Agency
Who is involved in an agency relationship? (2 people)
Principal and Agent
How is a general partnership formed?
When two or more persons carry on as co-owners of a business, regardless of their intent to form a partnership.
When does a corporation come into existence?
When the AOI are filed with the department of state
What are the elements for a breach of fiduciary duty under Florida law?
Under Florida Law, the elements of a claim for breach of fiduciary duty are (1) the existence of a fiduciary duty, (2) breach of that duty, and (3) the breach is the proximate cause of the plaintiff’s damages.
What is the default for how profits and losses are distributed in an LLC?
absent contrary agreement, most statutes allocate profits and losses on the basis of the value of members contributions
Define "Agency"
Agency is the fiduciary relationship that arises when one person (a principal) manifests assent to another person (an agent) that the agent shall act on the principal’s behalf and subject to the principal’s control, and the agent manifests assent or otherwise consents so to act.
What creates a presumption of a partnership? (2 things)
Profit Sharing and Control
What is a promoter and are they an agent of the corporation?
A promoter is someone acting on a corporations behalf pre-incorporation. The promoter will be held jointly and severally liable for all liabilities created while acting on behalf of a corporation that the promoter knows has not yet been incorporated. There is no principal-agency relationship because the principal does not yet exist, so the promoters are liable. However, the corporation can become liable by express adoption or implied adoption. The promoter will remain liable even after the corporation adopts the contracts unless the corporation executes a novation with the promoter.
Define Duty of Loyalty and the 3 ways it can be breached
A director breaches the duty of loyalty when they put their own financial interests ahead of the corporations. A director is not acting in the best interests of the corporation when they compete with the organization, takes an opportunity that rightfully belongs to the corporation, or sits on both sides of the transaction (self dealing).
Who owes fiduciary duties in a member managed vs manager managed LLC?
Member-Managed: All members owe fiduciary duties (care and loyalty)
Manager-Managed: Managers owe fiduciary duties (care and loyalty)
What are the 3 categories of authority in an agency relationship?
(1) actual, (2) apparent, (3) inherent
What are the Four Types of Partnerships? Give brief explanation of liability
General Partnership, Limited Partnership, Limited Liability Partnership, Limited Liability Limited Partnership
(GP, LP, LLP, LLLP)
What is a corporation by estoppel?
Arises when a third party deals with a person (or persons) believing they are a corporation, the third party may be estopped from later denying the existence of the corporation. Only applicable to contract issues (NOT torts) and is Raised by the promoter as a defense.
Explain a Caremark Claim
Closely related to the fiduciary duty of care, directors also owe an affirmative duty to implement and monitor corporate information or reporting systems (AKA corporate oversight systems). The duty to implement and monitor corporate oversight systems is often referred to as a caremark duty which is a subset of the fiduciary duty of loyalty. A director breaches his caremark duty when the director (1) utterly fails to implement any reporting or information system or (2) having implemented such a system continuously fails to monitor or oversee its operations.
Can someone sell their financial interests in the LLC? If so, can the buyer acquire additional rights? If so, how?
Yes - (Unless otherwise provided in the LLC’s operating agreement, a member may assign his financial interest in the LLC),
Yes - An assignee of a financial interest in an LLC may acquire other rights only by being admitted as a member of the company if all the remaining members consent or the operating agreement so provides (like partnership)
Explain the concept of "ratification" and the two types of ratification.
Ratification is when the Principal adopts an agents contract, the two types are Express and Implied ratification
Explain what is Partnership Property, Presumed to be Partnership Property, and Presumed NOT to be Partnership Property
what is key inquiry? (100 bonus points)
Partnership Property - If acquired in the partnerships name
Presumed to be partnership property - If purchased using partnership assets (even if not in partnerships names)
Presumed not to be partnership property - If acquired by the partner without an indication in the instrument transferring title that the property belongs to the partnership, even if it is used for partnership purposes. However, property acquired in the name of a partner is partnership property if the instrument transferring title indicates that the partner was acting in her capacity as a partner.
Key Inquiry = Intent
Explain Corporate Veil Piercing and list at least 3 factors courts will consider.
The doctrine which holds that the corporate structure with its attendant limited liability of stockholders may be disregarded, and personal liability imposed on stockholders, officers, and directors in the case of fraud or other wrongful acts done in the name of the corporation. Courts will exercise veil piercing cautiously and reluctantly. Courts apply the same factor test to determine if veil piercing is appropriate regardless of if shareholders are legal or natural person.
Veil piercing is disregarding the corporate form to permit a creditor to collect from a dominant shareholder.
Factors to consider: (courts generally require a showing of multiple factors)
Define duty of care
The duty of care requires directors to act on an informed basis, taking into account reasonably available information and alternatives. They must act with the care that an ordinary prudent person in a like position would reasonably believe appropriate under similar circumstances. The standard is gross negligence, which is an extreme departure from ordinary care.
What is the name of the agreement of the members of an LLC?
Operating Agreement
Explain Disclosed, Unidentified, and Undisclosed Principals, including who is liable for contract under each type
Disclosed: P is disclosed if, at the time of making the contract in question, the other party to the contract has notice that the agent is acting for a specifically identified P. If A acts with actual or apparent authority: P and 3rd party are parties to the contract, A is not a party (unless A and third party agree otherwise). P is liable.
Unidentified: P is unidentified if, at the time of making the contract in question, the other party to the contract has notice that the agent is acting for a principal, but the principals identity remains unknown. If A acts with actual or apparent authority, P and 3rd party are parties to the contract AND A is also a party (unless A and 3rd party agree otherwise). P is liable; A is liable.
Undisclosed: P is undisclosed if, at the time of making the contract in question, the other party has no notice that the agent is acting for a principal (or that the principal exists). If A acts with actual authority, P and third party are parties to the contract, and A is also a party. P is liable; A is liable.
Explain a partnership's liability to creditors and how a creditor may recover assets
A partnership is a separate legal entity, so the partnership is liable for its contracts and torts. However, the partners are also jointly and severally liable for all partnership obligations.
Creditors must first obtain a judgment against the partnership and attempt to execute against the assets of the partnership (via a writ of execution). If that effort fails, the creditor may pursue the individual partners assets.
Other ways to reach the partners:
A creditor can always sue a partner for their torts.
What is the approval process for fundamental changes?
(1) Board must approve (watch out for duty of care and loyalty)
(2) Board notifies shareholders of recommendations
(3) Special meeting noticed and held to conduct shareholder vote
(4) If fundamental change approved, some shareholders who noted “no” may have buyout rights (dissenting shareholders)
(5) File documents with the department of state
Explain the burden shifting framework and define the business judgment rule
(1) Plaintiff: prove existence of fiduciary duty
(2) Plaintiff: prove affirmative evidence that defendant failed to engage in deliberative process/rely on all reasonably available information, and that the injury was proximately caused by the defendant-director
(3) If Plaintiff Unsuccessful = Business Judgment Rule, If Plaintiff Successful = Entire Fairness Review & burden shifts to defendant-director
Business Judgment Rule: a presumption that the directors were acting in good faith and in the corporations best interest. Unless the presumption is overcome, courts will not second guess directors decisions, even when such decisions have disastrous outcomes for the corporation
Explain the potential liability of members of an LLC
Members stand to lose capital contributions, but their personal assets are not subject to attachment