Agency & Partnership Essentials – Exam Review

60 Q&A flashcards covering the core doctrines of Agency, General Partnerships, LLPs, and Limited Partnerships, including creation, authority, liability, fiduciary duties, dissociation, dissolution, and statutory entities.

What four elements must be present to create an agency relationship?

(i) Principal’s manifestation of assent to the agent, (ii) agent acts on the principal’s behalf, (iii) agent’s actions are subject to the principal’s control, and (iv) agent manifests assent.

Who can serve as a principal?

Any individual or entity with legal capacity to possess rights and incur obligations, including corporations and partnerships.

Does an agency relationship require consideration or a writing?

No. An agency can be gratuitous and generally does not need to be in writing unless a statute, such as an equal-dignities rule, applies.

What is express actual authority?

Authority created by the principal’s oral or written words or clear manifestations that reasonably cause the agent to believe they may act.

How is implied actual authority established?

Through conduct, circumstances, or positions that reasonably allow the agent to infer authority necessary, usual, and proper to achieve the principal’s objectives.

Define apparent authority?

Authority that arises from a principal’s manifestations to a third party, causing the third party reasonably to believe the agent is authorized, even if the agent lacks actual authority.

What terminates actual authority? (Name any three)

Revocation by principal, mutual agreement, change of circumstances, passage of time, death or incapacity of principal or agent, or statutory termination.

When can a principal be estopped from denying an agency relationship?

When a third party justifiably changes position to their detriment because they believed the agent acted for the principal, and the principal intentionally or carelessly caused or failed to correct that belief.

What is ratification in agency law?

A principal’s later affirmation of a prior act done on their behalf, binding the principal if done with knowledge of material facts, timely, and encompassing the entire act.

Under respondeat superior, when is an employer vicariously liable for an employee’s tort?

When the tort is committed by an employee acting within the scope of employment.

Differentiate employee and independent contractor for tort liability?

Employee is subject to the principal’s right to control the physical details; independent contractor is not. Principals generally are not vicariously liable for independent contractors absent an exception.

Name two exceptions making a principal liable for an independent contractor’s torts?

(i) Non-delegable duties / inherently dangerous activities, (ii) principal’s negligence in hiring, supervising, or retaining, or (iii) independent contractor with apparent authority.

List the fiduciary duties an agent owes a principal?

Duty of loyalty, duty of care (reasonable diligence and skill), duty of obedience, duty to provide information, duty to keep and render accounts.

Give two common remedies a principal has against a breaching agent?

Injunction, damages for breach of contract, disgorgement of profits, accounting, rescission, forfeiture of commission.

What rights does an agent have against the principal?

Right to compensation (if agreed), indemnification, reimbursement, safe work environment, and freedom from interference with work.

What presumption indicates the existence of a partnership?

Sharing of profits from a business creates a rebuttable presumption of a partnership.

Define a ‘partnership at will’?

A partnership with no specified term or particular undertaking; any partner may dissociate at any time.

How are profits and losses shared absent agreement?

Equally among the partners.

What management right does each partner possess by default?

Equal rights in the management and conduct of partnership business; ordinary matters decided by majority, extraordinary by unanimous consent.

Explain partner’s joint and several liability?

Each partner is personally liable for the full amount of all partnership obligations, though creditors must generally exhaust partnership assets first.

What is a ‘statement of partnership authority’?

A filed document specifying a partner’s authority limits or grants; it can give third parties constructive notice regarding real property transactions.

Describe dissociation?

A partner’s withdrawal from partnership relations by voluntary notice, expulsion, death, bankruptcy, etc. It may or may not cause dissolution.

What happens to a dissociated partner’s duty of loyalty?

The non-compete aspect ends at dissociation; other loyalty and care duties continue only for pre-dissociation matters unless winding up.

How is a dissociated partner’s interest bought out if the partnership continues?

Partnership must pay the fair value (greater of liquidation or going-concern) within 120 days of a written demand, offsetting any damages for wrongful dissociation.

List three events that cause automatic dissolution of ANY partnership?

(i) An event specified in the agreement, (ii) business becomes illegal and not cured in 90 days, (iii) judicial decree that purpose is frustrated or impracticable.

Order of asset distribution on partnership winding up?

(1) Creditors (including partner-creditors), (2) partners for owed distributions, (3) partners’ return of capital contributions, (4) remaining profits per profit-sharing ratios.

What is an LLP and its key attribute?

A Limited Liability Partnership, a general partnership that files a statement of qualification to shield all partners from personal liability for partnership obligations.

How is LLP status obtained?

Filing a statement of qualification with the state after the vote needed to amend the partnership agreement (unanimous if silent).

Are partners liable for pre-LLP debts after conversion?

Yes, partners remain personally liable for obligations incurred before the partnership became an LLP.

Define a limited partnership (LP)?

A partnership with at least one general partner (unlimited liability) and one limited partner (liability limited to contribution). Formed by filing a certificate of limited partnership.

Can a limited partner participate in management without losing limited liability?

Yes, if activities fall within the statutory safe-harbor list (e.g., consulting, voting on major matters, acting as an agent) and do not cause third parties to believe they are general partners.

When does a limited partner become personally liable?

If they participate in control and a third party reasonably believes them to be a general partner, or if they act as a general partner.

What events dissolve a limited partnership? Name two?

Event stated in agreement, expiration of term, consent of all general partners and majority of limited partners’ distribution rights, withdrawal of sole general partner without replacement in 90 days, or judicial decree.

How are LP assets distributed on winding up?

(1) Creditors (including partner-creditors), (2) unpaid distributions, (3) return of capital contributions to partners, (4) remainder per distribution ratios.

Explain ‘conversion’ in partnership law?

Statutory process allowing a partnership to become an LP or vice versa; requires unanimous partner approval (unless agreement states otherwise) and filing articles of conversion.

What is a ‘merger’ in the partnership context?

Statutory process combining a partnership/L P with another entity into one surviving entity following an approved plan of merger.

Under RUPA, can a partner sue another partner?

Yes, to enforce partnership rights, breach of agreement, or tort damages; negligence of defendant partner is not imputed to bar recovery.

Define ‘charging order’?

A judgment creditor’s lien on a partner’s transferable interest; creditor receives distributions the partner would receive until the judgment is satisfied.

What is the ‘safe-harbor’ approval for a partner’s conflicted transaction?

Full disclosure of material facts plus approval or ratification by a specified number or percentage of disinterested partners.

When must a partner’s notice or knowledge be imputed to the partnership?

Immediately upon receipt, unless the partner commits a fraud on the partnership or acts adversely to it.

Who may wind up a dissolved partnership?

Any partner not wrongfully dissociated, the legal representative of the last surviving partner, or a court-appointed person.

What is the ‘equal-dignities rule’ in agency?

If the underlying transaction (e.g., sale of land) requires a writing, the agent’s authorization must also be in writing.

Give an example of ‘power coupled with an interest’ that cannot be revoked?

A borrower gives lender authority to sell real property on default; borrower cannot revoke the lender’s authority.

How does a partnership limit liability for a dissociated partner’s future acts?

File a statement of dissociation; after 90 days it gives constructive notice, limiting liability to future third-party transactions.

What is an ‘implied warranty of authority’ by an agent?

When an agent purports to bind a disclosed or partially disclosed principal, the agent warrants they have authority; breach makes agent liable if principal not bound.

Define ‘frolic’ vs. ‘detour’?

Frolic: significant personal deviation, outside scope of employment; Detour: minor personal deviation, still within scope.

Can minors be agents or principals?

Minors can be agents (minimal capacity needed) but lack capacity to be principals in contracts.

What determines if a worker is an employee under control test? Name two factors?

Principal’s right to control details, supplies tools/workplace, structured pay period, skill level required, principal directs work completion.

Explain ‘partnership by estoppel’?

Liability imposed on one who represents themselves as partner (or consents to such representation) causing third-party reliance, even if no real partnership exists.

How are partnership property ownership disputes resolved when title is in a partner’s name?

Presumed separate property if title indicates no partnership and no partnership assets used; otherwise may be partnership property if acquired with partnership assets or credit.

What voting is required to admit a new partner?

Unanimous consent of all existing partners, unless the partnership agreement provides otherwise.

In an LLP, for what misconduct can a partner still be personally liable?

Their own negligent or intentional acts and those whom they directly supervise.

Does a statement of partnership authority’s limitation give constructive notice for ordinary contracts?

No; limitations generally do not provide constructive notice to third parties except for real estate transfers where properly recorded.

How long is a partner liable for wrongfully returned capital in an LP?

One year after the distribution (six years if the return was wrongful).

What is the default rule on remuneration to partners?

Partners are not entitled to compensation for services, except reasonable compensation for winding up or if otherwise agreed.

Which fiduciary duties may NOT be eliminated by the partnership agreement?

Duty of loyalty and duty of care cannot be eliminated, though they can be reasonably limited; obligation of good faith and fair dealing cannot be waived.

When is a partnership’s continuation presumed after a term expires?

If partners continue business without liquidation or settlement, it converts to a partnership at will.

What is a ‘non-delegable duty’ causing direct liability for a principal?

A duty so important (e.g., inherently dangerous work) that the principal cannot avoid liability by hiring another to perform it.

Under the RUPA, when can a partner compel dissolution by court order?

If the economic purpose is frustrated, another partner’s conduct makes business impracticable, or it’s otherwise not reasonably practicable to carry on under the agreement.

How does an agent’s knowledge affect the principal?

Knowledge or notice received by the agent is imputed to the principal regarding matters within the agency scope.

What remedies does a limited partner have for wrongdoing by general partners?

Derivative action after demand (or futility), seeking relief for the LP; successful limited partner may recover expenses including attorney’s fees.

Define ‘subagent’?

A person appointed by an agent to perform functions for the principal; owes loyalty to principal and appointing agent; principal generally bound by subagent’s acts.

Upon partnership dissolution, can partners agree to waive winding up?

Yes, all partners (or remaining partners in amended RUPA states) can unanimously agree to continue business as if dissolution never occurred.