Test 2 Flashcards
(44 cards)
Principal
Someone who has someone else acting for them
Agent
Acting for someone else
Duties of Agents
- Duty of care: The duty to put your employer above your personal gain
- Duty of loyalty: work on principal’s behalf in all matters connected w the relationship
- Duty to obey instructions
- Candor/Duty to provide information: includes relevant, accurate information to disclose with principal, confidentiality
Duties of Principal
- Duty of compensation
- Duty to indemnify: to reimburse any expenses or legal fees if needed
- Good Faith Duty to Cooperate
Employee vs Independent Contractor
Employee if:
1. Principal supervises details of work
2. Supplies tools/place to work
3. Agent works full-time for principal
4. agent receives salary/hourly wages (not a one-time payment for jobs)
5. Belief there is an employer/employee relationship
6. Principal is in the same type of business
Sole Proprietorship
Pros:
1. Easy to start
2. Flow-through taxes
Cons:
1. Unlimited liab.
2. Hard to raise capital
Partnerships (types & differences)
Types: Gen & Limited Liab
Both:
1. 2 or more people
2. typically professional groups (lawyers, doctors, accountants)
3. own part of business & receive share of prof
Limited:
1. no company involvement
2. no daily responsibilities
3. no liab.
General Partnership
Pros:
1. Easy to form
2. Flow-through taxes
3. Have more access to capital than sole prop
Cons:
1. Unlimited Liab (JOINT & SEVERAL LIAB)
2. Liab for all torts, even if partner committed
3. Management duties can be difficult
4. Capital infusion limited to partners
Limited Liab Partnership
Pros:
1. Limited Liab
2. flow-through taxes
3. can add new partners w/o needed to create an entirely new partnership
4. infusion of cash w/o worry of liab. of other partners
Cons:
1. limited control over management
2. limited control on selling interest
3. must adhere to all state requirements in which you do business
Corporations (types)
Types: S & C & LLC, & Close Corp
An S Corp can become a C Corp, but not vice versa
C Corp
“have neither bodies to be punished nor souls to condemn”
- single/multiple people invest $ into single entity
Pros:
1. Limited Liab
2. Transferability of Interests (stocks)
3. Long duration of life
Cons:
1. Logistics w/i the company
2. Difficult to form & intricate
3. Lot of requirements (board meetings, records, reporting info to the state)
4. Double taxation
S Corp
Pros:
1. Limited Liab
2. Flow-through taxes
3. Losses may be deducted against other income
Cons:
1. Only one class of stock (no common & preferred)
2. Can only have 100 stockholders
–> must be US citizen
–> no partnership/corp stockholders
3. Not much case law, law varies amongst jurisdictions
Would typically form if you don’t need a lot of capital, ease of formation, flow-through, and limited liab
LLC
Pros:
1. limited liab
2. flow-through
3. flexibility, diff types of stock can be owned by non-US & partnership/corps
4. less formality than C corp
Cons:
1. Takes more effort to form
2. transfer of interest can be limited to other members
3. law a bit more unsettled
4. capital harder to come by than C corp
5. extra caution about bad/no operating agreements
6. can dissolve if a member withdraws
Close Corporation
Stock is not publicly traded
Pros:
1. limited liab
2. flexibility
3. protection of minority stockholders
Cons:
1. restriction on transfer of stock
2. difficult to raise capital w/ no public trading
3. not much case law & varies among jurisdictions
Shareholder vs Stakeholder
Shareholder: Owns equity of your company through stocks
–> have rights to limited info, right to vote, & vote on elections or removal of directors/officers
Stakeholder: One who is impacted by your business decisions (customers, sometimes employees, general society)
Piercing Corporate Veil
When a company really fucks up, the judicial system will try to go after individual owners/members of the corporation, regardless of limited liab status. Acts worthy of this:
1. failure to observe formalities
2. comingling assets
3. inadequate capitalization
4. fruad
Duties of a partnership
(Pretty much the same as an agent to a principal)
Duty of care
Duty of loyalty - fiduciary duty
Duty of good faith & fair dealing
Fiduciary relationship
Legal responsibility to act solely in best interest of another party
consent + control + fiduciary relationship = agency relationship
Partnership by Estoppel
Participants tell others they are partners or act like partners
3rd party relies on that assumption
3rd party suffers harm
The court will create partnership to resolve the harm done, but only for the purpose of the case
Authority - Liab
Actual: liab. for any act authorized by partnership
Implied: liab. for any act reasonably necessary to carry out function or transaction
Apparent: partner appears to be acting w/i authorization and harmed party relied on belief of the authority
Business Judgement Rule
Courts allow great defrence to managers who act
1. in good faith
2. follow duty of loyalty (no conflict of int)
3. follow duty of care (reasonable standard)
Defective Corps
De Jure Corp: mostly completed process, promoter substantially complies.
–> De jure = by law
De Facto Corp: some process completed, but it will only be considered a corp for this lawsuit. Promoter acts in good faith & used corp to conduct business
–> De facto = in fact
Corp by Estoppel: no process even started to become a corp, but actions or words led hurt party to assume a relationship. The court will consider corp for this lawsuit
Corp Process
Promoter: one who organizes corp, personally liab for contracts after formation
Novation: new contract w/ diff parties, reassigning liab
File Charter: name, address, registered agent, business purpose, type of stock, signed by incorporator
Ultra Vires Doctrine: company must have stated purpose & purpose must be in charter. can only do business stated in ultra vires
Franchise
Pros:
1. Can be partnership/any type of corp
2. Get to run established business
3. Assistance & product from franchisor
Cons:
1. Sometimes expensive
2. Must buy franchisor’s products
3. Must comply w/ franchisee agreement (including national deals)
