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Business Organizations
UMKC School of Law
Downs, Robert C.

BUSINESS ORGANIZATIONS

DOWNS

FALL 2016

Agency: the fiduciary relation 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.

Elements of Agency Relationship:

Consent by the principal and the agent (written, oral, implied by conduct)
Action by the agent on behalf of the principal (primarily to benefit principal)
Control by the principal (degree of control does not need to be significant)

Agent’s Duties to Principal: [fiduciary relationship] care, loyalty, disclosure.

There are 4 kinds of authority!

1. Actual Authority (principal)

Fully disclosed: you fully know who you are dealing with (ie Best Buy store)
Partially disclosed: you know it’s somebody, but you don’t know who (rental of office space for an undisclosed party; sale of H&R Block business to WorldCom vs. AOL).A may not be liable.
Undisclosed:you don’t know there is an additional party (you think the A is the P) but they are not.A is fully liable (b/c 3rd party doesn’t know of another party).[Crown Center construction hypo of buying houses, don’t want people to know true purpose or price will skyrocket = act as undisclosed principal].
Inherent Actual Authority: authority that is implied by job title (Hertz rental car hypo)

2. Apparent: principal holds out that you have authority (send someone to deliver a package in a FedEx shirt). People will assume you have authority.

3. Inherent: authority from position, job title. Power derives solely from agency relationship.

4. Ratification: didn’t have authority but principal gives it afterwards. Very risky!

5. Estoppel: reliance damages, like apparent authority, but P made no manifestations of authority to 3rd party. Instead P liable because contributed to 3rd parties’ reasonable belief or failed to dispel belief.

– Requires 3rd party suffer detriment in reliance (Apparent does not) – changed position

Termination of Authority: must communicate directly to 3rd party that A no longer has authority to bind P. Must also notify A that it no longer has authority to bind P.

Master/Servant relationship (Employer/Employee)

Master: employs an agent to perform service in his affairs and who controls or has the right to control the physical conduct of the other in the performance of the service.

Servant: an agent so employed by the master. [P has liability for A while A acts w/in scope]

Independent Contractor: a person who contracts with another to do something for him but who is not controlled by the other nor subject to the other’s right to control with respect to his physical conduct in the performance of the undertaking. [No P/A relationship; liability is IC’s]

Hamilton Hauling, Inc. v. GAF Corp. (1986): sales agent for ∆ enters into $8mm long-term K with π far exceeding authority. Agent was fired and ∆ notified π that no longer needed product. Then, π sues to enforce K under apparent authority theory. Didn’t work because A had no prior actions consistent with this K; signed at π’s office; never sent to ∆’s HQ.

Agent liable for everything in excess of authority from P
But…not always good for π b/c often A doesn’t have deep pockets

Creation of Apparent Authority requires: P must have intentionally caused the 3rd party to believe that the agent is authorized to act for the P or he should have realized his conduct would create such a belief on the part of the 3rd party.

WHO RUNS THE THING?

Most partnerships vote in accordance with their percentage of ownership.

RSMO 359 – Limited Partnerships (LP)

à General Partners (managers) = agents for biz

à Limited Partners (outside investors, passive participation but can now participate in biz but gain no liability for doing so) = not always agents

RSMO 347.065 – Limited Liability Companies LLC: Members (owners)

à member managed: flexible; cuts off liability of members; all members have right to speak for company (all agents of business)

à manager managed: one or more persons designated to run business (other members are not agents of business and have no voice in the running of the business).

*Can change from one type of LLC to another but requires unanimous approval of all members

RSMO 348.081 Operating Agreement: required; spells out rights and duties of all members

RSMO 351.410 Corporation

Share Holders elects à Board of Directors à High officers, president, treasurer

Board of Directors: have authority to manage the business; can fire employees (subject to contractual rights of those employees) – ie CEO of Disney’s $140m golden parachute

Bylaws: spell out rights and responsibilities of shareholders, etc.

RSMO 351.225: shareholders can take action without actually getting together by:

Statement of unanimous consent
Electronic meetings – establishes a “corium” (one more than half in MO)

Parnership

Summers v. Dooley (1971): trash biz partnership; π hires a 3rd person but ∆ says no. π wants money for paying 3rd person out of partnership funds. H: no, does not get it.

Rule: In a general partnership, each partner has an equal right in managing the partnership’s business. Unless there is an agreement to the contrary, differences between the partners about everyday business are to be decided by a majority of the partners.

à only way to stop a partner from acting (adversely) but within their scope is to dissolve the business. Not enough votes to stop him (only two members).

Partnership

National Biscuit Co. v. Stroud (1959): grocery store partnership, p1 wants to buy more bread and p2 does not; p1 buys more bread from π and ∆’s partnership dissolves. Can one general partner restrict another partner from conducting business on behalf of a two-person partnership? Hx: Yes, each partner has equal right

ate (agent + location)
Operating Agreement (not filed with Secretary of State)
$105 filing fee in MO
All members have limited liability protection

Corporations (Corp.) § 56

Articles of Incorporation
By laws
18 years old to file
Only need one person to file; $58 in MO
p. 34 of statue book all statutes for articles of incorp.

Stock

unless specified, all voting is 1 vote per 1 share

30,000 authorized shares

$30,000 authorized capital

= $1 / Par Value [par value = lowest price a co. can sell its stock for]

Issued = company sells stock for money, assets, or labor.

Outstanding: opportunity to buy back stock

Stock that is Issued & Outstanding = gives you power to vote, etc.

Preemptive Right: if you own 10% of existing shares, and company is going to issue 100 more shares, you have the right to purchase 10 (to maintain your 10% ownership interest); only applies to small companies!

Powers and Purchases:

Can eliminate: duty of care by Officers; cannot eliminate duty of loyalty!

PARTNERSHIPS

Hillme v. Chastain: two guys working on cabinets. Partnership? YES!

Business name included both person’s initials, both shared management decisions, bank account access, supplied assets/labor equally, shared profits equally on tax returns.

Rule: Do not need to intend to create partnership, only need to intend to create items that make up a partnership (ie sharing in risks of loss, profits, managerial decisions, etc.).

H2O’C Ltd. V. Brazos: lab workers at MU partners of wastewater treatment projects at new company? O’Connor and his wife want microscope and property back from Brazos “employee” of company. Reversed à NO [no intention to form partnership]!

*(exam Q) Smith v. Kelley: partners in an accounting business; Smith gets paid $1k/month, $100 travel and small annual bonus. Smith leaves company and demands % of profits as a “partner”

J contracts company entered into listed him as partner; taxes did too; so did forms with KY

L no agreement; made no contributions of assets to co.; took no part in management; no authority to hire/fire or make purchases for firm; didn’t sign any notes when borrowing for co.; not obligated to take losses with firm

Hx: trial court found not partners = no error in findings. Upheld = not partners. [bad ruling]