Single
owner, no formality requirement. Only
have to file with the state if doing business under fictitious name. Significant risk for liability, no shield. If the business grows and an employee is
hired, the relationship becomes one of the principal and agent under the
authority of the principal.
·
Has
sole decision making authority
·
An
exclusive claim to business profits
·
Direct
ownership of all business assets
·
Legal
identity of the sole proprietorship and its owner are one, no business entity
·
Unlimited
liability
When principal instructs the agent to act, or expressly authorizes the agent to act in certain circumstances.
Legal fiction – provides authority where it would be
necessary or natural for the agent to act.
Protects 3rd parties
who want to bind the PRINCIPAL when there is a manifestation that creates a
reasonable expectation that the agent has authority to act.
·
Fennell – his lawyer agreed to a settlement, but the principal did not
authorize it. The court said that the attorney was NOT clothed with apparent authority
because there wasn’t a manifestation to the third party that his attorney would
have the authority to settle.
·
African Bio-Botanical – Agent must fully disclose the principal to be
released of liability.
·
Where
3rd party knows identity of the principal involved, agent not
liable.
Watteau - Joe owns and runs a bar called “Joe’s Bar”. One day he sells to Smith, who lets Joe
continue to run the bar, leaves the name alone but requires Joe to only buy
beer mugs from Smith Mugs, Inc. Joe
continues to run the bar, buys mugs from Smith, but also continues to buy mugs
from Jones. One day, Joe stiffs Jones
and Jones finds out that Smith actually owns the bar. Under inherent agency
authority, Jones successfully collects from Smith.
Doherty – Doctrine of ratification imposes liability for agent’s
unauthorized acts. Here there was an
attorney drafting codicils to a will.
To the extent that the codicils were incorrectly drafted, they were
“ratified” by the testator, thus the lawyer was relieved of liability.
Another method of recovery for 3rd
parties that have suffered from an agent’s unauthorized conduct.
Agent
has a high fiduciary obligation to the principal, to act in the best interest
of the principal.
· Tarnowski – all profits made by an agent in the course of an agency belong to the principal, whether they are the fruits of performance or the violation of an agent’s duty.
A
Partnership is an association of 2 or more persons to carry on as co-owners a
business for profit.
·
No
need for a written agreement.
·
Partnership
can be created from one transaction
·
Things
the partnership agreement can NOT change:
1.
The
filing requirements
2.
Unreasonably
restrict access to the books and records
3.
Can’t
eliminate the duty of loyalty
4.
Reduce
the duty of care
5.
Eliminate
obligation of good faith and fair dealing (can
limit though)
6.
Can’t
alter the power to dissociate as a partner
7.
Can’t
vary the court’s discretion to expel a partner
8.
Can’t
vary the wind up requirement
9.
The
P’ship agreement cannot alter joint and several liability to 3rd
parties.
10.
Can’t
vary the law applicable to registered LLPs.
·
§16202
– purpose is to make a profit, need to associate as co-owners, need to share
ability to control business decisions.
Any person receiving a share of the profits is presumed to be a partner unless:
1.
mere
sharing of gross returns
2.
joint
tenancy, common property does not establish a partnership
3.
debt
repayment
4.
rent
payment
5.
independent
contractor for wages
6.
annuities
payment or retirement benefits
7.
payment
of interest on a loan
Courts usually give weight to intent, by looking to
see if a person tried to restrict their rights in managing the
partnership.
Actual control of the day to day business is more
determinative.
·
Martin
– here, even though D shared in the profit and had veto power, court did not
find an existence of a partnership because his actions were only safeguards for
his loan. Where a person shares in
profits, but delineates in agreement that he is NOT a partner AND has no degree
of control over partnership decision, Courts will be reluctant to find a
partnership b/c the control factor is the essence of a partnership.
·
§16202(c)
– if you don’t indicate any particular degrees of control or profits, it will
be presumed to be a partnership.
·
Typical
safeguards for a Lender-Debtor relationship, even though they may impact
control:
1.
provision
on the use of proceeds/profit
2.
right
to inspect books
3.
limited
ability of the borrower to incur add’l debt
4.
provision
stating change in CEO makes entire loan amt due immediately
5.
limits
on distributions of assets, dividends, etc.
§16305
– Partnership is liable for acts of the partners.
§16306
– Partners are jointly and severally liable for ALL obligations of the
partnership.
When
not expressly stated in the partnership agreement, §16401 provides that each
partner is entitled to an equal
share of the profits/losses, regardless of the contribution.
·
Services
are not provided for statutorily, so if a partner will be contributing more
services and less capital, put it in the partnership agreement.
·
No
partner is entitled to remuneration for their services except for winding up
the partnership.
·
§16807(b)
– if there’s a deficiency in the account during windup, requires partners to
contribute to payoff all creditors.
· Richert – joint logging venture. When a partnership ends, the capital contributions of each GP must first be repaid before profits are distributed. Then, profits, losses, dividends may be paid out.
Co-partners
owe to one another the duty of loyalty and the duty of care. §16404
1.
account
to the partnership any partner info, property or opportunity
2.
refrain
from dealing with parties adverse to the partnership
3.
refrain
from competing with the partnership
4.
refraining
from grossly negligent or reckless misconduct, intentional misconduct or
knowing violation of the law
5.
a
partner does not violate this duty merely by furthering his own interest
6.
a
partner may lend $ to and transact other bus w/the partnership
·
Meinhard – partner must disclose opportunities to other partners out of
fiduciary duty.
The
Partnership is an entity and the assets are owned by the entity, rather than by
all the individuals. Each partner has a
partner account
·
§16401(g)
– a partner may use or possess partnership property only on behalf of the
partnership.
§16301
– each partner is an agent of the partnership and can bind the partnership in
the ordinary course of business. Exc – if partner had no authority to act in
the dealing and the other party was aware that the partner had authority.
§16401(j)
– if outside the ordinary course of business, then need the consent of ALL the partners to bind the partnership.
§16401(f)
– unless stated otherwise in the p’ship agmt, each partner has equal rights in
management of the partnership.
§16503
– a partner may transfer only the profit
interest in the partnership, not the management of the partnership, w/o the
consent of the other partners.
·
By
itself, it does not cause the dissociation or a dissolution and winding up of
the P’ship.
·
The
partner retains all the rights and duties of the partner.
§16601(4)(B)
– if there has been a transfer of all or substantially all of the partner’s
interest, the remaining partners may unanimously vote to expel them.
§16303
(d) – a partnership that wishes to limit authority of certain partners may file
a supplemental authority statement, which puts 3rd parties on notice
of the ability of the partner to act and transact on behalf of the p’ship. For real property, file statement with
county recorder’s office.
·
Nabisco – 2 person partnership, conflict on choosing bread vendors, but one
went ahead and ordered anyway, the other refused to pay. Court held that the partnership still bound
to pay for the bread, which the other partner had the authority to order.
§16308
– If 3rd party relied on
representation by a party that they are a partner, then they will be treated as
a partner. To be liable, there must be
an affirmative act of
representation, in a public manner.
§16308(c)
– a person is not liable merely because someone else names them as being a
partner.
·
Standard Oil – father not liable w/o affirmative act. Possible to have implied consent in the rare event that someone
confronts the alleged partner and they fail to deny.
·
When
one party leaves, they “dissociate”, which could but not necessarily cause the
dissolution. The partnership is an
entity, so it still exists if 1 out of 3 partners leaves.
§16601 Events causing dissociation:
1.
partner
gives notice of express will to withdraw from the p’ship
2.
event
agreed upon in the p’ship agrmt occurs
3.
expulsion
pursuant to the p’ship agrmt
4.
unanimous
vote to expel for the following reasons:
·
illegal
to deal w/that partner
·
transfer
of that partner’s interest
·
a
corporate partner’s charter has been revoked, or it has filed a certificate of
dissolution
·
a
partnership, LP, or LLP has been dissolved and is winding up.
5.
judicial
act to expel for the following:
·
partner
engaged in wrongful conduct that adversely affected the p’ship
·
partner
willfully or persistently committed a material breach of the p’ship agrmt or
duty owed to the p’ship or other partners.
·
Partner
engaged in conduct making it unreasonable to carry on business with p’ship.
6.
partner’s
act or failure to act:
·
by
being insolvent, going bankrupt
·
assigning
interest to creditors
·
agreeing
to the appointment of a trustee/receiver to liquidate most or all of the
partner’s property.
·
By
failing to stop the appointment of above
7.
occurrences
in the individual’s life:
·
death
·
appointment
of guardian or conservator (incompetence)
·
judicial
determination of incapacity to serve
8.
partner
that is a trust, distribution of trust property
9.
partner
that is an estate, distribution of that estate
10.
termination
of a partner that is not an individual, partnership, corp, trust or estate.
·
§16602
– a partner has the power to dissociate at any time, rightfully or wrongfully.
·
§16701
– if a partner is dissociated from a p’ship, their share will be bought out by
the p’ship. Liquidation value = value
at date of dissociation, plus interest
·
§16801
– what causes dissolution:
1.
partnership
at will – half the partners agree to dissolve and terminate
2.
partnership
for a term (fixed undertaking): dissociation by bankruptcy or death, wrongful
dissociation by a partner, an automatic dissolution will happen unless the
remaining partners agree to continue the partnership.
3.
Express
will of all partners to dissolve
4.
An
event that makes it illegal for the partnership to continue doing business
5.
Judicial
determination
·
When
you have a dissolution, you automatically have a winding up/liquidation
·
§16802
– on dissolution, the p’ship is not terminated, but continues until the
“winding up” of p’ship affairs is completed.
·
An
association of 2 or more persons or which, at least 1 is a GP and one is an LP.
·
GP
has full personal liability for partnership debts, assumes management
responsibilities and control – GP can be a corporation.
·
LP
contributes cash, other property or services but is not active in running the
business and their liability is limited to their investment.
·
LP
liability is limited to amount of investment
·
Attracts
more funding
·
LP
taxes are attributed to each partner’s profits. Corp. entities are taxed separately.
·
Filing
required (unlike GP) – need to disclose to public that there are some limited
partners.
·
§15632
– When an LP takes active control in the business s(he) becomes a GP. If an LP participates in the control of the
business w/o being named as a GP, that person may be held liable as a GP only
to persons who transact business with the LP w/actual knowledge of that partner’s participation AND with a reasonable belief that the partner is a GP based on the LP’s
conduct at the time of the transaction.
·
LP
does not take part in control by doing any of the following:
1.
being
a contractor, agent, or employee of the LP or transacting business w/a GP
2.
being
an officer, director, or shareholder of corporate GP
3.
consulting
or advising a GP (unless there’s a serious impact)
4.
acting
as a surety for the LP or the GP
5.
voting
or calling a meeting of the partners
6.
approving
or disapproving an amendment
·
Future
claims – no liability if certificate filed promptly
·
Past
claims – not liable unless 3rd party reasonably believed he was a GP
·
§16101(6)(A)
– for lawyers, CPAs and architects.
Must be registered
·
§16306(c)
– a partner in a registered LLP is not liable or accountable for debts,
obligation,s or liabilities of another partner, whether arising in tort,
contract, or otherwise.
·
§16306(e)
– partner is still liable for personal tortious conduct.
·
§16956
(1)(A) – LLP required to maintain an insurance policy of $100k for each
partner, shall not be less than $500K and doesn’t need more than $5M.
·
it’s
a variant of the GP, so maintains the same tax benefits but shields partners
from liability of a general partnership
A corporation is a shielded entity, and can only be
created by the state. The investors of
a corp have limited liability and creditors understand that any liability must
be satisfied out of the assets of the corporation.
·
Must
file Articles of Incorporation, can be formed by 1 or more persons. Existence of a corp. begins upon filing
§200.
·
§202
– Articles must state:
1.
name
of the corporation
2.
purpose
of the corp
3.
address
for service of process
4.
#
of authorized shares
It is difficult to amend the AOI, requires a
shareholder vote for approval.
·
After
filing, an organizational meeting occurs where:
1.
Board of Directors are elected
2.
§212 Bylaws are passed – not public record, this is kept internally
w/the records of corporation. The
bylaws contain duties of officers, corporation seal, # of officers. Management may alter the bylaws w/o
shareholder approval.
·
Common
Stock – owners have residual rights to the profits of the corp, right to vote
and control.
· Preferred Stock – owners have priority rights that limited to the investment document they entered into. (VC’s get