Agency Law
What is the Fiduciary relationship rule statement?
A fiduciary relationship is a relationship in which the agent (or fiduciary) owes certain duties to the principal.
Duty of Good Faith:(and duty of loyalty) includes a duty to disclose
Duty of Loyalty: Act in the principal’s best interest
Duty of Care: Act with an appropriate level of care
What is a Close Corporation?
Close Corporation Characteristics: A close corporation typically has few shareholders, is not publicly traded, and involves shareholders actively participating in management.
Director Elections and Corporate Formalities: Shareholders elect directors and follow similar rules to public corporations, including annual and special meetings, quorum requirements, voting rules, record-keeping, and proxies.
What is Capital?
Generally, means financial assets
Business generate capital by retained earnings, debt (usually with interest) and equity (selling ownership interests).
What is a Caremark breach?
A director breaches his Caremark duty when the director (a) utterly fails to implement any reporting or information system; or (b) having implemented such a system, consciously fails to monitor or oversee its operations.
A Caremark breach is a breach of the duty of care and the duty of loyalty.
What are Fiduciary Duties? (Summarized).
Shareholder & Fiduciary Duties
Fiduciary Duties in Partnerships: Partners owe fiduciary duties to each other and the partnership, with FRUPA emphasizing the duties of loyalty and care, while RUPA includes additional responsibilities.
Duty of Loyalty: Partners must act in the best interest of the partnership, avoiding conflicts of interest, competition, and misuse of partnership property for personal gain.
Duty of Care & Good Faith: Partners owe a duty of care to the partnership and must act with good faith and fair dealing, though the duty of loyalty cannot be eliminated, and the duty of care can’t be unreasonably limited.
What is the Agency rule statement?
An agency is a fiduciary relationship formed when one party (a principal) manifests assent that another party (an agent) act on the principal’s behalf, and the agent also manifests assent or otherwise consents to act as the principal’s agent.
What is Veil Piercing?
Grounds for LLC Veil Piercing: Courts may pierce the LLC veil for reasons such as inadequate capitalization, improper purpose, alter ego use, or commingling of funds.
Role of Formalities: While failure to follow formalities is key in corporate veil piercing, it's generally less significant in the LLC context and unlikely to justify veil piercing on its own.
What are Securities?
Instruments that evidence a holders credit/debt relationship with a company; and/or the holders ownership rights in the company
Also set forth the company’s rights and obligations in connection with the company’s debts and equity ownership
Equity: à No promise to make future payments +ownership rights
Debt: à Promise to make future payments; No ownership rights
Equity Securities
Shares and Stock
Debt Securities
Bonds
Summarize "When a corporation ends"
Fundamental Corporate Changes
-Some amendments to the Articles of Incorporation
-Dissolution
-Merger
-Sales of substantially all assets
-Dissolution
-Merger
What is a Merger?
A merger of corporations consist in the uniting of two or more corporations by the transfer of property of all to one of them, which continues in existence, the others being swallowed up or merged therein.
What is the Business judgement rule (BJR)?
Presumption that in making a business decision the board of directors acted on an informed basis, in good faith and honest belief that the action was taken in the best interests of the company
Presumption that the directors are acting in good faith
Lack of knowledge is not necessarily a defense
What is a Limited Partnership (LP)?
A partnership formed by two or more persons and having one or more general partners and one or more limited partners.
What is an LLC?
Limited Liability Company (LLC): A business structure that combines the limited liability protection of a corporation with the tax flexibility and operational simplicity of a partnership.
Ownership and Management: Owned by members, an LLC can be managed either by its members (member-managed) or by designated managers (manager-managed), with customizable rules set in an operating agreement.
What is Dilution? (and Preemptive Rights)
Definition: The act of reducing the proportion of ownership held by current investors through the issuance of new shares. You prevent dilution through preemptive rights.
The ability to acquire proportional amounts of the
corporation’s unissued shares upon the decision of the board of directors to issue them.
Find the percentage that the shareholder already owns and get the same percentage from the new issuance of shares.
Ex. Corp has 1000 outstanding shares. A owns 250 shares. Corp issues 400 new shares. Therefore, A owns 25% so she gets 100 of the new shares.
What are the 3 types of Mergers?
Straight Statutory Merger: Acquiring company acquires all assets of the target
Triangular Merger: Target company merges into a sub owned company by the acquiring company
Reverse Triangular Merger: A sub owned by the acquiring company merges into the target
What is the Duty of Care and the Duty of Loyalty?
Duty of Loyalty: Act in the principal’s best interest
Duty of Care: Act with an appropriate level of care
A director breaches the duty of loyalty when she puts her own financial interests ahead of the corporation’s. A director is likely not acting within the best interest of the corporation when they; Compete with the corporation, or take an opportunity that rightfully belongs to the corporation, or sit on both sides of a transaction (self dealing)
What is the Corporate Opportunity Doctrine?
Directors and officers may not take a business opportunity that belongs to the corporation. To take an opportunity, the director must first present it to the corporation and wait for the corporation to reject it
Factors for whether there was a corporate opportunity:
Is the corporation financially available to take the opportunity?
Does the opportunity fit into the corporations line of business or policies?
Does the corporation have a valid purpose/interest/expectancy in the opportunity?
Florida Embraces the financial ability factor.
What is an LLLP?
Limited Liability Limited Partnership (LLLP): A type of limited partnership where both general and limited partners enjoy limited liability protection from the debts and obligations of the partnership.
Structure and Management: It includes at least one general partner who manages the business, but unlike a traditional LP, the general partner’s liability is also limited, typically through a proper LLLP registration.
How do Partnerships arise? (3 ways)
RUPA and FRUPA: The association of two or more persons to carry on as co-owners of a business for profit forms a partnership, whether or not
the persons intended to form a partnership.
Indicia of a partnership (must be totality of the circumstances): Independent counsel?, Bank accounts?, Operating agreements (signed?), Merger? Capital (money) contributions to post-merger entity? Salary? Profits? Profit sharing creates the presumption of a partnership
Partnership v. Joint Venture: no real distinction, but JVs are formed for certain periods of time or for single transactions, opposite of partnerships
Summarize the Probability Magnitude Test (Please)
Courts balance the probability of an event occurring with the magnitude of the event in light of the totality of the company.
Duty of good faith and duty of loyalty includes a duty to disclose
Berreman v. West Publishing Company
Summarize Burden Shifting (Please)
Burden of Proof for Plaintiff Shareholder: The plaintiff shareholder must prove the existence of a fiduciary relationship and that directors failed to engage in deliberative decision-making with reasonably available information.
Proving Harm and Causation: The plaintiff must show that the harm to the corporation was directly caused by the directors' actions or inactions, with clear evidence of proximate cause (i.e., the injury wouldn’t have occurred but for the directors' conduct).
Business Judgment Rule: If the plaintiff fails to meet the burden, the case is governed by the Business Judgment Rule, which presumes that directors acted in good faith and within their discretion.
Shifting Burden of Proof: If the plaintiff meets the initial burden, the burden shifts to the defendant directors to prove that their decision-making process was entirely fair, triggering an "entire fairness" review.
What is the Merger Approval Process?
FBCA: Directors adopt a plan of merger. A majority of votes entitled to vote on the matter must approve the merger
Merger Approval (FBCA): A merger generally requires director adoption and majority shareholder approval, unless specific conditions (no changes to the surviving corporation’s structure or shareholder interests) eliminate the need for shareholder approval.
Dissenting Shareholder Rights: Shareholders who oppose the merger may seek fair value through appraisal rights and can sue directors for breaches of fiduciary duties if the merger is suspected to be improper.
What are the 3 types of Corporate Law?
State Law: The internal affairs doctrine dictates that state law governs issues like conflicts between shareholders and directors, stock issuance, and the contents of corporate bylaws and other organizational documents.
Common Law: When interpreting state corporate codes (such as DGCL or FBCA), the law of the state of incorporation governs a corporation’s internal affairs, meaning a Florida court may apply Delaware law in corporate disputes.
Federal Law: Federal laws, including securities and antitrust regulations, influence how corporations operate across the United States, impacting corporate actions beyond state jurisdiction.
What is Derivative and Direct Action?
Direction Action: Brought by the shareholder in his or her own name, the cause of action is in the shareholders individual capacity and arises from an injury directly to the shareholder
Direction Action Test: Direct harm to the shareholder, and special harm distinct from harm sustained from other shareholders
Derivative Action: Brought by the shareholder on the corporation behalf, the cause of action belongs the corporation as an entity and arises from an injury done to the corporation as an entity
Derivative Action Test: The plaintiff-shareholder must having standing to bring the action;
The plaintiff-shareholder must make a written demand on the corporation and wait 90 days for the corporation to investigate the matter OR explain why making such a demand would be
futile or waiting 90 days would cause material injury to the corporation.
What are the Partnership Pros and Cons?
Pro: Tax Efficiency – Partnerships benefit from flow-through taxation, avoiding corporate double taxation and allowing profits/losses to be reported on individual partners’ returns.
Pro: Operational Advantages – Partnerships are simpler to manage than corporations, offer shared resources, diverse expertise, and are more attractive to investors than sole proprietorships.
Con: Personal Liability – Partners are personally liable for partnership debts, exposing personal assets to business obligations.
Con: Liability Varies by Type – The level of liability depends on the partnership structure (e.g., general partnership vs. LLC or LP), which may still leave some partners at risk.