Select Page

Business Associations/Corporations
University of Toledo School of Law
Barrett, John Q.

OUTLINE – BA

Agency

The fiduciary Relationship that arises when one person (principal) manifests assent to another person (agent) that the A shall ant on the Ps behalf and subject to the principals control AND the A manifests assent or otherwise consents to act
Every time a corporation (entity) does something it is done by an agent
Agency is formed by

A mutual assent b/w the P and A (no writing needed)

Terminated by

Either person at any time (P or A)

OR by death, incapacity or insolvency
this terminates of actual authority

Exception is

Agency coupled with an interest only ends when the interest is fulfilled

Types of authority in agency

Actual

Express – what was said (sell may car, put an ad in the paper to do it)
Implied – what authority is reasonable believed to possess

Sell my car (A then implies that they can put an ad in the paper)

Apparent

What auth 3P reasonably believes that agent has
Must be created by P; A cannot create Apparent Auth themselves

Exception – when A states their position (president/partner) and a reasonable 3P can assume this is enough for authority
3P can mistakenly reasonably believe that the wrong person is an A of P if Ps statement could res lead 3P to believe wrongly

Termination of App Auth by P needs to be conveyed to 3Ps who were previously dealing with the A

Incapacity of P matters NOT incapacity of A

If P is a minor, then the Ks that A makes are void-able by P
If A is a minor (not P) then the Ks that A makes on Ps behalf are binding

P is charged to have knowledge or notice of A if it was received by A w/in the scope of agency

Exceptions to imputation of Knowledge

1) If A learns by a confidential/privileged source, P is not charged to know
2) If A is acting adversely to the interest of P, P not charged to know

LIABILITY in Agency

K – agent Ks with 3P and 3P now wants to hold the P liable

P is liable on all Ks by A with actual or apparent authority

Tort – you have a victim wronged by tortfeasor and you want to sue the deep pocket (P)

P is liable for all torts (negligence) occurring w/in the scope of agency
P is liable for the intentional torts of A if A was trying to further the goals of P

Why was A doing this? (bustin kneecaps to collect P’s money or to torture spouses lover??)
If furthering P’s interest then P even liable if strictly forbid A to commit the intentional tort

J&S liability triggers for torts when A is acting as employee of P and within the scope of authority – P will indemnify A at this point

A is liable to 3P

On K if no authority OR is P is undisclosed (3P is not aware that there is a P) or unidentified (3P knows there is a P but not who the P is)
Torts- A is always liable for their own tortious acts

Fiduciary Duties in Agency

A has duty of 1) loyalty 2) reasonable care 3) disclosure 4) act w/in scope of authority
P has duty to 1) pay at agreed rate and 2) reimburse expenses

Other kinds of agency

Co-Agents = 2 or more different people acting for same P
Dual Agents = one agent representing more than one (several) Ps (husb and wife)
Sub Agents = Agent hired by another agent

Appointed by P or by A with actual/apparent auth of P
Can be authorized expressly or impliedly
OK if customary to business AND necessary OR incidental to job (giant)
SubA can be held liable to P and bind P w/in scope of auth

Entities
A Current Spectrum of Entities

PARTNERSHIP
· Sole Proprietorship / General Partnership
· Limited Partnership (w/ natural GP)
· Limited Partnership (w/ © GP)

· Limited Liability Partnership
· Limited Liability Company (member managed)
· Limited Liability Company (manager managed)

· S – Corporation
· C – Corporation
CORPORATION

Sole Proprietorship
· Owned by a single individual who is liable for ALL business obligations
· No filing with state is required, taxed as a single entity (person and business)

Partnerships

General Partnership

2 or more persons engaged in business for the purpose of making profit
the entity is not taxed and every partner is J&S liable for everything (tort and K)

if the transaction happens OUTSIDE the business of the Pship others not liable

All partners are agents for the partnership and all are bound (decentralized management)
All partners share equally in profits, losses, control and management (by default)

If ratio of profits are modified by K, then ratio of losses also modified

No filing with state is required (default entity)

Exceptions

1) just paying debts out of profits does NOT create a partnership
2) Joint Tenancy, TIC, and TBE do not create partnerships (farms)

Partners can only be admitted unanimously (default rule)

You can transfer you “economic share” (w/out becoming an actual partner)

Only profits received, no vote or agency power
Original partner still liable for debts/losses/obligations

Partnership voting is NOT by interest; it is a HEADCOUNT vote (default)

NO Writing is required for a partnership BUT it is/can be advantageous

If you are setting up a partnership for a set period of time (> year) writing required
Is proof of a partnership (for possible future litigation)
Can allocate tax burdens and responsibilities differently
Dictates the life of the partnership upon retirement or death (instead of default rules)
Settles the status of the property of the partnership (loaned or contributed by partners)
Can give partners a right or remuneration (not allowed by default)
Can modify the default equal sharing of profits

A partnership does NOT have unlimited life, ends with the demise of the partners
Termination of a partnership

Dissolution then winding up (UPA and barrett); Dissociation, then dissolution (RUPA)
Any time a partner leaves a partnership it ceases to exist technically (new Pship if cont)

Partner actually leaving is referred to “Dissolution” (UPA)
Then if partners decide to end Pship, it is “winding up”

Withdrawing partners are entitled to have capital accounts zeroed out

A partner always has the power to leave but may not always have the right (may have to pay $$$ for the right (cats can determine that they have the right)

If business is merely losing $$ must not being mismanaged, no right

If no term is stated but there is other evidence (signing of 5 year lease) that may become the term length

4 ways a Pship can end

1) Death 2) Incapacity 3) bankruptcy 4) voluntarily

Partner is still jointly and severally liable for obligations when he leaves

SIDE
Your internal relationship is what it is, not what the outside thinks it is

Cts will look to cash and control to determine if you are a Partner

Representing a partnership is like representing yourself so you need not pass that bar in the state where the litigation is taking place

Limited Partnership

The general partners in a LLP are just like the partners in GP (J&S liable and agents)
Limited partners have limited liability and have limited voice

Cannot manage, can only make big decisions (veto power)

Can be a list of things Ked that veto power is for to assure LimLiab
Any specific powers they get are granted by general partners

Not liable for tort only for K claims
Only liable up to the amount of the capital investment in the LP
Cannot act as agents or bind the partnership (cannot be general partners)
If they participate in control, only liable for the transactions they act in (or knowingly allow their name to be used in) where the other party reas believes that limited partner is a general partner

What does not count as participating in control (list??)

They can come and go unlike general partners (no unanimous decision to change them)

Done upon the happenings of something in Pship agt OR 6 months notice

Limited partners can compete and invest in other ventures

IF there is a failure to file with the SS to get Limited Pship status,(and you have co-owners in a business for profit) general Pship is default

If a person THINKS they are a LimPart, but there is no filing, you are a Lim Part if you make them file the paperwork or withdraw from participation Immediately after you learn this

Entity is NOT taxed
Limited Partnership with a Corporation as the General Partner

Send a very limited amount of money through the corp to get double taxed
Follow formalities with the acting manager being the “president of the corp” (limp)

Have him wear his president hat so he is rarely liable as Gen Part
Keep god records of the corp with the various hats duly noted
Talk the right was at meetings and document this
Do al this to avoid piercing the corporate veil

General Partners duty to the company EXTENDS as a duty to limited partners
Gen Partners are like the “poor expert” and the lim partner is like the “uninformed investor”

Limited Liability Partnership

Same as a general partnership EXCEPT

1) there is not personal tort liability for ANY of the partners

there is K liability for all of the partners

2) you must file with the SS for this status

Limited Liability Limited Partnership

Same structure as LP BUT limit the liability of the general partner (who is the only fully liable person under the LP structure) gives the general partner tort protection