Agency
What is an Agent?
An agent is a person who is authorized and agrees to act on behalf of and subject to the control of another (their principal)
What is a general partnership?
“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.” Revised Uniform Partnership Act 202(a)
What do you call the owners of an LLC?
Members
What are fiduciary duties?
legal responsibilities agents owe to principles
What are some types of
Agency relationships?
Employer/employee
Lawyer/Client
Broker/Client
Real Estate Agents
Board/Officers &
Shareholders
1. Inadvertent partnerships: they are so simple to form that
people may have formed a partnership without being aware that
they have formed a partnership.
No written documents are needed to form one and no
documents need to be filed with the state.
2. No Limited Liability: partners are personally liable for the
debts of the partnership’s obligations!
What does personal liability mean? They can go after each
partner’s individual assets, even if they are not part of the
business.
What are the basis of an LLC?
LLCs are formed through a formal filing of a certificate (or
articles) of organization or certificate of formation with the
state, RULLCA §201(a); DLLCA §18-201(a).
What are the doctrines of authority?
Express Authority
Implies Authority
Apparent Authority
When is a principal vicarious liable for an agent?
A principal is liable for the actions of its
agents performed within the scope of the agency relationship
In general partnerships, which partner or partners have the right to manage the business?
General Rule: In the absence of an agreement to the contrary, all partners have equal rights in the management and conduct of the partnership business. RUPA §401(h
What are the implications of improper formation?
Unlike agency relationships and general partnerships, LLCs cannot be created informally, so if the filing of the articles of organization is never made, the default rules of the underlying LLC statute do not apply
The default entity would then be a general partnership if 2 or
more people OR a sole proprietorship if only 1 person
What is disgorgement of profits?
Requiring a party to return ill-gotten gains
What does the duty of loyalty include? AND What is the remedy for breaching?
The duty of loyalty includes:
1. a duty not to communicate confidential information of the
principal for the agent’s own purposes or those of a third party
(RTA 8.05),
2. a duty not to compete with the principal in any matter within the
scope of the agency relationship (RTA 8.04), and
3. a duty not to act as an adverse party to the principal in a
transaction connected with the agency relationship (RTA 8.03).
If the agent breaches the duty of loyalty, the principal’s main
remedies are:
• (1) Damages
• (2) Disgorgement of profit
What happens if partners disagree about typical things regarding the management of the business?
AND
How do partners amend the partnership agreement?
If partners disagree about ordinary matters within the scope of the partnership business, the vote of a majority of partners controls. RUPA §401(k).
Unanimous consent of other partners is required to add partners or
amend the partnership agreement. RUPA § 401
Unanimity is required for “extraordinary acts” that are unusual and
not in the ordinary course of business (i.e. letting a partner buy a
personal vehicle.)
What controls if the operating agreement conflicts with the articles of organization?
And
What if the LLC documents conflict with a statute?
Under RULLCA §107(d) the operating agreement controls with respect to members, dissociated members, transferees, and managers, while the articles of organization controls with respect to third parties who reasonably rely on it
If the articles of organization or the operating agreement conflict with a state statute, the state statute prevails for mandatory provisions, and the agreements between the parties prevails with respect to nonmandatory provisions. RULLCA §105.
What is Piercing the Corporate Veil (aka Alter Ego) Doctrine and its elements?
Piercing the Corporate Veil (aka Alter Ego) Doctrine, It imposes personal liability on members, in the case of limited liability companies (and on shareholders, in the case of corporations) when they have failed to treat the entity as a separate legal entity.
(1) Single economic entity (“mere instrumentality” or “alter ego” analysis)
(2) Overall element of injustice or unfairness
What’s the difference between a shareholder and a
stakeholder?
Shareholders own at least one share in the company.
Stakeholders are those who have a vested interest in a
company and can either affect or be affected by a
business' operations and performance.
Typical stakeholders are investors, employees, customers,
suppliers, communities, governments, or trade associations.
Principal’s duties include (1) performance of contract obligations, (2) indemnification, sometimes, and (3) good faith and fair dealing
Agent’s duties:
1. Performance of contract obligations
2. Duty of Care
3. Duty of Competence
4. Duty of Diligence
5. Duty of Disclosure
6. Duty of Loyalty
What do partners owe each other?
• Duty of loyalty
• Duty of good faith & fair dealing
• Duty of obedience (to the partnership)
• Duty of care
• Duty to allow inspection of books
• Duty to share profits
• Duty to contribute and indemnify other partners
• And other obligations that don’t fit into a category
What are the managements of LLCs and describe both?
And the defualt?
Member-Managed LLCs are the Default under RULLCA § 407
Member-managed simply means that each member gets a vote,like in a partnership.
The LLC hires managers who make the decisions on things in
the ordinary course of business
What is the test to determine if judicial resolution is appropriate?
1. the corporation must have two 50% stockholders,
2. those stockholders must be engaged in a joint venture, and
3. they must be unable to agree upon whether to discontinue the
business or how to dispose of its assets
What are various types of business entities?
Sole Proprietorships
• General Partnerships
• Limited Partnerships & Limited-Liability Partnerships (LLPs)
• Limited-Liability Companies (LLCs)
• Professional Limited-Liability Companies (PLLC)
• S Corporations (a U.S. tax classification, see next slide)
• Benefit Corporations – for-profit organizations that are created to
benefit society first instead of shareholders
• Non-Profit Corporations (not covered in this class, but a valid
organizational form)