Summer 2013
Business Associations
Barrett
I. Introduction
a. Business law is mostly about closely held businesses (most unincorporated businesses are closely held, some incorporated ones are)
b. Statutes (mostly state law)
i. UPA (Uniform Partnership Act) of 1914-universal, most states follow including Ohio; revised UPA (RUPA)-not hugely different
ii. Revised Uniform Limited Partnership Act (RULPA)
iii. Model Business Corporation Act (MBCA)
iv. Uniform Limited Liability Company Act (ULLCA)
c. What is a corporation?
i. Is it an entity created by the state?
ii. Is it a nexus of contracts?
iii. Is it a bunch of team production assets?
iv. All theories have their benefits. Better to learn how it affects, deals with, and structures things.
d. Types of corporations
i. Public corporation: big, stock market, could have millions of stockholders
ii. Closely held corporation: smaller, a few people (family business)
iii. Problems with each:
1. Closely held company
a. Personal dynamics (i.e. a family feud)-families and friends have falling outs that have nothing to do with the business OR may have everything to do with the business
b. Players may change slightly (i.e. death, someone may inherit it that the other partner can’t get along with)
2. Public corporation
a. Not a personal dynamic problem, the exact opposite-impersonal
b. Problem is with who’s really running things? In a small company, family is running things-you know who that is. In a big company, stockholders have a day job, don’t own much and don’t care much. Appoint a board of directors, who appoints maybe a president. So they don’t pay much attention because they have a day job, invest in other companies, and defer to managers. But who watches the managers? They’re there to make stockholders money, but always the temptation to look out for themselves.
c. How we regulate the managers is the problem
II. Agency
a. An Ag is someone who acts for you. Person being acted for is the Pr.
i. Every action taken by a corporation can’t be taken by the corporation itself because it’s a fictional/legal entity; therefore, Ags act for it.
b. Often, will have a 3P, because if I’m having you do something for me, you have to do it with someone else.
i. Contract: Pr—Ag—-3P. Is Pr liable for 3P?
1. Primary focus is to discuss the authority of the Ag to act
a. If authority of ANY type, Pr will be liable to 3P
ii. Tort: P/employer—A/employee—Victim. Pr is liable for victim.
1. Type of agency: Pr liable only if relationship is historically known as an EE/ER relationship
2. Scope of activity and agency:
c. Specific Ag = one time Ag; general Ag = regular Ag
d. Pr/Ag
i. Formed by mutual consent
ii. No writing or consideration needed
iii. Terminated by either at any time and by death, incapacity, insolvency
iv. Types of authority:
1. Actual: authority actually given by Pr to Ag to do things
a. Express (what Pr actually says)
b. Implied (Ag reasonably believes that he has power to do this based on what was said by the Pr)
i. More power for general v. specific Ag
2. Apparent authority-the appearance of authority, has to do with the 3P. Is it R for the 3P to believe you have authority? P must create impression that A has authority/A cannot create it for himself. Exception: A can state his position (president of company, partner, etc.). Two ways that P creates impression that A has authority:
a. Holding out-if Pr holds out that X is his Ag, that creates apparent authority in regards to 3P
b. Course of dealing-CANNOT CREATE OWN APPARENT AUTHORITY-NOT R TO BELIEVE IT JUST BECAUSE YOU SAY IT—create a course of conduct, doesn’t create R belief for first time, but for future transactions
3. Inherent authority-authority of an Ag based on position (based on how the real world works-even though corporation must give president power, it is R for 3P to believe that president has power)-you can state title, and if you state true title, person can make R inferences from that title (one exception to the principle that you can’t create own authority)
4. Ratification (Ag rents something then the Pr accepts the benefits – uses the rented thing)
v. If Ag has any type of authority, Pr is bound by his actions (this is in contract land).
1. If Pr is bound, Ag is not bound to 3P (actual authority)
2. Pr can sue Ag when they act with apparent authority but not actual authority because Pr is still bound to the 3P.
3. If there’s no authority, period, then Ag is liable to the 3P, because when Ag acts, he gives an implied warranty of authority, and then the 3P can sue based on breach of that warranty.
vi. Actual authority = what Ag believes; apparent authority = what 3P believes
vii. Termination
1. Mutual assent can terminate actual authority, but has no effect on apparent authority.
2. Death, incapacity, or insolvency may terminate agency
3. Apparent authority is terminated by putting third parties on notice
4. Agency coupled with an interest cannot be terminated by mutual assent
a. A lends B money to buy a ranch, but A will manage it, so B appoints A as manager of ranch as a condition of the loan. B cannot fire A as manager until loan is repaid.
viii. Ag is acting for Pr, so Pr’s incapacity matters but Ag’s does NOT. Standard of care we would hold a minor to would be lower.
ix. Pr is charged with Ag’s knowledge or notices, if received within scope of agency.
1. If manager notices fire hazards in apartment complex, LL is liable, if received within scope of agency, because LL is deemed to know what manager knows.
2. Any info known from confidential source is NOT deemed known by Pr (i.e. lawyers).
3. If Ag is acting adversely to the Pr, NOT deemed known.
x. Ag’s duties
1. Loyalty,
2. R care,
3. Disclosure,
4. Act within authority
xi. Pr’s duties-pay at agreed rate, reimburse R expenses
xii. SubAgs
1. Permitted IF:
a. Authorized expressly or impliedly;
b. Ministerial (secretary);
c. Customary to the business;
d. Necessary/incidental to work to be done
2. If subAg does wrong, Pr can go after both Ag and subAg. Pr IS bound if sub acts w/in delegated authority
xiii. Disclo
iii. Limited partnership (LP) (corporation as GP of LP)
iv. Limited liability limited partnership (LLLP)
v. Limited liability company (LLC) (member managed)-closer to partnership
vi. Limited liability company (LLC) (manager managed)-closer to corporation
vii. S Corporation
viii. C Corporation
ix. Limited liability partnership (LLP or you could say if it’s a LLGP-a limited liability general partnership)
l. How to classify-NOT HOW WE DO IT ANYMORE
i. Entities: historical
ii. Corporations Partnership
1. Centralized management
2. Limited liability
3. Continuity of life
4. Free transferability
iii. If you have 3 of the 4 corporate traits, tax as a corporation
m. General partnerships are default entities, everything else you must file with the state for
IV. Partnerships
a. A partnership is an association of two or more persons carrying on as co-owners (to own = control, decision making authority, reaping the benefits of ownership i.e. selling, profits, losses) to create a business for profit. Cannot form for an illegal purpose (contractual basis).
b. Joint venture is a limited purpose partnership, but has gained a broad secondary meaning of forming any business.
c. Section 7 of UPA: Elements of Partnership
i. Both make decisions/have control
ii. Share profits
iii. Joint tenancy or tenancy in common, etc. don’t establish a partnership of itself
iv. Need no writing but it’s still a good idea to have one (especially if you don’t know what UPA says and wish to have clarity in case of disagreements, can change almost any default rule by agreement)
d. Partners are liable jointly and severally for debts, can take from personal accounts.
i. Joint = everyone is on the hook, must sue all together
ii. Several = separate the debts, can sue separately
iii. Joint and several = can sue together for whole sum, or sue one for the whole thing and then they collect from other partner
iv. UPA = joint and severally liable for torts, joint for contracts-Ohio uses
v. RUPA = joint, several liability for everything-USE FOR EXAM
