Business Associations
Mark Matthews-Spring 2014
Agency
The only way that a business can operate is through some type of agency/agency
Agent: individual/entity who has agreed to act on behalf of another
· Agent is subject to the principles control
· There should be an agreement on both sides for the agent to perform specific tasks/jobs/work etc.
· Principle is responsible for the agent’s actions
· Threshold of proof to est an agency very low
o Look for:
§ Consent by agent to act/principle to allow agent to act
§ Control by the principle
§ Agent acting on behalf of the principle
Types of Authority
· Actual Authority
o Principle explicitly gives agent the authority to act in a certain way
· Apparent Authority
o Not actual authority but it looks as though the agent has the authority
o What has the principle done that gives the agent authority
o Principle holds agent out to have authority
o 3rd party must believe that agent has authority for the actions of the agent to be binding on the principle
· Implied Authority
o Agent doing what is necessary to get the job done
o Principle has done something in the past that led agent to believe they had the authority to act
o Customary and reasonable activity for the agent
· Agency by Estoppel-rare
o No agency relationship of any kind has actually be formed b/t agent/principle
o The agent is an imposter
o BoP is on the principle to protect the 3rd party
o Actions of the agent not binding unless these is something more that the principle could have done to protect the 3rd party
Scope of Agency: Principles are not normally liable for the actions that their agents take that are outside the scope of the agency; principle is not normally liable for the actions of a truly independent contractor.
· Ratification
o A principle may be bound by the actions of the agent acting outside the scope of authority, if the principle adopts the actions of the agent as their own
o Look for facts that would/would not suggest ratification by a principle to determine if action of agent is binding
· Independent Contractors
o Generally principle is not liable for actions of an independent contractor
o An IC exercises their own judgment
o Look for facts/amount of control by principle that make an IC truly independent
o The principle hires the IC because they cannot do the work themselves
Fiduciary Duties in Agency
“When the servant unjustly enriches himself through the service to the master, he [agent] should not be allowed to keep the money bc the only reason he [agent] was able to get the money in the first place was bc of his position with the master [principle]”
· Just bc the principle did not lose money bc of the actions of the principle, the agent is not allowed to keep the money bc they got it through illegal activities/bad faith
· Agents are not always barred from making a little money on the side as long as they don’t use their position in an unjust manor
General Partnerships
Partnership:
· 2 or more persons come together
· Agree to pursue a potentially profitable venture
o Does not have to be in writing
o Does not matter if the venture is consider
Ownership percentage tends to determine how much say and how the profits/losses are divided, but there is no correlation to who acts as the General Partner and who is the Limited Partner.
· If not recorded/filed properly, then it is a general partnership
o When there is an issue with filing:
§ Partner must renounce in a timely manner so they are not held liable as a gen partner (as soon as they know)
§ Renunciation limits liability AND that person is giving up future profits
§ Renunciation must be filed with the state to give notice that partner is no longer affiliated with partnership
Corporate Formation
Corporation:
· Limits the liability of the parties involved; generally, shareholders will not be held liable UNLESS they do something that would create liability
o Assets are limited to that of the corp, not of the people who started it
· Owners are shareholders
· Shareholders determine who is on the board of directors
· Shareholders can get dividends if the board decides to distribute them
· MUST:
o Have articles of incorporation
§ As minimal as possible so they do not have to amend them in future should the business change
o Have an agent
§ Someone designated to accept service on behalf of the corp
o Have internal bylaws
