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Agency and Partnerships
South Texas College of Law Houston
Rosin, Gary S.

Chapter 1: Introduction to Firms


Default rules: rules which will govern the relationship of the parties absent specific agreement to the contrary
Full shield statute: a statute which provides that there is no personal liability for debts of the partnership, regardless of how such debts are incurred

i. Applies to LLP’s in Texas

Types of Firms

Sole Proprietorships: a business in which one person owns all the assets, owes all the liabilities, and operates in his or her personal capacity
Partnerships: a partnership in which all partners participate fully in running the business and share equally in profits and losses, even though the partners’ monetary contributions may vary
Limited Partnerships: a partnership composed of one or more general partners and one or more limited partners

i. General partners: partners who control the business and are personally liable for the partnership’s debts
ii. Limited partners: persons who contribute capital and share profits, but who cannot manage the business and are liable only for the amount of their contribution

Limited Liability Partnerships: a partnership in which a partner is not liable for a negligent act committed by another partner or by an employee not under the partner’s supervision
Limited Liability Limited Partnerships: a limited partnership where the general partners have the same protections against personal liability that general partners do in an LLP possesses
Limited Liability Companies: A company that is characterized by limited liability, management by members or managers, and limitations on ownership transfer
Basic Characteristics of an LLC

Entity Status

An LLC is an entity distinct from its members

Tax Treatment

An LLC is generally taxed as a partnership, unless its members elect to be taxed as a corporation

Profits and Losses

In most states, members share profits and losses of the LLC according to the value of their contributions


An LLC may be managed by its members or managers

Liability of Members

A member is not liable for the LLC’s obligations but is liable for her own torts

Transfer of Ownership

A member may assign her interest in the LLC but the assignment transfers only the member’s right to receive distributions; management rights are not transferred.


An LLC will dissolve on the death, resignation, bankruptcy, incompetency, etc. of a member (unless the remaining members vote to continue the business)

Corporations: An entity having authority under law to act as a single person distinct from the shareholders who own it and having the rights to issue stock and exist indefinitely

i. C cor

; physical conduct; manner of performance
b. Principal-Agent relationship: principal sets task for agent; right to instruct
2. What is the relationship between P-A and M-S? All masters are principals, all servants are agents.
3. **Know the difference between M-S and P-A**
4. When is someone a servant rather than an agent?? When the level of control is sufficiently high does a principal become a master and an agent a servant.
5. A master is liable for servant’s torts. A principal is not liable for agent’s torts. A principal is liable for agent’s contracts.

Rest2d §387 General Principle: an agent has a duty to his principal to act solely for the benefit of the principal in all matters connected with his agency.
The powers of the agent are to be exercised for the benefit of the principal only, and not of the agent or of third parties.
An agent is under a strict duty to avoid any conflict between his or her self-interest and that of the principal.
Rest2d §389 Acting as Adverse Party Without Principal’s Consent: Unless otherwise agreed, an agent is subject to a duty not to deal with his principal as an adverse party in a transaction connected with his agency without the principal’s knowledge.

i. What does it mean to act as an adverse party? Self-dealing.
ii. They cannot transact business with the principal without full disclosure.