Agency/Corporations

Question 1

How is an agency relationship created?

Answer 1

An agency relationship results from assent by a principal to an agent, that the agent shall represent and act on behalf of the principal’s behalf in dealing with third parties and subject to the principal’s control.

Question 2

Actual express authority

Answer 2

Authority through express manifestations to agent either oral or expressed

Question 3

Actual implied authority

Answer 3

Authority that agent reasonably believes that they have as a result of principal’s actions (e.g., incidental to express authority, customary, emergency measures)

Question 4

Apparent authority

Answer 4

Arises from manifestations of agent’s authority due to P holding out as such via P’s words, actions, or failure to act, thereby inducing 3P to reasonably mistakenly rely on that authority. P is bound to a contract unless 3P knew or had reason to know that agent had no authority to act.

Question 5

What is the equal dignity rule?

Answer 5

Holds that if a contract must be in writing, the grant of authority to an agent to enter into such a contract must also be in writing.

Question 6

Ratification

Answer 6

Ratification allows P to grant retroactive authority for his agent’s earlier unauthorized actions if P knew or have reason to know of the facts.

Question 7

When is a principal liable to a third-party?

Answer 7

Any type of P is liable to a 3P on the K entered into by agent as long as agent had valid authority to act.

Question 8

Is an agent liable to a 3P in the case of:

1. Disclosed principal?
2. Unidentified (partially disclosed P)?
3. Undisclosed P

Answer 8

1. Disclosed principal: Agent is generally not liable
2. Unidentified (partially disclosed P): Agent and/or principal may be liable at 3P’s election. Agent may avoid liability by disclosing P’s identity
3. Undisclosed P: Agent and/or P may be liable 3P’s election

Question 9

What is difference between a frolic and a detour?

Answer 9

Frolic: substantial deviation by employee from authorized route

Detour: small/slight deviation from the route

Factors: 1) advancement of employer’s interests, whether accident occurred before or after objective; 3) time and distance

Question 10

What is a general partnership?

Answer 10

A general partnership is an association of 2+ individuals or entities to carry on as business for profit as co-owners . Look to parties INTENT which is implied through profit sharing, joint tile to property etc.

Question 11

What is the liability of a general partner?

How are new partners brought in?

Answer 11

GP’s have unlimited personal liability no matter what limited they declare. Civil liability is joint and several.

Brining in new partners requires unanimous approval.

Question 12

Limited Partnership (LP) vs. Limited liability partnership (LLP)

Answer 12

LP: consists of one or more GP’s and one or more LP. GPs are personally liable for partnership obligations. LPs have no personal liability beyond their contributions.

LLP: Partners not personally for LLP’s obligations, personally liable for own wrongful acts but not co-partner acts. LP and LLP requires filing to form

Question 13

What is a De jure corporation and what are the four requirements?

Answer 13

Corporation formed in accordance with applicable laws. The articles of incorporation must include (“SPAWN”)
1) # of shares
2) price per share
3) address of corporation
4) why the corporation is being formed
5) name of the corporation and incorporates

Note: substantial compliance w/ statute also qualifies e.g., articles filed but improperly

Question 14

What is Ultra Vires Acts

Answer 14

If articles include a narrow business purpose, activities beyond scope of stated business purpose may be void and unenforceable

Question 15

What is a De facto corporation?

Answer 15

Good faith, colorable attempt made to comply with incorporation statute & conduct of business as of validly incorporated (unaware of invalid incorporation)

Question 16

What is a corporation by estoppel?

Answer 16

Parties who acted as if there were a corporation are estopped from denying the corp’s existence and cannot avoid liability in a K.

Question 17

What are promoters and what is their liability?

Answer 17

Promoters act on behalf of a corporation not yet formed. Corporation may be bound by promoters pre-incorporation K by express or implied adoption.

Promoters are jointly and severally liable for obligations even after corp formed, unless novation.

Question 18

What is piercing the corporate veil and when is it justified (3 ways)?

Answer 18

When shareholders, directors, and officers are held personally liable for corp obligations even though they are generally not. Courts will pierce when:

1. ignoring corp formalities: shareholder dominates the corp to the extent it is not being treated as a separate entity (alter-ego).
2. inadequate capitalization
3. Fraud or illegality

Question 19

How does election and removal work?
Meetings?
Quorum?
Majority vote?

Answer 19

Election & removal: 1+ member on board, s/h elect D, s/h may remove D w/ or w/o cause, s/h or D may fill vacancy

i. Meeting: is required unless all D consent in writing to act without a meeting

ii. Quorum: (majority of all D) must be present for the board to be legally competent to transact business (3/5)

iii. Majority vote: (> 50%) of quorum in attendance is required to constitute a valid action by the board

Question 20

What is the business judgment rule?

Answer 20

Under the “business judgment rule” D&O must perform their duties in good faith, with such care as an ordinarily prudent person in a like position would use under similar circumstances, in a manner reasonably believed to be in the best interests of the corporation.

Acting under good faith = business judgment rule protection. Bad faith = no protectio

Question 21

What are direct suits?

Answer 21

Action brought for breach of fiduciary duty owed to s/h by D&O for damages to s/h

Question 22

What are derivative suits?

Answer 22

Brought by s/h on behalf of corp to enforce a corporate right that D&O fail to assert.

Demand requirement: S/h must first make written demand on corp to redress grievances, and 90 days must
have passed, unless 1) corp rejects demand or 2) irreparable injury to corp would result by waiting 90 days

Futility EXCEPTION: Demand is excused because of futility if 1) a majority of BOD is interested in the challenged tx, 2) BOD did not fully inform themselves about the tx to the extent reasonably
appropriate under the circumstances, or 3) tx was not a product of a valid business judgment

Question 23

1. When may a s/h inspect the corps books and records?
2. When may a s/h inspect all other documents?

Answer 23

1. S/h may inspect the corp’s books and records for any PROPER PURPOSE if there is a five day written notice given with the stated proper purpose.
2. All other documents (articles, bylaws, annual reports etc.) may be inspected at any time regardless if there is a proper purpose.

Question 24

Profits & losses: general partners vs limited partners

Answer 24

General partners share profits and losses and limited partners share profits and losses in proportion to their contributions.

Question 25

Are general partners entitled to salary and reimbursement?

Answer 25

Partners don’t receive salaries or guaranteed payments unless there is an agreement to the contrary and should be reimbursed for ordinary and proper-partnership related expenses

Question 26

How many votes are needed for things in the ordinary course of business vs things that are outside of the ordinary course?

Answer 26

Ordinary course = majority
Outside = unanimous

Question 27

Does a partner have a right to inspect records? If so, when and for what reasons? What law mandates?

Answer 27

Any partner can inspect partnership records during normal business hours for any reasonable reason. RUPA mandates.

Question 28

When does a dissolution of a partnership occur?

Answer 28

Remember: (“WET”)

1) written consent if all parties
2) Event that everyone agrees upon occurs (complete toon of goal)
3) Terms end

Question 29

Winding up

Answer 29

When a business is winding up, outside creditors are always paid first to settle debts and then internal debts. If there is anything left over, it’s split up and everyone gets an interest proportional to their share.

Question 30

What is a shareholders rights to dividends?

Answer 30

Dividends are cash payments. Shareholders DO NOT have an absolute right to dividends. However, businesses cannot hold dividends in bad faith and shareholders may sue if they believe a corporation is doing so. The shareholder must show: 1) that money was available to pay dividend; 2) the corporation has withheld for a dishonest purpose.

Question 31

Who are the three main players in a corporation and how often must a meeting be held?

Answer 31

Three main players: 1) directors; 2) officers; and 3) shareholders.

A meeting must be held at least once annually usually to elect board members and address issues.

Question 32

What is the meeting notice requirement for shareholders and directors.

Answer 32

Board, President and Shareholders may call a meeting to vote on fundamental changes.

Shareholders who has the ability to vote (those who owned stock on the record date), are titled to 10-60 days of notice and must know the PURPOSE of the meeting.

Directors = 2 day notice prior to the meeting and if they show up, they waive notice. No purpose requirement.