· Sole Proprietorship
o 1 person
o No separation between owner and business
o Owner is taxpayer
o Owner is personally liable
· Partnership
o General partnership
§ 2 or more owners
§ Owners jointly and severely liable
§ Partners split income on each tax return
o Limited Partnership
o LLP
· Corporation
o C Corporation
§ Owners/shareholders generally protected from personal liability
§ Corporation is taxed twice
· Corporation pays tax then owners pay taxes on dividends distributed to them
o S Corporation
§ Protection from liability
§ Flow through tax
§ Requirements
· One class of stock
· Domestic corporation wholly owned by US citizens
· Can only get up to 80% of revenue from non US sources
· Up to 100 shareholders
· No more than 24% of revenues from passive sources (i.e. dividends, interest, royalties, etc.)
· No corporations or partnership as shareholders
· Agency Law – 3 Parties (Restatement 3rd)
o P = Principal
§ P and A both have to consent
o A = Agent
§ A owes fiduciary duties to P
o TP = Third Party
· 3 Types of Principles
o Disclosed
§ TP knows A is acting on behalf of P and knows who P is
o Undisclosed
§ TP doesn’t know A is acting on behalf of P
o Unidentified
§ TP knows A is working for P but doesn’t know who P is
· 4 ways A can bind P
o Actual Authority
§ P words or conduct makes A think he has authority to do something (car wash example)
§ 2 types
· Actual expressed authority – written or spelled out
· Actual implied authority – acts incidental or necessary to achieving express authority (i.e. wash car before selling)
o Apparent Authority
§ Elements
· Words or conduct from P
· Words or conduct reaches TP
· TP reasonably believes A has authority
§ Dry cleaning examples
o Estoppel (Donald Trump Ex.)
§ Elements
· A does something on P behalf
· But doesn’t have authority
· P is put on notice of A actions and does nothing or
· P intentionally or carelessly caused a belief
o Ratification (“adopting”)
§ Pretending A had actual authority to bind P
§ 2 types
· Express
· Implies (i.e. paying for item)
§ Ratification creates the effect of actual authority
§ Ratification is ineffective
· By someone who caused misrepresentation
· In favor of A vs. P when P ratifies to avoid loss
· To diminish rights of other not party to transaction, acquired prior to ratification
· Is A bound to TP
o Disclosed = No
o Undisclosed = Yes
o Unidentified = Yes
· Implied warranty of authority
o When A makes a K with TP on behalf of P without power, A will be liable unless
§ P ratifies
§ A gives notice of no authority to TP
· Duties of A to P
o Loyalty
o Can’t make secret profits off relationship
o Can’t steal P customers while employee
o Obey reasonable instructions
· Is TP bound to P
o Generally yes, unless
§ Undisclosed P
§ TP wouldn’t deal with P
§ P knew or had reason to know TP wouldn’t deal
§ Misrepresentation about agency relationship (Pete Townsend example)
· Restatement 2nd
o T
not the entire PA
· Fiduciary duties partners owe to each other
o Duty of loyalty
§ Don’t compete with partnership
§ Don’t act adversely to partnership
§ Don’t steal
o Duty of care
§ No grossly negligent conduct (ordinary negligent won’t breach)
§ Intentional misconduct
§ Reckless
§ Knowingly break the law
· Allocation of profits in partnership
o Profits allocated
§ Keeping track in an account among partners
o Profits distributed
§ Receiving them
o Generally unless PA says otherwise profits are allocated
· Partnership accounts
o Increase
§ Profit
§ Contributions of money or property
o Decrease
§ If you have losses
§ Distribution
o Salaries have nothing to do with partnership accounts
§ No general right to salary
§ Partner can only transfer economic, not management, rights to TP
· Liabilities of partners
o A partnership is liable for a partner acting in ordinary course of business
o Or with authority of partnership
o A partner has agency authority to bind the partnership
· Liabilities of Partnership
o Liable for actions of employees
· 5 Ways to Collect from a Partner under 307(d)
o Exhaustion Rule
o Partner signed guarantee
o Partnership in BK
