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Agency, Partnership and the LLC
University of South Carolina School of Law
Burkhard, James R.

Agency, Partnerships & LLCs

Chapter 1: What is an agent, servant, and an independent contractor?

Restatement (2nd) of Agency: Key difference = physical control.

Agents
Servants = employee. Subset of agents.
Principals
Masters = employer. Subset of principals.
Independent Contractors = are never servants. May or may not be agents.

– attorneys are independent contractors who are agents

Note 1 (p. 1-11) How do you determine if agent is a servant?

Whether the purported master has the right to control the servant in the performance of his work, and the manner in which it is done.
Principal factors of control: 1) direct evidence of the right to, or exercise of, control; 2) method of payment (look at statutes on p. 1-4); 3) furnishing of equipment and 4) right to fire.

When employing party is responsible for the agent’s actions?

In K, look at principal / agent relationship.
In tort, employing party must be a master.

II. Statutory Modification to the CL of Agency

Legislature can change the Restatement by statute. Ie. Payment of wages statute = 41-10-10; agent of company can be liable as an employer. (p. 1-4)

Payment of Wages Statute (p. 1-4)

Dumas (SC 1995) (p. 1-6)

Held the legislature intended to impose individual liability on agents or officers of a corporation who knowingly permit their corporation to violate the (payment of wages) Act.

III. Who is an agent?

Johnson v. Arbabi (SC 2003) (p. 1-6)

Husband and wife is not an automatic agency.
But conduct can create implied agency. (p. 1-10)

A principal must only have that capacity necessary to execute a contract or deed in order to establish (or cancel) an agency relationship. Do not have to have testamentary capacity.

Chapter 2: What is a Partnership and an LLC?

I. Partnership Tests – found in statute and cases.

Partnership – SC UPA 33-41-10 et seq.
Defined – 33-41-210 (p. A4): (1) an association (2) of 2 or more persons (3) to carry on as co-owners a business (4) for profit.

If you meet these criteria, you are a partnership
No written agreement is necessary
Persons = Corporations and LLCs
Association – connotes a degree of control
Excludes nonprofits as a partnership

This statute is a gap filler for limited partnerships.

Determining the existence of a partnership = 33-41-220

Note: a “joint venture” is a type of partnership and is different from a “joint adventure” (p. 2-3)
Loss sharing is probably not a necessary element of a partnership, but in some cases it is a factor. (p. 2-3)
Generally, the person urging that a partnership relationship exists has the burden of proof, the burden of persuasion.

33-41-510(1) = share profits equally

Can be modified by an agreement (and usually is)
Share losses equally

LLCs, LLPs, limited partnerships can become general partnerships if they don’t file correctly.

Corporations cannot, such a different form of business.

Gangl v. Gangl (p. 2-4) – ct found no partnership

Factors of partnership: 1) control, 2) profit sharing, 3) intent (indicia), 4) co-ownership.
Filing partnership tax returns suggests a partnership.
Facts against partnership: 1) no partnership agreement, 2) money goes into John’s account, 3) property is titled to individuals (but doesn’t have to be)
Ct considers control as the critical factor (but partners can give mgmt control to a managing partner)
Have to consider the equitable factors: 1) 40-50 year history; 2) earlier settlement amongst the brothers = Anton looks greedy.

Grissum v. Reesman (p. 2-12) – ct found a partnership

Sister and brother in partnership and brother died.
Facts to show joint control
Shared profits by using them to live off
Equitable reason – she is going to get all the assets anyway. This is just a tax case.

As a partner, only ½ is subject to taxation; she already owns the other half.

Beck v. Clarkson (SC 1989) (p. 2-18)

One partner left, formed another partnership, and took the business opportunity.
Two kinds of partnership:

1. Term = if partner quits early, breach of K, and damage remedy
o Definite time or undertaking
2. At-will = any partner can quit at anytime with maybe no penalty
· Ct found jury question for breach of fiduciary duty.

Simpson v. Ernst & Young (6th Cir.) (p. 2-29)
· Issue: Was P a partner or an employee of accounting f

s probably elected term.
· 6 – member-run LLC or manager-run LLC?
· Member-run operates like a partnership.
· Manager-run operates similar to a corp. = owners are members; members elect managers who run the business; no longer have to annually disclose who the manager is.
· Never check box 7 unless you have compelling reasons.

Advanced Orthopedics, LLC v. Moon (p. 2-56)
· Doesn’t matter if you don’t know much about an LLC when you form one.
· If you form one, you are one!
· “Attaining a certain level of understanding regarding an LLC is not a prerequisite to the formation of and participation in one.” “No requirement in the law that an LLC have an operating agreement to be viable” = same in SC
· Don’t have to make a capital contribution to be a member of an LLC – can make a non-cash contribution.

Meyer v. Oklahoma Alcoholic Beverage (p. 2-59)
· LLC sued to get a liquor license.
· Liquor statute only allows individuals or partnerships, not a corp. to get a license.
· Ct held LLC not allowed to get a liquor license because no personal liability.
· No inherent conflicts like this in SC.

Note 1 (p. 2-62) Sole proprietorship converts to solely owned LLC. Does K with proprietorship transfer to the LLC?
· Prof: If there isn’t a conversion statute, then no.

Note 3 (p. 2-64) Lawyer converted his proprietorship to an LLC to avoid credit claims. The ct found the LLC was the same as the proprietorship. = LLC deemed to be successor entity to proprietorship and liable for proprietor’s debts.

Note 4 (p. 2-65) Joint venture of corporations is not the same as an LLC owned by the same corporations. The joint venture converted into an LLC. Ct held the LLC does not get the joint venture’s bid.

Nice Chart on p. 2-67 describing different treatments of LLC and Partnership.