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Business Associations
Elon University School of Law
Molony, Thomas J.

Molony
Business Associations
Fall 2010
 
Business Structures……………………………………………1 – 3
Agency…………………………………………………………….…3 – 10
                Actual & Apparent Authority………………………………4
Agency Liability…………………………………………………..5 – 9
Debt & Equity……………………………………………………..9
Partnerships……………………………………………………….10 – 26
 
Property (11), decision-making (12), Duties and Obligations (13 – 15), Partnership Liability, Indemnity/Contribution (15 – 16), New Partners (16 – 17), Partnership Remuneration/Profits & Losses (17 – 18), Transfer of Partner Interest (18 – 20), Ending a Partnership/Dissolution(22) (20-23), Liability Upon Dissociation (23-24), Distribution/Settlement (25), Partner Expulsion (26)
 
Sole Prop/Partnership Summary……………………………………………26 – 28
Corporations………………………………………………………………………….29 – 95
 
Articles (29 – 30), De Facto (30), Stock (31 – 32), Incorporation State (32), Liability/Veil (33 – 34), Shareholder agreement/Officers/Decisionmaking (35), Shareholder Decisisons/Voting (36), Shareholders Electing/Removing Directors (37, MATH). Shareholder Action/Meeting/Proxies (38 – 39), Inspection Rights (39 – 40), Shareholder Agreement (41), Director Duties /BJR / Exculpation /Liability (41 – 47), Corporate Opportunity Line of Business Test (47 – 50), Entire Fairness/Interested Director Transactions (50 – 52), Loyalty Summary (52 – 53), Bad Faith (53 – 54), Derivative Suits (54 – 62), Derivative Procedure (56 – 58), Excuse from Making Demand (58 – 60), Motion to Dismiss/SLC (60 – 61), Exculpation/Indemnification/Insurance (62 – 65), Stock Issuance/Pre-emptive Rights (66 – 67), Securities/10b-5 (68 – 69), Close Corp (69 – 72) Minority Oppression/Dividend vs. Salary (71 – 72), Dividends/Distributions (73 – 77), Self-dealing: BJR or Intrinsic Fairness? (75 – 76), Stock MATH (76 – 77), 10b-5/Materiality Balance (77 – 78), Forward Looking Statements (78 – 80), 10b5 Points (80), 10b-5 Jurisdiction (81), Equal Opportunity Doctrine/Controlling Shareholder (81 – 82), Buy-Sell Agreement (82 – 84), 10b-5/False Statement/Omission (85), Fundamental Corp Change/SH Voting on Matters Other Than Directors (86), Dissolution (87 – 88), Merger (88 – 95), Merger SH Approval (88 – 89), Merger Structures (89), SH Sue/Vote/Appraisal/legitimate business purpose (90 – 94), Asset Sale, SH Approval, De Facto Merger (94 – 95),
 
LLP………………………………………………………………………………………….95 – 101
 
Liability/Safe harbor Statute 306(6) (97 – 98), Derivative Suits (98), Duty (99), Distributions (99), Transfer of Interest (99), Withdrawal (100 – 101)
 
LLC…………………………………………………………………………….……………101 – 107
 
Agency & Decision-making (102 – 103), liability (103), Duties & Obligations (103 – 105), Distributions/Transfer of Interest (106 – 107), Withdrawal (107)
Class 1
 
A.P. Smith MFG. Co. v. Barlow –Shareholders say donation was an ultra vires (outside) act because the articles of incorporation doesn’t allow for making donations. NJ statute says corp can act like an individual and make donations. Statute was made after the articles. Common law says donations must benefit the corp, public. Common law devolved to profit motives. Court said the donation was okay from a public policy argument, otherwise charities would suffer. What can the shareholders do? Ultimately, the shareholders can elect the BOD. Also, the shareholders can sell. Agency problem, owners and managers have different interests.
 
Persons – an individual, a general partnership (included a limited Liability partnership), a limited partnership, LLC, etc.
 
MBCA (1.40(16)) says a person is an individual and an entity. Individual is a natural person. An entity is a business corporation and an unincorporated entity (general partnership, LLC, limited partnership, business trust). It includes an individual (natural person, MBCA 1.40(13))and an entity (MBCA 1.40(9))
 
P.181 – 2.01 – one or more persons may act as incorporator by delivering articles or incorporation.
 
P. 105 – 101.B – Corporation Is organized to promote lawful business or purposes.
 
P.183 – 3.02 – Corporation (legal persons) has same powers as individuals, including power to sue and be sued.
 
P. 208 – 8.20 – BOD and meetings.
 
p. 210 – 8.24 C – vote by majority of directors. P. 209 – 8.21 – acting without a meeting, written consent.
 
Corporate Power to Make Donations
Corporations have the power to:
“Make donations for the public welfare or for charitable, scientific or educational purposes.” MBCA 3.02 (13)
“Make donations…in time of war or other national emergency in aid thereof.” (DE 122(9))
“Make donations, irrespective of corporate benefit, for the public welfare or for community fund, hospital, charitable, educational, scientific, civic or similar purposes, and in time of war or national emergency in aid thereof.” (NY 202(12))
“Make donations for the public welfare or for charitable, religious, cultural, scientific, or educational purposes.” (NCGS 55-3-02(13))
 
NY says can make public donations regardless of corporate benefit.
 
Important Points
·         A business may be considered a “person” under the law, a person separate from its owners.
·         Sources for rules (laws) regarding business entities:
o   Statutes, case law, governing docs (articles of incorporation, etc) or other agreements among owners
·         Managers generally act for a business entity – their interests may differ from owners; they may act in ways in which some owners disagree.

rent authority?
 
Contract Liability of Agent to Third Parties
·         Not liable if:
o   Principal Disclosed (R2 Section 320; R3 Section 6.01(2))
·         Liable if:
o   Principal Partially Disclosed (R2 Section 321; R3 Section 6.02(2));
§ Called “Unidentified Principal” in R3
o   Principal Undisclosed (R2 Section 322; R3 Section 6.03(2))
 
Principle Disclosed
·         Other party to transaction
o   has notice that agent is acting for a principal
o   has notice of principal’s identity
(R2 Section 4(1); R3 Section 1.04(2)(a))
 
Principal Partially Disclosed/Unidentified Principal
·         Other party to transaction
o   Has notice that agent is acting for a principal
o   Does not have notice of principal’s identity
(R2 Section 4(2); R3 Section 1.04 (2)(c))
 
Principal Undisclosed
·         Other party to transaction
o   Does not have notice that agent is acting for a principal
(R2 Section 4(3); R3 Section 1.04 (2)(b))
 
Important Points
·         Professional responsibility obligations
o   Duty to organizational client
o   Recognizing and addressing conflicts at the outset
·         Sole Proprietorship not really an entity
o   Default business form for single owner
o   Generally disfavored because of unlimited liability
 
·         Principal’s contractual liability
o   Agency arrangement
o   Authority
§ (Actual) authority
§ Apparent authority
§ Tacit/Inherent authority (not under R3)
·         Agent’s contractual liability
o   Principal disclosed (not liable)
o   Principal partially disclosed/unidentified principal
o   Principal undisclosed
 
Class 4
 
Agency Liability
o   Contract
o   Tort
 
The Tort Liability of Principal
·         Not liable if independent contractor (narrow exceptions in r@ Section 250)
·         Liable if:
o   Master/servant relationship AND
§ Servant acting within scope of employment, or
§ Master intended conduct or consequences, or
§ Master was negligent or reckless, or
§ Conduct violated nondelegable duty of master, or
§ Servant purported to act or speak for master and there was reliance on apparent authority or servant was aided in tort by agency relationship