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

BA Outline

I. Agency Law:
A. 2 basic parties
i. Principal- does nothing (Exxon corp.)
ii. Agent- works
1. Every action taken by an agency is taken by the agent
B. Agency formed by:
i. Mutual consent- express or implied, manifested
ii. Agent undertakes to act on behalf of principal
1. To the extent agent has power to bind, agent’s conduct is attributed to principal
2. Agent has right to bind only to extent principal has authorized agent to do so
a. Damages- wrongful conduct by agent
iii. Agent acts subject to principal’s control
iv. Don’t need consideration
C. Types of authority
i. Actual Authority- what you actually have
1. Express- what was said, consent to agency/ be an agent
2. Implied- what the agent reasonably believes they have the power to do b/c of manifestations of principal
a. Agent must believe they have authority
ii. Apparent authority- 3rd party reasonably believes the agent has authority
1. Principal must create impression of authority through:
a. Course of conduct
b. Principal says agent has authority
1. Principal must be disclosed or partially disclosed to 3rd party for apparent auth
c. 3rd party can infer authority from person’s position
2. Agent can’t create own apparent authority by telling 3rd party yourself that you’re the agent for someone else
3. Inherent authority- authority that partners and partnerships and officers of company have by virtue of being partners or officers
a. Has power b/c of their position (ie- reasonable to believe Pres. of Exxon has authority even if he really doesn’t have any)
b. Agent can state his position (Pres of company) and this gives him authority
D. Termination
i. Either side can terminate at any time, at end of specific time period, by completion of objective, by death/ incapacity/ insolvency
1. Agency coupled w/ an interest- can’t be terminated until the interest is extinguished, not terminated as above
ii. Special rules for Apparent- when no longer reasonable belief for 3rd party to believe that agent has authority
1. If terminated must notify, 3rd party that agent is NO longer agent for you, OR you still will be liable for “agents” acts
E. Once authority is determined, have to look to the scope of that authority and whether the agent is acting w/in the scope of their authority (authority to sell car but not house) b/c only authorized to act w/in scope
F. Since agent is acting for principal, principal’s incapacity matters but the agent’s doesn’t
G. Principal is charged with the agent’s knowledge/notices if agent receives such w/in the scope of the agency
i. Exceptions
1. If the agent receives info from confidential source, the principal didn’t receive the info
2. If the agent is acting adversely to the principal then principal didn’t receive the info
H. Ratification- principal can ratify previous unauthorized acts of agent
I. Agent’s duties
i. Loyalty- can’t help yourself at principal’s expense, act for others w/ conflicting interests, can’t compete w/ principal, safeguard principal’s confidential info
1. Continues after agency ends
2. Can be modified by agmt
ii. Reasonable care
iii. Disclosure
iv. Act w/in your authority
1. If agent violates- liable for damages
J. Principal’s duties
i. Pay at the agreed rate, if agreed upon
ii. Reimburse reasonable expenses
K. Subagents
i. Permitted if they’ve been authorized by the principal, if the act is ministerial, if it’s customary in the industry, if necessary or incidental to the work that is being done
ii. Subagents misconduct makes the agent and subagent liable to the principal
iii. If permitted, subagent can bind the agent
L. Dual agent- 2 principals have 1 agent
M. Liability
i. If agent acts w/ apparent authority and acts when doesn’t actually have authority, principal still liable to 3rd party but principal can sue agent
ii. Contracts
1. Principal is liable on all k’s by agent w/ actual or apparent authority
iii. Torts
1. Principal liable for all torts that occur w/in scope of agency
2. Principal’s not normally liable for torts of their agents unless employer-employee relationship
3. If employer-employee relationship than principal liable for all torts that occur w/in scope of the agency (respondiat superior), this includes intentional torts if the agent is trying to further the goal of the principal even if principal has forbidden the act in question
4. Principal/ agent is always responsible for their own torts
5. Frolic v. detour
a. Detour- principal still liable
b. Frolic- principal not liable b/c way off the path of business
iv. Agent
1. To 3rd party on K
a. If agent didn’t have any authority then principal is not liable to the 3rd party b/c there was no implied warranty of authority
1. 3rd party can sue agent b/c breached warranty of authority
b. If principal is undisclosed or partially disclosed or unidentified then Doctrine of election- 3rd party can choose to sue either the principal or agent
1. Rationale- 3rd party signing the K can’t make informed decision b/c don’t know who principal is, only relying on who the agent is
2. Undisclosed principal- don’t know you’re an agent
3. Unidentified principal- know you’re an agent but don’t know who for
2. To 3rd party on Torts
a. Always liable for own torts
3. To Principal
a. For breaching duty to principal, including acting outside actual authority
b. Principal can sue agent for something he shouldn’t have done that makes the principal liable

II. Types of Entities

Characteristic

Sole Prop.

GP

LP

LLC

S-Corp

Corp.

1) File w/ state

No

No

Yes

Yes

Yes

Yes

2) Duration

SP determines

Bankruptcy or Partner’s death

Limited by state law

Continuous

Continuous

3) Liability

Unlimited liability

GP’s have unlimited liability

GP- unlimited
LP- limited

Members NOT liable for debts of LLC

S-holders NOT personally liable for debts of corp.

S-holders NOT personally liable for debts of corp.

4) Management

SP has full control

Each GP has equal voice unless K says different

GP- participates
LP- can’t participate

Members have OA that determines
Mgmt.

Managed by board who are elected by s-holders

Managed by board who are elected by s-holders

6)Taxation

Not a Taxable entity. SP pays all taxes

Not a taxable entity. Income/loss passed to members of GP

Not taxable entity

Not a taxable entity. Income/loss passed to members of LLC

Not a taxable entity. Income/loss passed to S-holders

Corp. is taxable entity, SH pay tax on dividends

7)Double Taxed

No

No

No

No

No

Yes

8) Raising Equity Capital

Not unless SP puts in money

Money from partners OR addition of new partners

Can sell interests if allowed in the OA

Sell share of stock to raise capital

Sell share of stock to raise capital

9)Transferability of Interest

No

artnership bound by partner’s wrongful act- where partner acting in ordinary course of business of partnership or w/ authority of co-partners, injury caused, partnership liable to same extent as partner
F. UPA § 18(f)- no partner entitled to remuneration for acting in the partnership business, except surviving partner is entitled to reasonable compensation for services in winding up the partnership
i. Default rule but can agree that partners will be paid
G. Management- UPA §18(e) and UPA §401(f)- all partners have equal rights in management and conduct of the business
H. Profit sharing- UPA §18(a)- each partner shall share equally in the profits
i. Can agree to change it but otherwise this is the default
ii. For loses, share same as profits unless choose differently
iii. Example- if partner sued
1. Partner will go to partnership and be repaid
2. If partnership doesn’t have any $, partnership will have to collect $ from partners to repay the sued partner
I. UPA § 40(a)- allows contributions of the partners necessary for the payment of all the liabilities
i. IE- if one of the partners agrees to be held liable himself for obligations and that person doesn’t have enough $ to pay
1. He’ll cover what he can and then rest of partners will split equally
2. If another partner is sued, she’s still liable even though above partner agrees- therefore this is an indemnity, she’s still liable but will be repaid, if she wasn’t liable, she wouldn’t be a partner
ii. IE- partnership w/ $8,000 debt, agree to split losses as A 20%, B 20%, C 60%, A is bankrupt
1. Will still make B pay 20% and C pay 60% and then split the rest so B and C have to pay an additional 10%
2. More likely that agreement is that for every $1 B pays, C pays $3 so in this ratio, B will put in $2,000 and C will put in $6,000 to maintain the ration
3. Agreement only good as long creditor can be paid
J. Vote- voting determined by headcount, not by % of investment in partnership
i. 1 person= 1 vote
ii. If deadlock- those against the change win
K. Actual Authority- partners have actual authority to bind partnership UNLESS agreed to differently
i. UPA §9- every partner is an agent of partnership for purpose of its business, and the act of every partner for apparently carrying on in usual way the business of the partnership binds the partnership, unless person has no authority to act and person he’s dealing w/ knows he has no authority
1. When act of partner not apparently for carrying on business of partnership doesn’t bind partnership unless authorized by all the partners
ii. When partner signs on behalf of partnership
1. is it w/in authority/scope
2. is it apparent or actual authority
iii. Partner’s saying he won’t be liable terminates apparent authority for the other but not actual authority- can only terminate actual authority by voting to do so UPA § 18(h)- ordinary matters require majority vote
1. A tie in voting does not change the default
L. Apparent authority
i. Example- law firm w/ partner who agrees to invest $ on behalf of client, law firm doesn’t practice in investment, and now he lost the $ & client trying to sue law firm for $
1. whether investment was in scope of partnership- NO so partnership not bound for partner’s acts
2. Actual authority- no, this isn’t the business of the law firm
3. Apparent authority- no b/c can’t create your own apparent authority
M. Duty of Loyalty to each other and the partnership
i. Don’t be on both sides of fence.
ii. Do not complete w/ your partnership (unless they allow you to)
iii. Don’t line pocket at partnership expense.
iv. Owe fiduciary duty to partnership, unless modified
v. Don’t’ engage in conflict of interest transactions