Select Page

Business Corporations
University of South Carolina School of Law
Burkhard, James R.

Business Corporations – Burkhard Fall 2011
 
General Corporate Principals
 
A.P. Smith MFG. CO. v. Barlow, SCNJ, 1953
 
Facts:  A.P. Smith’s BODs gave $1,500 to Princeton Univ.  A.G. Smith felt that it was the responsibility of the corp. to aid philanthropic and benevolent institutions, they obtain goodwill in the community, that their charitable donations create a favorable environment for business, and promote self-interests by increasing education.  Another chairman indicated it was not good business to disappoint “reasonable  and justified public expectation.” 
 
Stockholders took the position that plaintiff’s cert. of incorporation does not expressly authorize the contribution and under comm. law principles, the company does not have the implied or incidental power to make it; also, NJ statutes that expressly authorize contribution cannot be applied to P because it was created before enactment.
 
Issue: whether the corporation could legally give $1,500 to Princeton Univ?
 
Holding: Yes.  A lawful  exercise of the corporation’s implied and incidental powers under common law principles and that it came within the express authority of the pertinent state legislation.
 
Reasoning:
·         Modern conditions require that corporations acknowledge and  discharge social and private responsibilities as members of the communities in which they operate.
·         State legislation adopted in public interest and applied to pre-existing corporations under the reserved power has been sustained by the USSC over contention that it impairs the rights of stockholders.
·         People face tax imposition and thus cannot give to charity so corporations have now taken over that role.
 
A.P. Smith Notes
·         Charitable donations deductible.
·         Pro corp. philanthropy: Corporate Officers and Directors should be protected in supporting philanthropy b/c Corp. should act in socially responsible way.
·         Counter Arg.: Corp. Directors and Officers are Agents of SHs.  If agents to do anything other than what the owners want is to violate the employment agreement.
 
Making Money
 
                (1) Distributions
                (2) Selling Ownership
                (3) Salary/Compensation
 
Statutes
 
 
33-41-530: (A7) Duty of Partners to give Information (PS)
Partners shall render on demand true and full information of all things affecting the PS to any partner or the legal representative of any partner.
 
33-44-408: (B16) Member’s Right to Info (LLC)
                (a) LLC shall provide members access to its records.  Former members access for proper purpose.
                (b) LLC shall provide members:
                                (1) w/o demand, information reasonable required for exercise of members rights or obligations
                                (2)  w/ demand anything not unreasonable or for improper purpose
 
 
Determining a Company’s Value:
 
1. Income Statement
·         Computes the profit for a period of one year.
·         PBT = Revs – COGS – Salaries – Depreciation – General and Admin exp
·         PAT = Revs – COGS – Salaries – G&A – depreciation – taxes
o    Accelerate depreciation to lower taxes
 
2. Cash Flows Statement
·         A measure of how much more or less cash a business has at the end of the year than at the beginning of that year;
·         CF = PAT + Depreciation – Investment
-Depreciation is added back b/c cash does not actually flow in/out;
-Subtract for investments b/c it actually goes out
 
3. The Balance Sheet (P18)
·         Snapshot of a particular moment;
·         Profits accrue to OE (what bus. Owes to owners, so goes on the liabilities side)
o    One who lends the company $1000 has owner’s equity- the co owes him $1000.
3 Sections:
 
(1) Assets: what company owns that has value: cash, land, buildings, A/R, machinery and equipment minus depreciation on the asset.
(2) Liabilities: Accounts Payable, wages, debts
(3) Owners’ Equity: Assets – Liabilities
·         Total Assets = Total Liabilities + Owners’ Equity
 
 
Sole Proprietorship
 
·         The most common form of business.
·         SP essentially has no legal structure. 
·         Business and Owner are the same actual person and same legal person. 
·         No legal documents need to be drafted.
·         Default business.
·         People who extend credit to the business or otherwise have legal claims against the business can sue owner personally and collect those claims.
 
Owner can have as many EEs as he wants and they may = Agents
 
RST 3rd Agency:
 
1.01: (E1) Agency Defined
Agency is a fiduciary relationship that arises when one person (principal) manifests assent to another person (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.
 
2.02: (E3) Scope of Actual Authority:
An agent may take action “necessary or incidental to achieving the principal’s objectives.”
 
·         A deal by your Agent w/ TP binds you to that TP if Agent has “Authority”
 
Actual Authority: Created by manifestations from P to A that A reasonably believes creates authority.  The principal just tells the agent that he is empowered to act on P’s behalf in accomplishing some task.
 
                Actual Express Authority: Written or directly stated
Actual Implied Authority: An agent has the authority to do what is reasonably necessary to get the assigned job done, even if P did not spell it out in detail.
 
Apparent Authority: 2.03 & 3.03: (E3-4)
Created by manifestations by P to TP.  The manifestation must be attributable to P, must get to TP, and must lead TP to reasonably conclude that A is an agent for P.
 
Inherent Agency Power
Power of A to bind P to deals w/ TP is inherent to agency relationship between P and A.
Ex: President of corporation signs a k w/ another corporation.  President did not have actual authority to do this, neither did he have apparent authority, b/c the corp made no manifestation to TP k corp that president was corp’s agent and could bind it.  Rather, the corporation is bound on the k b/c president had the inherent agency power to bind it.
–          R-3 expands what constitutes a “manifestation” by P to TP, and thus broadens the scope of apparent authority, by abolishing inherent agency power and thus giving rise to “inherent authority by position.”
 
 
7.07: (E 14) EE Acting Within Scope of Employment
ER is liable for EE’s torts only if committed w/in the Scope of Employment.
 
·         Frolic = EE takes slight departure from work
·         Detour = EE takes significant departure from work
·         ER liable if EE is on Frolic but not liable for Detour
 
 
SP Tort Liability
 
1) Master/Servant Relationship?
2) Scope of Employment?
 
Respondeat Superior – Vicarious Liability – P is held liable for A’s acts
 
·         P liable Only in Master/Servant Relationships or EE/ER Relationships
·         Master has Right to Control the details of Servant/EE’s job
 
Servant/EE is NOT an Independent Contractor
 
IC = Hired for job (Agent) but not controlled by P; IC can choose the MEANS of which to complete the job; P only has right to accept or reject the final product.
 
·         IC = Agent when given Actual Authority
·         P not liable for IC’s torts
·         P may be liable for contract claims
·         If IC has no Actual Authority then P is not liable in tort or contract
 
Wilkinson v. Wilkinson, (SC 2009)
 
Facts: Wilkinson, long-haul truck driver w/ IC agreement w/ Palmetto was killed on the job; his wife seeks worker’s comp, asserting that Wilkinson was a Palmetto employee.
 
Issue: Whether Wilkinson was EE or IC.
 
Holding: IC, therefore wife will not receive workers compensation.  We are persuaded that the four factors militate in favor of finding that Wilkinson was an IC.  Most importantly, we are guided by the parties’ conduct, which mirrored the terms of the k.
 
Rule:  The determination of whether a claimant is an EE or IC focuses on the issue of contol, specifically whether the purported ER had the right to control the claimant in the performance of his work.  In evaluating the right of control, the Court examines

ury. D argues that P did not justifiably rely, as required under re(2) 267 and evidence is therefore not sufficient to prove that she went to the restaurant b/c she believe mcd’s owned and operated it.
 
Allen v. Greenville Hotel Partners, Inc. (Greenville Div, USDC, 2006)
–          P claimed D FEE was negligent resulting in deaths of P’s; sum judgment was granted against the P. 
–          Issues were: FOR exercised sufficient control for master-servant relationship and therefore triggered vicarious liability; also, there was an apparent relationship (re 2, 267), P’s assuming a holiday inn.
 
RST (2nd) of Agency: 267:
“one who represents that another is his servant or other agent and thereby causes a third person justifiably rely upon the care or skill of such apparent agent is subject to liability to the third person for harm caused by the lack or skill of the one appearing to be a servant or other agent as if he were such.”
 
RST (2nd) Torts 429: (TWEN)
One who employs an independent contractor to perform services for another which are accepted in the reasonable belief that the services are being rendered by the employer or by his servants, is subject to liability for physical harm caused by the negligence of the contractor in supplying such services, to the same extent as though the employer were supplying them himself or by his servants.
Much less reliance here than is required in 267; Plaintiff’s lawyer would prefer re 429 re torts
 
Simmons v. Tuomey Regional Medical Center, 533 se2d. 312 (2000) (§ 429 – VC for IC harms)
–          two patients went to the hospital and received bad service; sued tuomey, the doctors there were all ICs and the hospital claimed that they are not a master, Drs not servants. The P lawyers argued 267 and 429; ct app rejected 429 claim. The South Car. Sup Ct reversed, stating 429 is perfectly fine.
§  “Under 429, the plaintiff must show that (1) the hospital held itself out to the public by offering to provide services; (2) the plaintiff looked to the hospital, rather than the individual physician, for care; and (3) a person in similar circumstances reasonably would have believed that the physician who treated him or her was a hospital employee.”
o    Applying 429, South Carolina applies a non-delegable duty;
§  Applied almost exclusively in medical cases.
 
PARTNERSHIP
 
                Just like SP but w/ more than 1 owner
 
Partnership Statutes
 
33-41-210: (A3) Partnership Defined
A ‘partnership’ is an association of two or more persons to carry on as co-owners a business for profit.
 
33-41-220: (A4) Determining the Existence of a Partnership
(4) The receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner unless… (See Statute)
 
33-41-230: (A4) Partnership Property; Acquisition and Conveyance
(1) All property originally brought into the PS stock or subsequently acquired by purchase or otherwise, on account of the PS, is PS property.
(2) Unless the contrary intention appears property acquired w/ PS funds is PS property.
(3) Any estate in real property may be acquired in the PS name.  Title so acquired can be conveyed only in the PS name.
(4) A conveyance to a PS in the PS name, though w/o words of inheritance, passes the entire estate of the grantor unless a contrary intent appears.