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Business Associations/Corporations
SUNY Buffalo Law School
Mutua, Athena D.



Fall 2012

I. Why does someone own a business or an interest in a business?

1. Make money / make a living

2. Possible for-profits do it to help people (like non-profits)

3. Provide a service, to make money

4. Sense of accomplishment, ego

5. More control, independence, pursue passion

II. Milton Friedman Quotes

A. “In a free-enterprise, private-property system, a corporate executive is an employee of the owners of the business. He has direct responsibility to his employers. That responsibility is to conduct the business in accordance with their desires”

B. “The key point is that, in his capacity as a corporate executive, the manager is the agent of the individuals who own the corporation and his primary responsibility is to them”

C. “The corporate executive is also a person in his own right. As a person, he may have many other responsibilities, social responsibilities (family, clubs, church, city). But in these respects he is acting as a principal and not an agent; he is spending his own money or time or energy, not the money of his employers or the time or energy he has contracted to devote to their purposes. If these are “social responsibilities” they are the social responsibilities of individuals, not of businesses.”

D. “The doctrine of “social responsibility” is a fundamentally subversive doctrine”

III. Restatement II of Agency: Section 1

A. Agency is the fiduciary relation which results from the manifestation of consent by one person to another that the other shall act on his behalf & subject to his control, and consent by the other so to act.

(a) One for whom action is to be taken is the principal

(b) One who is to act is the agent

B. Questions to ask:

1. Who will own the business?

2. Who will manage it?

3. Who will reap any profit?

4. Who will bear the risk of any loss?

5. Who will pay income tax on any business profit?

IV. What does a lawyer do for a business do?

A. Help business make money

B. Help her get money from the business

C. Help the business and her protect that money form the claims of others

V. What are the legal structures for business?

A. Sole proprietorship

B. Partnership

1. general partnership

2. limited partnership

C. Corporation

D. Limited liability company

Chapter Two

What is a sole proprietorship and how does it work?

I. What is a sole proprietorship? SP law? Problems in starting business as an SP?

A. Sole proprietorship: business owned by a single owner

1. Does not engage the state

2. Business = owner (in actual & legal sense)

3. Sole proprietor earns $, bears losses, make decisions, manages

4. Pays taxes on their own income tax return

5. Unlimited liability

a. creditor can sue business & owner (personal & business assets)

B. Agency law: a principal has a task to perform or an agreement to make, instead of doing it alone, they engage the agent to do it on their behalf (“fiduciary relation”)

1. Agent can bind the principal

2. Agent is not a party to the k

3. Agency results from conduct

C. Agent/Principal Example

-Roommate asks will you pick up popcorn when you go to the store?

-You say, “sure”

-You are the agent for your roommate, your roommate is your principal

D. Agency relationship ELEMENTS:

1. Fiduciary duty: agent owes duties to the principal in discharging the act

2. Manifestation of consent: by principal to agent that agent shall act on the principal’s behalf & subject to principal’s control

3. Consent: by agent to act

E. 5 ways to create an agency relationship

1. Actual Express Authority: communication between P & A to do X

2. Actual Implied Authority: communication between P & A, activities undertaken necessary to carry out instructions

a. Doesn’t necessarily spell out exactly

b. Ex: conference in FL; make arrangements (normally book flight/hotel)

c. Can rely on usage or custom / emergency situation

3. Apparent Authority: communication between P and TP; manifestation must

a. Be attributable to P

b. Get to TP

c. Lead TP reasonably to conclude that

a. riskier for investor

2. Debt: a loan that the business is legally obligated to repay (with interest)

a. loaner usually has little or no control in business

b. debtors get paid first in bankruptcy

c. riskier for the business

B. In re estate of Fenimore

1. k had vague terms which made it a partnership not a loan because she gets a share of profits of the business (split profit of each car sold)

2. if getting profits from business, SAY its to repay the loan

3.Partnership: a business with 2 or more owners, who share profits & losses

Chapter 3

What is a partnership and how does it work?

I. Partnerships

A. Partnership (under RUPA): an association of 2 or more persons to carry on as co-owners of a business for profit formed under section 202, predecessor law, or comparable law of another jurisdiction

B. Signs of a partnership:

1. Sharing profits (as long as not exception under 202)

2. Sharing debts

3. Disclose on taxes

4. Share in decision-making

C. Things to know about partnerships:

1. Partnership is an entity itself plus every owner is their own entity.

a. Minimum of 3 entities (2 owners & the partnership itself)

2. Partnership is “default” or “residual” -formed by conduct

a. Don’t need a lawyer, but should probably have one

3. Just the individual partners own the partnership

4. All entities earn profits (including partnership itself)

5. All entities bear losses (partners & partnership)

a. Creditors will sue the partnership & the partners

6. Just the individual partners pay taxes on their individual tax returns

7. Just the individual partners manage, operate, decision-make