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Business Associations/Corporations
University of South Carolina School of Law
Freeman, John P.

Business Corporations
Freeman – Fall 2004

CH 1 – Introduction

A. The Subject in General
1. Business – a broad term describing all kinds of profit-making activity, excluding the performance of services for another in an employment relationship
2. Classification Method #1 ­– by legal form into two categories:
a. Corporations
b. Unincorporated Associations
3. Classification Method #2
a. Categories
i. Closely Held – have one or a few owners
ii. Publicly Held – many owners
b. Fundamental dividing line is whether a public market exists for ownership interests in the business
B. The Statutes
1. The subject of business associations is largely governed by statute
2. Uniform Partnership Act (1914) – UPA (1914)
3. Uniform Partnership Act (1997) – UPA (1997)
4. Uniform Limited Liability Company Act (1996) – ULLCA (1996)
5. Model Business Corporation Act of 1969 (1969) – MBCA (1969)
6. Model Business Corporation Act as amended – MBCA
C. The Role of Agency Law in Business Associations
1. Restatement 3rd – Agency
a. Agency is the fiduciary relationship that arises when one person (principal) manifests consent to another person (agent) that the agent shall act on the principal’s behalf and subject to the principal’s control, and the agent consents so to act.
b. Disclosed principal – at the time the 3rd party and agent interact, the 3rd party has notice 1) that the agent is acting for a principal and 2) of principal’s identity
c. Undisclosed principal – at the time of interaction, 3rd party has not notice that the agent is acting for a principal
d. Unidentified principal – at the time of interaction, 3rd party 1) has notice that the agent is acting for a principal but 2) does not have notice of the principal’s identity
e. Dual agent – acts on behalf of more than one principal with regard to the same transaction
f. Actual authority – agent reasonably believes, in accordance with principal’s manifestations, that the principal wishes the agent to so act
i. Scope of action – designated acts and acts necessary to accomplish objective
g. Apparent authority – 3rd party reasonably believes due to principal’s manifestations

Principal

Agent

Master

Slave

* Masters have direct power to control physical conduct of slave
* M/S and P/A distinction is criti

have no personal liability for firm obligations that exceed the assets of the general partnership (may have personal liability if you have supervisory responsibilities)
ii. Process:
a. First, have a general partnership
b. Second, file form annually with Sec. of State
d. The Traditional Limited Partnership
i. Historically → Fairly recent idea authorized in US in the late 19th century by statute
ii. Today → exclusively a creature of statute
iii. There is no general common law of limited partnerships
iv. Process → File form to even come into existence…failure to do so will create a general partnership
v. Terms
a. Limited Partner – partner who receives profits from the business but does not take part in managing the business and is not liable for any amount greater than his original investment (ie. shareholder)
General Partner – a partner who ordinarily takes part in the daily operations of the business, shares in the profits and losses, and is personally liable for the partnership’s debts and liabilities (ie. managers) → solution is to have a corporate general partner