Comm Law II Exam 1

agency definition

A consensual fiduciary relationship in which one person (agent) consents to act on behalf of another and under control of another

elements of agency

consent, control, and benefit. these are known as the 3 elements.

fiduciary duties with agency

loyalty, obedience, care, good faith

specific note on the element of control

doesn’t mean micromanagement- it just means the agent is being told the limits of their abilities by the principal.

agency purpose

can be done for anything except voting in a government election or executing a will.

Agency formation by agreement of parties

an actual physical agreement creates actual authority- both express and implied.

express authority

exists when both parties consent to the relationship

implied authority

the authority to take actions reasonably necessary to carry out the express tasks.

how is express authority determined in courts?

reasonable person test- would a RP in the role of the agent think the principal authorized the agent to act?

Examples: real estate brokers, employment contracts

implied authority requirements

1. the act is reasonable necessary to accomplish the objectives set out by the express authority

2. and it is closely connected to the express authority

types of implied authority

1. usual: routinely exercised with the principal’s knowledge and without their objection

2. customary: authority is typically held by someone in a similar position to the agent

3. arising from a business relationship

Apparent Authority/Agency by Estoppel definition

the principal’s conduct leads a 3rd party to reasonable believe that someone is authorized to act on their behalf.

key element of apparent authority

1. representation by principal (includes silence by the p, an ongoing relationship after the termination of an agent, and the job/position of the principal). Based on P’s conduct.

difference between objective tests for actual and apparent authority

• whose perception are we measuring?

  • Actual is agent, apparent is the 3rd party.

agency by ratification

When P affirms or accepts an unauthorized act done by someone purporting to be their agent.

key requirements of ag by ratification

1. the person purported to act as an agent

2. P had knowledge of all material facts

3. P accepted the entire transaction

4. P has the capacity to authorize the act both at the time of it happening and at the time of ratification

5. ratification occurs before the 3rd party withdraws

how does agency by ratification occur?

1. Express: P says yes to the deal

2. Implied: P’s behavior says yes to the deal

Both give the agent actual authority.

Agency by operation of law

in certain situations, law itself creates an agency-like authority regardless of actual agreement with a principal because public policy or necessity demands it

key categories of agency by operation of law

1. agency by necessity (emergency authority)

2. spousal or family necessity doctrine

duties of the agent to the principal

1. duty of loyalty: must act in P’s best interest

2. duty of obedience: must do job properly

3. duty of care and diligence: exercise a reasonable amount of care. There’s a higher standard here for professionals such as lawyers, accountants, or doctors.

4. duty to account (sometimes): with money assets, all money must be accounted for.

5. duty to notify (disclosure): must keep P reasonably informed

6. duty of confidentiality

duties of the principal to the agent

1. duty to compensate

2. duty to reimburse and indemnify (indemnify means if agent is sued, P has to reimburse)

3. duty to cooperate

4. duty regarding safe conditions- will discuss more under employment law

5. duty of good faith and fair dealing (treat agents with respect)

remedies for breach of agent duties

1. damages (most common)

2. Accounting

3. Disgorgement of profits

4. rescission of contract

5. termination of agency

6. punitive damages (for particularly egregious conduct)

modes of termination of an agency relationship

1. mutual agreement

2. revocation by the P

3. renunciation by the agent

4. lapse in time

termination of agency relationship by operations of law

1. death

2. incapacitated principal

3. bankruptcy

4. destruction of subject matter

5. change in law

critical problem with termination

apparent authority can survive actual termination!

when is an agent liable?

when there is a partially disclosed or undisclosed principal.

When is a principal liable?

when the agent has fully disclosed them, they are the only one liable. in partially disclosed or undisclosed, they are still liable, but the agent shares liability. they are not liable when the agent is acting without authority or in fraud/misrepresentation.

sole proprietorship

a single person owns a business- for example, a lemonade stand

ownership of sole proprietorship

sole proprietor owns all business assets in the same way they own all their personal property

creation/maintenance of sole prop

easiest entity to create- just start doing it and keep doing it. no govt filings/minutes/fees

taxes of sole proprietorship

pass through tax- personal property tax rates

liability in sole prop

100% personal liability on owner- plaintiff can sue for anything, including personal property

termination of sole prop

whenever owner wants, or upon their death

advantages of sole proprietorship

• complete control and management

• pass through taxes and lower taxes

• easy creation and management

• ease of termination

disadvantages of sole prop

• liability is high

• lack of investor interest

general partnership governance

• under the UPA and RUPA- varies by state

Big difference between UPA and RUPA

• UPA treats the partnership as an aggregate (if one partner leaves, the whole entity dissolves). RUPA eliminates that

GP creation/maintenance

• easy- just have to agree to work together for profit. no paperwork

in GP lawsuits, courts consider whether there’s:

1. an implied agreement based on parties’ language and conduct

2. an established right to control

3. implied consent

4. strong evidence of sharing of profits

5. agreement to share losses

6. overall intent of parties to enter a GP

ownership of GP

easy- usually defined in the partnership agreement

control and management of GP

• Partners must agree to the terms in the partnership agreement and specify percentages of control if they don’t want 50/50

• 50/50 is RUPA default

Difference between RUPA and UPA with control and management actions in GP

• UPA: Any partner can bind the partnership with any act, even if it’s outside the scope of the business or it’s unusual

• RUPA: Any unordinary act requires unanimous consent of the Ps, and the acting partner may be personally liable of the others don’t agree.

taxation of GP

pass through- money direct to partners

liability of GP: Torts

1. partners under UPA and RUPA have vicarious liability

2. under UPA, Ps are equally liable for torts committed within the scope of business

3. Under RUPA, the non-responsible P may avoid liability.

liability of GP: contracts

1. UPA: partners are jointly liable (plaintiff must sue all of them together)

2. RUPA: partners are jointly and severally liable (plaintiff can choose to sue all, one, etc)

termination of GP

1. UPA: Dissolves automatically if one P leaves

2. RUPA: 2/3 vote is required to terminate. One P can leave without dissolving the entity.

advantages of GP

• shared liability

• easy to create and maintain

• more resources

• more management skills

• legal recognition and protection

disadvantages of GPs

• no additional benefits

• investors

• personal liability

• easy to sue

• lots of conflicts- 85% dissolve within the first year

formation requirements of GP (in partnership agreement)

1. name and location of business

2. duration: indefinite or determined

3. purpose: defines scope and what ordinary course of business is

4. management: equal or pre-determined

5. voting: majority or unanimous

6. dissolution: any reason within PA

Fiduciary duties of a Partner

1. duty of loyalty: self-interest is second to the partnership

2. duty of obedience: abide by the PA and the law

3. duty of care

4. duty to keep fully informed

Impacts on GP in Meinhard v Salmon (1928)

• even separate offers must be made clear if they arose as a result of the partnership

Limited liability partnership (LLC)

• created specifically for professionals- lawyers, plumbers etc

• allowed under RUPA

• a GP that limits the liability of its Ps for some or all of their partners obligations by making statutorily required filings.

• same as a GP but Ps aren’t vicariously liable for the torts of their P

creation/maintenance of LLP

• statute requires partners to file a statement of qualification testifying that they all have the same profession annually

termination of LLP

• just leave under RUPA

advantages of LLP

• lots of freedom of GP but with limited liability

disadvantages of LLP

• not recognized in certain states (UPA v RUPA)

• not attractive to investors

Limited liability company (LLC)

• limited liability protection like a corporation, but flexible management and tax treatment like a GP

ownership of LLC

• through “members” who are the owners

• each member owns the co equally unless otherwise specified

• can be one or many members

creation and maintenance of LLC

1. file a charter doc with the state to create the business

2. pay a fee

3. statutes vary between states- some require an operating agreement, including VA

taxation of LLC

• can choose every year between pass through or double (flat corporate tax rates)

liability in LLC

• zero personal liability

control and management in LLC

• usually under an operating agreement, can be member controlled or manager controlled

investors and additions to the co in LLC

• not attractive to investors, similarly to GP

• other members must vote a new member in

termination of an LLC

• laid out in the operating agreement

advantages of an LLC

• liability protection

• no limits on numbers: one or 100

• tax options

• few formalities

• governed by statute

• easy to become a corporation

disadvantages of LLC

• lack of uniformity among states

• not recognized by most international companies

• limited transfer of ownership

operating agreement

• basic contract amongst members

• determines profit/loss sharing and the specific type of management

• subject to state and federal law

rights of members in LLC

• financial interest

• management interest

• withdraw and demand payment interest

• assignment right

corporation definition/nature

• a separate legal entity from its owners

• sometimes described as a legal person

• statutory: created strictly under state statutes

public corporation

• set up for public purposes, can also be known as a municipal corp

• created with special legislation to serve a general governmental purpose

• examples: USPS, Amtrak, etc

private corporation

• created by private individuals for private purposes

domestic corporation

• the company was incorporated in that state (registered there first)

foreign corporation

• a corp that was registered in a different state- requires a certificate of authority to operate within a state that it isn’t incorporated in

publicly held corp

• shared are owned by the public and exchanged on the stock market. for these types, stocks must be registered in order to be sold

  • this is because of the great depression (exchange act of 1934)

closely held corp

• most common type- small businesses, mom & pop type of thing

• stocks are held by few people, and shareholders all generally work at or manage the corp.

corp formation

1. promoters go out and recruit investors

2. investors put money in

3. state is selected for incorporation: most often delaware

4. choose corp name

5. 
   

why do companies like delaware for incorporation?

• the only state that has a court of equity instead of a court of law

• plethora of corporate law

• management friendly- more likely to side with the business

• quick and better remedies

corporation name restrictions

• must do a pre clearance with the secretary of state

• must make sure no one else has used the name

  • this doesn’t protect trademark rights though

• has to include the word corporation, corp, inc.

what is included in the charters of a corp?

1. name

2. registered agent name and address

3. purpose: can be anything legal

4. information regarding stock

5. dividend rights

6. liquidation rights

7. provisions that provide indemnification for directors, officers, and employees

8. cumulative voting

9. provisions denying or allowing pre-emptive rights

registered agent

• the person who receives all legal mail for a corporation

• if the address changes, it must be updated. if it isn’t, the agent/corp are still liable for responding to suits regardless of if they actually saw them.

information regarding stock in charter of corp

1. par value: how much the corp is worth. basically what you say it is.

2. number of authorized shares: can’t sell stock until it’s authorized. can be any number, but you pay a fee based on how many u have. can always amend later on

3. classes and series

classes and series

• not necessary but often used

• gives people certain benefits: preferred vs common class.

• divisions within the same class are called series

dividend rights

payment on your stock

provisions that provide indemnification for Ds, Os, and EEs

• basically says you have to pay EEs for mistakes made on the job

cumulative voting

• to allow minority shareholders to concentrate their votes, giving them more power than straight voting

provisions denying or allowing pre-emptive right

• PE rights apply to current shareholders

• before any new shares can be sold, you must offer them to current shareholders first

what is in the bylaws of a corp?

• date, time, and location of annual shareholder meeting

• defines the quorum

• sets board meetings, number of directors, and what their voting rights are

• gives titles to officers as well as duties and responsibilities

• establishes the fiscal year

• estimated degree of shareholder approval necessary for each major decision

• voting powers

• any restrictions on transferability of shares (more common in closely held corps)

• specific preemptive rights

• indemnification of BoD and Officers

• how to amend the bylaws

quorum

the number of people (shareholders or directors) needed to be present to vote in order to make a decision binding

role of shareholders in corp ownership and management

• own the corporation

• approve major corporate decisions (bylaw amendment, merges, splitting stock)

• elect and remove members of the BoD

  • has to be done by many at once

directors of corp statutory definition

• all corp powers over the business affairs of a corporation must be exercised by or under the authority of the BoD, subject to any limitation in the articles of incorporation.

specific functions of the BoD

• initiation of fundamental changes

• determine officer and their own compensations

• can delegate duties to committees and can’t make decisions by themselves

function of officers in corp

• run day to day business

• can be removed by the board via vote

shareholder rights

1. attend annual meeting

2. preemption

3. transfer their shares to anyone

4. right to inspect

5. petition for dissolution

6. voting rights

7. power to enforce rights

right to inspect corp records by shareholder requirements

1. a prior written request; and

2. the demand must be made in good faith, for a proper purpose; and

3. the inspection must be made within normal business hours at the corporation’s principal office

when/why would a petition for dissolution happen?

• if there’s nefarious and/or illegal behavior happening:

• directors are deadlocked in managerial decisions

• directors are acting illegally/oppressively/fraudulently

• assets are being wasted

• SHs are deadlocked and can’t elect directors