Agency
Are independent Contractors Agents?
Generally, Not
What is a partnership and what kind of document do you need to create it
“Association of two or more people to career on as co-owners a business for profit, whether or not the persons intend to form a partnership”
No agreement needed can be implied
What is dissolution
What is winding up
Dissolution:
termination of a legal relationship of partners in a partnership
Winding up
- Procuedure that distributes or liquidates any remaining property of the partnership and any assets that remain after the dissolution of the partnership business; concludes the business
Who are the three types of people in every business/partnership
Golfer
Manager
Idea guy
What is liability like in partnerships
Joint and several
How is an agency relationship created
Consensual relationship between the principal and the agent; usually contractual
Difference between an at will or term partnership
At will- ends whenever
Term- ends on the term
Ordinary decisions and extra-ordinary decisions, what are they, what are the effects
Ordinary- usualy an customary, not unanimous
Extra-ordinary- require unanimity
Think summers, make sure this is in your agreement
What are Pre-emptive rights and how can they be used in a realistic context?
Give existing owners a right to buy a proportional interest of any future issuance of equity
Anti-dilutive of shareholder interest
If you gave a really good example 2x points
What kind of equity do partnerships usually give out?
The interest share in the partnership
Name the three different agency types
Actual
Apparent
Inherent
What happens when a partner LEAVES the partnership
Technically the partnership dissolves and must be wound up,
however, parnters can agree to waive winding up or not lead to dissolution
What is the order that people are paid out after dissolution of a parntership
Outside creditors
Partner creditors
Partner capital
Profits
5 Factors of the Economic Reality Test
A worker’s opportunity for profit or loss based on their managerial skill
Level of investment made by the worker and the employer
Permanence of the working relationship
Nature and Degree of Control
Whether work is integral to the employer’s business
Skill and initiative required on the part of the worker
What is indemnification
Partner gets sued can indemnify the other partners
HYPO TIME:
Josh is a man with lots of money and time, he wants to start making his money work for him. He hires Corey to go buy ABC lemonade stand from Marcus. Josh tells Corey, "Hey man, I want this lemonade stand but not if I have to pay more than 5$ for it, then Marcus can spin on it". Corey goes out to drinks with Marcus, lets him know that he's working for Josh and explains the situation. Marcus tells Corey that he will sell his stand for 10$, no less. Corey, knowing Josh is just in a mood, accepts this proposal. When he comes back to Josh, Josh initially freaks out, but then says that is fine and he is fine with the sale.
Issue?
Initially, yes, Corye went outside of his scope, but when Josh ratified the sale, it should be ok.
HYPO:
Brittany, Emma, and Josie are running a partnership (JEB) but they need money. So they look to outside sources, Jacob and Sean are wealthy benefactors in the area and have agreed to give JEB $10 million int he form of a loan paid at 2.5% interest. However they do this on some conditions, they want 40% of the profits until their loan is paid off, they want to be informed of all transactions, They want to be advised on all conduct, they want to be able to look at JEB's books and records, and a right to veto all business ventures they find risky. JEB accepts. 1 year later the partnership is sued because Josie runs into a guy on her run and she gets sued. Are Jacob and Sean partners and be liable for this suit?
No, Martin v. Peyton
If everything was done to protect their loan, it is fine.
If you are buying a partnership, what are some things you may want to know?
(Good answers will get points)
Is there any liability claims that are on the hook here
Pre-existing contracts
IRS tax problems
Buyout clauses for executive leadership
Non competes
Client base
Location problems and zoning?
Insurance
401k; continue all employee benefits; pension
Titles to real property; leases; servitudes, usufructs etc.
Name some policy considerations on the difference between Independant contractors and Employees
(Name 4 for points, 5 for 1.5x, 6 for 2x)
Worker protections; workers comp
Tax implications
Labor Market; mobility
Economic inequality
Impact on Unions
Regulatory
What is the business judgement rule?
Courts do not evaluate the substantive merits of a business decision so long as the decision if not tained by fraud, conflicts, unreasonable, or bad fairth
Shield outputs as long as inputs were appropriate
When is an agent liable to the third party for their actions.
In disclosed situations almost never
In undisclosed situations maybe
When fraudulent and illicit yes
Considerations you should think of when drawing up a partnership agreement
(Give me like 5 for points)
Decision Making (pluses and minuses of unanimity)
Who makes the decisions? what decisions are they making? How are they going to do it
Money side of it
Capital contributions
Financing
Up front and ongoing
Salaries; distributions
What do you do with the money that is left over
After Salaries and expenses
Who gets what, is it invested? Is it profit? Is it buying more stuff
Death and Disability
Dissolution
How do we get out of this
How do we terminate this business
Dont want a forced sale of the assets
Fiduciary duties, what are they
What is a partnership oppurtuntiy and how can it be usurped
Can you breach your fiduciary duty by simply voting?
Put their interest above your own, dont take partnership oppurtinties for yoursel f
(Bonus, what did salmon do wrong)
What is the Pick your partner rule
How is it used in practice?
Cannot force existing partners to accept any new partner
What are some questions you need to ask yourself when setting up your business through debt or equity
Will the structure work or will it stand up for a later disagreement
Will the structure actually provide the desired result
Will the desired tax treatment be available or likely/probable
Capital structure problems or unexpected liabilities?
Are the clients financial contributions reasonably protected un the event of a termination of the corporation