Agency, Partnership, LLC
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A fiduciary relationship created when two parties manifest the intention that the agent act on the principal's behalf and subject to the principal's control.
- Valid formation requires:
- -contractual capacity of the principal
- -consent of both parties to create and continue agency relationship.
- -does NOT require writing or other formality. (Oral appointment of agent is valid).
Fiduciary Duties Owed By Agent to Principal
- -Loyalty (including avoiding secret profit and COI)
- -Obedience to reasonable directions
- -Reasonable care under the circumstances
Fiduciary Duties Owed By Principal to Agent
- -Reasonable compensation
- -Reimbursement of expenses
- -Idemnification (against liability)
- -Cooperation with agent's efforts
Principal's Contractual Obligation to Third Parties
Agent acting with any form of authority (express, implied, apparent) is capable of binding principal in a contract to 3rd party.
Actual Authority and Termination
What the agent reasonably believed based on the principal's words (express) or statements and conduct (implied).
Terminated by express terms, drastic change of conditions, or operation of law (death/insanity of human principal, bankruptcy/dissolution of business agent).
The principal's approval of the agent's act, after the fact.
What a 3rd party reasonably believes based on A's statements or conduct (creating an impression of authority when none exists).
Personal Liability of Agent to 3rd Parties
Agents are not personally liable to 3rd parties if the principal's existence and identity were fully disclosed.
Partial disclosure (3rd party knew agent acting on behalf of an unknown principal) or undisclosed agency (3rd party did not know A was acting as A) can result in A's personal liability.
Liability on Partially or Undisclose Principal
Both agent and principal are jointly and severally liable for a contract entered into by authorized agent under these conditions.
Breach of Warranty of Agency Authority
Agent's representation to 3rd party that A is acting on behalf of P is a promise (warranty). Breach can lead to liability.
RS makes employers vicariously liable for torts committed by employees acting within the scope of employment.
Scope of Employment
Conduct at the direction of the employer or motivated to serve employer.
- Detours- Minor and reasonable deviations from assigned routes or tasks. w/i scope.
- Frolics- Major deviations from assigned routes or tasks, especially self-serving. not w/i scope.
Principal's Liability for Intentional Torts
Employer is not liable for intentional torts of employee, unless the benefit to employer entails such (eg, bouncer).
Independent Contractor vs. Employee
Employer's right to control time/place/manner and other details of work, more likely employmer/ee relationship.
An association of two or more persons to carry on as co-owners of a business for profit. Each partner is an agent and co-principal of the other(s).
Governing Law of Partnerships
Revised Uniform Partnership Act (RUPA) sets the defaults.
- Formation requires the intent of the parties to carry on as co-owners of a business. Intent can be shown through sharing profits, sharing losses (nearly conclusive), contributions of money/property, agreement regarding responsibilities/rights, adoption of a business name, or failed attempt to create another type of biz entity.
- No formality, writing, consideration, or explicit statement is required to form a partnership.
Partnerships are classified as at will (no agreement at the outset) or for a definite term/particular undertaking.
For partnerships for a definite term, early ending is wrongful and could lead to damages. SOF applies if term>1 year.
Duties of Partners to Each Other
- -Loyalty (promote best interests of P, avoid secret profit, disclose biz opportunities);
- -Care (avoid intentional misconduct and knowing violation of the law, avoid grossly negligent or reckless conduct); and
- -Good faith and fair dealing (honesty in fact and observe reasonable commercial standards).
Partnership Rights and Powers
- -Equal rights to manage, to profits, access to books and info. Losses shared on same basis as profits.
- -Apparent authority to bind P to contracts.
Liability of Partners
Tort liability- can subject P to liability for torts committed within scope of partnership business.
Contract- Personally but secondarily liable for all partnership debts. Personal liability is joint and several.
Ending a Partnership
- Winding Up
Dissociation is a change in the legal relationship of partners triggered by the exit of a P, death or bankruptcy of a P, or expulsion of a P by other Ps or court.
Dissociated P no longer has rights to participate in management, and if other Ps decide to continue, P is entitled to payment of value of partnership interest and indemnity against partnership liabilities.
The decision to end the partnership can result from any dissociation event (at will) or after the death/bankruptcy/wrongful dissociation of a partner, upon expiration of a term, completion of business, or if all partners agree (P for term).
Remaining partners may waive dissolution and continue business.
Otherwise, business continues only for the purposes of winding up.
WU is the process of finishing all pending business transactions. This may be completed by a partner, who is entitled to remuneration for this service.
T is the completion of the winding up process.
Distribution of Partnership Assets
- 1) debts to outside creditors
- 2) debts to partners
- 3) return of partners' capital
- 4) profits (to be distributed equally unless otherwise agreed)
- 5) losses allocated according to same proportions as profits.
Limited Liablity Partnership
LLP is a partnership in which all partners enjoy limited liability.
Must file Statement of Qualifications with SoS, name must identify as LLP.
Partners are liable for own debts/torts, but not for partnership debts. All other P rules apply.
Governed by Uniform Limited Partnership Act. Must file Certificate of Limited Partnership with SoS. Name must reflect limited partnership status, may include name of P.
General Partners are personally liable for P debts and own fiduciary duties of care and loyalty, obligation of good faith.
Limited Partners not personally liable for P debts and only have obligation of good faith.
Limited Liability Company
LLC members have limited personal liability and entity receives tax benefits of partnership. Governed y WA LLC statute.
Certificate of formation filed with SoS, must include LLC in name. And LLC agreement is optional, which established rules of governance, distribution of control, and allocation of profits.
LLC Membership defaults
- -Members can only be admitted through unanimous vote of other members.
- -Members cannot withdraw unless all other members agree.
- -Members may sell or transfer membership interest. This results in seller dissociation, and the buyer has rights to profits but is not a member unless all others agree and consent to continue.
The LLC is a separate legal entity, responsible for its own contract and tort obligations.
Members are not personally liable for LLC obligations except for unusual circumstances where a court may pierce the veil and impose personal liability on members.
Member management is the default, by which each member can participate in management and is an agent of the business.
Manager management, which must be disclosed in the certificate of formation, installs a manager (who may be a member) as an agent and manager. Other members not agents, akin to shareholders.
LLC Voting Power
LLC voting power is based on proportion of ownership, not equality among members. More money=more control.
LLC must file a Certificate of Dissolution with SoS. All creditors must filed claims within 3 months, and LLC may opt to require known creditors to file claims withint 120 days.
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