Chapter 1: Introduction
I. Subject in General
a. Business – a broad term describing all kinds of profit-making activity
i. Corporations and unincorporated associations
ii. Closely held (have one or a few owners) and publicly held (many owners)
II. Role of Agency Law in Biz Associations
a. Agency – fiduciary relationship that arises when one person (a principal) manifests assent to another person (an agent) that the agent shall act on the principal’s behalf and subject to the principal’s control, and the agent manifests assent or otherwise consents so to act.
ii. Disclosed principal – when an agent and a third party interact, the 3rd party has notice that the agent is acting for a principal and has notice of the principal’s identity.
iii. Undisclosed principal – when an agent and a 3rd party interact, the 3rd party has no notice that the agent is acting for a principal
iv. Unidentified principal – when an agent and a 3rd party interact, the third party has notice that the agent is acting for a principal, but doesn’t have notice of the principal’s identity.
v. Dual agent; joint principals – acts on behalf of more than one principal w/ regard to the same transaction
vi. Notice – A person has notice of a fact if the person knows the fact, has reason to know the fact, has received an effective notification of the fact, or should know the fact, has received an effective notification of the fact, or should know the fact to fulfill a duty owed to another person.
III. Authority vs. Power
a. Master-servant relationship – tort oriented
i. Need a tort that involves a physical activity
ii. Master (principal) – servant (agent) relationship
iii. Scope of employment
b. Principal-agent relationship
i. Contract matter, misrepresentation, or defamation
c. Express authority
d. Implied authority – turns on whether it can be inferred the board approved the officer’s actions and is now trying to weasel.
i. Outsider need not know about the relationship b/t board and officer
e. Apparent authority – power held by an agent or other actor to affect a principal’s legal relations w/ 3rd parties when a 3rd party reasonably believes the actor has authority to act on behalf of the principal and that belief is traceable to the principal’s manifestations.
i. Focuses on the appearances of the officer’s authority that the board has created fore reasonably reliant outsiders
g. Inherent agency power – Even though the board may not have authorized the agent to act or manifested the agent’s authority to a 3rd party, the agent’s very position creates his authority.
i. If the officer’s actions relate to transactions that he is generally authorized to conduct and the 3rd party reasonably believes the officer is authorized and has no notice to the contrary, the corp. is bound.
h. Ratification – creates the agency relationship and “relates back” so that the prior act, even if by a nonagent, is treated as authorized from the start. Must be a manifestation of the principal’s int
ited partner and yet participate actively as a director or officer of the corporate general partner w/o losing his shield against liability.
i. Liability – limited liability
ii. Taxation – one time taxation
iii. Provides limited liability for all participants, whether or not they are active in the mgmt of biz, and permits total flexibility in internal mgmt.
i. Disadvantages – taxation and mandatory procedural requirements.
ii. Key principle – A corp. is an entity independent of its shareholders.
iii. Liability – provides limited liability for all investors and participants, whether active or passive…only the corp. is liable for cop obligations.
1. Exceptions – where officer has acted negligently or personally guaranteed a loan or piercing the corporate veil doctrine.
iv. Taxation – S Corp/C Corp distinction
v. Consists of 3 tiers:
1. shareholders who are the ultimate owners of the enterprise
2. board of directors who are the managers
3. officers who act for the corp. to implement the decisions of the directors
Chapter 2: The Partnership
What is a Partnership?