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Business Organizations
Touro Law School
Graves, Jack M.

·         Entity Theory- Corp. entity created by state and supports state intervention on ground that state created corp. by granting charter
·         Contractual Theory-   Corp. founded in private contract where the role of the state is limited to enforcing contracts
o        State charter just recognizes existence of nexus of contracts called a corp.
o        Freedom of contracts requires that parties to the nexus of contracts must be allowed to structure their relations as they desire
o        Corp. is the product of contracts among the owners and others NOT a ward of the state
·         Nexus of contracts conception- Model of business- Means that the corporations is a nexus of reciprocal arrangements
o        Not single entity; aggregate of various inputs acting w/ common goal of producing goods/servicesèLegal fiction representing complex set of contractual relationships b/w these inputs
o        Everyone in Corp. is a bunch of contractual relationship to the extent that you have a community and city says if you come here we’ll give you tax breaks
o        No state regulation over contracts(in theory)à laissez faire view
·         Principal Agent Model of the firm- View rests on assumption that equity holders in a business are firm’s residual claimants; entitled profits left over from contractual obligations that have been paid = equity holders basically ultimate owners of the firm
o        Assumes corp. is shareholder’s property
o        Implies corporate officers primary job is to generate wealth for shareholders
·         Team Production Model – Corp. managed under BOD supervision + encouragement
o        Emphasis on team work – based on principle that sum is greater than its parts
o        BOD coordinates the team and is independent of the various elements – pro regulation – loses default, adopts mandatory rules
o        BOD exist not to protect shareholders per se, but to protect the enterprise-specific investments of all the members of the corporate team
o        Nexus/Team Production – goal of all participants in the corp. is to maximize wealth of the corp. + say role of gov’t should be strictly limited to enforcing the private contracts or arrangements created in the corporation
Agency: Fiduciary relationship that arises when one person, the principle, manifests assent to another person, the agent, that the agent shall act on the principal’s behalf and subject to the principal’s control, and the agent manifests assent § 1.01
·         Principal: The person for whom the agent is acting – agent has duty to act in accordance w/ the express/implied terms of K b/w principle and agent §8.13
·         Agent: Person acting on behalf of principle – has power to bind the principle and affect the legal rights and duties of the principle – but cant benefit off principle
·         *Fiduciary obligation ONLY flows from AGENTèPRINCIPLE*
Three bases on which Agents BIND Principle:
1. Actual Authority (§2.01) – when an agent reasonably believes he is acting in accordance w/ principal’s manifestations to the agent
SCOPE: §2.02 – must be designed or implied by principle AND has actual aut

le gives the agent the closer he is to being an employee
o        2nd Factor – the distinct nature of the worker’s business; i.e., is the IC promoting his own business or furthering his employers, does job performance result in a profit or a loss for the worker, if worker makes mistake who fixes it, etc…
o        3rd Factor – Specialization or Skilled Occupation – does the work being done require someone being highly educated or skilled? – Can the worker delegate his work??
o        4th Factor – Materials and Place of Work
o        5th Factor – Duration of Employment – is it a 1 time discrete job or is it part of a continuous working relationship?
§         Right to Terminate – One of the MOST EFFECTIVE methods of control
o        6th Factor – Method of Payment
o        7th Factor – Relationship to regular business of employer – the more closely related the particular job to the basic course of business the more likely it is an employee
o        8th Factor – Belief of Parties –– An agent believing he is an IC will not always preclude a finding of vicarious liability, we also must look to the belief of the outside world b/c it is the public that will be impacted by torts that will be committed
Estoppelto deny existence of agency relationship section 2.05