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Business Organizations
UMKC School of Law
Luppino, Anthony (Tony) J.

Aug 28

BO 1-35, 1191-1203
Diff types of biz’s – these types imact liability mngmnt and tax consequences

sole proprietorship – doesn’t have to be 1 person, no separate legal entity to protect owners from liability
corp – creates new legal entity that assumes all responsibility
general P – can be oral K, decide how to split profit and mngmnt etc – may be ended at any time by any Partner
limited P (LLP, LLLPs = has both limited and general P’s all have limited liability, LLC’s=limited liability for all owners whether or not involved in mngmnt-very flexible for mngmnt) – same as GP, but owner’s liability limited – very little common law – creature of statute, not the default style of biz till lately
LLP’s – virtual elimination of personal liability of P’s from firms obligation is a radical change that essentially creates a new biz type
judgment creditors should first be required to use up all P funds before going to one or more of the P’s

BIZ’S usually break into 2 types;
A Incorporated – people can put $$ in, get profits but not take on liability = a creature of statute
Corporation has 3 layers

shareholder/owner – who pick
brd of directors – who hire
officers/ employees – who run the corp.

the entity theory of corp = govt needs to intervene for direct regulation and shareholder litigation
the contract theory = right to K is private govt stay out – parties that are the “Nexus” of the K and must be allowed to K as best desired
primary duty of brd of directors is to maximize shareholder profit – not health of biz or welfare of employees
B Unincorporated (P, proprietorship)
Closely held – not publicly traded
And publicly held – diff being if open to outside investors – traded publicly
Co’s that Limit the liability of co’s and give tax advantages are in vogue
Statutes govern a lot of biz relationships
RS of Agency – 1 dude A works for other dude P – both must manifest an intent to form relationship – biz entitiy can only work thru A’s

1.01 – fiduciary relationship – agent acts on behalf of principal and subject the P’s control – A accountable to P – scope of A usually determined by K – A must use some standard of reasonable care etc
1.02 – 1parties label is not controlling, actions are dominant
1.03 – a parties manifestation of consent may be oral or thru conduct
1.04 – superior agent = rights conferred by P to direct sub-agent

co-A = 2 A’s w relationship to same P
co-A can be appointed by S-A, or P w actual or apparent authority
2.13 – disclosed P = 3rd party knows A and P – P becomes bound but A is bound to 3rd party unless K’ed out
2.13 – undisclosed P = 3rd party not know about P at all, think A is P
uID’ed P/ partially undisclosed = 3rd party know A is A, but not know who P is – P becomes bound but A is bound to 3rd party unless K’ed out
notice = knows, should know, or has reason to know

2.01 – actual authority = power actually or implidiely given to A by P – P gives A power to represent him – if A acts w/ in reasonable scope of duties A can’t be liable to P or 3rd party – authority flows directly from P to A
2.02 – scope of authority = anything that P has manifested or implied, or in usual course/ incidental to biz etc
2.03 – apparent authority = power to affect P’s legal relations w 3rd party – if 3rd party reasonably believes A has authority to act for P – and that belief is traceable to P’s manifestation –absent knowledge that would lead reasonable person to believe differently
manifestation – must be believable and somehow come from P not just persuasive A
based on concept of estoppel
actual termination of A relationship may not end apparent authority
2.04 – repsondeat superior = P responsible for A’s behavior “acting in scope of employment” etc
2.05 – dudes can’t say not A/ are estopped once they know someone has relied on their representation of A
2.06 – P can’t reduce A”s authority after 3rd party has relied etc
2.07 – P must make restitution if he has been unjustly enriched
2.11 – inherent authority comes from function of A itself – arises by implication from common sense duties of A – incidental authority come from acts that relate to A action
2.12 – implied authority – conduct can imply authority not have to be oral/written – can be implied from previous conduct
3.09 – if either A or P renounce deal its over
3.10 – apparent authority ends when its not reasonable for a 3rd party to believe A has actual authority
independent K-er = a person who K’s w another to do something for him but who isn’t controlled by the other not subject to the other’s specific control – A is under much more control than independent K-er from P
1 major advantage of written K is that is may avoid future fights over what the arrangement actually was – also its easily proved in crt – written K may help focus attention on trouble in the deal that may not be noticed if only oral
does it make any diff if P’s give diff amounts to start biz? No.
dudes can K for whatever and however they want
ie flat %
give fixed salary
recomputed % each year based on billing
split b fixed salary and % rate based on efforts
Incorporated – corps
Unincorporated – limited liability P-ships
General P’s GP (no need to file for this biz)
LL Co. (can have only 1 owner) no fed tax break
Not recognized
Sole proprietorship (no need to file for this biz) – can be more
than 1 owner = no biz entity wrapped around it
Closely-held – no public market – small controlling group etc
Publicly held – can get stock publicly – must register w securities act – usually a corp
Taxed – C corp = 2x tax – corp taxed and then indiv taxed on divs
Non-taxed – Pships = flow/pass thru to personal taxe/ no biz tax
S corp usually doesn’t pay entity level tax
Default rule = rules to use if not expressed in K –
735 S.W.2d 160
Mo.App. E.D. 1987
attorneys, who negotiated settlement with defendant, who did not expressly state that they had authority to settle clients’ claim, and who did not state that client accepted defendant’s offer, created presumption that attorneys had authority to bind clients to settlement agreement. Affirmed.
Apparent authority is created by the conduct of the principal which causes a third person reasonably to believe that another has the authority to act for the principal
case in court, an attorney’s implied authority is limited to procedural matters. It does not extend to the surrender of any of the client’s substantive rights.
Thus, an attorney must have express authority to bind his client to a settlement agreement; and, conversely, no implied authority to settle a client’s claim arises from the mere fact of an attorney’s employment
The burden was on the Bartons to rebut the presumption. The trial court, however, was free to disbelieve the testimony on their behalf.

Actual authority

Apparent authority

UPA 9-1 – authority of every P to act as an A for P – unless no real authority + 3rd party knew or should have known
– authority to do things not expressed but incident to actual authority granted = what is reasonable for 3rd party to believe based on something principle does = authority gained from relationship of Principal and A
Hamilton Hauling, Inc. v. GAF Corp.

719 S.W.2d 841
Mo.App. W.D. 1986
held that there was no evidence from which it could be concluded that apparent agency authority for purchasing agent to execute contract was created.
Generally, when a principal “holds out” another as possessing certain authority, thereby inducing others reasonably to believe that authority exists, agent has apparent authority to act even though as between himself and principal, such authority has not been granted; apparent authority differs from actual authority in that principal communicates directly with third person to create apparent authorities, but communicates directly with agent to create actual authority.

Third party must reasonably rely on authority held out by principal, must know of facts demonstrating principal’s consent to agent’s actions, and must actually believe agent to be authorized, in order for apparent authority to exist;

Text 1191-1203

Is responsible to third party for agents torts in course of employment. But not responsible for Indep. Contractor.
No right to control Indep. Contr., but right to control employee.
Inherent Authority – arises from agency itself….store manager lowers priced even though told not to.
Incidental Authority- arises out of actual authority (the little things.)
Partially disclosed can bind agent and principle.
Discloses binds agent
Undisclosed can bind agent only. Unless principle had given actual authority
Aug 30

May want to write into K of P – that no personal liability – just take P’s assets
It doesn’t matter what people say or write into K, or even think they are, a crt will look at conduct/ how they acted/ how the ‘world’ treated them, to decide what type of biz it is
A corp/co must fiel a ‘ficticious name’ document w the Sec of State
LLP – not a limited P = a GP
J+S liability = protection of the unsuspecting public
358.150 = Broad Shield liability
358.440 = Mo Reg for LLP – must renew every year
GP = no need for filing w the state
Usually status not affected if a good faith clerical error
358.500 = LLP = focus on entity not on P’s – helps w liability
people usually not protected from stuff that happened before the filing of LLP date

*******Richert v. Handly******

Long story short, court said that there is a partnership, and we will Use UPA when it appears to be a partnership, but parties are slient. We wont say there is none, based on lack of terms in a given area.
In action for accounting brought by plaintiff, who agreed to purchase stand of timber which was to be logged by defendant, with both sharing equally in profits and losses resulting from venture, findings that partners were to share equally in profits and losses was inconsistent with finding that defendant had not agreed to contribute to plaintiff for his investment in timber in event of loss and were insufficient to support judgment for defendant for one-half of unexpended gross revenues.
The profit or loss resulting from this single logging venture was to be borne equally. There was no requirement that Handly contribute to Richert for the purchase price of the timber in the event of loss
There was no agreement express or implied on the part of Handly to repay Richert for his investment in the timber.
defendant Handly is in no way responsible for plaintiff’s loss on the

oing concern, activities within the scope of the business should not be limited, save by the expressed will of the majority deciding a disputed question; half of the members are not a majority.’

Smith v. Dixon

386 S.W.2d 244
Ark. 1965
Purchaser’s action for specific performance of contract for sale of realty or, alternatively, for damages for nonperformance of contract. The Chancery Court, Chicot County, James Merritt, Chancellor, awarded damages, and defendants appealed. The Supreme Court, Holt, J., held that there was reasonable relation between contract provision for $15,000 stipulated damages and agreed purchase price of $200,000, and provision did not constitute penalty.

Affirmed on direct appeal and modified and remanded on cross appeal with directions for entry of decree disallowing special damages and awarding stipulated damages.
Partnership is bound by acts of partner when he acts within scope or apparent scope of his authority. In order to determine apparent scope of authority of partner, recourse may frequently be had to past transactions indicating custom or course of dealing peculiar to firm in question. Partner who customarily transacted business affairs of family partnership had apparent authority to sign sale contract and such contract was binding upon and enforceable against partnership.
They term the partnership an ‘operating partnership’. The general purpose of the firm was to engage in farming operations on the farms, including direct cultivation and renting to others. The operation was later expanded to engage in the general farming business in the area. The partnership agreement was oral and has never been reduced to writing
In order to determine the apparent scope of the authority of a partner, recourse may frequently be had to past transactions indicating a custom or course of dealing peculiar to the firm in question’

Many A relationships may involve actual and apparent authority at same time
Burns v Gonzalez
As we interpret Sec. 9(1), the act of a partner binds the firm, absent an express limitation of authority known to the party dealing with such partner, if such act is for the purpose of ‘apparently carrying on’ the business of the partnership in the way in which other firms engaged in the same business in the locality usually transact business, or in the way in which the particular partnership usually transacts its business
The normal rule = a party who assets that the particular act of an A is w/ in the scope of the A’s authority has the burden of proving the extent of that authority

Partnership K = law of the P
P = a consensual arrangement and that the substantive rules governing the internal affairs of a P may generally be altered by K, but UPA 103b 3rd parties aren’t bound by provisions in the K and may enforce rights and liabilities created by UPA w/ out regard to P K

Rouse v. Pollard

Dude was Agent but no authority to do this – may not have even been an Agent – the biz was too far removed
Where one member of law firm had received client’s money for investment and had apparently converted it to his own use, other members of firm could be held responsible to client only if member accepting client’s money was acting as their agent in so doing.
Partners are responsible for act of one partner as agent even though he acts for some secret purpose of his own and not for firm’s benefit. Where one partner misappropriates money fraudulently obtained in transaction within scope of partnership business, the other partners are liable.
Complainant can recover only if the partners are answerable for Fitzsimmons’ malfeasance. They are responsible only if he was acting as their agent in accepting complainant’s money
But they were not in the habit of receiving, and indeed never received, money from a client to place on mortgage at their discretion
receipt of money for the purpose of investing it as soon as a good mortgage can be found, as was done by Fitzsimmons in the case at bar, is not part of the practice of law according to the usual and ordinary course pursued in New Jersey. It follows that Fitzsimmons’ partners are not answerable to complainant and as to them the bill will be dismissed.

Barton v. Snellson