partnership agreement does not otherwise provide, this [Act] governs relations among the partners and between the partners and the partnership.
RUPA § 306(a) - Partner's Liability.
Except as otherwise provided in subsections (b) and (c) [related to actions prior to admission as a partner and actions taken while a limited liability entity], all partners are liable jointly and severally for all obligations of the partnership unless otherwise agreed by the claimant or provided by law.
§306. Partner's Liability.
Except as otherwise provided in subsections (b) and (c) all partners are liable jointly and severally for all obligations of the partnership unless otherwise agreed by the claimant or provided by law.
§27. Creation of Apparent Authority: General Rule
Except for the execution of instruments under seal or for the conduct of transactions required by statute to be authorized in a particular way, apparent authority to do an act is created as to a third person by written or spoken words or any other conduct of the principal which, reasonably interpreted, causes a third person to believe that the principal consents to have the act done on his behalf by the person purporting to act for him.
§26. Creation of Authority: General Rule
Except for the execution of instruments under seal or for the performance of transactions required by statute to be authorized in a particular way, authority to do an act can be created by written or spoken words or other conduct of the principal which, reasonably interpreted, causes the agent to believe that the principal desires him so to act on the principal's account.
General Rule Concerning Promoters
For the proposition that a promoter though he may assume to act on behalf of the projected corporation and not for himself, will be personally liable on his contract unless the other party agreed to look to some other person or fund for payment.
Factors that indicate injustices and inequitable consequences and allow a court to pierce the corporate veil are:
Fraudulent representation by corporation directors; Undercapitalization; Failure to observe corporate formalities; Absence of corporate records; Payment by the corporation of individual obligations; or Use of the corporation to promote fraud, injustice, or illegalities.
Martin v. Peyton
General Rule: Today those only who are partners between themselves may be charged for partnership debts by others. Exception: Where in truth such relationship is absent.
Partnership
General and Limited Partnership
Limited Liability Partnership
General partnership, except for partners have no personal liability for obligations that exceed the assets of the general partnership except for claims arising out of their own misconduct.
Exception to Agent Liability:
If an agent purports to act on behalf of a principal but lacks the power to bind the principal, the agent will be liable- even in a disclosed principal situation.
UPA § 7. Rules for Determining the Existence of a Partnership.
In determining whether a partnership exists, these rules shall apply: (1) Except as provided by section 16 persons who are not partners as to each other are not partners as to third persons. (2) Joint tenancy, tenancy in common, tenancy by the entireties, joint property, common property, or part ownership does not of itself establish a partnership, whether such co-owners do or do not share any profits made by the use of the property. (3) The sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a joint or common right or interest in any property from which the returns are derived. (4) The receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the business, but no such inference shall be drawn if such profits were received in payment: (a) As a debt by installments or otherwise, (b) As wages of an employee or rent to a landlord, (c) As an annuity to a widow or representative of a deceased partner, (d) As interest on a loan, though the amount of payment vary with the profits of the business, (e) As the consideration for the sale of a good-will of a business or other property by installments or otherwise.
Contract
Liability is established based on the relationship:
RUPA § 308.
Liability of Purported Partner (a) If a person, by words or conduct, purports to be a partner, or consents to being represented by another as a partner, in a partnership or with one or more persons not partners, the purported partner is liable to a person to whom the representation is made [i.e., a third party], if that person, relying on the representation, enters into a transaction with the actual or purported partnership. If the representation, either by the purported partner or by a person with the purported partner's consent, is made in a public manner, the purported partner is liable to a person who relies upon the purported partnership even if the purported partner is not aware of being held out as a partner to the claimant. If partnership liability results, the purported partner is liable with respect to that liability as if the purported partner were a partner. If no partnership liability results, the purported partner is liable with respect to that liability jointly and severally with any other person consenting to the representation.
"Pass Through" Taxation
Meaning that the entity itself is not taxed- only the profits that are passed through to the partners are. Example: Partnership
Direct Taxation
Means that the entity itself is taxed. Example: Corporations; Subjects shareholders to "double taxation" because the corporation is taxed on its own profits and then the shareholders are taxed on the distribution they receive as well.
Capital:
Money or assets invested, or available for investment, in a business. The total assets of a business, especially those that help generate profits. The total amount or value of a corporation's stock; corporate equity.
Merger
The absorption of one organization (esp. a corporation) that ceases to exist into another that retains its own name and identity and acquires the assets and liabilities of the former.
Corporation as a façade
Non-participation in corporate affairs by shareholders other than
UPA § 30. Partnership not Terminated by Dissolution
On dissolution[,] the partnership is not terminated, but continues until the winding up of partnership affairs is completed.
Participating Preferred
PPS also get an additional dividend after the CS gets paid a specified amount.
Contribution
Partners must contribute to the partnership if the partnership is unable to satisfy its obligations (including any indemnification obligations).
§ 20. Duty of Partners to Render Information.
Partners shall render on demand true and full information of all things affecting the partnership to any partner or the legal representative of any deceased partner or partner under legal disability.
§82. Ratification.
Ratification is the affirmance by a person of a prior act which did not bind him but which was done or professedly done on his account, whereby the act, as to some or all persons, is given effect as if originally authorized by him.
Reverse Piercing
Reverse piercing MAY involve a creditor trying to disregard a shareholder and get to a corporate entity.
§6.01(b) Authorized Shares
The articles of incorporation must authorize: (1) one or more classes or series of shares that together have unlimited voting rights, and (2) one or more classes or series of shares (which may be the same class or classes as those with voting rights) that together are entitled to receive the net assets of the corporation upon dissolution.
§6.01(a) Authorized Shares
The articles of incorporation must set forth any classes of shares and series of shares within a class, and the number of shares of each class and series, that the corporation is authorized to issue. If more than one class or series of shares is authorized, the articles of incorporation must prescribe a distinguishing designation for each class or series and must describe, prior to the issuance of shares of a class or series, the terms, including the preferences, rights, and limitations, of that class or series. Except to the extent varied as permitted by this section, all shares of a class or series must have terms, including preferences, rights and limitations, that are identical with those of other shares of the same class or series.
§2.02(c).
The articles of incorporation need not set forth any of the corporate powers enumerated in this Act.
Classes of Preferred
The corporation can create different classes of PS that will take before other classes, e.g. Class A preferred, Class B preferred etc.
UPA § 29. Dissolution Defined
The dissolution of a partnership is the change in the relation of the partners caused by any partner ceasing to be associated in the carrying on as distinguished from the winding up of the business.
UPA § 29. Dissolution Defined.
The dissolution of a partnership is the change in the relation of the partners caused by any partner ceasing to be associated in the carrying on as distinguished from the winding up of the business.
Undercapitalization
The financial condition of a firm that does not have enough capital to carry on its business.
Piercing the corporate veil
The judicial act of imposing personal liability on otherwise immune corporate officers, directors, and/or shareholders for the corporation's wrongful acts.
Agency
The legal principles that govern the ability of one person (the principal) to have another person (the agent) act on his behalf.
Articles of Incorporation
The most basic document. It is governed by statute and must be filed with the state. The corporate entity cannot exist without it.
§502 Partner's Transferable Interest in Partnership.
The only transferable interest of a partner in the partnership is the partner's share of the profits and losses of the partnership and the partner's right to receive distributions. The interest is personal property.
Default rule for splitting profits, UPA § 18: Rules Determining Rights and Duties of Partners.
The rights and duties of the partners in relation to the partnership shall be determined, subject to any agreement between them, by the following rules: (a) Each partner shall be repaid his contributions, whether by way of capital or advances to the partnership property and share equally in the profits and surplus remaining after all liabilities, including those to partners, are satisfied; and must contribute towards the losses, whether of capital or otherwise, sustained by the partnership according to his share in the profits. (b) The partnership must indemnify every partner in respect of payments made and personal liabilities reasonably incurred by him in the ordinary and proper conduct of its business, or for the preservation of its business or property.
"Pick Your Partner" Rule UPA § 18. Rules Determining Rights and Duties of Partners.
The rights and duties of the partners in relation to the partnership shall be determined, subject to any agreement between them, by the following rules: (g) No person can become a member of a partnership without the consent of all the partners.
Capitalization
The total amount of long-term financing used by a business, including stocks, bonds, retained earnings, and other funds.
Corporation by estoppel
There was no corporation, the acts of the associates having failed even to colorably fulfill the statutory requirements; there was no estoppel in the pure sense of the word because generally there was no holding out followed by reliance on the part of the other party.
The Corporation
Three tiers to a corporation: 1) Shareholders- the owners who each own a part of the company through their interest represented by shares 2) The board of directors- the board is responsible for the oversight of the company's affairs- the board is usually elected by the shareholders The office of the company- the CEO, CFO who run the company to effectuate the instruction of the board
Fletcher v. Atex, Inc.
To prevail on an alter ego claim under Delaware law, a plaintiff must show (1) that the parent and the subsidiary "operated as a single economic entity' and (2) that an overall element of injustice or unfairness is present.
Liability from the Agency Relationship
Tort and Contract Claims
Duties of the Agent and the Principal to Each Other
Two big concepts of duties of agents: 1) Agents are to act only as authorized by the principal. The penalty is that the agent can be sued by the principal. 2) Agents owe fiduciary duties to the principals: Duty of Care- obligation not to be stupid, and Duty of Loyalty- obligation not to be a scum bag
Lupien v. Malsbender
UPA recognizes that partners need not be individuals they may be corporations, partnerships, or other types of associations.
Factors court says should be considered:
Under-capitalization (it looks like it was an intention not to pay the creditors), Failure to observe corporate formalities, (Non-payment of) dividends, Insolvency of the corporation at the time (what time - time of suit? Time money is initially sought?), Siphoning of corporate funds by the dominant shareholder, Non-functioning of other officers and directors besides the defendant, Absence of corporate records
§ 3.02. GENERAL POWERS.
Unless its articles of incorporation provide otherwise, every corporation has perpetual duration and succession in its corporate name and has the same powers as an individual to do all things necessary or convenient to carry out its business and affairs . . . .
§ 3.02
Unless its articles of incorporation provide otherwise, every corporation has perpetual duration and succession in its corporate name and has the same powers as an individual to do all things necessary or convenient to carry out its business and affairs, including without limitation power: (1) to sue and be sued, complain and defend in its corporate name . . . (3) to make and amend bylaws . . . (4) to purchase, receive, lease, or otherwise acquire . . . real or personal property . . . (5) to sell, convey, mortgage, pledge, lease, exchange, and otherwise dispose of all or any part of its property . . . (7) to make contracts . . . (8) to lend money, invest . . . (10) to conduct its business . . . (13) to make donations for the public welfare or for charitable, scientific, or educational purposes; (14) to transact any lawful business that will aid governmental policy; (15) to make payments or donations, or do any other act, not inconsistent with law, that furthers the business and affairs of the corporation.
UPA § 16(1). Partner by Estoppel
When a person, by words spoken or written or by conduct, represents himself, or consents to another representing him to any one [i.e., a third party], as a partner in an existing partnership or with one or more persons not actual partners, he is liable to any such person [remember: the third party] to whom such representation has been made, who has, on the faith of such representation, given credit to the actual or apparent partnership, and if he has made such representation or consented to its being made in a public manner he is liable to such person, whether the representation has or has not been made or communicated to such person so giving credit by or with the knowledge of the apparent partner making the representation or consenting to its being made.
UPA § 38(1) - Rights of Partners to Application of Partnership Property
When dissolution is caused in any way, except in contravention of the partnership agreement [i.e., when it's rightful], each partner, as against his co-partners and all persons claiming through them in respect of their interests in the partnership, unless otherwise agreed, may have the partnership property applied to discharge its liabilities, and the surplus applied to pay in cash the net amount owing to the respective partners.
Baatz v. Arrow Bar
When the court deems it appropriate to pierce the corporate veil, the corporation and its stockholders will be treated identically.
UPA § 13. Partnership Bound by Partner's Wrongful Act.
Where, by any wrongful act or omission of any partner acting in the ordinary course of the business of the partnership or with the authority of his co-partners, loss or injury is caused to any person, not being a partner in the partnership, or any penalty is incurred, the partnership is liable therefor to the same extent as the partner so acting or omitting to act.
§ 13. Partnership Bound by Partner's Wrongful Act.
Where, by any wrongful act or omission of any partner acting in the ordinary course of the business of the partnership or with the authority of his co-partners, loss or injury is caused to any person, not being a partner in the partnership, or any penalty is incurred, the partnership is liable therefor to the same extent as the partner so acting or omitting to act.
Among the factors to be considered in determining whether a subsidiary and parent operate as a "single economic entity" are:
Whether the corporation was adequately capitalized for the corporate undertaking; whether the corporation was solvent; whether dividends were paid, corporate records kept, officers and directors functioned properly, and other corporate formalities were observed; whether the dominate shareholders siphoned corporate funds; and whether, in general the corporation simply functioned as a façade for the dominate shareholder.
Respondeat Superior
While a master is liable for torts committed by a servant within the scope of his employment, a principal is generally NOT liable for torts committed by an independent contractor in connection with his work.
Bartle v. Home Owners Co-Op.
You can pierce when there is fraud or misrepresentation.
DeWitt Truck Brokers v. W. Ray Flemming Fruit Co.
You cannot pierce except when its inequitable or unfair. Plaintiff has a burden to prove it was unfair.
A principal will be liable on a contract between the agent and a third party when the agent acts with:
actual authority, apparent authority and estoppel, and inherent authority
Exception to Mirror Rule: Fraudulent Concealment
an agent of an undisclosed principal falsely represents that he is not acting for a principal
"Promoters"
are entrepreneurs who put new businesses together.
Ultra Vires
beyond ones legal power or authority
Undisclosed
if at the time of the agent's transaction the third party has no notice that the agent is acting for the principal.
Disclosed
if at the time of the agent's transaction the third party has notice that the agent is acting for a principal and has notice of the principal's identity.
Partially disclosed
if at the time of the agent's transaction, the third party has notice that the agent is or may be acting for the principal, but has no notice of the principal's identity.
Deep Rock Doctrine
if you are an insider, your claims are subordinate to the outsiders
Why go public?
o Additional capital raised for expansion o Liquidity of shares for shareholders o Publicly traded shares help lure employees with stock options o Publicly traded companies tend to be better known
Why not go public?
o House-keeping o Must make internal affairs public o Increased legal risks under SEA and Blue Sky laws o SEC filing requirements (quarterlies etc.) o It is expensive to go public
A de facto corporation
one which has been defectively incorporated and thus is not de jure. Requirements: - A valid law under which such a corporation can be lawfully organized, - An attempt to organize thereunder, - Actual user of the corporate franchise.
A de jure corporation
results when there is has been conformity with the mandatory conditions precedent established by statute.
Agent
the person acting of the other
Principal
the person for whom the acting is being done