Business Organizations Spring 2012 Oppenheimer
I. Introduction
Seven Basic Forms:
· Sole Proprietorship – unlimited liability for owner of business – owner is proprietor
· General Partnership – a partnership is an association of two or more persons to carry on as co-owners a business for profit §6(1) – partners are joint and severally liable for all debts
· Limited Partnership – comprised of limited and general partners. Rememeber- a limited partnership can become a general partner if takes control (see below). Requires filing of certificate
– limited partners – limited liability – no personal liability
– general partners – full liability – can be held personally liable for partnership debts – under ULPA § 101(7) you must have at least one general partner – developed two centuries ago so a business could raise money from investors who didn’t want to be held liable
· Corporations – limited liability to all owners/shareholders – only liable for amount contributed/invested to the corporation. Remember- can be liable if veil is pierced (see below)
II. Principle/ Agency Relationships
Agency: The “fiduciary relation which results form 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.” (simplest business relationship can be terminated at any time)
· The act may be contractual but DOESN’T need to be contractual!!!!! Can form accidental!!!
· Fiduciary relationship; agents act for another within scope of his authority
o Principle can limit authority as he pleases
· A master is a principal who 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.
– A master is liable for torts committed by a servant within the scope of his employment, while a principal is not liable for torts committed by an independent contractor in connection with his work.
§ Master’s liability is independent of whether he exercised due care in hiring, or even if he knew that the servant was his employee at all.
Doty:
· Doty – School teacher; claims she volunteered her vehicle; Gorton – Injured football player; Coach – Driver (dead; not great optics to sue).
· Doty is liable under a classic agency theory — Owner of the care and said: “You can borrow the car, just don’t let the kids drive.” –establishes control element. BUT she has nothing to gain, however:
– Majority: Doesn’t matter; no personal gain required for agency
– Dissent: Does matter; makes this more of a nice gesture.
– Could be argued that it isn’t DOTY that is the principal, but the school-paid for the gasoline
Jenson Farms
· Cargill (Principle) Warren (Agent)
– Warren entered into repeated agreements with Cargill granting more CONTROL—then Cargill starting calling the shots and making decisions
– Warren collapsed- Owes Cargill $3.6 million; Owes Π $2 milllion
– It does not matter that there was no express agreement between Cargill and Warren — Still need a manifestation of consent, but the ongoing relationship and assent to what was occurring did that
In the Future know — The more detailed the terms, the more control you have
· Maybe better off legally just to lend the money without condition (but might lose investment)
· Maybe better off financially to take over control and risk the smaller loss (under breach of K w/ Warren) for the possibility of stopping Warren’s loss to Cargill
Key concept to agency: principal is responsible for the acts of the agent:
– Any torts
– If there is a contract formed
Also, no K is necessary and it does not have to be related to a business matter.
Types of Authority- If any of the three, then the principal is bound!
· Actual Authority- a reasonable agent would infer form principle; agreement actually grants authority
· Apparent Authority
– Arises from the manifestation of a principal to a third party (directly or indirectly) that another person is authorized to act as an agent for the principal; Permits the creation of the impression that broad authority exists. (reasonable third party would infer agent was given based on what they perceived)
· Inherent Authority – arises from the agency itself and without regard to either actual or apparent authority; the authority to do all the implied things necessary to carry out the goal of the actual authority
White v. Thomas
· White employed Simpson on a part-time to answer phones, type, fix up a few houses, watch house when out of town, had once signed, on White’s behalf, closing papers on a piece of property White was purchasing, under power of attorney
· White told Simpson to go to auction on his behalf- $250000 dollar limit; Signed a blank check for her to use in depositing the ten percent on the bid — White given no other instructions otherwise and left for Europe
· Simpson won the bid for Simpson won for $327000; overbid
· Simpson then sold 45 acres and signed as POA
· White didn’t want this deal with Thomas – he didn’t ask her if she could convey power but said she was POA
· No express authority so it must fall into apparent authority to be binding– Thomas knew her actions were on behalf of another; Blank check does not necessarily mean authority to sell, only authority to buy; Reasona
rd party perspective. You have authority.
§ If you believe that everyone knows that a sales rep has to get approval to cut a deal, then there is no apparent authority because you could not reasonably believe it.
· Step 3: If there is any authority present, the contract is binding on the principal.
– Again, you still need the agency agreement
– No manifestation of consent, no agency. No agency, no apparent authority.
· Now what if the agent tries to have a shady deal where the dealership loses no money, but he uses his 10% discount and the buyer gets their lower price?
– Everyone is happy
– Nobody loses money
– However, agent is violating duty of loyalty by using his authority as agent to profit. Any profit gained from him is the principal’s, not his.
– There is a policy to not incentivize gambling with the principal’s property— If no profit can be made, then no incentive to make these potentially damaging deals, regardless of actual damage to the principal.
III. Partnership
Agreement
· To form a partnership – You do NOT need an agreement or to file anything, but it is advisable to so you can protect yourself in court and avoid conflict
– Look at profit of shares!
– Fiduciary duty to partnership – duty of loyalty, care, and obedience
· Profit/ Losses — “relations among the partners and between the partners and the partnership are governed by the partnership agreement.”
· Liability — Partners are joint and severally liable for everything chargeable to the partnership under and for all other debts and obligations of the partnership – normal debts that arise in the ordinary course of business.
– wrongful acts done in the course of business by the partner is chargeable to the partnership and all partners are jointly and severally liable
– a partner misappropriates money from third persons the partnership is liable – if the partnership can’t pay, all of the partners are jointly and severally liable.
– A limited liability partner can be liable if – negligence or fraud etc
· All partners have equal rights as to management and conduct of the partnership business
