BUSINESS ASSOCIATIONS OUTLINE
- 1) AGENCY LAW
o A) Introduction
o B) Liability – P/A Relationship
§ 1) K liability
· Liability to P for A’s acts
o Actual v. Apparent
o Inherent Authority
o Ratification
· A’s Liability
§ 2) Tort Liability
· Servant v. Independent contractor
· Scope of Employment
§ 3) liability from other relationships that aren’t really Agency type relationships
· Creditors
· Franchisors
§ 4) Statutory Claims and Agency Law
o C) Fiduciary Duties (of A to P)
§ Duty of Loyalty
§ Duty of care and Skill
- 2) PARTNERSHIP
o A) Partnership Formation
§ 1) Defining a Partnership
· UPA
§ 2) Partners and EEs
§ 3) Partners and Lenders
§ 4) Partnership by Estoppel (Apparent Partnerships)
o B) Rights of Partners
§ 1) Overview – UPA
§ 2) Agency and Partnership Liability
§ 3) Partner’s Property Rights
· a) specific partnership property
· b) capital accounts and distributions
· c) Raising additional capital
§ 4) Fiduciary Duties and Rights
o C) Dissolution (and fid duties)
§ 3 phases of ending a partnership
§ Entitlement of Partner to dissolve a partnership
- 3) CORPORATIONS
o A) Formation of a corporation: The formal Process
o B) Limited Liability and Protection of Ts
§ 1) Role of Promoters
· Introduction and Fiduciary Duties
· Promoter Liability
§ 2) Piercing the Corporate Veil
· Involuntary Creditors
· Voluntary Creditors
o C) Corporate Governance – Roles of Managers and SH Voting
o D) Fiduciary Duties and SH litigation
§ 1) the BJR Shield and Protection for Business Decisions
§ 2) Limits on BJR protection – when can Presumption be Overcome
· Substantive Due Care Violations – Waste and Role/Purposes of Corp
· Procedural Due Care Violations: Failure to Make Informed Decisions
o Ordinary Business Matters
o Duties in Fundamental Matters
o BJR and Nonfeasance
· Duty of Loyalty: Directors’ and Officers’ Conflicts of Interest
o Self-Dealing and Ratification
o Compensation for Directors and Officers
o Corporate Opportunity Doctrine
· Duty of Loyalty and Controlling SH
o Common Scenarios
o Ratification
· Ultra Vires Doctrine
· CURE
§ 3) Shareholder Suits
· Introduction to nature of derivative suits and procedural req.
· Demand Requirement and SLCs
· Direct v. Derivative Claims – Getting around procedural requirements
§ 4) Indemnification and Insurance
o E) Federal Law – Additional Duties (Directors/Officers/Insiders)
§ 1) Overview of Securities Litigation and Enforcement
§ 2) Rule 10b-5 and Classic Insider Trading
§ 3) Rule 10b-5 Violations by Outsiders
· Tipper/Tippee liability
· Misappropriation Theory
· Note on Rule 14e-3
§ 4) Securities Fraud Violations Under Rule 10b-5
§ 5) Section 16(b) – Short Swing Profits
o F) Regulation of Proxy Contests - State and Federal Law
§ 1) Proxy Contests – Strategy and Reimbursement
§ 2) SH Inspection Rights
§ 3) Federal Regulation of Proxy Solicitation – Overview of Rules and Process
§ 4) Federal Regulation – Shareholder Proposals
o G) Shareholder Control in Closely Held Corporations
§ 1) SH Voting Agreements
§ 2) SH Agreements Controlling Director’s Business Judgment
§ 3) Abuse of Control – Freeze Outs
§ 4) Statutory Dissolution and Court’s Equitable Powers
______
AGENCY LAW
INTRODUCTION
Types of Partnerships
- Sole Proprietorships
o Profits – Losses – Personal liability
- Partnership
o Extension of sole proprietorship – except with 2 or more people
o DEFAULT rules
§ Profits – Losses – Personal liability of the partners
§ Shared ownership
· Authority to act on their own accord, entire partnership would be held to their decisions
§ Partners are defined as those that have invested in the business
· Time OR Money
o Characteristics
§ Element of TRUST
· Not always the case – like law firms
§ Smaller in size – families or b/w friends
- Corporation
o Characteristics
§ Separation of ownership and control
· Ownership
o SH –
§ NO day to day power over operations of corporation
§ ONLY on big matters
· Mergers/acquisitions, voting on Board
§ Can get out at any time by selling stock and not changing the make up of the corp at all.
· Control
o 2 levels
§ Bd –
· Can ONLY act as a body
o No individual can act on behalf of corp
§ Key Officers
· CEO, CFO, VP
· They have AUTHORITY to act on behalf of the corp
· Their signature is required in order for corp to do something
· Duty
o It is the corp’s duty to make money for the Sh by increasing the value of their corporation – however, brings up social conflict - Dalcom
§ Pro
· This type of corp allows SH to limit investment and this creates the ability for society to amass commercial businesses
§ Con
· If the corp has no legal duty to clean up an environmental spill, and they do it anyway, then are they at fault for wasting the corporation’s assets and therefore not achieving their duty to the SH?
o Liability
§ Limited liability of the SH
· Only the amt that was invested in the buying of the stock
§ Officer –
· Acts on behalf of corp, it is an entity, so if T sues, they sue the corp
o Legal Fiction
§ Internal Affairs Doctrine
· the internal affairs of the corp are governed by the state of incorporation
Restatement 2d of Agency
- Contract liability
o 1-8B; 26-35; 82-3; 144-145; 159-161; 186-195
- Tort Liablity
o §219-220; 228-231;
- Fiduciary Duties of A to P
o Duty of Loyalty
§ 382; 386-396; 399; 401-404;
o Duty of Care/Skill
§ 376-380; 383; 400-402
LIABILITY P/A RELATIONSHIP
- 2 Types of Liablity
o a) contract
§ is there an agency relationship
§ OR, is there an apparent agency relationship
o b) tort
§ employment relationship AND w/in scope of employment
K Liability – Liability of P for A’s Acts
Actual v. Apparent Authority
- Actual Authority
o Expressed authority
§ Expressed delegation of such power
o Implied authority
§ Def. Principal actually intended agent to possess and include such powers that are necessary to carry out duties delegated
§ 1) Manifestation of conduct by the P
· precluded if there was expressed instructions by P prohibiting such conduct by A, expressed to A.
§ 2) that caused A to reasonably believe that P had given such powers to him
· focus on A’s reasonable belief.
· Factors causing reasonable belief
· A) past similar practices
· B) that which is necessary or incidental to carrying out a particular job that was delegated
o LOOK at the nature of the job itself
o Ex. P gave A the job to paint the church, and the church is very high and large, then it is in the nature of the job to hire someone since the job could not be done by just one person.
· C) Custom
o What is customarily done in the industry
o Are there any examples?
· D) Silence/inaction
o it was never expressed either way
o Ex. it was never expressed whether a painter could hire help and there was no expression that he had to hire this one other guy, and then they also paid the guy hired for his time – therefore this is implied authority
o Examples
§ 1) church painter who hired someone who got injured
· the church never told him he had to hire the other guy, nor that he could hire no one else
· in the past he was always allowed to hire whoever he wanted
· that guy worked, was injured, and the church still paid the same guy they’re trying to deny ever worked for them
· Ct said it was implied actual authority delegated to the guy who hired the other guy, therefore have to pay fees
o Restatement 2d
§ §144 – General Rule
· P is subject to liability on a K when they are disclosed or partially disclosed and the A was acting w/in authority
§ §145 – Authorized Representations
· disclosed or partially disclosed P is responsible for A’s authorized representations as if it was made by the P itself.
- Apparent authority
o Def. a manifestation by P to T that created a reasonable belief in A that the A had legal ability to act on behalf of the P
o Elements
§ 1) Conduct by P to T
· includes – P acting through an intermediary (like a secretary)
§ 2) T’s reasonable belief that A had authority to act on behalf of P
· LOOK at factors described in Actual authority
o A) past similar practices
o B) what is necessary and incidental to carrying out the job
o C) custom
o D) silence and inaction
o Rationales
§ 1) if only allow internal communications b/w P and A to govern authority, then this creates an area of distrust by the T.
· could cause P to abuse such a rule
§ 2) P benefits from having A act on her behalf since it cuts down costs
· P is in the best position to control A and T, therefore this is cheaper than if T had to do this onto A.
o Examples
§ 1) The case where A was a seller for P and sold to his friend T.
· Internal memo that said all sales must be signed off by a supervisor
· When T told P she only wanted to deal with A P agreed and sent out an internal memo saying all communications should go through A
· P never told T that a supervisor must sign off on the deal
· Ct said – therefore P’s silence to T created a reasonable belief in T that A had authority to enter into a K on behalf of P.
o Restatement 2d
§ §159 – apparent authority
· disclosed or partially disclosed P’s are liable for even unauthorized acts which are apparently authorized
§ §160 – violation of secret instructions
· P’s are liable for violations by A of secret instructions limiting their power that the T does not know about
§ §161 – Unauthorized acts of A
· P is liable even for unauthorized acts of A if these are incidental or usually accompany whatever the A is allowed to do, and the T reasonably believes A is authorized and has no notice otherwise.
Inherent Authority
- Elements
o 1) there is some sort of agency relationship b/w P and A
o 2) P is undisclosed
§ this is a kinda element – you don’t necessarily have to have this, however, this would be the clearest case for inherent
§ ex. like if P wanted to be kept secret
o 2) A is doing thing that is usual and proper for A to do
§ this shows that there is a reasonable belief on the part of T that A has the authority to do this
§ Ex. it would not work if someone bought a bed and they were in the convenient store business and they put it on their tab for the convenient store.
- Rationale
o 1) Fairness
§ even though P made no actual representations to A, they did not make their presence known – and they are in a better position and under more of a duty to make their presence known than the T is to find out if A actually has authority or not.
- Restatement 2d
o §186- General Rule
§ undisclosed P is liable by an A acting w/in A’s authority
o §194 – acts of As
§ undisclosed P is still liable if A, even though not authorized, does acts on P’s account that are usual or necessary in such transactions.
o §195 – acts of manager appearing to be owner
§ undisclosed P is still liable when they entrust A w/management of business when A enters into transactions usual, even if contrary to directions by P.
- Example
o 1) that guy who owned the beerhouse and bought tobacco even though the new owner said not to.
§ The guy’s name was on a plaque on the door, the principle didn’t make their presence known to any outsiders, the old owner carried on as the manager and was able to sign for deliveries, and tobacco was something he had bought in the past.
§ So when he skipped town and the tobacco people tried to get paid, the ct said it was the fault of the P and they were liable.
o 2) the guy booked a singer, and usually has authority to bind his company but for this one instance his rec’d label said he did not have the authority
§ There is a relationship b/w P and A
§ And the A usually has the authority to act in this manner, and the industry custom was that people with the same title as A have the authority to go out there and sign K on behalf of their company.
§ Ct says – even though this isn’t exactly an inherent authority type of situation, since the T knows that a P exists but there was never actually any manifestation to T and there was an expressed prohibition on A, P was still liable since under normal circumstances A would have the authority to bind T and T had a reasonable belief that A had this authority.
§ MORAL – if there is weak evidence on P’s manifestations to T and P expressly told A they were not allowed to make that sort of deal – then could try to get P on inherent authority.
Ratification
- Def. affirmance by person of a prior act which did not bind that person at first, but then bound that person based on their ratification of what was done.
- 2 types of ratification
o 1) Expressed
§ a) prior act on P’s behalf
· the K must have been entered into when the A was claiming to act on P’s behalf
· R: T must have a reasonable belief that they are doing the act b/c P wants them to.
§ b) expressed affirmance
· that she agrees to be bound by this K
o 2) Implied