BUSINESS ASSOCIATIONS
1. Definitions
UNLIMITED LIABILITY: bank accounts, homes, stocks à everything
Unlimited liability of the owners: in relation to 3rd parties (either (!) tort victims injured by the company OR (2) parties in privity)
LIMITED LIABILITY: Liable only to the extent of the money that you put in the Inc. or the profits (but not your car, home, bank account, etc)
2. Types of Business Organizations
a. Sole Proprietorship (SP): An individual who operates a business.
*Nothing needed to start. Is NOT a separate entity from the person itself.
*Unlimited Liability
b. Partnership (P’ship): Association of two or more persons to carry on as co-owners a business for profit.
*Only Difference from SP: the number of people (two or more people)
*No written agreement necessary – no need for detail, etc.
*Downside: Unlimited Liability à and are liable for the partners screw-ups
*INTERPRETATION: Find two people sharing the profits
c. Limited Partnership (LP): An entity having one or more general partners and one or more limited partners formed pursuant to the provisions of the state’s Limited Partnership Act.
*Difference from P’ship: (1) at least one general partner with unlimited liability AND
(2) at least a limited partner that has limited liability
*Taxes: One Taxation à the partnership is not taxed, the money goes through to the individuals whoa re only taxed once (“money floats through the entity”)
*Downside: In the past, limited partners do not run the business and simply trust the general partners to handle all the different areas
d. Limited Liability Company (LLC): a limited liability company formed pursuant to a state statute governing LLCs.
-didn’t start until the 1980s by individual states to “get the best of both worlds”
-(1) Owners have limited liability AND (2) Only One Taxation
e. Corporation (CORP): a corporation incorporated under or subject to the provisions of the state corporations code.
**a separate legal entity –the CORP has almost all of the rights of the individual (be sued, can sue, sign contracts, apply for licenses)
Benefit: Liability is limited to ONLY the assets of the CORP (not individual $$ of owners)
Downside: TAXED TWICE (CORP pays on income and then individuals who make money pay)
Next 2: NEW FOR 1990s – Both have (1) Limited Liability and (2) One Taxation
**DIFFERENCE: What statute or law governs them
f. Limited Liability Partnership (LLP): A general partnership in which the general partners have limited liability by filing a statement of qualification.
g. Limited Liability Limited Partnership (LLLP): A limited partnership whose certificate of limited partnership states that the lim
in the Context of CONTRACTS
*Liability of the Parties depends upon two factors:
1. Whether an Agency relationship exists; AND
2. Whether the agent had authority to act on behalf of the principal
1. Existence of agency relationship
a. By mutual consent of the parties (Ct not looking at a P or A, but just whether there is a consent of who is doing what, etc.)
b. One person acts on behalf of another person Or subject to the other person’s control
Gay Jenson Farm v. Cargill
-Warren is in privity of contract, but Warren is bankrupt
-Thus, P needs to show that D and Warren have agency relationship so he can bind D
*Agency Relationship Test:
1. Mutual Consent: Yes, both Warren and Cargill agree to a relationship
2. Subject to the Other’s Control: Yes. Many factor that separate this from creditor-debtor:
-Cargill has day to day control (controls accounting functions, dictates the forms and puts their name on the form, the drafts and memos have both names on them)
-many internal memos that clarify that they are in the deal for the grain (not just creditor for $$)
