Enterprise Organization (Law School)

voting shares (MBCA §6.01(b)(1) and DGCL §151(a))

:there must be a class of shares that carry authority to elect directors and exercise all other shareholder voting rights

partner's agency authority and UPA § 301(1)

apparent authority extends to acts involving the ordinary course of partnership business unless the partner had no actual authority *AND* the TP knew or had reason to know that the partner lacked authority

by default, general partnerships are _______ and can only continue as long as every member assents

at-will

classified directors and staggered boards (MBCA §8.06 and DGCL §141(d))

boards can be classified into two or three groups and given staggered terms (2 groups = two-year terms / 3 groups = three-year terms) with only one group expiring each year

sole proprietorship

business owned/managed entirely by one person

Shamloo v. Ladd and UPA §401(h)

by default, a partner is not entitled to remuneration for services performed for the partnership (except for reasonable compensation for services rendered in winding up the partnership business)

sharing of profits/losses in a partnership (UPA §401(b))

by default, each partner is entitled to an equal share of the partnership profits (irrespective of initial capital contribution) and is chargeable with a share of the partnership losses in proportion to the partner's share of the profits

how are business decisions made between partners when differences arise?

by majority if the matter is in the ordinary course of business and by unanimous vote if the matter is outside the ordinary course of business or an amendment to the partnership agreement

special shareholders meetings (DGCL §211(d) and MBCA §7.02)

can be called to address issues raised by shareholders

common shares (MBCA §6.01(b)(2) and DGCL §151(a))

combine residual claimant status and voting rights

penalty default rule

rule designed to encourage parties to contract around it

tailored rule

rule that contracting parties would have picked themselves

majoritarian rule

seeks to provide result that similarly-situated parties would prefer

dual class

separates shareholders into two classes and gives one class disproportionate voting power relative to capital contribution *(SEC prevents this after you go public)*

cumulative voting (MBCA §7.28(b)-(d) and DGCL §214)

shareholder can cast a total number of votes equal to the number of shares multiplied by the number of positions to be filled, and these votes can be spread among as many candidates as there are seats to be filled or concentrated in as few as one candidate

action by written consent (MBCA §7.04 and DGCL §211(b))

shareholders can act via written consent in lieu of meeting DGCL requires a specified number of shares for certain action via written consent (default = majority) while MBCA requires unanimity

UPA §401(f): Each partner has equal rights in...

the management and conduct of the partnership business

Hoschett v. TSI International Software, Ltd.

the obligation to hold an annual meeting may not be satisfied by shareholder written consent action because the annual meeting performs critical functions in addition to the election of directors—it is a structured occasion in which shareholders may interact with management and this allows for the possibility of discussion of the direction of the business

class voting (MBCA §8.04 and DGCL §141(d))

corporation can divide shares into classes and permit each class to select a specified number of directors

UPA §801(1): by default, when a partner leaves an at-will partnership, what happens?

the partnership dissolves and is wound up

record date (MBCA §7.05 and DGCL §228)

determines who gets to vote at an annual meeting

annual meeting

directors are elected at annual meetings

straight voting (MBCA §7.21 and DGCL §251(b))

each shareholder may vote the number of her shares for each open seat on the board (51% of shares can fill 100% of positions)

inherent authority

gap-filling device used by courts when agent exceeds their authority and fairness requires binding the principal in order to protect TPs

duty of care in limited partnership

general partners owe (to limited partners) a fiduciary duty of loyalty and care

why is there a duty of care in a limited partnership but not a general partnership?

general partners owe a duty of care to limited partners because limited partners have no ability to manage/control the partnership

Page v. Page and UPA §602(b)(1)

the power to dissolve a partnership by express will of a partner must be exercised in good faith (i.e., the partner may not "freeze out" a co-partner or dissolve a partnership to gain benefits of a business for himself without fully compensating his co-partner for his share)

winding up

the process of liquidating a partnership's assets, paying out liabilities, cashing out partners, and bringing the business to a close

dissolution

the termination of a partnership upon the occurrence of an event specified in the partnership agreement (e.g., a partner's withdrawal) or as specified by law

Bohatch v. Butler & Binion

there is no common law restriction on ability to eject a partner (even a public-policy-based limited duty to retain partners in a WB context is outweighed by cohesive partnership interests)

duty of care in general partnerships

trick question--there is no enforceable duty of care here (in entering into a partnership, you place trust/risk in your partners

who can call a special shareholders meeting?

under the DGCL only directors or those specified in the charter can call special meetings while under the MBCA shareholders who own 10% or more of the stock can call a special meeting

Starr v. Fordham

unfair share calculation is a breach of both fiduciary duty and implied covenant of good faith and fair dealing

agency issue of corporations

we want to prevent opportunistic behavior by board but also don't want to give shareholders too much power that they can impede the efficient functioning of corporation

Kovacik v. Reed

where one partner contributes $ and the other contributes skill/labor alone, the skilled partner is not liable to the $-partner for their lost investment

Meinhard v. Salmon

while the enterprise continues, co-adventurers and partners owe each other the duty of the finest loyalty have a fiduciary duty to each other, including sharing in any benefits that result from the parties' joint venture

Hamburger v. Hamburger

agents may engage in *logistical* activity

fungibility of shares (MBCA §6.01(a) and DGCL §151(a))

all shares of a particular class are fungible

general partnership

an association of 2+ persons to carry on as co-owners a for profit business

Comm. Counseling Service v. Reilly

an employee cannot compete with his employer during the time that he is employed (while using company resources and receiving company pay)

Blackburn v. Witter

apparent (but really inherent) authority exists, and the principal will be liable to the TP, where the principal puts an agent in a position that enables the agent, while apparently acting within his authority, to defraud a third party

partnership duties

partners have a horizontal duty to each other

Dow v. Jones

partnership law governs LLPs if a partner in an LLP acts within her actual or apparent authority as an agent, the LLP may be bound by her conduct *AND* an LLP does not cease to exist upon dissolution but may be bound as it winds up the business

owners are (principals/agents)?

principals

actual authority

principle manifests consent (expressed or implied) directly to agent

characteristics of directors

1. make policy decisions 2. entitled to compensation *but don't share in profits* 3. fiduciary duties to shareholders

characteristics of limited partners

1. no management (dumb rich guys) 2. ownership 3. limited liability

characteristics of general partners

1. ownership 2. management 3. residual claimants 4. unlimited liability

exceptions to at-will employment

1. public policy 2. contract (may be implied through party interactions, employee handbook) 3. good faith and fair dealing

formula for maximum voting power of a given block of shares in cumulative voting system

(S x X) / (D+1) S = total number of voting shares X = no. of directors that shareholder can elect D = total number of directors to be elected at meeting

characteristics of shareholders

(vote, sell, sue) 1. contribute capital 2. collectively elect directors and approve fundamental changes in corp. governance 3. limited (no) liability 4. limited rights to control company

what are the three types of agency authority?

1. actual authority 2. apparent authority 3. inherent authority

what fiduciary duty do agents owe to principals?

1. an agent must put the principal's (employer's) interests above their own 2. obligation to act fairly

characteristics of officers

1. handle management of corporation's day-to-day affairs 2. selected by directors 3. receive compensation *but don't share in profits* 4. fiduciary duties to the board

proxy voting (three context-specific definitions)

1. legal relationship under which one party is given power to vote shares of another 2. person/entity given the power to vote 3. tangible document that evidences proxy relationship

in what ways does the general partnership privilege rights of partners over adaptability of the partnership?

1. majority voting default (unanimous if only 2 members) 2. equal distribution of profits by default 3. dissolution by any member by default

duty of care

Rest. 2d Agency §379(1) describes it as a duty to the principal to act with standard care and with the skill which is standard in the locality for the kind of work he is employed to perform

imputed partner knowledge

UPA §102(f): a partner's knowledge, notice, or receipt of a fact relating to the partnership is effective immediately as knowledge, notice to, or receipt of notification by the partnership (except in the case of fraud committed by that partner)

buyout exceptions

UPA §801(1) says a partnership may continue upon the death or bankruptcy of a partner

can partners contract around fiduciary duty?

UPA §§103(a)(3) and 404 make fiduciary duty partially mutable but duty of loyalty cannot be eliminated entirely

Sennot v. Rodman & Renshaw

a TP may not recover from a principal under a theory of apparent authority if the TP did not specifically rely on the agent's capacity to act for the principal

Foley v. Interactive Data Corp.

a court can look to personal policies/practices of employer, employee's longevity of service, assurances by employe, and practices of industry to find an implied-in-fact contract for term employ

LLP partnership liability

a finding that the partnership is liable for unauthorized actions of a partner will normally *NOT* expose other partners to the risk of personal liability

limited liability partnership (LLP)

a limited partnership with limited liability for all members (came after the LLC)

Meehan v. Shaughnessy

a partner has a fiduciary duty to provide, on demand of another partner, true and complete information of any and all things affecting the partnership

Vigneau v. Storch Engineers

a partner who breaches his fiduciary duty is still entitled to his capital contribution (minus damages caused, including profits earned as a result of the breach)

P.A. Properties v. B.S. Moss Criterion Center

a partner's actions may bind the partnership to an agreement with a TP even if the TP is unaware that the partnership exists, as long as the partner intends the agreement to benefit the partnership (or joint venture)

Drashner v. Sorenson

a wrongfully dissociating partner is not entitled to a valuation that includes the going concern or good will value of the business

Covalt v. High

absent contrary agreement, majority agreement is required for action; a partner's only recourse is to dissolve the partnership

disassociation

action which evinces an intent to remove oneself from the partnership

apparent authority

agent is w/o actual authority but principal manifests consent directly to the TP who is dealing with the agent (expressed or implied) TP must have reasonably believed the agent was authorized

managers and employees are (principals/agents)?

agents

residual claimant

if business is profitable, the residual claimant(s) get the profits--after paying back all debts--because they took risk of ownership

unlimited liability

if business loses, sole proprietor draws on personal wealth to satisfy business' liabilities

wrongful disassociation

if the partners agree that the partnership will continue for a fixed term/particular undertaking, non-disassociating partners may continue may continue the partnership's business w/o consent of the dissociated partner and the wrongfully dissociated partner must pay damages

Byker v. Mannes

in determining whether a partnership exists, the focus is on whether the parties intended to "carry on as co-owners" a business for profit, *NOT* whether they subjectively intended to form a partnership

Haymond v. Lundy

limitations to a partner's authority (and when they can bind the partnership) can be included in the partnership agreement and these limitations must be strictly honored unless persuasive evidence exists that a particular action was outside the scope off the limitation

limited liability company (LLC)

limited liability for shareholders but managed like a partnership

what is the purpose behind a staggered board?

makes the company more resistant to hostile takeover

Hynansky v. Vietri

manifestations of the parties in showing intent to create a partnership are superior even to the existence of a partnership agreement

preferred shares (MBCA §6.01(c) and DGCL §151(c),(d))

may grant a dividend or liquidation preference over common shares but they are commonly denied voting rights

filing requirements for a limited partnership

must file a certificate of limited partnership with the state

filing requirements for an LLP

must file registration with the state to convert the partnership (or limited partnership) into an LLP (LLLP)

Ferguson v. Williams

negligence in the management of the affairs of a general partnership (or joint venture) does not create any right of action against that partner by other members of the partnership--a cause of action exists *only if* there has been fraud or a breach of trust

can the partnership agreement vary the power of a partner to disassociate?

no (UPA §602(a), but notice may be required (§101(b)(6)

filing requirements for a general partnership

no writing or filing is required, only a mutual manifestation of consent to form the partnership

limited partnership

one or more general partners and one or more limited partners

partnership liability and UPA §306(a)

partners are generally jointly and severally liable for all obligations of the partnership