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Contracts
University of Toledo School of Law
Barrett, John Q.

Business Associations
Fall 2017
Barrett


I.             Introduction

A.           Why form entities?
1.            Access to money
a.            Sources of funds
i.             Loans
ii.            get people to invest ownership
iii.           Retain earnings (reinvest profits)
2.            Limit liabilities
a.            Creating entity creates different “person” so can’t be held liable for
business’ actions
b.            Entity separate identity from owner

B.           Equity
1.            If get big, get profits
2.            Own stocks and shares
3.            Common shares
a.            Fractional share of ownership
b.            Gives control to shareholders
c.            Entitled to inspect books and financial info, and sue on behalf of the
entity
4.            Preferred

C.           Limit Liability
1.            Double taxation
a.            Because limit liability, tax both entity and individual
b.            Partnerships do not suffer double taxation

D.           Taxation of entities
1.            Test
a.            Publicly traded? (corporation)
i.             Considered corporation
ii.            Double taxed
b.            Corporation in name?
i.             Considered corporation
ii.            Double taxed
c.            Neither?
i.             Can pick between partnership and corporation

E.            Types of Entities
1.            General Partnership
a.            Group of partners own
i.             All control, own, all liable for actions of partnership
2.            Limited partnerships
a.            Limit how much control each partner has
b.            No personal liability
3.            Closely held corporation
a.            smaller corporations
i.             Think family businesses
4.            Publicly Held Corporation
a.            Lots of shareholders
b.            Publicly traded

F.            Corporation Chain
1.            Shareholders
a.            Limited liability
2.            Directors
a.            Managers appointed by shareholders
3.            Officers
a.            Picked by directors
b.            Day-to-day management
4.            Employees
a.            Each can be multiple positions
b.            Powers depend on what role they’re playing

II.           Agency
A.           Principle-Agent Relationship
1.            Formed by mutual consent
a.            Agent acts for Principle
2.            No writing/consideration needed
3.            Entity
a.            Principle
4.            Person acting on behalf of entity
a.            Agent
B.           Agency
1.            Agent agrees to act for and under control of another
2.            Can be as little as little as setting goal
3.            Can also be extreme control (time, place, manner)

C.           Types of agencies
1.            Specific
a.            1 thing and done
b.            Normally, express authority
2.            General Authority
a.            Broad spectrum of goals
b.            Normally implied/incidental authority

D.           Types of Principals
1.            Disclosed
a.            Knowledge of identity of Principal actually given and knowledge dealing
with Agent

2.            Undisclosed
a.            3rd party don’t know Principal at all
3.            Unidentified
a.            3rd party knows Agent, not who Principal is

E.            Equal Dignities Role
1.            Exception to no-writing rule
2.            If agent doing something that requires writing (i.e. buying land), the agency
must be in writing

F.            Liability for Contract Relationships
1.            Principal contracts agent to deal with 3rd party in contract
a.            Binding contract between Principal and 3rd party?
i.             Most likely, yes
b.            Liability for wrongdoing by agent

  i.             Meaningful control of individual by employer?
–              Time, place, manner
ii.            If so, person = employee
c.            Principal liable when agent on detour, not frolic
i.             Frolic?
–              Nowhere near accomplishing goal
ii.            Detour?
–              Going out of way, but still company goal in mind
d.            Includes intentional tort if Agent trying to further goals of Principal
i.             Even if action prohibited by Principal
e.            Borrowed Servants (temp agency)
i.             Time, place, manner test
3.            Victim can’t double recover
a.            Only can be made whole once

H.           Other Agency Principals
1.            Agent and acting for Principal
a.            Principal’s incapacity matters for liability on contract
b.            Agent’s incapacity doesn’t
2.            Principal charged with Agent’s knowledge/notices within scope of agency
a.            Example
i.             Landlord/Tenant, 30 day notice given to Agent. Principal would
be charged with having notice
b.            Exceptions
i.             Agent acting adversely to Principal, so Principal not taxed with
knowledge
ii.            Information learned from confidential source


3.            Fiduciary Duties of Agents
a.            Loyalty
b.            Care to perform duties correctly
c.            Act within authority
d.            Disclosure