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Duties between Partners
- Duty of Loyalty
- 1) to account for all profits derived by the partner
- 2) not to deal with the partnership with adverse interests, AND
- 3) not compete with the partnership
- Duty of Care - refrain from engagint in negligent, reckless, or unlawful conduct
Duties of an Agent
- 1) Duty of Care
- 2) Duty to Obey
- 3) Duty of Loyalty
Insider Trading Liability
Breaching a duty not to use inside info for personal benefit.
Tipper's and Tippee's Liability
- Tippers are liable if:
- 1) gives inside info to someone else
- 2) who trades on the basis of the info, AND
- 3) tip was made for improper purpose
- Tippees are liable if:
- 1) tipper breached a duty, AND
- 2) tippee knew tipper breached duty
Trading info about supply and demand for a stock in breach of a duty of trust and confidence owed to the source of info.
Corporations become Liable on Preincorporation Contracts if...
- The Corp adopts the contract by:
- 1) Express Board of Directors Resolution OR
- 2) Implied Adoption through knowledge of the contract and acceptance of its benefits.
- 1) Misrepresentation of a material fact,
- 2) Use of Interstate Commerce,
- 3) Scienter, AND
- 4) Connection with actual purchase of sale of a security.
- For recovery of damages, also:
- 5) Reliance
- 6) Cause of Loss
- A shareholder may assert the corp's rights if:
- 1) shareholder had ownership at time of the wrong, AND
- 2) shareholder made a written demand on the directors to sue
Business Judgement Rule
For directors and officers, there is no liability for consequences of a business decisions if they exercised due care, acted in good faith, and had a rational basis for the decision.
Duties of Directors
- Duty of Care
- Duty to Disclose material corp info to other members
- Duty of Loyalty
- Mandatory Indemnification: if won
- Discretionary Indemnification: if did not win, grant of indeminfication if:
- 1) acted in good faith AND
- 2) believed action was in the best interests of the corp,
Procedure for Fundamental Change
- 1) Board adopts a resolution,
- 2) Written notice given to shareholders,
- 3) Approval by majority of votes entitled to be cast by shareholders,
- 4) Filing with the state.
- Also, there is a Dissenter's Right of Appraisal.
Dissenter's Right of appraisal
- A shareholder who dissents to a fundamental change may force the corp to buy her shares at FMV.
- 1) Before vote, file written notice of objection,
- 2) Not vote in favor, AND
- 3) Written demand to be bought out.
- A shareholder may take action to dissolve the corporation if:
- 1) the directors become deadlocked in management,
- 2) the directors are committing fraud or crimes, OR
- 3) the directors are wasting corporate assets.
- Any profits realized by directors, officers, or shareholders owning >10% must return profits to the corporation if made a purchase and sale within 6 months.
- Applies to publically held corporations:
- 1) with >$10mil in assets and 500+ shareholders, OR
- 2) whose share are traded on a national exchange.
Principal's is Liable for Agent's Torts if...
There is a principal-agent relationship and the tort was comitted within the scope of that relationship.
- 1) Assent - an informal agreement b/w Principal and Agent
- 2) Benefit - Agent's conduct is for Principal's benefit, AND
- 3) Control - Principal must have Right to Control by having power to supervise the manner of the Agent's performance
Scope of Principal-Agent Relationship
- Scope is determined by factors:
- 1) Kind of conduct
- 2) Frolic or Detour
- 3) Intent of Agent to benefit the Principal
Actual Express Authority
- Principal uses written or oral words to express authority.
- EXCEPTION: Must be in writing if Contract is subject to the Statute of Frauds.
- Revocable by:
- 1) Unilateral Act of either Principal or Agent, OR
- 2) Death or Incapacity of Principal, UNLESS Agent has Durable Power of Attorney.
Actual Implied Authority
- Agent reasonably believes he has authority through Principal's conduct or circumstances.
- 1) Necessity
- 2) Custom
- 3) Prior Dealings
- 1) Principal cloaked agent with appearance of authority, AND
- 2) 3rd Party reasonably relies on the appearance of authority.
- Authority can be granted after the contract has been entered if:
- 1) Principal has knowledge af the material facts of the contract, AND
- 2) Principal accepts its benefits,
- EXCEPTION: No altered terms
Agent's Liability on Contracts
- Generally: Agent is not liable
- Exception: if principal is partially disclosed or undisclosed, authorized agent may be liable at the election of the 3rd party
An association of 2 or more persons who are carrying on as co-owners of a business for profit.
Priority of Distribution
- 1) All Creditors must be paid, THEN
- 2) All Capital Contributors must be paid, THEN
- 3) Profits and Surpluses are shared equally, absent agreement to the contrary.