Home > Flashcards > Print Preview
The flashcards below were created by user
on FreezingBlue Flashcards
. What would you like to do?
Definition of Agency
Agecy Relationship occurs when the manifestation of consent by one person to another that the other shall act on his behalf and subject to this control and consent by the other so to act.
Elements of Agency Relationship
Right to control
Action on behalf of the principle
Gay Jenson Farm factors showing control of agent: (6)
- Constant recommendations
- Right of first refusal on Warren’s grain
- Need Cargill’s approval
- Right of entry onto Warrens property
- Cargill’s correspondence
- Cargill’s continued financing of Warrens projects
Actual Authority Defintion
The authority to do an act can be created by written or spoken words or other conduct of the P which, reasonably interpreted, causes the agent to believe that the P desires him so to act on the P’s account.
How can a principle communicate acutual authority?
Express, implied, or even inacation
Agent must reasonably believe that he had the authroity
Apparent Authority definition:
- An objective manifestation from party
- Which somehow reaches a third party
- Whichcauses the thir party to reasonably believe that another party is indeed authorized to act for the first party.
Is apparent authroity a right?
The terms referes to the power to bind, not the right. The power derives from the appearance of legitimate authority; the doctrine exists to protect third parties who are misled by appearances.
Can an undisclosed principle have apparent authroity?
Duty of Agent to Principle?
What are an agent's fiduciary duties?
- Duty of loyalty
- Duty of care
- Paid agent: ordinary care
- For gratuitous agent: gross negligence
- Duty to act withing authroity
- Duty to prvide informatino
- Agents tort caused injury
- Tortfeasor was a servant
- Tortious conduct within the scope of employment
What are the five implications of owning a business as a partner:
- Each partner has an equal vote and the power to veto important decisions
- Partners may use the firms property for firm benefit only
- Partner's share liabiltiy, profit, and losses
- Partners cannot transfer management rights without the other parnter's consent
- Because of no sellout, there are certain escape mechanisms for dissolving the firm and putting it up for sale
Definition of a Partnership:
An association of two or more persons to carry on as co-owners of a businesss for profit
Is partnership a formal relationship?
No, but it must be consenual. Partners do not need to have the intent to put the legal lable of partnership on the relationship.
Explain the test used to determine if a partnership exists
- Objective test: profit sharing is biggest factor and creates a presumptive partnership under UPA and RUPA.
- However, some jurisdictions hold that profit sharing is more than just gross income should be net profits. UPA and RUPA do not maintain this.
Liability in Partnership
Being a partner is tantamount to giving a personal guarentee.
When sharing profits is not enough to show a partnership
- debt pait by installments or otherwise
- for services rendered as an independent contractor
- for rent
- an annuity
What is the biggest single factor in determining whether profit sharing constituted a partnership?
Control. This was discussed in Peyton v. Manning
Sharing losses is also a major factor.
Contributions of property to partnership as well
Partnership can also be created by estoppel. What are the elements?
- Reasonable reliance on that promise
- Relied on to a detriment
In a partnership, what is the default arrangement when it comes to splitting profits and losses?
That all partners share profits and losses equally. If there is a specific precentage split for profits contracted for by partners, this is assumed to apply to losses as well.
do partners recieve bigger share of profits if they contribute more property or labor?
No, defaul tis that pratners receive nother extra besides their share or profits.
What is the UPA approch for determining whether how captial was leased or loaned to a partnership ?
- Case law only
- Court is unlikely to find taht property was leased or loaned unless actual payments have been made back to the parnter for use of the property.
What is the UPA approach for determinng whether property was contributed or furnished?
- Following factors indicate contribution:
- USe of property in the property
- use of partnership funds to improve the property
- indications on the parntership books that property belings to partnership
- Nonreciept of rent by the partner who provided the property
Where does RUPA place emphasis on in determing whether property belongs to a partnership?
Under RUPA Property is partnership property if acquired in:
- the name of the business
- in the name of one or more partners if the instrument tranferring titl to the property indicates the person's capacity as a partner or the existence of property
Under UPA and RUPA, what interests are assignable by partners?
only economic rights. In order for individual creditors to reach a partners assets they have to get a charging order. This in turn functions as a garnishment.
Partner's are free to contract around default arrangements for profit sharing, but what must they try to minimize? (4)
- risk bearing costs
- adminisrative costs
- opportunism costs
What are the five elements of a partners managment rights?
- Ther right to know
- The right to be involved
- The right to commit
- the right to participate
- the right to veto certain decisions
Authority of Parnters to bind partnerhips under UPA and RUPA
Partners may bind partnership in mattes that are reasonably necessary to accomplish all tasks within the ordinary course of the business.
What is the implied limit on parnter authority?
Absent an agreement stating otherwise, a partner may not make a commitment the parner has reason to know another parnter would oppose.
Voting rights under UPA and RUPA
- UPA need unnanimous approval for anthing big
- RUPA need unanimous approval only for admitting an ew partner
If there is a deadlock?
Partner proposing the change loses
Can Partner vary the deaful managment rules provided by RUPA and UPA?
Yes they may change almost any of them.
Limits on Inter Se agreements that restructure managment under RUPA and UPA
No agreements can completely remove fiduciary duties
The more fudnamental the obligation the more likely there will be judicial scrutiny
Partner's duty of care under RUPA and UPA?
Duty to refrain form grossly negligent or reckless conduct
Fidicuary Duty of Loyalty in Meinhar v. Salmon
Duty is not just honesty, but of honor
Under RUPA and UPA can a partner profit at the expense of the parntership?
- NO, he is prohibited from
- competing with the partnership
- taking business oportunties away from the partnership
- using the partnership for personal gain
- engaging in conflict of interest transactions
What four things could create a conflict of interest with a partnership?
- Doing business with a partner
- the partner's family
- a closely related member of the parnter's family
- any person whose interests are advers to the partnership
Does UPA or RUPA include a duty of good faith and fair dealing?
Only RUPA does
What can violate the duty of good faith and fair dealing?
Excessive fair dealing, the duty is not violated merely becuase the partner's conduct furthers his own interst
Under UPA, what are four implications of Dissociation
- A partners dissociation creats dissolution
- Disolution does not mean an immediate end to the partnership, instead it goes into a winding up period
- End of partnership does not necessarily mean end of business
- Partner always has the power, but not necessarily the right to leave
Under UPA, four causes of dissolution
- Express will of dissocitaion of an at will partnership (Partner has the right and the power)
- Express will dissociation of a partnership for a term or undertaking (partner has the power)
- Death or bankruptcy
- Expiration of a term or undertaking (power and right)
Does Dissolution end the partnership under UPA?
No it merely starts a winding down period, wherein accounts recievabel are pulled in and any monies not due may be tried to be collected early
Managmentmet power during winding up uner UPA:
- Actual authroity: The partners who have not wrongfully dissolved the parnterhip has the right to wind up the parnership
- All partners are deprived of the actuall athority to committ the partnership to new business
What should partnership do during winding up to protect itself from apparent authroity issues?
Send a letter to all thrid parties, run advertising etc
Under UPA who makes the decision to liquidate after dissolution?
- It is an inter se agreeemtn
- Default depends on rightful or wrongful dissociation
Rightful dissociaton under UPA has what implication on liquidation
Default is that liquidation is the typical result
What implication does wrongful dissociation have on liquidation under UPA?
first choice belongs to partners to decide
If business is liquidated under UPA, in what order are accounts settled?
- Outside creditors
- Inside creditors
- Partners are repaid for their investment capital
- any remaining funds are devided as profit
- then any losses are split
What are the three notions of RUPA whan a partner dissociates?
- RUPA seeks continuity of business rather than dissolution
- Dissociation does not necessarily cause dissolution
- In most situations there is a buy of the partners interests rather than dissolution
What are four ways to dissociate under RUPA?
- Express will to withdraw
- Be expelled
- Be judicially expelled
- Barkrupcy or death
Explain the switing provision found in RUPA?
I says that if dissociation results in dissolution, then article 8 applies. But if dissociation does not result in dissolution, then article 8 applies and a partner's interst must be purchased pursuent ot the buyout rules.
What special mechanism does RUPA have that applies at dissolution time?
Statement of public filing of which significentl affects partner's power to bind the partnerhip
What are the two ways that partner can wronfully dissociate under RUPA?
- Breach of express provision of partnership agreement
- Quitting before the end of a partnerhip for a term or undertaking, unless less than 90 days have past since another partner dissociated
What are four consequences of wrongful dissociation?
- Wronfully dissociated partner is liable to parntership for damages he caused
- If partnership is for a term or undertaking, it creates the possiblity of dissolution within 90 days if the express will of at least half the reaming partners so desires
- IFthe parnterhip continues, the wronfully dissociated partner is not entitled to any payout untill the end of the orignal term
- If the dissociation results in dissolution of the partnerhip, the wronfully dissociated parert has the right ot particiapte in the wind up
What two situations cause disolution after dissociation under RUPA?
- At will partnership where the dissociated partner terminates at his express will where he has not been dissociated through other causes
- In a partnership for a term or undertaking, more than haof the remaining partners want to dissolve
after dissociation, what is required of the partnership if no dissolution?
- statement of dissociation
- if properly filed this statment acts as a way to limit th authority of the dissociated partner
How long does a dissociated partners abilty to bind the partnership last?
A dissociated partners power to bind the partnership is subject to certain qualifications, what are they?
- less than two years have passed since dissociation
- the other party does not have notice and reasonably believes the dissociated partner is still a partner
- Fewer than 90 days have passed slince the notice was filed
- a. If
- dissociation does not cause dissolution,
- then RUPA 701 defaults that the partner is entitled to be bought out.
- b. Determining
- buyout price
- RUPA 701 provides the rule for dterming the buyout
- If the partnership is a term partnership, then the
- partnership can defer payment
- Otherwise partnership must pay within 120 after written
- d. Power
- of the partnership agreement
- Section 701 is entirely subject partnership agreement
Purpose of limited partnerships
- Built on the money of limited partners who are passive
- owners with one or more managing
On what authoty to limited partnerships exist?
organized under statute
6 ways that limited partnerships are distinguished from general partnerships
- Creation: must file a certificate of limited partnerhip
- Types of partners: general and limited partners
- Liabiltiy: general partners are liable, limited partners are not
- Managment: limited partners do not get equal rights and instead are just passive investors
- Profit and loss sharing: GP and LP share profits in relation to thier capital contributions
- Dissoluition: dissociation of limited partner does not threaten dissolution
Is RULPA a stand along parntership?
No it is linked to the UPA
Personal liability of GP and LP in a limited partnership?
- GP- same a regular partnership
- LP no unless they are too invested in management of partnership- this is called the control element
In a limited partnership who has the power to bind the partnership?
only general partners
Limited partners do not have the right to bind partnership- what do they have?
- Right to know information about the partnership
- May have the opportunity to consent to or to vote to avoid dissolution
RUPLPA profit and loss sharing?
P and L's are split up based on parnter's contributions
LP and GP's transfer of rights under RULPA and ULPA?
Under RULPA- what two things must happen for a limited partnership to avoid dissolution after a General Partner dissociates?
- The partnership must have at least one remaining partner, he must agree, and it must not be in violation of OA.
- within 90 days all remaining partners must agree to continue
What happens under the UPA when a partner leaves? RUPA?
- Under UPA dissolution of the partnership happens
- Under RUPA partner is dissociated
How does a partnership continue on after partner dissociates under UPA and RUPA
Under UPA partnership must be wound down and new partnership formed
Under RUPA, partnership continues under article 7 switchin provision
If the decision is made to end the business uneer RUPA and under UPA
- Under UPA business is wond down and liquidated
- Under RUPA partnership is dissolved and underlying business is liquidated under article 8
How are buyouts covered in UPA and RUPA
- UPA did not address them: assumed winding up face and buyout
- RUPA provides a buyout default and also gives us how price of buyout is determined
How is a buyout determined under RUPA?
- At the time of dissociation, what were business assets worth,
- Then takin into account all business liabilites as well as damages if wrongful dissociation
What rights does a business creditor have against a limited partner?
As a general rule, creditors have no recourse against limited partners in a firm.
Under RULPA 608, what two circumstances are limited partners liabile for wrongful distributions?
If distribution was made without violation of the partnership agremeent partner is liable for for one year after the distribution, but only to the extent necessary to pay off creditors who extended credit whil the partnerhsip was holding the partner's contribution
If distribution was in violation of the partnership agreement, partner is liable for 6 years.
How do you become a partner in a Limited partnerhsip?
Typically by making a contribution
Why do creditors have to be worried about lending to limtied partnerships in a way that they do not have to be to a gp?
P have personal liabilty. LPs do not.
When may a partner in a limited partner recieve distribution?
When the liabilitys are less than the fair value of the assets.
What are the differences between the voting rights of partners in RULPA and ULPA?
- In RULPA: default rules require more unanimity- such matters as asmission of new gp or lp, or dissolution or continuation
- ULPA says that ordinary matters are decided by GP or majority of GPs
Does a limited partner expose himself to risk if he participates in managment control of the business under RULPA and ULPA?
- Under RULPA yes-
- Under ULPA no- only to the extent that 3rd parties thought the person was a general partner. Statute also has a safe harbor list of actions that in themselves would not constitute participating in control.
When does a partner have an affirmative duty to disclose?
Fiduciary duty to provide information that is material to the contract.
What are the factors in determing whether a misstatemetn or omission was material when evaluating a potential breach of a partners fiduciary duty?
did the complaining partner have access to partnership records and how sophisticated was the complaining partner.
Is there a duty to provid information upon reasonable demand about the partnership from partners? and can this be contracted around?
yes there is a statutory duty. It can be contracted around as long as it is not for the sole purpose of shielding a wrongdoer.
What is the duty of loyalt as it relates to partnerships?
- Duty to refrain from use of partnerhip property
- refrain from self dealing,
- selfish use of partnership property or opportunites
OA cant completely contract around the fiduciary duty of loyalty
What is a partnership opportunity?
Opportunity that partnership could have taken advantage of. Whether the partership had the financial ability is what is important.
What is an accounting?
- Judicial proceeding in which all matters pending between the partners are adjuciated.
- P and Ls, claims for indemnification.
What is the difference between the UPA and RUPA handling of Accounting?
- Under UPA, an accounting is an exclusive remedy against againt the partnership
- Uner RUPA, an accounting has been abolished.
What is the new rule governing partners facing liability for another partner's torts?
Partnership is liable if the tortious partner was acting in the ordinary course of the business or if it occured with the authority of the partnership
Two standards for finding partnership liabilty for a partnership:
- Partner acted within ordinary course of business or with authrorization
- If the voluntary creidtor had an objectively reasonable assumpition that the partner was carrying on the partnership business in a normal way
Traditional rule regarding partnership deb?
Creditor may recover both from the partnerhip and from individual partners
How do you get your money if you sue a partnership?
May have to exhaust partnership assts before suing individual partners
Explain partner indemnification
Partners may be indemnified by the partnership for payments made and liabilities incured in the partnership business. This provides a way to promote loss sharing when one partner has shouldered more of a burden.
What does ordinary and proper conduct or ordinary course mean in the context of determing whether a partner will be indemnified?
Must be at least apparently authorized or within the scope of the partnership business to trigger a partnership liability
What happens if ther are not enough partnership assets to cover liablites and one partner is insolvent?
Partner's must contribute to cover the debt according to their loss shares
Partners have three types of property rights:
- specific partnership property
- in the partnerhip as a whole
- managment of the property
Under RUPA do partners have indivual ownership in partnership property?
No, RUPA holds that partnership property is an entity of itself.
What are partners rights to partnership property?
- has rights to his share in the profits and surplus of the property
- as such hs can tranfer this property to heirs, creditors etc
What is a creditors only way to get money from a partner?
- to recive a chargin order.
- This is usually only available to judgment creditors
What can a partner transfer as far as property in a partnership?
- Management rights only if getting unaimous consent from partners
Does the creditor who has obtained a charging order need consent of the other partners to forclose on that interest?
not usually. This is a case by case basis by. Will the forclosure interefere with partnership business?
Does a divorced spouse have any rights to a partnership?
Same a creditor except actually probably able to get full equitable disttribution including goodwill.
What do we take away from mienhard v. salmon?
That a fiduciary should not be deterred by self interest from the most faithful service of the beneficiary's interests.
What is the default managment right for partners?
All partners may participate in the governance of the firm
If there is a disagreement between partners?
Partners shall have equal rights rights to particiapte in managment, that is each partner gets one vote. This is in contrast to the corporate one shar one vote rule.
what amount of the vote is required to take action in a partnership?
- majority vote for ordinary matters
- unanimous vote for extraordinary acts including admitting a new partner
What is the extent of the partners apparent authority as authorized by UPA and RUPA?
May bind partnership as long as apparetnly carrying on in the usual way.
When may a partner bind a partnership if it is an extraordinary transaction?
when actually authorized by the partnership?
What do you need to balance in a management and control agreement?
manager's authroity and other partners right to accountabilty
What type of liabilty applies to partners in the firm vicariously for acts that are torts and acts that are contractual
- Joint and several for tort claims
- Joint for contractual
When is exhaustion required?
Exhaustion is required only in cases of joint liability
What are three ways that an LP is different from an GP
Limted partnerships only come into existence when the parties deliberately file certificates with the state indicating their formation.
Because they are intential, they deal mainly with express agreement, and not default rules.
They usually involve investors rather than partners making contributions
RULPA safe harbor activites include:
consulting, advising, proposeing, approving disapproving matters related to the business of the limiteed partnership which the partnership agreement states in writing may be subject to the approval of limited partners.
RULPA safe harbor reliance requirement
even if lp acting outside safe harbor there will be no liability for an LP if the plaintiff was not misled by the limited partner's participation in control.
Can a chargin order entitle a creditor to make the managment decision to bring on dissolution?
What is RUPA's stance on derivative suits by limited partners against general partners
What is ULPA's
RULPA: must have dissolution and an accounting first
Can do it with or without an accounting, but must show an injury that is not soley the result of an injury suffered by the limited partnership
Suit by partner in the partnerships name
Can a limted partner dissociate from a firm under RULPA?
Yes, as prvided in writing in the partnership agreement or with six monthes notice. He is then entield to be paid distributions.
Dissociation of a general partner under RUPA:
leades to dissolution of the partnership unless the partnerhip is continued by consent of all the partners or pursuant to the partnership agreement.
Fiduciary duties owed in LLC's
Member Mgd is similar to a general partnership
Manager mgd is similar to a limited partner.
When is an LLC formed. U,R,D
- U: When AO are filed
- R: when Secretary of state files a certificate of organization and there is at least one member attached the LLC.
- D: At the time of filing a certificate of organization at the secretary of state's office
What is the Duration of an LLC?
- U: perpetual unless the article of orginazation provides a term
- R: perpetual
- D: perpetual unless the articles of orginazation provides a term
Required information in LLC filing
- U: LLC name, office address, registering agent, whether or not firm is manager manged and if so managers, any members liabilities for debts can be added as well
- R: LLC name, address of office and registered agent, statement if no members
- D: LLC Name, address of office, registered agent
How do you tell if an agreement is an operating agreement?
It must a an agreement between all the parties
General partners that are a part of a partnership that converts to an LLC
Gneeral parnter cannot simply shed her existing personal liabilty, except possible for debts accruing after conversion on pre-conversion leases and other long-term contracts.
What happens to thepartnership’s long-term obligations that extend beyond the conversion?
They may be shed.
What factors are involved in piercing the veil in LLC?
elements of injustce, fundamental unfairness, or inequity.
Scope of members’ fiduciary duties in member-managed LLC
U:Only duties of loyalty, care under §409 (b) & (c)
- R:Duties of loyalty, care in §409(b)
- & (c)(non-exclusive)
D: Nothing in statute.
Duty of loyalty: managing member or mgr
U: Limited to accounting for money derived from using LLC propty; (2) no dealing with LLC as adverse party; (3) no competing with LLC
R: Same, but not limited. If dealing with the LLC, member can defend his actions by showing “transaction was fair”
D: nothing in statute
Duty of care: managing member or mgr
U: Refrain from gross neg., reck-less conduct, intnl misconductor knowing law viols
R: Subject to BJR, use reasonable care in best interest of LLC
Nothing in statute
What would you like to do?
Home > Flashcards > Print Preview