Corporations Outline, Kilborn, Spring 2015
I. Intro to Corporations and Business
A. What Corporate Lawyers Do, Where They Work, & What They Need to Know
i. Corporate lawyer: a lawyer whose clients are for-profit or nonprofit entities rather than individuals; a lawyer whose practice is devoted to legal questions that arise under the substantive laws governing business entities
ii. Focus on prospective matters, goal is more variegated than vindication, clients are in charge of the business proposal
iii. Typical Roles (4): Corporate lawyer as counselor, corporate lawyer as conciliator, corporate lawyer as facilitator, corporate lawyer as guardian
iv. Where do they work?
1. Private Practice (vast majority, they practice as part of an entity – a law firm – that provides legal services to others)
2. Corporations/ In-House Lawyers (works as an employee of the client rather than working in a law firm that is hired by the client)
3. Other Practice Settings (non-for-profit organizations, in the government, academia)
v. What do they need to know?
1. Core Area of Knowledge: law of business entities, law of agency, contracts, tax law, and securities regulation
2. Secondary Areas of Knowledge: employment and labor law, secured transactions under the UCC, (3 non legal areas:) business, economics, and accounting
B. Business
i. What is a business?
1. A business or firm engages in sustained profit-seeking efforts
2. Why vary in size?
a. Every business must obtain the ingredients necessary to operate, which requires labor, raw materials, and capital goods (someone/business different does each one or find a way to handle all three)
i. Horizontal dimension: three firms national in scope, with multiple locations
ii. Vertical dimension: a single business undertakes all three activities in a single locale
ii. Entities for Business
1. Shift from partnership to the corporation as the dominant legal entity for businesses
C. Accounting
i. Point of accounting is to provide information about the financial performance of a firm over a period of time
ii. See page 81 for example of business’s balance sheet
iii. See page 82 for typical statement of cash flow
iv. See page 83 for a typical layout for business’s statement of income
II. AGENCY
A. Definition of the Agency Relationship: Agency is the fiduciary relationship that arises when one person (a “principal”) manifests assent to another person (an “agent”) that the agent shall act on the principal’s behalf and subject to the principal’s control, and the agent manifests assent or otherwise consents so to act
i. Not required that the parties intend to form an agency relationship, and courts will find that an agency relationship exists even though the parties specifically disclaim any intention to create such a relationship as long as the parties meet the definition
ii. Agent is a fiduciary as to the principal, which means that the agent has higher duties than the implied duties of good faith and fair dealing ordinarily foind in a contractual setting
B. Who Are Agents?
i. Employees of a business entity are agents
ii. Corporate officers are agents
iii. Directors of corporations are NOT agents
iv. General partners in a general or limited partnership are agents
C. Types of Contracts Involved in Agency Relationship
i. Simple K #1 or Agency K: principal contracts with the agent, and the agent contacts third party on behalf of the principal
ii. Simple K #2 or The Deal: Agent goes to third party and enters into K under their own name of the agency but on behalf of the principal
1. In this transaction the agent is not liable if the agent does a deal on behalf of the principal and fully discloses they are acting in that capacity and follows the control or authority of principal
iii. Simple K #3: Assignment K that is between agent and principal but the purpose is to bind the principal to the third party
D. Formation and Scope
i. If a principal does not pay and the third-party hasn’t been paid, the agency is not liable (third-party then cannot go to the agency for the money)
ii. Source of Agency Law? Restatement and case law
iii. Agency is a relationship formed by manifestations of authority from a principal to an agent who agrees to act under control of the principal
iv. If agent does a deal with the third party and everyone is aware of the involvement between agent and principal etc, then the third party and principal are automatically bound
E. Texoma Broadcasters, Inc. v. Hospital Corporation of America
i. Court rejects the argument that P is not liable under Equitable Estoppel when agent P changes position in reliance of misinformation. The court held that even if P is unaware of certain circumstances, since the P chose the agent they should monitor more closely
F. Authority (P = principal/ A=agent)
i. Express/Actual Authority: The only source of communication to look to is from principal to agent
1. The principal’s manifestation is determined by the agent’s reasonable interpretation in light of all the circumstances (relation of the principal to third parties – principal being liable to third party)
2. Arises from the manifestations of the principal to the agent (relation of the principal to third parties – principal being liable to third party)
ii. Apparent Authority: power held by an agent or other actor to affect a principal’s legal relations with third parties when a third party reasonably believes the actor has authority to act on behalf go the principal and the belief is traceable to the principal’s manifestations (authority the agent is held out by the principal as possessing)
1. Stems from a third party’s belief, traceable to the principal’s manifestation, that the agent is authorized to act for the principal (relation of the principal to third parties – principal being liable to third party)
2. Third party has to be looking to the principal for apparent authority, 3rd party has reasonable reliance the agent had apparent authority and comes from a manifestation from the principal
3. P must have made manifestations to a third party or the general public (manifestations from the A to third party do not count)
4. If P holds out one person as having actual authority and then replaces that person without notifying the third party of the change in authority, then the replacement appears to have the same authority as the previous one. Any secret instruction to the A to the contrary are inconsequential
5. Manifestations that the third party is not aware of do not count for apparent authority
6. Important Questions:
a. What are the sources of evidence to prove authority
b. Who has the burden of proving authority
7. Need to prove that the third party had a reason to believe that x was an authorized agent (TEST)
a. Need evidence of Ps actions that gave appareance that A had authority
b. Actions that manifest openly to the public of apparent authority
i. Authority to do THIS specifically
ii. Holding out to the public
c. Third party reasonably relied on those open manifestations to the public
iii. Implied Authority: actual authority circumstantially proven when the principal actually intended the agent to possess and includes such powers as are practically necessary to carry out the duties actually delegated
1. P did not expressly give authority to A but likely intended to do so
2. ONLY extends already existing authority. Principal can control the extent of the implied authority
a. Industry custom, course of dealings/past practices, reasonably necessary
iv. Inherent Authority: Only communication from P to third party is relevant
1. Most applicable when third party does not know that A is an agent at all but finds out that agent does not have deep pockets and P does, so P is liable
v. Estoppel: where A is not authorized actually or apparently, P is still liable if P caused (intentionally or carelessly) third party’s belief, or if P knowing of third party’s belief did nothing to notify third party of the facts
1. Only relevant when agent’s action was not actually authorized and most of these situations are covered by apparent authority
vi. Argabright v. Rodgers (Good analysis)
1. An agency is a relationship which results when one person, the principal, authorizes another, the agent to act for the principal in dealing with their persons
a. Agency either actual or apparent
i. Actual – agent is really employed by the principle
ii. Apparent – when principal intent
i. Agent renounces
ii. Principal revokes
1. Revocation not always effective if the power given to the agent has been made irrevocable in certain ways
iii. Only effective when the other party has notice of it
c. Death or incapacity may terminate the agency
i. Agents death terminates actual authority
ii. Principal’s death terminates an actual authority when the agent receives notice of it
iii. Principal loses capacity to act, the agent is likewise prohibited from performing the act
III. PARTNERSHIPS
A. Formation
i. 805 ILCS 206/Uniform Partnership Act (1997)
1. Section 202. Formation of Partnership
a. Except as otherwise provided in subsection (b), the association of 2 or more persons to carry on as co-owners a business profit forms a partnership, whether or not the persons intend to form a partnership
b. An association formed under a statute other than this Act, a predecessor statute, or a comparable statute of another jurisdiction is not a partnership under this Act
c. In determining whether a partnership is formed, the following rules apply:
i. Joint tenancy, tenancy in common, tenancy by the entireties, joint property, common property, or part ownership does not by itself establish a partnership, even if the co-owners share profits made by the use of the property
ii. The sharing of gross returns does not by itself establish a parternship, even if the persons sharing them have a join or common right or interest in the property from which the returns are derived
iii. A person who receives a share of the profits of a business is presumed to be a partner in the business, unless the profits where received in payment:
1. of a debt by installments or otherwise;
2. for services s an independent contractor or of wages or other compensation to an employee;
3. of rent;
4. of an annuity or other retirement or health benefit of a beneficiary, representative, or designee of a deceased or retired partner;
5. of interest or other charge on a loan, even if the amount of payment varies with the profits of the business, including a direct or indirect present or future ownership of the collateral, or rights to income, proceeds, or increase in value derived from the collateral; or
6. for the sale of the goodwill of a business or other property by installments or otherwise
2. Section 308. Liability of Purported Partner
a. If a person, by words or conduct, purports to be a partner, or consents to being represented by another as a partner, in a partnership or with one or more persons not partners, the purported partner is liable to a person to whom the representation is made, if that person, relying on the representation, enters into a transaction with the actual or purported partnership. If the representation, either by the purported partner or by a person with the purported partner's consent, is made in a public manner, the purported partner is liable to a person who relies upon the purported partnership even if the purported partner is not aware of being held out as a partner to the claimant. If partnership liability results, the purported partner is liable with respect to that liability as if the purported partner were a partner. If no partnership liability results, the purported partner is liable with respect to that liability jointly and severally with any other person consenting to the representation.
