Bus. Orgs Outline
Professor Han
***ALSO REFERENCE THE ORGANIZATION CHART
I. Approaching Corporate Law
a. Development of American Business Corporation Law
i. What a corporation is
1. rights protected for a corporation (thought of as a person) – free speech, DP, no vote, self incrimination is an issue, must pay taxes, can sue other people and can be sued, can make charitable contributions, legal status separate from the people who comprise it
ii. 19th century developments
1. From unlimited to limited liability
iii. 20th century developments
1. Emergence of Delaware
2. Enabling concept
iv. Types of American corporations
1. public corporations – ready market for the corporation’s stock
a. close corporation = stock held in a few hands, stock rarely or never sold or traded, management and ownership are one in the same
2. government corporations
3. nonprofit corporations
4. biz corporations
II. Sole Proprietorships and Agency Principles
a. Sole proprietorship
i. One person w/ sole decision making authority
ii. Exclusive claim to biz profits
iii. Direct ownership of all biz assets
iv. Legal identity and the owner are one in the same
v. Unlimited liability of the owner for the company’s obligations
b. Agency law and the relationship btw sole proprietors and their employees
i. Formation of agency relationship
1. Jenson Farms v. Cargill: Cargill loans money to Warren but reserves the right to interfere with Warren’s internal affairs making the relationship something more than creditor/debtor and more like a principal/agent relationship
2. How an agency relationship is formed?
a. Need not be formal, can be created by law without any formality (if you walk, talk, and act like a duck, chances are you have a principal/agent relationship)
3. Scope of authority
a. The principal can ratify the agent’s actions (beyond the scope of the authority for the agent) by acquiescing
i. Ex. Principal asks Agent to buy a cell phone. Agent buys a fancy cell phone. Principal ratifies the purchase by keeping it.
ii. Problem: if the principal continues to ratify the actions of the agent at some point the principal can no longer argue that the agent exceeded their authority
ii. Legal consequences of appointing an agent
1. apparent authority, inherent agency power, and estoppel
a. apparent authority = any communication made by the principal to the 3rd party (conduct, written, implied, etc.) about what authority the agent has
i. agent has the POWER to bind the principal
b. actual authority = everything the principal tells the agent they can or cannot do (can be implicit)
i. agent has the RIGHT to bind the principal
c. Fennel v. TLB Kent: Plaintiff’s lawyer reached a settlement for the client, did the lawyer’s act beyond their apparent authority?
i. In order for the attorneys to have apparent authority, the principal must manifest to the 3rd party that he consents t have the act done on his behalf and by the person purporting to act for him
ii. Thus, the attorneys did not have the requisite apparent authority
iii. YOU DO NOT REACH A SETTLEMENT WITHOUT FIRST NOTIFYING YOUR CLIENT
d. US v. International Brotherhood of Teamsters: RICO prosecution where the men being prosecuted contended very late in the game that their attorney lacked the authority to conduct settlement negotiations
i. HELD: the attorney had apparent authority, everyone had acted like he did so he did
2. liability for contract – disclosed and undisclosed principals
a. RULE: DISCLOSED PRINCIPAL: where it is known that the agent is acting on behalf of the principal then ONLY the principal is liable on the k
b. PARTIALLY DISCLOSED: when the principal’s identity is not known by the 3rd party but the existence of an agency relationship is known then both are bound (agent is bound unless otherwise agreed)
c. UNDISCLOSED PRINCIPAL: when you have an undisclosed principal, then the agent is liable to the 3rd party (rationale: the 3rd party thinks that they are dealing with the agent alone)
d. African Bio Botanica v. Sally Leiner, Ecco Bella: Leiner proposes that she was an agent for Ecco Bella (her corporation), only her name, not Ecco Bella appeared on the contracts and so because the principal was not disclosed she is liable
e. Duty of disclosure: agent has a duty to disclose to avoid personal liability
III. Traditional Biz Forms and Their Progeny
a. General partnerships = co-ownership of a biz for profit
i. Partnership Formation
1. can be formed by default if you don’t specify otherwise
2. Martin v. Peyton: after a loan agreement there is some interaction between the
s partners are a citizen
c. Corporations
i. Advantages of the corporate form
1. limited liability of shareholders – shareholder’s assets will not be used to satisfy the obligations of the corporation
2. management structure – 3 tiers à shareholders, officers, directors
3. capital structure – can have as little as one class of common stock but there is carte blanch to do whatever they like w/ their capital structure
4. separate entity statutes – separate from the owners, death does nothing to the corporation
5. usual form – this is the most common form for most biz
ii. disadvantages
1. expense and trouble of formation and maintenance – annual report, legal fees, charter, statutory requirements
2. Required initial and continuing formality – shareholder meetings, reports, etc.
3. tax treatment – double taxation à dividends are subject to taxation as are the earnings
d. Other forms of biz organizations
i. Statutory close and professional corporations
1. statutory close corporations – can shed attributes of corporations in favor of partnership characteristics
ii. Limited partnerships
1. Uniform Limited Partnership Act: 1997 version: it is a distinct entity and as such limited partnerships are required to file with the sec. state in the jx they are formed
2. There is a general partner (unlimited personal liability) and one limited partner (of limited personal liability)
a. the general partner can be a LLC, corporation, LLP
b. must e sufficiently capitalized to bear all risk (can’t be a shell)
c. general partner cannot disassociate, not freely transferable (unanimous or majority consent)
d. limited partner’s interest is NOT transferable
e. LLP may exist for a periods of time
3. Gateway Potato Sales v. GB Investment: Sunworth is a general partner, GB Investment is a limited partner, Gateway is trying to prove that GB took control of Sunworth to the extent that they exposed themselves to limited liability
a. AZ statute: limited partner is liable when he takes part in the control of the biz BUT if the control is not substantially the same as the exercise of powers of general partner then he is liable ONLY to persons who transact biz w/ the limited partnership with the actual knowledge of the participation in the control
Read: just acting like a general partner is fin
