haymans bus 250 test 3 mega study guide

all defs from chapters 28,31,32,33

Principal

Person who has someone else acting for them.

Agent

Person who acts for the principal.

Requirements for Agency

Consent, control, and fiduciary relationship. All three are required.

Consent

Principal asks agent to act; agent agrees.

Control

Principal has the right to direct the agent’s actions.

Fiduciary Relationship

Relationship of trust; agent must act in principal’s best interest.

Elements NOT Required ( in agency relationship) 

No writing (except equal dignities rule), no formal agreement, no compensation needed.

Equal Dignities Rule

If agent is authorized for a contract needing a writing, the authorization must also be in writing.

Duty of Loyalty

Agent must act solely for principal in agency matters.

Outside Benefits

Agent may not take benefits/profits unless principal approves.

Confidential Information

Cannot be used or disclosed; obligation survives termination.

Competition with Principal

Agent cannot compete during the agency.

Conflict of Interest

Agent cannot act for two principals with conflicting interests unless fully disclosed and approved.

Secret Dealing

Agent cannot become a party to a transaction without principal’s consent.

Appropriate Behavior

Agent must avoid conduct that reflects poorly on the principal (even off-duty if in uniform).

Duty to Obey Instructions

Agent must follow principal’s lawful, ethical instructions.

Duty of Care

Reasonable care; professionals held to higher standard; gratuitous agents liable only for gross negligence.

Duty to Provide Information ( agency relationship)

Agent must provide principal all relevant, accurate info.

Remedies for Breach

Damages, disgorgement of profits, rescission.

Duty to Indemnify

Principal must reimburse agent for authorized expenses, torts authorized, and contract liability incurred.

Duty to Cooperate

Principal must not interfere and must provide agent the means to work.

Term Agreement

Relationship ends after time, purpose, or mutual agreement.

Agency at Will

Either party may terminate anytime if no term is specified.

Wrongful Termination

Party may owe damages if termination violates agreement.

Termination by Law

Death, incapacity, loss of license, bankruptcy, change of law, destruction of subject matter.

Effect of Termination

Agent loses authority; confidentiality survives; indemnification for pre-termination costs still owed.

Express Authority

Direct statements or actions by principal granting authority.

Implied Authority

Authority reasonably necessary to carry out express authority.

Apparent Authority

Principal’s conduct causes third party to believe agent is authorized.

Ratification

Principal accepts benefits of unauthorized act and becomes bound.

Subagent

Person appointed by agent; principal liable if agent was authorized to hire subagents.

Fully Disclosed Principal

Third party knows principal’s identity; agent not liable.

Partially Disclosed Principal

Third party knows a principal exists but not identity; agent and principal both liable.

Undisclosed Principal

Third party unaware principal exists; agent and principal both liable.

Respondent Superior

Employer liable for employee’s negligent torts within scope of employment.

Scope of Employment

Acts employees are hired to perform, during work hours, using employer tools, similar to authorized tasks.

Detour

Minor deviation; employer liable.

Frolic

Major personal departure; employer not liable.

Principals Liability for Intentional Torts

Principal liable only if employee intended to serve employer or employer was negligent in hiring/supervising.

Nonphysical Torts

Principal liable only if agent acted with actual, implied, or apparent authority.

Agent Tort Liability

Agents are ALWAYS personally liable for their own torts.

Sole Proprietorship

Default form; one owner; no filings; owner and business are the same.

Sole proprietorship Advantages

Easy to form; flow-through taxation; full control; few formalities.

Sole proprietorship Disadvantages

Unlimited personal liability; limited capital; dissolves at owner’s death; hard to transfer.

Corporation

Separate legal entity with limited liability, perpetual existence, and formal structure.

Articles of Incorporation

Document filed with the state to create a corporation.

Corporate Formalities

Minutes, annual meetings, issuing stock; failure risks veil piercing.

C-Corp Taxation

Double taxation (corporate tax + shareholder tax on dividends).

S-Corp Taxation

Pass-through taxation; avoids double tax.

S-Corp Requirements

≤100 shareholders, U.S. individuals only, one class of stock, unanimous consent.

Close Corporation

Small corporation with partnership-like flexibility and strong minority protections.

LLC

Hybrid entity with limited liability and pass-through taxation.

LLC Formation

File Certificate of Organization; operating agreement strongly recommended.

Operating Agreement

Governs management, voting, profit splits, dissociation; overrides default laws.

Member-Managed LLC

All members manage (default).

Manager-Managed LLC

Managers run the LLC; members may be passive.

LLC Transfer of Interests

Economic rights transferable; management/voting rights require unanimous consent.

LLC Duration

Perpetual unless agreement states otherwise.

LLC Dissolution

By agreement, unanimous vote, court order, or no remaining members.

Piercing the LLC Veil

Possible for commingling, lack of formalities, undercapitalization, or fraud.

Legal Uncertainty in LLCs

Less case law; rules vary by state; less predictable than corporations.

General Partnership

Association of 2+ people carrying on as co-owners for profit; forms automatically.

Profit-Sharing Presumption

Sharing profits creates presumption of partnership unless exceptions apply.

Partnership Agreement

Controls internal rules; can be oral or implied; cannot eliminate mandatory third-party protections.

RUPA Entity Rule

Partnership is a separate legal entity; continues after partner changes.

Partnership Property

Owned by the entity; partners have no personal ownership in specific assets.

Charging Order

Creditor remedy to seize only a partner’s distributions.

Management Rights

Equal by default; majority vote for ordinary matters; unanimous for extraordinary matters.

Partner Duty of Loyalty

No competition, no usurping opportunities, no secret profits.

Partner Duty of Care

Only liable for gross negligence, recklessness, intentional misconduct.

Duty of Good Faith

Partners must act honestly and fairly.

Duty to Inform ( partnership relationship)

Must share all material information with partnership.

Actual Authority (Partnership)

Authority granted by agreement or partner consent.

Apparent Authority (Partnership)

Partner appears to third parties to have authority typical of that business.

Joint & Several Liability

Each partner is fully personally liable for all partnership debts.

Exhaustion Rule

Creditor must pursue partnership assets first.

Incoming Partner Liability

Liable for future debts; liable for past debts only up to capital contribution.

Outgoing Partner Liability

Liable for debts while partner and up to 2 years after dissociation unless notice is given.

Dissociation

Partner leaves the partnership voluntarily or involuntarily.

Wrongful Dissociation

Violates the agreement or leaves before term completion.

Buyout

Amount owed to dissociated partner if partnership continues.

Dissolution

Legal ending of partnership when partners choose to wind up.

Winding Up

Liquidating assets, paying creditors, distributing remaining profits.

Promoter

Organizes corporation and signs pre-incorporation contracts; personally liable until novation.

Incorporator

Signs and files Articles of Incorporation; role ends after formation.

Adoption

Corporation accepts promoter’s contract; promoter remains liable.

Novation

New contract replacing promoter with corporation; promoter released.

De Jure Corporation

Formed with substantial compliance; cannot be challenged.

De Facto Corporation

Good-faith attempt + use as corporation; only state can challenge.

Corporation by Estoppel

Third party who treated business as corporation cannot deny corporate status.

Articles of Incorporation

Must include name, purpose, registered agent, stock structure, incorporator.

Registered Agent

Receives legal documents on corporation’s behalf.

Ultra Vires

Old rule barring actions outside corporate purpose; modern charters avoid by using “any lawful business.”

Authorized Shares

Max number of shares the corporation may issue.

Par Value

Nominal minimum issuance price per share.

Classes of Stock

Different types (common, preferred) with distinct rights.

Dividend Rights

Rights to declared dividends; preferred often has priority.

Liquidation Rights

Rights to assets after creditors and preferred shareholders.

Voting Rights

Rights to vote on corporate matters; may be weighted.

Conversion Rights

Right to convert preferred to common stock.