Business Associations
Professor Telman
Spring 2007
INTRO:
By #: Most businesses are Proprietorships – require no legal set up.
By Value: Vast majority is Corporations.
Sole Proprietor:
Simplest form
No paperwork required; just set up shop (except when licensing/reg’s required)
Absolute control (except for creditors)
Absolute liability à can get you and your personal assets!
General Partnerships – UPC § 6:
= 2 or more personas as co-owners of business for profit
No formalities required – but best to get legal counsel or it is governed by default rules of state
Joint and several liability
Pass-thru taxation – not a separate entity to be taxed
Limited Partnerships:
2 or more w/ 1 or more general & one or more limited partners
Limmited partner has limited libility = not held obligated
Requires formalities – file w/Sec’y of State & let people you deal w/know too
General partner has general liability – limited partner has limited liability
Can make a corporation the general partner! = no liability!
Taxation same as General partnership = only taxed once (not like corps à taxed on dividends too)
Limited Liability Partnerships (LLPs):
Tax & flexibility of partnerships
Liability advantages of corps
Popular for professional partnerships i.e., law firms, accountants, architects
Limited Liability Company (LLCs):
Cross b/w partnership and corporation
Tax advantage of partnership + limited liability of corps
Can be a lot bigger than LLP
Formalities required – registry & notice to vendors, etc, to know that to negotiate protections etc
Some uncertainty as to whether default rules of corp or partner law
Corporations:
Separation of ownership and control
Formalities required
Exist as a creation of investment/economic development
Recognized as a person in law
Owned by shareholders/run by officers à selected by boards of directors/boards elected by shareholders/share vote
Formalities: articles of incorporation or charter (depending on state); bylaws; directors, officers, minutes, elections, filings = Public duty
In return: Get Limited Liability!
Taxed Twice: once on profits + once on dividends paid out to SHs
Agency
Agency is a relationship that exists when one person acts for another
P → → → A
→ ↓
→ ↓
→ T 3rd Party Agent Triangle
Top → (P → A) Relationship between the Principal & the Agent
Can be Express or Implied Relationship
Side → (A → T) Relationship between Agent and 3rd Party
Concerns A’s dealings with T
Diagonal → (P → T) Relationship between the Principal & the 3rd Party (Tricky)
* There is a legal relationship b/tw P & T, despite the fact that the parties are unfamiliar with one another
** This creates a legal liability of P to T
Legal Standard: Agency = relationship resulting from
(1) The manifestation of consent by P to A that:
A shall act on P’s behalf
A is subject to P’s control
(2) A consents to act on P’s behalf
1.
Authority is a sub-category of Agency
Agents acting with authority can bind Principals
Actual Authority – Focus on (P → A)
Can be express or implied
Requires a “manifestation of consent” from the P to A
Apparent Authority Focus on (P → T)
Highly contextual & often depends on prior practices or industry customs
Question #1 à Is there an agency relationship? (If no agency, then no possibility of Authority!)
Question #2 à Was the agent acting with authority?
Mill Street Church of Christ v. Hogan → Church hired Bill Hogan to paint its church building. Bill hired his brother, Sam to help in completing a difficult part of the job. While painting, Sam broke his leg and filed a claim with the worker’s compensation board. The board held that Sam was an employee of the Church since Bill had the implied authority to hire Sam b/c such implied authority was necessary to implement Bill’s express authority as an agent of the Church to complete the painting job
