BLAW 3175 Exam 4

Corporate earnings and taxation

-Corporate profits can be either kept as retained earnings or passed onto the shareholders as dividends, the board of directors decides this ~~This often happens on a quarterly basis ~~Board of directors may keep this cash so they can do things like acquire other companies -Corporate taxation: corporate taxes should be taxed twice with C Corps, first to the corporation,then to the shareholders via dividends ~~C corporations can be taxed twice, when they earn income, and then if they chose to distribute dividends, shareholders are taxed

Business judgement rule: immunizes a director or officer from liability from bad decisions

-Court will not require directors or officers to manage "in hindsight". BJR will apply as long as decision was reasonable, informed, made in good faith, and best interests of the corporation -Not liable for honest mistakes of judgement as long as they exercise reasonable due diligence at the time the decision was made ~~Ex: putting out a car model that is larger and people want smaller cars ~~Ex: you have been drinking and are the deciding vote on a risky decision that ends up being a horrible decision, that decision may not be protected because you could have been negligent in that case -Officer liability ~~Increasing personal liability ~~Increasing prosecutions ~~Particularly when environmental laws are violated

sole proprietorship part 2

-Formation ~~Done by an individual ~~May have a fictitious name ~~Example: ralph jones d/b/a (doing business as) spuds brewery ~~No formal requirements for formation ~~May have to publish d/b/a name -Sources of funding ~~Can be limited: ~~~~Loans ~~~~Government help -Liability: full personal liability of owner -Tax consequences ~~Owner claims all income and losses on their personal tax returns ~~No separate filing requirement -Management and control ~~All assets with one person -Transferability of interest ~~Business can be sold- property, inventory, and goodwill ~~~~Sales that are a byproduct of patronage plays a big role in what it sells for ~~Owner will usually sign a non-compete agreement ~~~~You don't want the person selling you the business to make a similar business right after which could compromise your sales

Agency by agreement

-Formed through express consent (oral or written) or implied by conduct -Lauren creek health care center v. bishop (2010) ~~When was the agency created between Bishop and his wife? ~~Paperwork had an arbitration clause, was hospitalized from an allergic reaction and died from complications, family wanted to bring a lawsuit but they had the clause where the wife agreed to arbitration, tried to argue that she didn't have authority to sign the documents but he had verbally consented to her signing them on her behalf

LLCs part 3

-Funding: members contribute capital ~Liability: ~~Members stand to lose capital contributions, but their personal assets are not subject to attachment ~Tax consequence: ~~Income passes through to members ~~LLC does not pay taxes ~~Members do this on their personal tax returns -Advantages ~~Limited liability: liability of members limited to amount of investment ~~Flexibility in taxation ~~Management and foreign investors ~~~~Foreign investors can be member-owners of an LLC -Disadvantages ~~There are not many disadvantages to an LLC ~~~~The main disadvantage is the lack of uniformity with state laws ~~~~~~Same can be said or corporations and partnerships -The LLC operating agreement ~~The LLC operating agreement is the same as a corporation's bylaws ~~Written agreement is preferred ~~Partnership law may apply: if the operating agreement is silent, courts will apply partnership principles ~~Not required by law, but is strongly recommended ~~~~Agreement between members as to how the company will be run and operated and how the income and liabilities will be split between members

Where to incorporate/In order to form a corporation

-Where to incorporate ~~Status of state's corporation laws ~~State tax laws ~~Ability to attract employees ~~Incentives -In order to form a corporation ~~Must comply with statutory requirements ~~File articles of incorporation: ~~~~Name ~~~~Names and addresses of all incorporators ~~~~Capital structure of the corporation ~~~~Types of stock -Must hold initial meeting after incorporation ~~Elect new directors ~~Adopt bylaws (day-to-day procedures) ~~~~Roadmap as to how the corporation is set up ~~~~More detailed than the articles of incorporation ~~~~Do not need to be filed with the government ~~~~Binding on the shareholders and officers ~~~~Says when meetings will be, what notice is required in advance ~~~~Specify quorum, which is necessary to hold a shareholders or directors meeting and specify votes on the board ~~~~Board of directors and shareholders can amend the bylaws ~~Issue stock ~~Ratify pre incorporation contracts

Chapter 16

Agency Law

Types of agencies (not on assessment)

Agency by agreement Agency by ratification Agency by estoppel Agency by operation of law Necessaries for family Emergency

How agency relationships are formed

-Generally, agency relationships: ~~Are consensual ~~~~By agreement of the parties, may or may not be in writing ~~Require no consideration ~~~~Money is not required but it often is involved ~~Require principals to have contractual capacity (agent does not) ~~~~people 18+ are deemed to have contractual capacity unless indicated otherwise such as if they have dementia or alzheimers and cannot understand the terms of the agreement ~~~~Ex: if you run into Professor Spurling at Ted's after 12 beers and say you will sell him your Tesla for your $100 bar bill, the contract may be able to be set aside because you were under the influence of alcohol ~~~~Contractual capacity means the adult had a general understanding of the contract when they went into it ~~~~Minors are not deemed to have contractual capacity ~~~~As long as the principal has contractual capacity, you can appoint someone to be your agent who does not have it ~~~~If you tell your younger sibling to go put an offer in for a motorcycle, the authorization you are granting and the contractual capacity must be kept in mind -Can be created for any legal purpose

Corporate officers and executives

-Hired by directors -Officers serve at the pleasure of the board of directors but have fiduciary duties to the company ~~Their employment relationships are generally governed by contract law and employment law ~~Officers may be terminated for cause -Ex is president, treasurer, vp, etc. -Duties and liabilities of directors and officers ~~Directors and officers are fiduciaries and owe the company ethical and legal duties ~~~~Must subordinate their personal interests to that of the corporation ~~~~Loyalty that is undivided and allegiance that is influenced by no consideration other than the welfare of the corporation. Any adverse interest of the director or officer will be subject to a scrutiny.

Employment Law Intro

-Historically, employment law was governed by the common law doctrine of "employment at will" -Today employment law is heavily regulated by state and federal statutes, common law principles born out of contract law -Employees not under barring agreements may be considered an 'at will employee', can be terminated or quit at any time

Early on in history workers had virtually no rights, there were no safety standards

-Introduction ~~Fair labor standards act (FLSA)- an extension of wage and hour regulation to workers in interstate commerce ~~~~Applies to private employers engaged in making goods for interstate commerce ~~Protects children and young people from oppressive child labor practices ~~Limits hazardous environments in the workplace, caps hours they can work

LLCs part 2

-LLC does require certain formal paperwork to be submitted to the government ~~Central repository for business filings is the secretary of state ~~In CT, the initial document is the certificate or organization, and must be accepted by the secretary of state ~~~~Secretary of state might look to see if there is another business with the same name -Is different from a corporation because the LLC is considered to be a citizen of where its members reside ~~Would be a citizen of three states if its three members are from three different states -Be familiar with the parts of the document you fill out on the certificate of organization ~~Name of the company ~~Office address ~~Agent for service and their address ~~Who are the members -Jurisdictional requirements ~~An LLC is a legal entity separate from its owners ~~For federal diversity jurisdiction, the LLC may be treated differently than a corporation. Citizenship of an LLC is the citizenship of its members, which may live in multiple jurisdictions

characteristics of corporation

-Legal existence ~~Corporation requires formal paperwork to be reported to the state of incorporation and accepted by secretary of state's office -Unlimited duration ~~Can have a perpetual existence and go on indefinitely -Free transferability of interest ~~Corporate shares are freely transferable by shareholders ~~Small corporations can but limits on this -Limited liability ~~Corporations are liable to their debt ~~Shareholders are only liable to the extent of their capital contribution -Centralized management ~~Corporations have board of directors that makes policy decisions concerning operations of corporation ~~Shareholders elect them ~~Directors elect officers and together they make the corporate team -Can hold legal title to property -Can sue and be sued

Chapter 14 + 15

Business Organizations

Chapter 18

Employment Law

LLCs part 4

-Management and control ~~Operating agreement- specifies voting rights ~~One member or an outside consultant can have operating authority delegated to him or her -Transferability of interest ~~Interest can be transferred ~~Transferee does not become a member unless majority of remaining members approve -Membership of an LLC ~~An LLC can be either member-managed, or manager-managed ~~~~This is important in determining who has the authority to bind the LLC to contracts ~~~~In member-managed LLCs, all members have authority to bind LLC to contracts ~~~~Only the designated manager has this authority in a manager-managed LLC ~~Fiduciary duties. Managers and members owe fiduciary duties to the LLC and each other ~~~~Members owe duty of loyalty to the LLC and must act honestly in their dealings with the LLC, duty not to usurp or take advantage of properties, skimming money off books, or secretly competing ~~Dissolution and termination ~~~~Generally withdrawal, death or expulsion of members will dissolve company ~~~~Some states permit judicial dissolution ~~~~All states permit voluntary dissolution

minimum wage and overtime

-Minimum wage requirements ~~Since 2009, FLSA minimum wage is $7.25/hour in covered industries. Employers in food or lodging industries can deduct reasonable cost of those services from wages ~~States may vary raise minimum wage -Overtime provisions and exemptions ~~Rule: under FLSA, employees who work over 40 hours per week are entitled to 1.5 times per hourly wage for those hours worked ~~~~Most hourly workers are entitled to this provision ~~Exemptions: certain employees, e.g., executive or professional, are exempt from FLSA overtime requirements ~~Exemptions: FLSA overtime exemptions do not apply to manual laborers, nurses, police, firefights, and other safety workers, blue collar workers

intro to corporations

-Most dominant form of organization in this country, is a separate legal entity -A corporation is a creature of statute, an artificial "person", organizers of corporation must comply with statutes of state that they are incorporated in ~~Enjoy many of the rights and privileges under our Constitution as natural persons -Corporations usually chose to incorporate in areas where they will do most of their business ~~Corporations can have one or more shareholders ~~Owners can be natural persons or other businesses ~~Corporation substitutes itself for shareholders ~~Can sue and be sued, enforce contracts, transfer property, etc.

Shareholders' meetings

-Must occur at least annually. Voting requirements and procedures are: ~~Notice of meetings ~~Will require a quorum as well ~~Proxies ~~~~Shareholders may not be able to physically be present, may provide a proxy where you authorize someone to vote on your behalf ~~Shareholder proposals -Shareholder voting ~~Quorum requirements: shareholders representing more than 50% of shares must be present to conduct business ~~Voting lists: record stock of ownership -Shareholders have access to books and records ~~Under revised MCBA, no ownership requirements ~~Must have proper purpose -Generally shares in a corporation are freely transferable, however sometimes transfers are restricted

How agency agreements are terminated

-Once the agent is terminated, agent has no actual authority to bind the Principal, but may have apparent authority to bind principal -Could be terminated by mutual agreement -Could be lapse of time -Agency can be terminated by ~~An act of the parties ~~By operation of law -Termination by act of parties (not going to get into details on assessment) ~~Lapse of time ~~Purpose achieved ~~Occurrence of a specific event ~~Mutual agreement ~~Termination by one party ~~Notice of termination

Limited liability of shareholders

-One of the key advantages of corporations is the limited liability of shareholders -In certain situations, the corporate "veil" of limited liability can be pierced, holding the shareholders personally liable

Agent's duties to the principal, two distinct obligations:

-Performance: must perform lawful duties expressed in contract, and meeting implied condition to use reasonable diligence and skill and carrying that out. If agent fails, possible breach of contract and negligence as well. ~~Gratuitous agent: only liable for torts -Notification: to principal of all matters concerning subject matter of agency ~~Duty of notification is when the agent must notify the principal of information that is important such as a real estate agent must tell you if there are other offers on a property you want -Loyalty: fundamental duty as fiduciary (no conflict of interest) ~~Ex: real estate agent putting in an offer for themselves -Obedience: if you tell you real estate agent to put together an agreement to submit, they have an obligation to obey you -Accounting: agent owes duty to maintain accurate accounting of all transactions on principal's behalf such as property and money received

Sole proprietorship part 1

-The owner is the business ~~Anyone who does business without creating a separate business organization, has a sole proprietorship, no federal or state government approval required ~~This is the most common type of business ~~If no other type of business is chosen, the default is a sole proprietorship ~~Advantages: ~~~~Easy to form ~~~~Lower startup costs ~~Disadvantages: ~~~~Major disadvantage is the owner is personally liable for all losses or liabilities incurred by the business ~~~~Legally responsible for contracts or torts that they or any of their employees commit in the course of their employment ~~~Personal assets can be held by creditors if you do not repay ~~~~Lacks continuity after death

Intro to Agency, Agent's Duties

-Use of agency allows one person to act on behalf of another which solves the problem ~~This can be an executive who works for a corporation, an attorney who represents a client, a real estate broker who is employed to sell a house -Agency = principal and agent -Agency is the most common and most important legal relationship -Agency is governed by a large body of common law known as agency law -Understanding agency is crucial to understanding the legal environment of business -Principals use agents to be able to conduct multiple business operations simultaneously in various locations -The principal has the right to control the agent in matters entrusted to the agent ~~Ex: if you want to buy a home, you are the principal if you are engaging the services of a real estate agent to act on your behalf to secure a property -Agency relationship ~~Relationships usually formed by consent between the principal and the agent ~~~~Based on consent that the agent will act on behalf of the principal and will be subject to their control ~~Agency is a "fiduciary relationship based on trust and confidence ~~employer-employee relationships ~~~~Generally all employees who deal with third parties are agents

COBRA (consolidated omnibus budget reconciliation act) provides a federal right to continued health insurance

*consolidated omnibus budget reconciliation act* -Federal statute that ensures that employees who lose their jobs or have their hours reduced to where they cannot receive benefits can pay to continue receiving benefits for themselves under the employers policy -Employee must pay premiums of that -Typically has 60 days to decide if they want this coverage to continue -Procedures: working as 60 days to decide -Payment: COBRA free, payments depending on conditions and worker status

State workers' compensation laws

-A byproduct of state law -Establish an administrative procedure for compensating workers injured on the job. Instead of suing for injuries, a worker is compensated ~~WC benefits are given by pre-set limits that vary state to state ~~Requirements ~~Workers' compensation versus litigation ~~~~If employees are injured in the workplace, this is the path to getting compensated for their injuries, aka workers are not able to bring a claim against their employer through litigation -In order to receive compensation under WC ~~Injured worker must prove injury rose out of and in the course of his or her employment ~~Accidents that happen when employee is off premises often do not count -Pros: ~~It is generous as far as coverage and is almost a certain recovery ~~~~Employers pay into a fund that that employees are paid out of ~~Is user friendly and not in the courtroom -Cons: ~~Companies that say they have to keep paying into the fund but are exercising vigilance and do not have employees making claims ~~Detractors may argue that the system may be more user friendly but injured parties are not compensated as well through WC if they had the option of a civil litigation process instead

Torts and Criminal acts

-A corporation is liable for the torts committed by its agent or officers within the course and scope of their employment under doctrine of respondeat superior -Corporations can be liable for criminal acts via fines and/or license revocation -Responsible officers may go to prison -In certain situations, the corporate "veil" of limited liability can be pierced, holding the shareholders personally liable ~~If a shareholders misuses a corporation for improper purposes, a court can disregard corporate entity and hold the shareholders personally liable for the corporation's debt and obligations ~~"Piercing the corporate veil", "alter ego doctrine" ~~Reasons for piercing the veil ~~~~No formalities- personal and corporate properties are mixed together, assets and debts are mixed ~~~~~~Commingling- if someone pays their mortgage with income from their corporation ~~Ignoring corporate formalities- elections, meetings ~~Forming to perpetuate a fraud on creditors ~~A potential problem for closely held corporations ~~Schultz v general electric healthcare financial services (2010) why was shultz personally liable? ~~Shultz used company money to buy property and then dispose of it in his name -Liability issues ~~Shareholders' liability generally limited to amount of investment If corporate veil is pierced, there is shareholder liability. Means corporate immunity from liability is set aside

Principal is liable for acts entered into by agent when they give agent actual or apparent authority

-Actual authority: express or implied ~~Express is most common, agent has authority to contract on principal's behalf as expressly stated on the agreement ~~Can be oral or written ~~Equal dignity rule: if law requires written contract, agent's authority must be in writing, or contract voidable ~~~~Exceptions: executive officer acting for corporation, OR agent acts in principal's presence ~~Power of attorney gives agent express authority ~~~~Poa is a written document and usually notarized ~~~~Special: specified acts only ~~~~General: all business for principal ~~~~Terminates on principal's death or incapacity ~~Implied authority ~~~~Agent has implied power to do what is reasonably necessary to carry out express authority ~~~~Inferred or conferred by custom, or agent's position ~~~~Test is whether agent reasonably believed she had the authority to do the act ~~~~Ex: car dealer signs a contract for you for $72,000 and did not have the authority to sign less than $74,000, as a customer you can say it was apparent than this person did have that authority -Apparent authority: estoppel, emergency, and ratification ~~Arises based on what principal causes a third party or agent to believe ~~~~Agent has apparent authority when principal, by either word or act, causes third party to reasonably believe agent has authority to act for principal ~~While all employees are agents, not all agents are employees

LLCs part 1

-An LLC is a hybrid entity that combines the limited liability of a corporation and the tax advantages of a partnership ~~Owners (members) manage business and have limited liability ~~~~The business liabilities should stop with the business and the members' personal assets should be protected -LLC's are increasingly becoming the entity of choice for businesses -Like corporations, LLC's are creatures of state law -Members are not shareholders and their ownership is called an "interest" (not shares) -Considered separate and distinct legal entities from their members, sometimes referred to as an artificial person -Can sue as a plaintiff or be sued as defendants, enter contracts, hold property, can be found criminally and civilly liable -Members are NOT personally liable to third parties for the debts, obligations, and liabilities of the LLC beyond their capital contributions -A personal guarantee is something you sign when you personally guarantee to repay the debts of your LLC, typically the most the members can lose is what they invested in the company -Not all members' interests have to be equal, often referred to as percentage interest ~~Ex: 2 member LLC where one member owns 70% and the other owns 30%

franchises part 1

-An agreement in which franchisor licenses intellectual property (trademark, trade name or copyright) to franchisee to use in the sale of goods or services -Advantages ~~Benefit for franchisee with franchisor's help in opening a business ~~Franchisee benefits from the strong trademark such as mcdonald's or burger king, benefits from widespread advertising ~~Franchises are known for having a consistent service and product ~~Franchisee gets to be their own boss and acquires an established business with the kinks worked out -Laws governing franchises ~~When one party (franchisor) licenses other party (franchisee) to use the company's trademark in distribution in selling goods and services owned by the franchisor ~~Both are established as separate business entities ~~Primarily governed by contract law ~~UCC article 2 governs franchises for sale of goods ~~Federal regulation of franchises ~~~~Industry-specific standards: protect franchisee from unreasonable demands and bad faith termination ~~~~Example of mcdonald's franchisee being taken back because they weren't meeting standards ~~~~The franchise rule: FTC requires franchisors to disclose certain material facts that a prospective franchisee needs to make an informed decision concerning the purchase of a franchise ~~~~~Franchisor must deliver franchise disclosure document to a potential purchaser at least 14 days before the contract is signed ~~~~~~Must contain history of franchise, litigation with franchisee ~~~~~~Cost to buy and operate a franchise ~~~~~~What restrictions are there in regards to customers ~~~~~~~~Subway may say you need to buy directly from the franchisor ~~~~~~What are the ongoing operating costs with things like supplies? ~~~~~~Are there territory restrictions on where you can sell? ~~~~~~~~Example of subway in union and behind ted's ~~~~~~Training program, what is required ~~~~~~Can also stipulate that a certain percentage of sales from franchisee go to franchisor for marketing and such

Principal's duties to the agent

-Compensation (expressed or implied) ~~Principal has duty to compensate the agent for services provided unless agent has agreed to act gratuitously ~~Agency contract should specify this payment -Reimbursement and indemnification ~~If agent makes an authorized expenditure, principal must reimburse the agent such as if they go on a trip for them ~~Indemnify for any losses the agent incurs while working for the principal ~~~~Ex: agent makes agreement with third party on behalf of the principal who fails to uphold the agreement. Third party can sue agent for damages and principal must indemnify agent for this -Cooperation ~~Must assist agent in performance of his or her duties ~~Can't do anything to interfere with reasonable conduct of agent -Safe working conditions ~~Equipment, premises, and other working conditions

Family medical leave act

-Coverage and application: FMLA requires employers with over 50 employees to provide 12 weeks unpaid leave to employees who need to care for a spouse, child, or parent suffering with a serious medical condition ~~All employers state, town, government, and private employers must follow this ~~Serious injuries or military duty can take up to 26 weeks -Guarantees all eligible employees (1250 hours in a given year to be eligible) a part time person can be eligible for unpaid leave in the case of someone who is ill or having a child -12 weeks does not have to be consecutive -Employee should provide employer with reasonable notice -Some states pass their own iteration which allow employees even greater leave time -Benefits and protections ~~Employer must continue worker's health care on the same terms. Worker must be restored to position upon return to work (unless it's a "key" employee) ~~Cannot be punished for exercising a legal right -Violations of the FMLA ~~Damages ~~~~Can recover unpaid salary, denied compensation, money losses, attorney's fees and court costs ~~~~Damages could be doubled if bad faith is proven ~~Job reinstatement ~~Promotion (if one was lost due to employer's actions)

partnerships part 1

-Definition ~~An association of two or more persons to carry on as co-owners, a business for profit ~~Can include corporations and natural persons -Formation ~~Voluntary formation by agreement (do not require agreements) ~~~~Draw up articles of partnership ~~~~Conduct can be used to interpret if a partnership agreement exists ~~Involuntary formation: by implication ~~~~Sharing of profits ~~~~Constitutes prima facie evidence that a partnership exists -Governed by the uniform partnership act (UPA) ~~Adopted in 49 states ~~In the absence of partnership agreement, UPA controls ~~Revised Uniform Partnership Act (1994)- adopted in nine states ~~If partners fail to document the agreement in writing, vast majority of states have this default act where courts will apply principles in the act contained in the partnership

Rights of shareholders

-Dividends: distributions of corporate profits or income ordered by the board ~~Directors' failure to declare a dividend -Shareholders are generally not liable for the contracts or torts of the corporation ~~If the corporation fails, shareholders generally cannot lose more than their investment -Check out slides with charts

Liability for agent's negligence

-Doctrine of respondeat superior: employer is vicariously liable for employee's negligence torts committed within the agent's "course and scope of employment" -Ex: you own a restaurant and dishwasher got water on the floor, customer falls and slips and gets brain injury. Employee created dangerous scenario this is a tort liability for employer -If employed as an independent contractor, the tort liability falls on you -Look at chart for determining the scope of employment -Scope of employment ~~Distinctions between detour and frolic: if detour, principal may not be liable, if frolic principal is usually liable. Degree of deviation ~~~~The greater the degree of deviation, the more it is outside the scope of employment and employee is responsible for their tort actions ~~Employee travel time to or from meals is outside scope of employment ~~Employers can be responsible for negligent acts of employees even if employees weren't following the rules It is important to hire well

Private pension plans

-ERISA (not on assessment) does not require employers to setup pension plans, but provides rules on management and investment ~~Vesting -Unemployment compensation ~~Helps workers who are temporarily unemployed FUTA ~~Requires employers to pay unemployment contributions in the form of a tax to this fund ~~Employees do not contribute to this, employers do on behalf of employees ~~Each state establishes its own

When choosing a business entity, entrepreneurs should consider:

-Ease of creation -Owners' liability -Tax considerations -Need for capital- ability to raise funds for your business operations

Election of directors

-Elected by shareholders to make corporate policy -May operate by committee -Hire officers of corporation and set officers' salaries -Generally the number of directors is set for in the articles of incorporation -Directors appointed at the first organizational meeting. In closely held companies, directors are generally the incorporators and/or the shareholders ~~Accept or authorize stock shares, selecting a bank, etc. in first organizational meeting -Term of office varies 1-3 years

Electronic monitoring in workplace

-Employee privacy protection: is there an employee expectation of privacy? -ECPA: "business-extension exception" allowed employer to monitor Stored communications -Employers want to monitor what employees are doing on the job, but what is the extent of monitoring email, phone calls, etc. are common law and federal statutes that relate to this -Employees expectation of privacy is key here- did the employee have a reasonable expectation of privacy? ~~Are keystrokes monitored on the computer? ~~Are emails monitored? ~~Phone calls? -ECPA allows employers to monitor phone calls, make monitoring aware to your employees, have clear policies to minimize likelihood of being sued for privacy policies -This stuff is spelled out in the employee handbook -Other types of monitoring ~~Lie-detector tests: employee polygraph protection act exempts government, security, and controlled substance firms ~~Drug testing ~~Genetic testing -Must be aware of state statutes

Employment at will

-Employment relationships have been by common law doctrine of "employment at will" ~~Either party may terminate at any time for any reason, unless contract provides the contrary -Exceptions ~~Based on contract theory: is there an implied employee agreement? What about oral promises from employer? ~~You may have a case against the employer -Based on tort theory: termination may give rise to wrongful discharge claims, cannot fire someone for an illegal reason for something like pregnancy, gender, race, etc. -Based on public policy: ~~Requirements: must be clearly stated in statutes governing that jurisdiction ~~Whistleblowing and public policy ~~Things like someone becoming pregnant or being a whistleblower -Wrongful discharge ~~Even if employer's actions do not violate any express employment contract or statute, liability may still attach based on tort theory or agency

The Occupational Safety and Health Act (OSHA)

-The fundamental federal law aimed toward safety in the workplace -Federal, state, and local governments are exempt but private employers have to comply -It imposes recordkeeping and reporting requirements and post notices in the workplace of their rights under the act -It is an act but also an agency that is empowered to administer this act as well as create rules and regulations to enforce and interpret it -Imposes general duty on employer to create environment free from hazards that are causing or likely to cause death or serious physical harm to its employees -Employers who violate the act can be subject to civil and criminal penalties -Are whistleblower provisions in the act -Enforcement is by OSHA, NIOSH, and the OSHRC

Liability for agent's negligence part 2

-Principal may be liable for intentional torts committed within the scope of employment ~~Employer is also liable for employee's acts which employer knew or should have known the employee had a propensity to commit -Liability for agent's crimes ~~Agent is liable for her own crimes ~~Principal is not liable, even if the crime was committed within the scope of employment, unless: Principal participated in the crime ~~Some states, principals may be liable for agent violation of regulations -It is not enough to be labelled as an independent contractor or an employee, courts will look past these labels and look at the relationship -Pay is telling, an independent contractor will typically be paid quarterly, but if they start to exert more control and tell you to come at certain times and wear certain things -Determination of employee status ~~Lopez v. El Palmar Taxi, Inc (2009) Liability for agent's negligence -Liability for independent contractor's torts ~~General rule: employer is not liable for acts of independent contractors because employer has no right to control ~~~~Must determine whether worker is employee or independent contractor

Director liability

-Protected by the business judgement rule, directors and officers must act in good faith and with prudence to avoid personal liability -Can consult experts but must study issues directors -Election of directors ~~Removal of directors: directors can be removed for cause ~~~~If they take advantage of a business opportunity for their own personal gain or they go into a competitive position with a company that they serve on the board of directors for -Vacancies on board of directors: if director dies or resigns or new position created by articles or bylaws -Rights of directors ~~Participate in corporate decisions and inspect corporate books and records ~~May be entitled to compensation (usually a nominal sum). Corporation should guarantee reimbursement or purchase liability insurance to protect the board form personal liability ~~Meetings of the board of directors ~~~~Directors can only act as a board, cannot act individually on the corporation's behalf, has the right to participate in any meeting of the board. ~~~~When a vote occurs, a cuorum is established of what constitutes a legal quorum of how many members need to be present so it can be legal

Classification of corporations

-Public (C-Corps) and private corporations -Nonprofit corporations -B-corps benefit corp ~~Intended to promote a social cause ~~Tied to an entity that makes a profit ~~Care about the environment and want to make a positive impact on society ~~Must go through a certification process in order to meet the requirements ~~Measure social impact by a standard set by a third party ~~Annual benefit report -Closely held corporations ~~Have a small number of shareholders ~~Stock is not publicly traded ~~Management of closely held corporations ~~Transfer of shares ~~Shareholder agreement to restrict stock ~~Misappropriation of closely held corporation funds ~~How would you determine reasonable compensation? -"S" corporations: provides limited liability to its owners and the tax status of a flow through entity ~~Created to encourage entrepreneurship by offering tax breaks ~~Avoids federal tax under irs code "subchapter s" ~~Avoids federal "double taxation" of regular corporations at the corporate level. Only dividends are taxed to the shareholders as personal income ~~IRS requirements: corporation is domestic, fewer than 100 shareholders, only one class of stock, no shareholder can be a non-resident alien ~~Professional corporations

Corporate personnel

-Responsibility for overall management of company rests with board of directors (elected by shareholders) -Board of directors makes policy decisions and hired officers to run corporation on a daily basis

Shareholders

-Shareholders generally have no right to manage the daily affairs of the corporation, but do so indirectly by electing directors -Controlling shareholders owe a fiduciary duty to minority shareholders -Bylaws will say how much power shareholders have in regards to a particular institution -Shareholders have right to vote on mergers, consolidations, and sale of all assets, not on acquisition -Procedure ~~Board of directors adopt resolution in favor of combination or sale ~~Resolution with notice of meeting sent to all shareholders ~~Shareholders vote on resolution at meeting

Income security

-Social security: portion of income (whether paycheck or self-employed) goes to FICA (Federal Income Contributions Act) ~~Passed in 1935 by congress to provide limited retirement and death benefits to certain employees and their dependents ~~Employees and employers must pay taxes into the social security fund -Medicare: federal government health-insurance program for people 65 years of age, and for those under 65 who are disabled

partnerships part 2

-Sources of funding: ~~Capital contributions of partners themselves ~~Loans by partners ~~Outside loans -Agency concepts and partnership law: ~~Partnerships are governed both by common law and statutory laws ~~Each partner is deemed to be an agent and fiduciary of the other ~~~~Put in position of trust with one another and need to act in good faith and fairness in their dealings with each other and the business ~~There may be imputation of liability -taxes: each partner files profits or losses of the business on their own personal tax return, which means the company does not have to pay income tax

franchises part 2

-State regulation of franchising ~~Protection from unfair trade practices and bad faith terminations ~~Disclosure documentation (franchise disclosure document) including costs of operation recurring expenses, profits earned, and substantiating of these figures ~~State law may prohibit termination without "good cause" -The franchise contract ~~Franchisee's type of business entity including capital structure, sales quotas and record keeping ~~Payment for the franchise ~~Business premises is leased or purchased ~~Location of the franchise ~~Quality control: key to franchise ~~~~Quality control is a legitimate issue for franchisor because good will, reputation, and trademark value. Courts will not question Franchisor's strict supervision but Franchisor may be liable for torts of agents ~~Agreement may grant franchisee the opportunity to "cure" an ordinary breach within a period of time to prevent termination ~~Wrongful termination ~~Haggen Daas example, said they were selling it through non franchise outlets that competed with them, court ruled against them due to the wording of the franchise contract -Termination of the franchise ~~Importance of good faith and fair dealing ~~~~Courts usually try to balance the rights of both parties. If franchisor arbitrarily or unfairly terminates a franchise, the franchisee will be provided with a remedy for wrongful termination ~~~~Holiday Inn Francising, Inc. v. Hotel Associates, inc. (2011) ~~~~~~Was holiday inn's conduct "bad faith"? What factors did the jury consider in reaching its verdict ~~~~~~Franchisee was holtel associates HAI ~~~~~~HAI got an offer for $15 million but turned it down and made renovations extensively under the thought that they were going to have their agreement renewed ~~~~~~Franchisor declined to give extension and so HAI sells it for $5 million. ~~~~~~Franchisee prevailed on detrimental false promises by franchisor and was rewarded $10 million in economic damages ~~~~~~Penalized holiday inn $13 million in punitive damages for the way they conducted

duty of care and duty of loyalty

-duty of care ~~Duty to make informed decisions. Directors are expected to be fully informed on corporate matters ~~Requires corporate directors and officers to use care and diligence when acting on behalf of the corporation ~~~~With the care that a reasonably prudent person would use in a similar situation ~~~~They must reasonably believe that it is in the best interest of the corporation ~~An example of this could be a case where an officer is stealing money and the board of directors never brings in someone to audit the financial statements, they have been negligent in this case -duty of loyalty subordination of personal interests to the welfare of the corporation ~~No competition with corporation ~~No "corporate opportunity" ~~No conflict of interest ~~~~Disclosure of potential conflicts of interest ~~~~~~Directors and officers must provide full disclosure of any potential conflicts of interest and abstain from voting on any transaction that may benefit the director/officer personally ~~~~~~If reasonable, can be approved ~~~~~~Ex: directors who work for different banks abstaining from a vote where they are choosing where to put large sums of money ~~No insider trading

Employer-employee, independent contractor, vicarious liability

-employer-independent contractor relationships ~~Independent contractor is not an employee ~~Employers have 'no control' over the details of their work performance ~~Ex: doctors, architects, attorneys, etc. ~~Typically cannot enter into contracts on behalf of the principal unless the principal has authorized them to do so ~~This an important distinction because an employer-employee relationship has different rules ~~Employers who have employees will be generally liable for torts of their employees within the scope employment while this is not true of independent contractors -Determination of employee status. Key is control