Term
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Definition
Agency is the fiduciary relation which results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control , and consent by the other so to act.
Consent - express or implied
On behalf of - acting primarily for benefit of principal
Control - assigned specified task |
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Term
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Definition
| Agency agreements must be in writing when the agent is to enter into certain contracts within the statute of frauds. |
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Term
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Definition
Actual authority is authority that the agent reasonably thinks she possesses based on the principal’s dealings with her.
i.e. lead a rnsbl person in agent's position to believe she was authorized
Actual authority may be express or implied. |
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Term
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Definition
| Authority conveyed by the principal in words (oral or written). |
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Term
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Definition
Authority the agent reasonably believes she has as a result of the principal’s actions (e.g., authority inferred from the principal’s words or conduct, from custom, or from acquiescence by the principal).
e.g. incidental to perform, acquiescence |
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Term
| Termination of Actual Authority |
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Definition
Actual authority must exist when the agent enters into a K.
It will be terminated/revoked -(1) after a specified time or event, or after a reasonable time (if there is no specified time or event);
-(2) by a change of circumstances (e.g., the subject matter of the agency is destroyed);
- (3) by a breach of the agent’s fiduciary duty;
- (4) by a unilateral act of either the principal or the agent; or
- (5) by death or incapacity of the principal or the agent. |
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Term
| Restrictions on Termination of Actual Authority |
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Definition
Agency coupled with an interest or given as a security CANNOT be unilaterally terminated if given to
- Protect agent's rights
- Supported by consideration |
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Term
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Definition
Apparent authority exists when the principal “holds out” another as possessing authority and a THIRD PARTY is reasonably led to believe that authority exists.
i.e. lead a reasonable person in the third party's position to believe that the agent has authority to act on the principal’s behalf, the agent has apparent authority to bind the principal. |
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Term
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Definition
| If principal negligently permits imposter to appear to have agency authority, principal will be liable for imposter's actions. |
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Term
| Apparent authority creation |
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Definition
| Established through agent's title or position |
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Term
| Lingering Apparent Authority |
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Definition
Apparent authority can exist even when actual authority does not. Similarly, apparently authority can linger after actual authority ends.
To destroy, the principal must tell third parties that there is no longer authority. |
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Term
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Definition
Principal will still be bound by the agent’s actions if the principal ratifies the contract. Ratification effectively serves as a substitute for before-the-transaction authority.
- Express - oral or written affirmation
- Implied - principal accepts benefits |
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Term
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Definition
- (1) The principal must have knowledge of all material facts regarding the contract;
- (2) The principal must accept the entire transaction. The principal cannot merely ratify a portion of the transaction;
- (3) Ratification cannot be used to alter the rights of intervening parties. |
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Term
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Definition
If actual authority, apparent authority, or ratification is present, the principal is liable on the contract and the agent is not.
If the principal is undisclosed or partially disclosed, the agent is also liable on the contract. |
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Term
| Agent's Duties to the Principal |
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Definition
Fiduciary Duties
- Care
- Loyalty
- Obedience |
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Term
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Definition
| An agent owes a duty to her principal to carry out her agency with reasonable care |
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Term
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Definition
The agent owes a duty of undivided loyalty to the principal. This includes the following obligations:
- Account to the principal for any profits made while carrying out the principal’s instructions;
- Act solely for the benefit of the principal and not to benefit himself or a third party;
- Refrain from dealing with his principal as an adverse party or from acting on behalf of an adverse party;
- Not compete with his principal concerning the subject matter of the agency; and
- May not use the principal’s property (including confidential information) for the agent’s own purposes or a third party’s purposes |
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Term
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Definition
| An agent must obey all reasonable directions of his principal. While the principal may well be liable for the agent’s acts in violation of directions (apparent authority), the agent will be liable to the principal for any loss that the principal suffers. |
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Term
| Principal's Duties to the Agent |
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Definition
A principal’s duties to an agent are not fiduciary in nature as fiduciary responsibilities run only from the agent to the principal.
Unless the circumstances indicate otherwise, it will be inferred that the principal agreed to rsnbly compensate the agent for his services. |
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Term
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Definition
| A master (i.e., an employer) is a principal who employs an agent to perform service in his affairs and who controls or has the right to control the physical conduct of the other in the performance of the service. |
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Term
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Definition
A servant (i.e., an employee) is an agent so employed by a master.
Subject to control of another as to the MEANS used to achieve a particular result. Right to control factors:
(1) skill required—where great skill is required, more likely to be an independent contractor;
(2) tools and facilities—if the principal supplies the tools and facilities used to perform the job, more likely to be an employee;
(3) period of employment—if the period is indefinite and/or long, more likely to be an employee;
(4) basis of compensation—if compensation is on the basis of time, more likely to be an employee; if compensation is paid based on the job, more likely to be an independent contractor;
(5) business purpose—if the person was hired to perform an act in furtherence of the principal’s business, more likely to be an employee; and
(6) distinct business—a person who has her own business or occupation is more likely to be an independent contractor. |
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Term
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Definition
An independent contractor is a person who contracts with another to do something for him but who is not controlled by the other nor subject to the other’s right to control with respect to his physical conduct in the performance of the undertaking.
Subject to control of another as to the RESULTS only. |
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Term
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Definition
A master is liable for torts committed by a servant within the scope of the servant’s employment. The master and the servant are both jointly and severally liable.
A master is generally not liable for tort committed by an independent contractor in connection with his work. |
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Term
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Definition
A master is only liable if the servant was acting within the scope of his employment. Three factors are helpful in making this assessment:
- Was conduct “of the kind” that the agent was hired to perform?
- Did the tort occur “on the job” (i.e., within the time and space limits of the employment)?
- Was the conduct actuated at least in part to benefit the principal? |
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Term
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Definition
| A substantial deviation is usually outside of the scope. |
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Term
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Definition
| A minor deviation from the employer’s directions is usually within the scope. |
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Term
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Definition
The general rule is that the employer is not liable for the intentional torts of an employee (e.g., battery or assault). Intentional torts are typically viewed as outside the scope of employment.
Viewed as within the scope of employment if the conduct is: \
-(1) natural from the nature of the job;
-(2) motivated to serve the employer; or
-(3) specifically authorized or ratified by the employer. |
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Term
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Definition
| Every person is liable for his own torts. Thus, a master is liable for his own negligence if he fails to properly train or supervise employees, or fails to check an employee’s criminal record or job history. |
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Term
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Definition
| A partnership is formed as soon as two or more persons associate to carry on as co-owners a business for profit, regardless of whether the parties subjectively intend to form a partnership. |
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Term
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Definition
- A person who receives a share of the profits is presumed to be a partner unless the profits were received in payment: -(1) of a debt;
(2) as wages or other compensation;
(3) as rent; or
(4) as interest on a loan.
- Power to control the business
- Share losses |
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Term
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Definition
| If no partnership was formed in fact, parties may still be liable as if they were partners to protect reasonable reliance by third parties. |
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Term
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Definition
| No agreement is required to form a partnership. Nevertheless, you should be on the lookout for the existence of a partnership agreement because partnership law allows the partners to contract around almost all of the statutory provisions. |
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Term
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Definition
All partners have equal rights in the management of the business and equal votes (i.e., one partner, one vote).
- Decisions regarding matters within the ordinary course of the partnership business require a MAJORITY vote of the partners.
- Matters outside of the ordinary course of business require the consent of ALL partners. |
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Term
| Ordinary course of the partnership business |
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Definition
Examples
- Amending partnership agmt
- Submit to arbitration
- Assignment for benefit of creditors
- Disposition of goodwill
- Interference with ordinary partnership biz |
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Term
| Compensation (Partnership) |
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Definition
| Unless otherwise agreed, partners get no compensation (with the exception of a right to reasonable compensation for services rendered in winding up the partnership business). |
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Term
| Sharing Profits and Losses (Partnership) |
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Definition
| Unless otherwise agreed, profits are shared equally among the partners (by number). Unless otherwise agreed, losses are shared in the same manner as profits. |
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Term
| Liability in Tort (Partnership) |
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Definition
| A partnership is liable for loss or injury caused to a person as a result of the tortious conduct of a partner (or an employee) acting in the ordinary course of business of the partnership or with authority of the partnership. |
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Term
| Liability in Contract (Partnership) |
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Definition
| A partnership is liable for contracts entered into on its behalf by partners with actual or apparent authority. |
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Term
| Actual authority (Partnership) |
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Definition
Actual authority can be created by the partnership agreement or by the requisite vote of the partners (e.g., majority vote for ordinary business matters).
Actual authority can also be created by the partnership’s filing of a “statement of partnership authority” with the Secretary of State. The effect of the statement differs depending upon whether the transaction involves a transfer of real property. |
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Term
| Actual authority - Real Ppty(Partnership) |
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Definition
Grants of and restrictions on partner authority to transfer partnership real property in the statement are binding on third parties if the statement is also recorded in the where the property is located.
In other words, third parties are deemed to have constructive knowledge of the statement if secretary of state and county filings are made. |
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Term
| Actual authority - Other Ppty (Partnership) |
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Definition
Grants of partner authority in the statement are binding on the partnership (unless the third party has actual knowledge that the partner lacked authority).
Restrictions on partner authority in the statement, however, are binding on third parties.
In other words, third parties are only deemed to have constructive knowledge of filed grants of authority— not filed restrictions. |
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Term
| Apparent Authority (Partnership) |
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Definition
| A partner is an agent of the partnership, and that a partner has apparent authority to bind the partnership to transactions within the ordinary course of the partnership’s business (unless the third party is aware that the partner lacks actual authority). |
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Term
| Liability of Partners (Partnership) |
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Definition
A defining characteristic of the general partnership is that each partner is jointly and severally liable for all of the obligations of the partnership (whether arising in tort or contract).
BUT: the plaintiff MUST first exhaust partnership resources before seeking to collect from an individual partner’s assets (so the partners are essentially guarantors). |
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Term
| Limiting Liability to Third Parties (Partnership) |
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Definition
| Partners cannot limit a third party’s rights without the third party's consent. The agreement is effective, however, among the partners themselves. |
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Term
| Liabilities of Admitted Partners (Partnership) |
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Definition
| A newly admitted partner is not personally liable for partnership obligations that arose before his admission. He can only lose the amount of his investment in the partnership |
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Term
| Fiduciary Duties (Partnership) |
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Definition
Partners in general partnerships owe fiduciary duties of loyalty and care to each other and to the partnership.
They also owe a statutory duty of disclosure. |
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Term
| Duty of Loyalty (Partnership) |
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Definition
This duty requires each partner
(1) to account to the partnership for any benefit derived by the partner in conducting the partnership business, using the partnership’s property, or appropriating a partnership opportunity;
(2) to refrain from dealing with the partnership as (or on behalf of) a party having an adverse interest
(3) to refrain from competing with the partnership in the conduct of its business |
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Term
| Duty of Care (Partnership) |
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Definition
| This duty requires each partner to refrain from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law. |
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Term
| Duty of Disclosure (Partnership) |
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Definition
This is a statutory duty rather than a fiduciary one (although some judicial opinions treat it as fiduciary in nature).
The partnership statute states that each partner and the partnership shall furnish to a partner
(1) without demand, any information concerning the partnership’s business and affairs reasonably required for the proper exercise of the partner’s rights and duties; and
(2) on demand, any other information concerning the partnership’s business and affairs |
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Term
| Determining Partnership Ppty (Partnership) |
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Definition
Partnership property if
- acquired in the partnership's name or in a partner's name where it is apparent from the document that she is acting for a partnership
- partnership funds are used
- use of ppty for partnership biz
- ppty in partnership's books
- Close relationship between ppty and biz operation
- improvement with partnership money
- maintain with partnership money
Note: Presumed to be a partner’s property if acquired in her name without partnership funds and there is no sign that she is acting for a partnership. |
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Term
| Rights in Partnership Ppty (Partnership) |
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Definition
Partnership: Rights are totally unrestricted.
Partner: partner is not a co-owner of partnership property and has no interest in partnership property which can be transferred. A partner can simply use partnership property for partnership purposes. |
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Term
| Partner's ownership interest in the partnership (Partnership) |
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Definition
The partnership interest is the personal property of the partner. Although it is personal property, there are restrictions on what a partner can do with it.
The interest is comprised of
- Management rights
- Financial rights |
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Term
| Management rights (Partnership) |
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Definition
A partner’s right to participate in the management of the business, to obtain information about the partnership, and to be recognized as a “partner”
CANNOT unilaterally assign. |
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Term
| Financial rights (Partnership) |
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Definition
The partner’s right to receive his share of any profit distributions made by the partnership
Can unilaterally assign. |
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Term
| "Pick your partner" Rule (Partnership) |
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Definition
| A partner cannot unilaterally transfer his management rights and thereby make the transferee a “partner.” The default rule for the admission of a new partner is that it requires a unanimous vote of the existing partners. |
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Term
| Dissociation (Partnership) |
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Definition
| The term “dissociation” simply refers to a withdraw. When a partner dissociates from a partnership, the partner withdraws or “bows out” of the partnership. |
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Term
| Events giving rise to dissociation |
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Definition
(1) a partner giving notice to the partnership of his desire to withdraw (dissociation by “express will”);
(2) a partner’s expulsion, death, or bankruptcy;
(3) an agreed-upon event; and
(4) the appointment of a receiver for a partner. |
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Term
| Wrongful Dissociation (Partnership) |
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Definition
| A partner will be deemed to have wrongfully dissociated if the dissociation is in breach of an express term in the partnership agreement. |
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Term
| “At-will partnership” (Partnership) |
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Definition
| An “at-will partnership” is one where the partners have not agreed to remain partners until the expiration of a definite term or the completion of a particular undertaking. It is the default form of partnership. (Most partnerships are at-will.) |
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Term
| “Term partnership” (Partnership) |
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Definition
| A “term partnership” is the converse—it is a partnership where the partners have agreed, explicitly or implicitly, to remain partners for a definite term or until the completion of a particular undertaking. |
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Term
| Consequences of Dissociation (Partnership) |
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Definition
Two avenues:
- Dissolved and that its business must be wound up. This means that the partnership business will be liquidated (“sold off”).
- Continues in existence with the dissociated partner becoming entitled to a buy-out of his partnership interest. |
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Term
| Dissolution (Partnership) |
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Definition
The partnership business will be liquidated (“sold off”).
- In an at-will partnership, any partner who dissociates by express will may compel dissolution and winding up.
- In a term partnership, if one partner dissociates wrongfully, or if a dissociation occurs because of a partner’s death or bankruptcy, dissolution and winding up of the partnership are required only if, within 90 days after the dissociation, one-half of the remaining partners agree to wind up the partnership. |
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Term
| Liability of Dissociated Partner (Partnership) |
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Definition
PRE-Dissolution obligation: Partner remains liable (a creditor can agree to release the withdrawing partner, however, from specific obligations).
POST-Dissolution obligation: Partner may also be liable for liabilities incurred within two years after the dissociation. He can protect himself by notifying creditors directly of his dissociation or by filing a public statement of dissociation (becomes effective 90 days after filing).
- The partnership can make the filing as well. |
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Term
| Apparent Authority of Dissociated Partner (Partnership) |
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Definition
A dissociated partner has apparent authority to bind the partnership for a period of time not exceeding two years after dissociation (assuming that dissolution has not occurred).
The partnership can protect itself by notifying creditors directly of the dissociation (effective immediately) or by filing a public statement of dissociation (becomes effective 90 days after filing). |
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Term
| Dissolution Liability and Profits (Partnership) |
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Definition
Partnership assets must be applied to the discharge of partnership liabilities.
If the assets are insufficient, individual partners are required to contribute (“pay in”) in accordance with their loss shares.
If there are excess assets, they are distributable to the partners in cash in accordance with their profit shares.
Priority
- pay all creditors. Creditors include “outside creditors” and “inside creditors”
- repay all capital contributions paid into the partnership by partners
- profits or losses, if any |
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Term
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Definition
| A partnership with at least one general partner and at least one limited partner. Because it is a partnership, general partnership principles typically apply unless displaced by LP-specific provisions. |
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Term
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Definition
File a certificate of limited partnership with the secretary of state.
- the name of the LP;
- the name and address of the agent for service of process; and
- the name and address of each general partner.
The name of the LP must contain the phrase “limited partnership” or the abbreviation “L.P.” or “LP.”
File to file = general partnership |
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Term
| Partnership Agreement (LP) |
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Definition
Detail on the operation and governance of a LP is typically found in a partnership agreement.
It can be written, oral, or implied.
As in a general partnership, the agreement can displace almost all of the statutory provisions. |
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Term
| Management and Operations (LP) |
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Definition
The LP is managed by the general partner(s). Each general partner has equal rights in the management and conduct of the LP’s activities.
Majority vote of general partners: ordinary business activities.
- Limited partners usually have no management rights unless the partnership agreement grants them rights.
ALL partners (general and limited): extraordinary activities, including an amendment of the partnership agreement, the admission of a new general or limited partner, and the sale of all or substantially all of the LP’s property |
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Term
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Definition
| Unless otherwise agreed, distributions from a LP are made on the basis of the partners’ contribution (proportion to the value of each partner’s contribution). |
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Term
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Definition
General partners are liable for the obligations of the LP.
A limited partner is not personally liable for an obligation of the LP. Limited partners have limited liability, meaning that they can only lose the value of their investments.
Note: A limited partner (as well as a general partner) is always liable for her own torts. The limited liability shield of any business organization does not protect a person from liability for her own torts. |
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Term
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Definition
A general partner owes the LP and the other partners the same fiduciary duties of loyalty and care that general partners owe in a general partnership.
A limited partner does not have any fiduciary duty to the LP or to any other partner solely by reason of being a limited partner. |
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Term
| Limited Liability Partnership |
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Definition
| An LLP is typically a general partnership where all of the partners have limited liability. In general, you apply general partnership rules to LLPs, with the exception of the material below. |
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Term
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Definition
File a “Statement of Qualification ” with the secretary of state.
- the name and address of the partnership;
- a statement that the partnership elects to be an LLP; and
- a deferred effective date, if any. The partnership becomes an LLP at the time of the filing of the statement or on the date specified in the statement.
There is no LLP unless this statement is filed.
The name of a registered limited liability partnership must end with the words “Registered Limited Liability Partnership” or “Limited Liability Partnership” or one of the abbreviations “L.L.P.,” “LLP,” “R.L.L.P.” |
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Term
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Definition
A partner in an LLP is not personally liable (directly, indirectly, or by way of contribution) for the obligations of the LLP, whether arising in tort, contract, or otherwise.
A partner remains personally liable for her own wrongful acts. |
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Term
| Limited Liability Companies |
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Definition
| A hybrid between a corporation and a partnership in which the owners (called “members”) have limited liability as well as the benefits of partnership tax treatment. |
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Term
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Definition
File “Articles of Organization” with the secretary of state.
- the name of the LLC;
- the address of the LLC’s registered office; and
- the name of its registered agent.
The LLC’s name must include an indication that it is an LLC. In general, the name should contain the words “limited liability company” or the abbreviation “LLC” or “L.L.C.” |
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Term
| Operating Agreement (LLC) |
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Definition
| Detail on the operation and governance of an LLC is typically found in an operating agreement. The operating agreement can displace almost all of the statutory provisions. |
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Term
| Management and Operation (LLC) |
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Definition
Management of the LLC is presumed to be by all of the members. [default: Member-managed] Other management arrangements [like manager-managed] can be made, but they must be specified in the articles.
If management is by the members:
(i) a majority vote is required to approve most decisions and
(ii) each member is an agent of the LLC (i.e., the LLC may be bound by the acts of any member). |
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Term
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Definition
| Unless otherwise agreed, profits and losses are allocated on the basis of contribution. |
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Term
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Definition
Members generally are not personally liable for the LLC’s obligations. They have limited liability and can only lose the amount of their investments.
As always, members are liable for their own torts. $$$ |
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Term
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Definition
| The fiduciary duties owed by a member (if member- managed) or a manager (if manager-managed) to the LLC and to its members are the fiduciary duties of care and loyalty. |
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Term
| Transferability of Ownership (LLC) |
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Definition
Essentially the partnership rule applies here—financial rights are unilaterally transferable, but management rights are not. [Pick your partner rule applies]
One can become a member (i.e., management rights can be transferred) only with the consent of all of the members. |
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Term
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Definition
Partnerships and LLCs are taxed on a “pass-through” basis. There is no entity-level tax; instead, business income is passed-through to the owners and reported on the owners’ individual tax returns (regardless of whether that business income is actually distributed to the partners).
Note: LLPs and LLCs are generally the best vehicles for closely held businesses. They protect all of the owners from liability for the obligations of the business; they allow the owners to contract around almost all of the statutory provisions (so that the business can be run as the owners desire); they allow all of the owners to participate in the management of the business; and they provide pass-through income tax treatment. |
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