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Business Organizations
Touro Law School
Miller, Meredith R.

GENERAL OVERVIEW OF THE COURSE: The law of business organizations is a system of default rules. The analogy is that the law of bus orgs is an “off the rack suit”, and is made up of default rules. Default rule is the background rule. The parties can alter the rule by doing something contradictory. Mandatory rule may not be altered and you can’t contract around them. But there are plenty of rules that the parties can contract around.
I. Sole proprietorships
a. Characteristics of Sole Proprietorship:
i. Formation: just needs to start to act as a sole proprietor
ii. Governing law: the law of the agency
iii. Ownership and control: sole proprietor has total control
iv. Share of profit: owner/sole proprietor gets
v. Risk of loss: falls on owner/sole prop.
vi. Taxation: not a separate entity; puts business on his personal taxes
vii. Personal liability (tort and k) owner/sole prop; not a separate legal entity
viii. Duration (continuity of existence): continues until the death of the sole prop.
ix. Transferability of ownership interest: no restriction on his ability to sell his business
x. Judicial proceedings/how to sue: will sue the sole prop if injured because its not a separate entity
Sole proprietorship: no formalities, no distinction from self assets can be reached even when dealing with others in a business capacity.
Sole proprietorship is a business owned by a single
Start acting as a sole proprietor. No formality. The law that governs
The law of the agency/law of torts/contracts. No statute.
Ownership/Control: The owner owns his business.
The law of agency will govern that sole proprietor’s business transaction. Agency law governs the relationship between a CEO and all of his employees.
Agency law: Think of as a triangle.
b. Relation to Agency: (Sole prop governed by agency law). Agency is the relationship which results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other so to act. Agency is the fiduciary relationship that results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control and consent by the other so to act. Need not arise from a formal contract between the principal and agent and need not be understood as an agency at the time both parties give their consent.
i. Once a party gives its consent to another to permit contro

fiduciary relationship created by express or implied contract or by law, in which one party (the agent) may act on behalf of another party (the principal) and bind that other party by words or actions.
Agent: one who is authorized to act for or in place of another; a representative.

Jenson Farms case – Plaintiffs: group of farmers. Δ : Warren and Cargill. Cargill was loaning money to Warren
Grain elevator: buying grain and processing and storing it. Cargill – lender and Warren is the borrower.
Warren buyer in relation to the plaintiffs. Started as an open account. Open account financing (like a credit card/line of credit) there was a limit. Could loan Warren up to the amount approved.
Farmers angry because they haven’t gotten paid.

Principal – Cargill

Agent – Warren 3rd Parties – Farmers

Control is the key in this case. How much control did Cargill exercise over Warren. No longer going to call it a debtor/creditor relationship as opposed to agency relationship.