BUSASSOC

Question 1

What is Agency?

Answer 1

A fiduciary relationship where a person or entity (agent) acts on behalf of another (principal).

Question 2

What are the three elements required to create an agency relationship?

Answer 2

1) ASSENT by Principal and Agent to work together, 2) BENEFIT where the agent acts for the principal’s benefit, and 3) CONTROL where the principal has the right to control the agent.

Question 3

How can an agency relationship be terminated?

Answer 3

1) Manifestation by either party to discontinue the relationship, 2) Expiration of a specified term, 3) Death (no notice needed), 4) Incapacity.

Question 4

What is Actual Authority?

Answer 4

Principal is bound to a contract entered into by its Agent if the Agent had ACTUAL AUTHORITY, which can be EXPRESS or IMPLIED.

Question 5

What constitutes Express Actual Authority?

Answer 5

Authority given by Principal’s explicit directions to the agent (oral or in writing).

Question 6

What constitutes Implied Actual Authority?

Answer 6

Authority inferred from Principal’s conduct that leads Agent to believe they have authority.

Question 7

What is Apparent Authority?

Answer 7

Principal is bound to a contract entered into by Agent if Agent had apparent authority based on a third party’s reasonable belief generated by Principal’s actions.

Question 8

What are the exceptions to Apparent Authority?

Answer 8

1) Third party has knowledge that Agent didn’t have actual authority, 2) Transaction was not in the ordinary course of business.

Question 9

What is Ratification in agency?

Answer 9

Makes Principal liable for Agent’s contract entered into without authority when Principal has knowledge of all material facts and approves the contract.

Question 10

When is an Agent not liable?

Answer 10

Agent is NOT liable if they fully disclosed Principal to third party and have actual or apparent authority.

Question 11

What distinguishes an Employee from an Independent Contractor?

Answer 11

Independent contractors are hired to do something but are NOT CONTROLLED by Principal; focus is on the right to control the manner/method of job performance.

Question 12

What is the Respondent Superior Doctrine?

Answer 12

Employer is liable for employee’s torts/negligent acts if acting in the scope of employment or made a minor deviation.

Question 13

What are the duties owed by an Agent to a Principal?

Answer 13

1) Duty of Care, 2) Duty of Loyalty, 3) Duty of Obedience.

Question 14

What is a General Partnership?

Answer 14

Created if 2 or more people as co-owners carry on a business for profit; intent to form not required.

Question 15

What is a Limited Partnership?

Answer 15

Created with limited partners and at least 1 general partner; must file a certificate with the Secretary of State.

Question 16

What is a Limited Liability Partnership?

Answer 16

All partners have limited personal liability if approved by the same vote needed to amend the partnership agreement and file a statement of qualification.

Question 17

How can a partner bind a partnership?

Answer 17

A partner must have authority; acts of a partner will bind the partnership if the partner acted with authority.

Question 18

What is the liability of General Partners?

Answer 18

General partners are personally liable for all obligations of the partnership unless otherwise agreed or provided by law.

Question 19

What is the liability of Limited Partners?

Answer 19

Limited Partners are NOT personally liable for obligations of the partnership except for their own misconduct or if they participate in management.

Question 20

What are the duties of partners under RUPA?

Answer 20

Partners owe a duty of care and a duty of loyalty to the partnership and other partners.

Question 21

What is Dissociation in a partnership?

Answer 21

A partner may dissociate from a partnership at any time upon notice; wrongful dissociation can occur if it breaches the partnership agreement.

Question 22

What is Dissolution of a partnership?

Answer 22

Occurs when notice of a partner’s express will to withdraw is given or due to other specified events; fiduciary duties continue until winding up is complete.

Question 23

What is the role of Shareholders in a corporation?

Answer 23

Shareholders are the owners of the corporation; they do not manage it and have rights to vote at annual meetings.

Question 24

What is the role of the Board of Directors (BoD)?

Answer 24

The BoD manages the corporation and acts as a body by voting; they cannot vote by proxy.

Question 25

What is required for a quorum in a Shareholder meeting?

Answer 25

A majority of shares entitled to vote must be present.

Question 26

What rights do Shareholders have regarding inspection of books?

Answer 26

Shareholders have the right to inspect and copy the corporation's accounting records under certain conditions.

Question 27

What is the Duty of Loyalty for directors?

Answer 27

Directors must act in the corporation's best interest without personal conflict, including not entering into conflicting interest transactions.

Question 28

What is required for a written notice?

Answer 28

5 days written notice

Question 29

What must a request for records include?

Answer 29

1) Made in good faith and for proper purposes 2) Describe the purpose with particularity 3) Requested records are directly connected with purpose

Question 30

What can be inspected without providing a proper purpose?

Answer 30

Articles of Incorporation, bylaws, Board of Directors resolutions, minutes of shareholder meetings, and business addresses of current directors/officers

Question 31

What is the Duty of Loyalty for a director?

Answer 31

A director must act in the corporation's best interest and without personal conflict.

Question 32

What actions are prohibited under the Duty of Loyalty?

Answer 32

1) Enter into conflicting interest transactions 2) Usurp corporate opportunities 3) Compete with the corporation 4) Trade insider information

Question 33

What are the three safe harbors for conflicting interest transactions?

Answer 33

1) Approval by disinterested directors 2) Approval by disinterested shareholders 3) Transaction judged to be fair at the time

Question 34

Can the Business Judgment Rule be used for Duty of Loyalty breaches?

Answer 34

No, the burden is on the director.

Question 35

What is the Duty of Care for directors?

Answer 35

Directors must act in good faith, with reasonable belief that they are acting in the best interests of the corporation, and with appropriate care.

Question 36

What defense can directors use regarding the Duty of Care?

Answer 36

They may use the Business Judgment Rule as a defense.

Question 37

What is the Business Judgment Rule?

Answer 37

Presumption that directors acted on an informed basis, in good faith, and in the honest belief that the action was in the best interest of the company.

Question 38

What must directors be informed about?

Answer 38

They must be informed to an extent that they reasonably believe is appropriate and are entitled to rely on information from corporate officers, legal counsel, and public accountants.

Question 39

What is the burden of proof in a Duty of Care case?

Answer 39

The burden is on the plaintiff to show the Board of Directors breached their duty of care.

Question 40

What fiduciary duties do members of an LLC have?

Answer 40

Members of an LLC have fiduciary duties and member-managed LLCs are treated as agents of the LLC.

Question 41

What happens if a member leaves an LLC?

Answer 41

Dissociation occurs, but it does not lead to winding up or dissolution unless all members unanimously agree.

Question 42

What is the liability of individual LLC members?

Answer 42

Members are not liable for losses unless the court pierces the LLC veil or proper procedures for dissolution have not been followed.

Question 43

What is the liability structure in a Limited Partnership (LP)?

Answer 43

Limited partners have limited liability, while general partners are liable for all partnership obligations and manage the business.

Question 44

What is a Direct Action in corporate law?

Answer 44

May be brought when there is a duty owed to a shareholder.

Question 45

What is a Direct Suit?

Answer 45

Appropriate when the wrong done amounts to a breach of duty owed to the individual personally.

Question 46

What is a Derivative Action?

Answer 46

Appropriate when the injury is caused to the corporation and a shareholder is trying to enforce the corporation’s rights.

Question 47

What are the requirements for filing a derivative lawsuit?

Answer 47

1) Standing to bring a lawsuit 2) Adequacy (SH represents the interests of the corporation) 3) Demand (generally filed a written demand and wait 90 days before filing unless irreparable injury would result or demand would be futile)

Question 48

What happens to recovery in a derivative lawsuit?

Answer 48

Any recovery goes to the corporation.

Question 49

What is the personal liability of shareholders?

Answer 49

Shareholders are NOT personally liable for corporate liabilities and obligations.

Question 50

What is piercing the corporate veil?

Answer 50

Doctrine that allows shareholders to be sued for debts of the corporation under certain conditions.

Question 51

What conditions allow for piercing the corporate veil?

Answer 51

1) Corporation is alter ego of shareholders 2) Corporation failed to follow formalities 3) Inadequately capitalized at inception 4) Corporation used for fraud

Question 52

What must a plaintiff show to pierce the corporate veil?

Answer 52

That shareholders abused the privilege of incorporating and fairness requires holding them liable.