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Business Organizations
University of Baltimore School of Law
Brown, Fred B.


I. CHAPTER ONE – Introduction
– MD adopted the UPA (1994) – all partnerships developed before the UPA (1994) can elect to use either UPA (1994) or UPA (1914).

A. 7 Basic Business 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

a. limited partners – limited liability – no personal liability
b. 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

Limited Liability Partnership – limits the liability of all partners in the partnership – fundamental form underlying this form is the partnership – limited liability for partnership
Limited Liability Limited Partnership – all owners have limited liability including general partners – fundamental form underlying this form is the limited partnership – limited liability for limited partnership
Limited Liability Company – gives all owners limited liability – escapes double taxation of a corporation – first entity giving limited liability to all owners with no double taxation – if it gets too large it is treated as a corporation and double taxation.
Corporations – limited liability to all owners/shareholders – only liable for amount contributed/invested to the corporation. Double taxation – taxed on:

a. Corp. income/profits – taxed at corporate level
b. Dividends – taxed at individual level

B. Restatement 2d of Agency

Agency defined by the restatement § 1

a. 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.”
(1) the act may be contractual but need not be
(2) persons acting as agents without compensation can still be agents
b. An agency relationship has the important characteristic of being a fiduciary relationship.

The right to control: Independent Contractors and Servants § 2

a. The principle can determine the ultimate goal, and the agent must strive to meet the goal.
b. 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.
c. An independent contractor is a person who contracts with another to do something for him, but who is not controlled by the other or subject to the other’s right to control with respect to his physical conduct in the performance of the undertaking
(1) the degree of control determines the master/servant relationship or master/IC.
(2) An independent contractor may or may not be an agent
d. 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.
(1) 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.

Apparent Authority

a. 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.
b. Arises when a person represents that someone else is his agent when that is not the case, or creates or permits the creation of the impression that broad authority exists when in fact it does not.
c. Actual au

business? Does A exercise control over B? How is B paid?
(2) No M/S relationship – if we had a er/ee relationship A would be principle, however, A does not have enough control to have a m/s relationship.
c. Master-Independent Contractor Relationship
(1) Questions to consider: Does B have a degree of autonomy? How is B paid? Is B an agent of A, or is he taking action on behalf of himself also?
(a) If he is acting on his own behalf, there is no principal-agent relationship.
(2) No M/IC relationship – with M/IC all of agents actions are on behalf of the principal. Here, B’s actions are not just for A but also for himself.
d. Partnership
(1) UPA (1914) § 6 a partnership is defined as “two or more persons carrying on a business for profit.” Fits this definition.
(2) § 7
(a) § 7(2) states that co-ownership of property is not enough to establish a partnership
(b) § 7(3) sharing of returns is not enough to establish a partnership
(c) § 7(4) – the receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner – it is presumed that you are a partner if you share profits – you can rebut this presumption
(d) partnership is the only business entity imposed on people by law – don’t need to file any papers to be considered a partnership
e. Limited Partnership
(1) §101 defines a certificate of limited partnership
(2) §201 states that a limited partnership require the filing of a certificate. No such certificate has been filed; therefore this is not a limited partnership.