Business Organizations Outline

Prof. Drake – Bus Orgs – Fall 2011

1.) Agency behavior

-Parties to the contract generally are liable to each other under the Restatement of Agency, §6.01 (Actual Authority of Disclosed Principal)

-See SCM, p. 102-3 and slides, pages 3-4

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2.) Rules of incorporated businesses…LLCs, etc.

-Focus on the state of WA

-What is Not a Partnership:

Property co-ownership arrangement

Commission sales agreement

Percentage cash receipt rental arrangement

Participation loan agreement

Incentive based employment agreement

Incentive workout payments under a business or equity sales agreement

Gross profit or cash receipts incentive deals

-Note: Smart lawyer will leave no doubt and expressly disclaim partnership

-What about illegal activity? Partnership may exist, but must be wound up and liquidated under RCW 25.05.300(4) unless illegality cured within 90 days. No suit for accounting; a court will leave parties where it found them

-Key Issues:

-Formation and Existence:

-General Partnership

– “An association of two or more persons to carry on as co-owners a business for profit” RCW 25.05.005(6)

– “Person” broadly defined to include any entity, trust or government agency RCW 25.05.005(10)

-“Associate” need not be expressed, but may implied in law or in fact.

-No requirement of intent to form partnership

-Focus on objective factual elements. Hence, players can become general partners and not know it.

-LLP, LP, LLLP, and LLC

-All require a filing with the state to come into existence. No risk of inadvertent existence

-Authority to Act for Enterprise:

-General Partnership and LLP

-Each partner is an agent for the partnership. RCW 25.05.100(1)

-Actual and apparent authority within the scope of the partnership’s ordinary business

-Partner can bind entity unless partner had no authority and third party had received notice that partner had no authority

– Revoke power only by dissociation from partnership

-Filed statement of authority may limit partners authority to transfer real estate and third party deemed to know 90 days after dissociation or dissolution. Not work to limit other authority if third party not know.

-Any partner may transfer property held in name of partnership, but partnership may recover if partner had no actual authority and can proof transfer knew of lack of authority. RCW 25.05.105

-Notes:

– Dissociated Party’s Authority:

– Partnership is bound for two years by acts of dissociated partner if :

1. Acts would have bound partnership before dissociation

2. Third party reasonable believed person still partner

3. Third party not deemed to have knowledge from filing. RCW 25.05.255

-Can Reduce liability exposure time to 90 days by filing statement of dissociation under RCW 25.05.265. Usually smart to do.

-Dissociated partner liable to partnership for any damages caused by actions following dissociation. RCW 25.05.255.

-Partner’s Authority after Dissolution:

-Partnership is bound by acts of partner after dissolution if :

1. Acts necessary to wind up partnership or would have bound partnership before dissociation , and

2. Third party had no notice of dissolution. RCW 25.05.315.

-Can Reduce liability exposure time to 90 days by filing statement of dissolution RCW 25.05.320. Usually smart to do.

-Can specify who has authority to wind up affairs.

-LPs and LLCs:

-Limited Partnerships & LLLPs:

1. General partners have full agency authority and are governed by same general agency rules that apply under the RUPA. RCW 25.10.371

2. Limited partners have no agency authority and no power to bind the entity. RCW 25.10.311.

-Limited Liability Companies:

1. If member-managed, all members have general agency authority to act for and bind the entity on matters within the ordinary course of the entity’s business. RCW 25.15.150

2. In managed – member LLC, all agency authority resides in managers, who need not be members. The members have no authority to act for and bind the entity. RCW 25.15.150.

-Voting Control:

-General Partnership and LLP – Default Rules:

§ Each partner has an equal vote. RCW 25.05.150(6). Different financial interests in enterprise do not govern. One body, one vote.

§ Decisions within scope of ordinary business decided by majority vote.

§ Action outside ordinary business or to amend partnership agreement require unanimous agreement. RCW 25.05.150(10).

-Limited Partnership and LLLP – Default Rules:

§ General partners have all authority to manage business. Each general partner has an equal vote. Decisions within scope of ordinary business decided by majority vote of general partners. RCW 25.10.421.

§ Consent of each partner required to:

(a) Amend partnership agreement;

(b) Amend the certificate of limited partnership to add or delete a statement that the limited partnership is a limited liability limited partnership; and

(c) Sell, lease, exchange, or otherwise dispose of all, or substantially all, limited partnership’s property, with or without the good will, other than in the usual and regular course of the limited partnership’s activities.

-Limited Liability Corporation (LLC) – Default Rules:

§ If manager-member LLC, members holding more then 50% of contributions elect manager. RCW 25.15.150.

§ If member-managed LLC, control decisions must be approved by members holding more than 50% of contributions. RCW 25.15.120

§ Consent of each m