Business Entities

sole proprietorship (2)

most rudimentary form of business organizations

owned by a single individual

talbot v james self-dealing

Fiduciaries have to be honest and open and fair in their interactions with corporations

remedy for duty of loyalty (2)

• Restitution is the most common form of damages for breach of the duty of loyalty

  • Restitution

    • Pretend the agent has received the property for the benefit of the principal

duty of loyalty definition (2)

• Flexible

  • Fiduciary reasonably believes she is serving the corporation’s best interests in good faith and not personally profiting at expense of the firm

consequences of court’s decision on BJR applicability (2)

If 4 conditions are satisfied, the decision must merely have rational basis

• Otherwise, directors need to show decision was fair and reasonable

fiduciary definition

anyone who was in a position where they’re supposed to be serving interest of others not themselves

cleansing rule

• In the effect of majority vote of disintered shareholders to approve the interested transaction, courts will allow for the reassertion of the business judgment rule

gantler v stephens (5)

• Shareholder ratification can cure things

  • Because its their corporation 

  • Unless what theyre doing violates statutory law

    • Then no damage test comes in

• cleansing rule

situations that can foster abuse of position (3)

• Abuse by the majority

• Abuse by those who control 

• Minority oppression

donahue v rodd electrotype co (2)

• Close corporations are unique and corporations are treated as a separate body

• Small closely held businesses are largely successful and depend on individuals who make them up

corporations and pre-incorporation agreements (2)

can become parties
but requires something additional on part of corporation in order for it to be a party to agreement

promoters always liable on (2)

pre incorporation agreements
joint and several liability

sole proprietorship organization of business (2)

firm that has a single individual owner

not created pursuant to a statute

sole proprietorship justifications (2)

firm wholly owned by an individual is nevertheless likely to have a degree of psychological and social identity separate from the individual but it has no separate id from its owner

firm wholly owned by an indvidual likely means that the individual works with other people who can conduct business on behalf of the sole proprietor

corporation vs individual distinctions with agency

none

agent

a person who by mutual assent acts on behalf of another and is subject to the other's control

agency relationships (3)

voluntary, personal, consensual

voluntary relationships

where the principal manifests to the agent

personal relationships

the law creates a special relationship (fiduciary duty)

revocability of sole proprietorships

revocable at will

creation of sole proprietorships

formally or informally

principal (2)

a person who manifests authority to the agent, for whom the agent acts for

person who's interests are being represented

types of principals (4)

disclosed, partially disclosed, undisclosed, specific, general

disclosed principal (2)

when the third party is on notice both that the agent is acting on behalf of a principal AND knows the principal's identity

if disclosed, the agent is NOT bound to the third person

Partially Disclosed Principal (2)

the third person is on notice that the agent is acting on behalf of a principal, but does not know the identity of the principal

principal is bound if the agent had authority to act

undisclosed (2)

third person knows neither that the agent is working for the principal, or who the principal is

agent AND principal are bound

specific principal

authorized for a single transaction

general:

authorized for a series of transactions involving continuity of service

agency authority

a principle is liable to a third person on a contract entered into by an agent on the principal's behalf if the agent had actual, apparent, or inherent authority to act on the principal's behalf in the way that they did or the principal ratified the act

acquiescence

counts as ratification

manu enses

using the intrumentality of another person NOT as an agent

types of authority (3)

actual

inherent/incidental

apparent

actual authority (2)

when principal's words or conduct would lead a reasonable person in agent's position to believe the principal wanted the agent to act accordingly

express or implied

express authority (4)

best form

principal manifests express authority by asking the agent to engage in some action

oral or written

not a form of contract

implied (3)

created after a series of transactions where the agent has been led to believe he has the authority to act

more difficult to prove since most fact-specific

the authority to do all things proper, necessary, and ordinary to the business

inherent authority (2)

the authority to do incidental acts that are reasonably necessary to accomplish any actual authorized transaction, or usually accompanies a transaction of that type

often a kind of authority that attaches to a position/job

inherent authority determination (2)

measured by custom/usage in the area in question

if other agents in similar positions have this authority then will likely be inherent

rationale of inherent authority

doctrine of respondeat superior

an agent may act in a way that is knowingly at variance with the principal's instructions IF: (3)

circumstances have changed since the initial instructions

were the principal to reconsider the matter, different instructions wouldve been given

it is impracticable to communicate with the principal for further classification before the act must have been taken

apparent authority (2)

agent has apparent authority to act in a given way on principal's behalf in relation to a third person if manifestations of the principal to the third person would lead a reasonable person in the third persons position to believe that the principal had authorized the agent to do such action

hardest to prove

apparent authority elements (4)

based on 3rd party perspective

whether there was a holding out by the principal or by an agent with knowledge/ acquiescence of the principal

or by the agent with the knowledge and acquiescence of the principal

AND a reasonable reliance by the third party

apparent authority liability

when the agent appears to have apparent authority and it acts within the scope of that authority, the principal is bound by the agent's actions

ratification (3)

A principal may be held liable for the unauthorized acts of his agent if the principal ratifies the transaction after acquiring knowledge of the material facts concerning the transaction.

Provides agent with authority ab initio

requires full knowledge of all material facts

general rule of agency liability

if the agent and third person enter into a contract, then the third person is liable to the principal

agency liability exception

the third person is NOT liable if the principal is undisclosed and the agent or the principal knew that the third party would not knowingly have deal with the principal

when principal is not bound

if the principal is not bound by the agent's act, because the agent did not have actual, apparent, or inherent authority, and the agent acts were not ratified, the agent is liable to the third party

agent principal liability

if an agent takes an action that she has not actual authority to perform, but the principal is nevertheless bound because the agent had apparent authority, the agent is liable to the principal for any resulting damage

principal agent liability

if an agent has acted within her authority, the principal is under duty to indemnify the agent for payments the agent made that were necessary in executing the principal's affairs

principal liability in tort

requires a determination the principal had the right to control the manner and means of the agent's performance or work and that the agent acted within the scope of their employment

principal liability in contract (2)

requires a determination that the agent acted or purported to act on the principal's behalf, had actual, apparent, or inherent authority or

the principal ratified the agent's act

servant

acts for other physically and is subject to masters control

master

a principal who controls, or has the right to control, the physical conduct of an agent in the performance of the agent's services

vicarious liability

they were given the right to control

liability with master servant

vicarious

questions to ask with master servant liability (3)

whether the act taken by the servant was within the scope of employment

even though there will be liability of the master in this situation, the acting party is always responsible

also the action that causes the injury has to be foreseeable

vicarious liability and independent contractors

none.

independent contractor definition (3)

the individual is free from control and direction in connection with performance of the service

service is performed outside the usual course of the business of the employer

the individual is engaged in an independently established trade/occupation business

master/servant and agency

not a form of agency

scope of employment analysis (3)

what was reasonably foreseeable

what was the servant supposed to do in physical work for the master

what was reasonably anticipated in being included in that task

If the servant's action was reasonably foreseeable AND the act was in furtherance of business, (2)

then the servant acted within his scope of employment

Includes doing physical service for another person who benefits from said service

plaintiff has burden of proving 2 elements with master servant

a master servant relationship exists

the actions were within the scope of employment

factors to consider with master/servant (5)

master retains power to control and direct

purpose of the venture is to benefit master

consensual relationship

duty of loyalty heightens as level of work changes

physical labor or work

defense of master / servant (2)

frolic

exceeding instructions outside scope of employment

speed v muhana facts

speed injures his foot at sport's authority. He hires lawyer Zahler. Lawyer Zahler asks Dr. Muhana, treating doctor of Speed, if Zahler could depose him. Doc is nervous that he will be sued, Zahler sends Doc a note saying that Doc would not be subj to any malpractice claims. Speed being an *******, files a suit against the Doc anyways using a different lawyer. Court grants SJ to Doc (rule in fav of Doc) and Speed appeals saying that OG lawyer Zahler didn't have authority to release claims against Doc and that the letter didn't constitute a proper release of the claim

speed v muhana takeaway

an agent's acts on behalf of a principal are binding on the principal if the principal contractually gave such authority to the agent

morris oil takeaway

the principals of agency apply where an undisclosed principal entrusts an agent with the management of the undisclosed principal's business. The undisclosed principal is subject to liability to third parties with whom the agent contracts where such transactions are in the usual business conducted by the agent, even if the contract is contrary to the express directions of the principal

partnerships

an association of two or more people to carry on, as co-owners, a business for profit

creation of partnerships

formal or informal

length of time with partnerships (2)

can be specific term or at will

if for a term, then will be subject to typical contract law, actions of breach contract

characteristics of partnerships (4)

Agreement to share profits

Agreement to share losses

Mutual right of control/management

Community of interest in the venture

partnership relationships (2)

voluntary, consensual, personal

mutual agency relationships

formalities with partnerships

no state involvement or filing requirements

liability and partnerships (2)

unless otherwise stated, all partners are equally liable

full joint and several liability among the partners for debts and obligations of the partnership

transfer-ability of interests (2)

not transferable in a partnership since they are voluntary, consensual relationships

so you cannot transfer without permission of all the other partners

no continuity and partnerships (2)

whenever a partner leaves, by death/retirement or otherwise, means the partnership ends

the remaining partners carrying on the business will be seen as a new partnership

at will partnerships ending (2)

if no term specified it is considered a partnership at will

partnerships will ALWAYS be terminable at will. only difference is whether or not it is without consequence

mutual agency effect of partners (2)

each partner is an agent of the others

if a partner leaves, they cannot force the partnership to accept a substitue

dissolution of partnerships (2)

partner leaves

change in duty of relationship between or among the partners

automatic qualifiers of dissolution (4)

death

bankruptcy

insanity

expulsion

options post dissolution (4)

regeneration

renewal

new business

cut losses

winding up (2)

always follows dissolution

involves tying all loose ends, finishing up old business, liquidating selling of assets

three priorities in dissolution

secured creditors first

then general creditors

then partners get back their contribution

order of partnerships ending (3)

dissolution

winding up

termination

meinhard v salmon

members of a partnership owe a duty of the highest loyalty to each other and so must disclose opportunities that arise in order for both to have an equal chance to take advantage of it

duty of loyalty (3)

Fiduciary relationship

Joint adventurers owe to one another while the enterprise continues a duty of loyalty

Many things that are usually permissible with people at arm's length are bound between partners due to the intimate nature of a partnership

joint venture (3)

Fiduciary relationship

Joint adventurers owe to one another while the enterprise continues a duty of loyalty

Many things that are usually permissible with people at arm's length are bound between partners due to the intimate nature of a partnership

limited partnership (8)

No company involvement

No daily responsibilities

No liability

To the extent that they contributed to the partnership

Allowed to put something in and get some out

Interests are freely transferable

Derived from investment

Statutorily created

Requires state involvement

general partnership (6)

Oversee company

Responsible for daily operations

Full liability

One person has to be fully and personally liable

Capital and credit will depend on these general partners

Management and control also by general partners

both limited partnership and general (2)

own a part of the company

receive share of the profit

limited liability partnership (5)

Has flexible and personal nature of a general partnership

A way of doing business where general partners are provided a liability shield

Transferability is based on agreement

Continuity of existence

Taxes as partnerships

LLP advantages

still a partnership and all partnership principles apply except for those that are expressly deal with in the statute

drawbacks of LLP

wording of the statute creates two different approaches

partial shields LLP (2)

limits liability for particular categories of conduct negligence or other misconduct by a co-partner or other agent

limits vicarious liability for conduct "whether characterized as tort, contract, or otherwise"

partial protection only and LLP (4)

Address misconduct and actionable wrongs

Malpractice

Wrongdoing by partners

Partners are not personally liable for debt or liabilities of the partnership arising from negligence, wrongful acts, or misconduct

indemnification

Whether the agent or the principal is liable to the other

unless otherwise provided, a negligent partner is entitled to indemnification provided they are only being held accountable for ordinary negligence

contribution (2)

acting partner is not entitled to contribution

we're all responsible

full shields and LLP (3)

most LLP statutes provide that the liability is limited for all partnership debts and obligations

solely the obligation of the partnership

a partner is not personally liable, directly or indirectly, including by way of contribution, for such a partnership obligation solely because they are a partner

LLP drawbacks (2)

Provides partners with full shield of liability from debts, torts or misconduct of the partnership allows for indemnification from the partnership but NOT contribution from other partners

Partners are still liable for their own misconduct unless otherwise noted

limited liability corporation

non-corporate entities that are created under statutes that combine elements of the corporation and partnership law

LLC creation

articles of organization

basic operating agreement: includes rights, duties, obligations

existence must be formally recognized