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Business Checklist1

Business Checklist1

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Published by fts0403

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Published by: fts0403 on Nov 30, 2009
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03/17/2012

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I.
A
GENCY
 
a.
Agency (§1.02):
Agency is the fiduciary duty that arises when one person (a “principal”) manifests another person (an“agent”) that the agent shall act on the principal’s behalf and subject to the principal’s control and the agent manifests assent or otherwiseconsents so to act.
 b.
Actual Authority (§2.01):
Arises where the principal's words or conduct reasonably cause the agent to believe that heor she has been authorized to act
a.
Express in the form of a contract OR
 b.
Implied because what is said or done make it reasonably necessary for the person to assume the powers ofan agent
c.
Principal will be bound IF1.Principal gave actual authority to agent and all the agent's actions fall w/in the scope of theauthority givena.This will be the result even if, having actual authority, the agent in fact acts fraudulentlyfor his own benefit UNLESSi.the 3rd party w/ whom the agent is dealing was aware of the agent's personalagenda2.There is no contract but the principal's words or conduct reasonably led the 3rd party to believethat the agent was authorized to act, OR
3.
What the agent proposes to do is incidental and reasonably necessary to accomplish an actuallyauthorized transaction or a transaction that usually accompanies it
c.
A pparent Authority (§2.03) 
: Exists where the principal's words or conduct would lead a reasonable person in the 3rdparty's position to believe that the agent was authorized to act, even if the principal and the purported agent had never discussed such arelationship.
a.
“Position of power” (ex: public office)
1.
IF the position carries w/ it agency-like powers2.THEN those who know of the appointment are entitled to assume that there is apparent authority todo the things ordinarily entrusted to one occupying such a position
d.
Implied Authority
: Considered held by the agent by virtue of being reasonably necessary to carry out his expressauthority
a.
Authority by virtue of position held : To deter fraud and other harms that may befall individuals dealing w/agents, there is a concept of Inherent Agency power, which is power derived solely by virtue of the agency relation.
1.
Example: Partners have apparent authority to bind the other partners in the firm, their liabilitybeing joint and several, and in a corp, all executives and senior employees w/ decision-making authority by virtue of their declared positionhave apparent authority to bind the corp.
e.
Ag ency By Estoppel (§2.05) 
:
 
A principal who has not made a manifestation to an agent is subject to liability to a 3rdparty who justifiably is induced to make a detrimental change in position because the transaction is believed to be on the person's account,IFa.The person intentionally or carelessly caused such belief ORb.Having notice of such belief and that it might induce others to change their positions, the person did nottake reasonable steps to notify them of the facts
f.
Liability of Agent to 3
rd
Parties
: If the agent has actual or apparent authority, the agent will not be liable for actsperformed w/in the scope of such authority, so long as the relationship of the agency and the identity of the principal have been disclosed.a.IF undisclosed principal THEN both the agent and the principal are liable
g.
Liability of Agent to Principal:
If the agent has acted w/out actual authority, but the principal is nevertheless boundbecause the agent had apparent authority, the agent is liable to indemnify the principal for any resulting loss or damage.
h.
L iability of Principal to Agent :
If the agent has acted w/in the scope of the actual authority given, the principal mustindemnify the agent for payments made during the course of the relationship whether the expenditure was expressly authorized or merelynecessary in promoting the principal’s business.
i.Fiduciary Duties
a.
An agent owes a fiduciary duty to be loyal to the principal.b.An agent must not accept any new obligations that are inconsistent w/ the duties owed to the principal. Anagent can represent the interests of more than one principal, conflicting or potentially conflicting, ONLY after full disclosure and consentof the principal.c.An agent also must not engage in self-dealing, or otherwise unduly enrich himself from the agency. An agentmust not usurp an opportunity from the principal by taking it for himself or passing it on to a 3rd party.d.In return, the principal must make a full disclosure of all information relevant to the transactions that theagent is authorized to negotiate and pay the agent either a prearranged commission or a reasonable fee established after the fact.
1
 
 j.
Ratification
: Creates the effect of actual authority
a.
Even if the agent does act w/out authority, the principal may ratify the transaction and accept liability onthe transactions as negotiated. This may be express or implied from the principal's behavior, e.g. IF1.the agent has purported to act in a number of situations AND2.the principal has knowingly acquiesced,b.THEN the failure to notify all concerned of the agent's lack of authority is an implied ratification to thosetransactions and an implied grant of authority for future transactions of a similar nature
k.Termination
a.
Actual authority (
§3.06)
1.Agents death, principals death, or principals loss of capacity2.Agent would reasonably believe principal would no longer assent OR3.Revocation by principal to agent
 b.
Apparent authority (
§3.11)
1.
It is no longer reasonable for the 3rd party w/ whom an agent deals to believe that the agentcontinues to act w/ actual authority
I.C
ORPS
l.
Promoters (MBCA §2.04):
Prior to formation, promoters are, in effect partners. They therefore owe a fiduciaryobligation of full disclosure to the corp and may not engage in self-dealing the detriment of the corp.a.Liability1.A warranty that the corp will be formed AND2.That promoter will use his best efforts to create the corpb.Protecting Promoters
1.
Novation—agreement between principal and 3rd party to voluntarily substitute an old contract w/ anew contract that changes either the subject matter or parties of the old contract (Moneywatch Co. v. Wilbers
 
)a.All parties must be identified before novation can take placeb.Novation BEFORE the transaction requires a document to account for the novation (e.g.,"subject to novation")2.IF promoters specifically disclaim personal liability, THEN corp will not be able to successfullymaintain an action against him
m.Incorp Mechanics
a.Internal Affairs doctrine
1.
Provides that the "internal affairs" of a corp (e.g. conflicts between SHs and mgmt figures such asthe board of directors and corporate officers) will be governed by the corporate statutes and case law of the state in which the corp isincorporated
UNLESS
a.The relevant rules of the other state embody important policy of that state ANDb.The matter involved does not affect the corps organic structure or internal administration
 b.
Reserving the name
(MBCA §4.02)
1.Usually 90 to 180 days and small fee2.Must be distinguishable from every other corp on file w/ secretary of state3.Must contain some evidence that the entity is a corp4.Must not contain words falsely suggesting that the corp will engage in certain businesses
c.
The incorp documents
(MBCA §2.02)
1.Corp name and address of incorporators2.Name a person who will act as the corps agent3.State maximum number of shares the corp may issue4.State the purpose (any lawful purpose)d.Filing1.Deliver Articles to the secretary of state (MBCA §2.01)2.One copy and required fees and taxes delivered to the secretary of state (MBCA §1.20)3.The secretary will file them (MBCA §1.25)4.Corp comes into existence at the close of business on the day Articles are filed (MBCA §2.03)
e.
Organizational mtg
(MBCA §2.05)
1.Elect directors2.Adopt bylaws3.Appoint officers
n.Incorp and Limited Liability
a.
De Jure Corp
- Substantial compliance w/ mandatory provisions
2
 
1.Limited liability attaches once the articles of incorp are filed
 b.
De Facto Corp (Facts from Corp's Perspective)1.Good faith effort to incorporate (sent the articles to department of state)2.Legal right to incorporate AND3.Operating as a corp
c.
Corp by Estoppel(Facts from 3rd Party's Perspective)1.IF Person dealing w/ alleged corpa.Thought it was a corp ANDb.Would get a windfall if alleged corp would be personally liable2.THEN 3rd party is estopped from contesting the existence of a corp
d.
Enterprise liability Factors – Attempts to hold corp parent liable for its subsidiary’s debts1.Similar corp names2.Common corp officers, directors and employees3.Same offices and used same telephone numbers and business cards
4.
Single business enterprise doctrine Corps not operated as separate entities but integrate theirresources to achieve a common purpose (In re U-Haul International, Inc.
 
)e.Commercial and Bankruptcy Doctrines
1.
Doctrine of fraudulent conveyances (to protect creditors) – If corporate debtor transfers assets forless than fair value at a time when it was insolvent and for the purpose of harming its other creditors,those transferees are liable.
2.
Doctrine of equitable subordination – A bankrupt corp’s creditors can recover property transferred tocertain corporate insiders w/in one year of the bankruptcy IFa.The transfer was for an antecedent debtb.Had the effect of giving the insiders more than they would have received in the bankruptcyc.Made while the corp was insolventf.Successor liability
1.
General rule : A corp that purchases the assets of another corp assumes no liability for the transferringcorp’s debts and liabilities UNLESSa.The buyer agrees to be held liableb.The two corps consolidate or merge
c.
Mere continuation exception (Pancratz v. Monsanto Co.)i.MUST have proof of continuity of mgmt ANDii.Ownershipd.Transaction amounts to fraude.Product line exceptioni.Successor acquired substantially all the transferor’s assets ANDii.Produces the same products
g.
Direct Liability of Corporate Officers
IF
1.Agree that the agent will be liable2.Guaranteed performance3.Relies to its detriment of the guarantee4.For his or her own tort5.Fraud or conversion
h.
Piercing the Corporate Veil—seek assets of the SH where corp has none (two part Kansas test)1.Unity of Interest/Ownership (separate corp identityprong)a.Disregard of corporate entityb.Commingling funds and assetsc.Undercapitalizationd.Treating corporate assets as its own AND2.Injustice (fraud or inequitable consequencesprong)
a.
Π
is barred from recovery ANDi.SH/Corp would be Unjustly enrichedii.Parent takes all assets leaving no funds for subsidiary ORiii.Fraud
o.Directors
a.Bd must consist of one or more individuals (MBCA §8.03(a))b.At least one director must be elected at every annual SH mtg by SHs1.Classified Bd Power is vested in at least one class of stock2.Staggered terms Divide the Bd in 3rds so each have 3-yr term3.Holdover Director will continue in office until another is elected
3

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