This action might not be possible to undo. Are you sure you want to continue?
AGENCY 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 otherwise consents so to act.
b. a. b. c.
Actual Authority (§2.01): Arises where the principal's words or conduct reasonably cause the agent to believe that he or she has been authorized to act Express in the form of a contract OR Implied because what is said or done make it reasonably necessary for the person to assume the powers of Principal will be bound IF Principal gave actual authority to agent and all the agent's actions fall w/in the scope of the This will be the result even if, having actual authority, the agent in fact acts fraudulently
an agent 1. authority given a. for his own benefit UNLESS i.
the 3rd party w/ whom the agent is dealing was aware of the agent's personal agenda 2. There is no contract but the principal's words or conduct reasonably led the 3rd party to believe that the agent was authorized to act, OR
What the agent proposes to do is incidental and reasonably necessary to accomplish an actually authorized transaction or a transaction that usually accompanies it Apparent Authority (§2.03): Exists where the principal's words or conduct would lead a reasonable person in the 3rd party's position to believe that the agent was authorized to act, even if the principal and the purported agent had never discussed such a relationship.
a. 1. d. a.
“Position of power” (ex: public office)
IF the position carries w/ it agency-like powers 2. THEN those who know of the appointment are entitled to assume that there is apparent authority to do the things ordinarily entrusted to one occupying such a position Implied Authority: Considered held by the agent by virtue of being reasonably necessary to carry out his express authority 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.
Example: Partners have apparent authority to bind the other partners in the firm, their liability being joint and several, and in a corp, all executives and senior employees w/ decision-making authority by virtue of their declared position have apparent authority to bind the corp. Agency By Estoppel (§2.05): A principal who has not made a manifestation to an agent is subject to liability to a 3rd party who justifiably is induced to make a detrimental change in position because the transaction is believed to be on the person's account, IF a. The person intentionally or carelessly caused such belief OR b. Having notice of such belief and that it might induce others to change their positions, the person did not take reasonable steps to notify them of the facts
Liability of Agent to 3rd Parties: If the agent has actual or apparent authority, the agent will not be liable for acts performed 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
Liability of Agent to Principal: If the agent has acted w/out actual authority, but the principal is nevertheless bound because the agent had apparent authority, the agent is liable to indemnify the principal for any resulting loss or damage. Liability of Principal to Agent: If the agent has acted w/in the scope of the actual authority given, the principal must indemnify the agent for payments made during the course of the relationship whether the expenditure was expressly authorized or merely necessary in promoting the principal’s business. i. Fiduciary Duties
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. An agent can represent the interests of more than one principal, conflicting or potentially conflicting, ONLY after full disclosure and consent of the principal. c. An agent also must not engage in self-dealing, or otherwise unduly enrich himself from the agency. An agent must 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 the agent is authorized to negotiate and pay the agent either a prearranged commission or a reasonable fee established after the fact.
Ratification: Creates the effect of actual authority
Even if the agent does act w/out authority, the principal may ratify the transaction and accept liability on the transactions as negotiated. This may be express or implied from the principal's behavior, e.g. IF 1. the agent has purported to act in a number of situations AND 2. 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 those transactions and an implied grant of authority for future transactions of a similar nature k. Termination
1. 2. 3.
Actual authority (§3.06) Agent’s death, principal’s death, or principal’s loss of capacity Agent would reasonably believe principal would no longer assent OR Revocation by principal to agent Apparent authority (§3.11) It is no longer reasonable for the 3rd party w/ whom an agent deals to believe that the agent
continues to act w/ actual authority CORPS
Promoters (MBCA §2.04): Prior to formation, promoters are, in effect partners. They therefore owe a fiduciary obligation of full disclosure to the corp and may not engage in self-dealing the detriment of the corp. a. Liability 1. A warranty that the corp will be formed AND 2. That promoter will use his best efforts to create the corp b. Protecting Promoters
Novation—agreement between principal and 3rd party to voluntarily substitute an old contract w/ a new 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 place b. 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 successfully maintain an action against him m. Incorp Mechanics a. Internal Affairs doctrine
Provides that the "internal affairs" of a corp (e.g. conflicts between SHs and mgmt figures such as the board of directors and corporate officers) will be governed by the corporate statutes and case law of the state in which the corp is incorporated UNLESS a. The relevant rules of the other state embody important policy of that state AND b. The matter involved does not affect the corp’s organic structure or internal administration
1. 2. 3. 4. 1. 2. 3. 4. d. 1. 2. 3. 4.
Reserving the name (MBCA §4.02) Usually 90 to 180 days and small fee Must be distinguishable from every other corp on file w/ secretary of state Must contain some evidence that the entity is a corp Must not contain words falsely suggesting that the corp will engage in certain businesses The incorp documents (MBCA §2.02) Corp name and address of incorporators Name a person who will act as the corp’s agent State maximum number of shares the corp may issue State the purpose (“any lawful purpose”) Filing Deliver Articles to the secretary of state (MBCA §2.01) One copy and required fees and taxes delivered to the secretary of state (MBCA §1.20) The secretary will file them (MBCA §1.25) Corp comes into existence at the close of business on the day Articles are filed (MBCA §2.03) Organizational mtg (MBCA §2.05) Elect directors Adopt bylaws Appoint officers Incorp and Limited Liability De Jure Corp- Substantial compliance w/ mandatory provisions
1. 2. 3. n.
Limited liability attaches once the articles of incorp are filed De Facto Corp (Facts from Corp's Perspective) Good faith effort to incorporate (sent the articles to department of state) Legal right to incorporate AND Operating as a corp Corp by Estoppel (Facts from 3rd Party's Perspective) IF Person dealing w/ alleged corp Thought it was a corp AND Would get a windfall if alleged corp would be personally liable THEN 3rd party is estopped from contesting the existence of a corp Enterprise liability Factors – Attempts to hold corp parent liable for its subsidiary’s debts 1. Similar corp names 2. Common corp officers, directors and employees 3. Same offices and used same telephone numbers and business cards Single business enterprise doctrine – Corps not operated as separate entities but integrate their resources to achieve a common purpose (In re U-Haul International, Inc.) Commercial and Bankruptcy Doctrines
1. 2. 3. 1. a. b. 2.
Doctrine of fraudulent conveyances (to protect creditors) – If corporate debtor transfers assets for less than fair value at a time when it was insolvent and for the purpose of harming its other creditors, those transferees are liable.
Doctrine of equitable subordination – A bankrupt corp’s creditors can recover property transferred to certain corporate insiders w/in one year of the bankruptcy IF a. The transfer was for an antecedent debt b. Had the effect of giving the insiders more than they would have received in the bankruptcy c. Made while the corp was insolvent Successor liability
General rule: A corp that purchases the assets of another corp assumes no liability for the transferring corp’s debts and liabilities UNLESS a. The buyer agrees to be held liable b. The two corps consolidate or merge
Mere continuation exception (Pancratz v. Monsanto Co.) i. MUST have proof of continuity of mgmt AND ii. Ownership Transaction amounts to fraud Product line exception i. Successor acquired substantially all the transferor’s assets AND ii. Produces the same products
Direct 1. 2. 3. 4. 5.
Liability of Corporate Officers IF Agree that the agent will be liable Guaranteed performance Relies to its detriment of the guarantee For his or her own tort Fraud or conversion
1. a. b. c. d. 2. i. ii. iii.
Piercing the Corporate Veil—seek assets of the SH where corp has none (two part Kansas test) Unity of Interest/Ownership (“separate corp identity” prong) Disregard of corporate entity Commingling funds and assets Undercapitalization Treating corporate assets as its own AND Injustice (“fraud or inequitable consequences” prong) Π is barred from recovery AND SH/Corp would be Unjustly enriched Parent takes all assets leaving no funds for subsidiary OR Fraud Directors Bd must consist of one or more individuals (MBCA §8.03(a)) At least one director must be elected at every annual SH mtg by SHs Classified Bd – Power is vested in at least one class of stock Staggered terms – Divide the Bd in 3rds so each have 3-yr term Holdover – Director will continue in office until another is elected
o. a. b. 1. 2. 3.
4. c. 1. 2. 3. d. 1. 2. 3. 4. e. f. 1.
Interim vacancy filled by maj of directors Removal by Amotion W/ or w/out cause (MBCA §8.08(a)) (only by same set of SHs that elected him) Bd has NO power to remove Bd member Conduct, manage, and direct the business of the corp at mtgs Properly called Proper notice Quorum (1/2) (SH mtg – maj) Sufficient vote (if consent, then unanimous; if acting at a mtg, then maj of votes) Appoint officers and form committees Issue Dividends (declared) Can SHs compel the Bd to issue dividends? ONLY where fraud or gross abuse of discretion Insolvency test (MBCA §6.40) Corp may not pay a dividend if after the corp would not be able to pay its debts OR The corp’s total assets would b less than its total liabilities Restrictions on transfer A matter of mgmt Regulatory reasons Buy-sell agreements (may require or grant option to purchase to the corp) Types Inside Directors—director AND employee or officer Outside—director but NOT officer or employee
a. b. 3. a. b. c. g. 1. 2. 1. 2.
Ultra Vires To enfoce the specific purposes (now JUST “any lawful purpose”) ONLY waste is beyond power (ex: gift)
Duty of Care (MBCA §8.30): Apply BJR (Burden on ∆ ) a. Directors owe a duty of care to the corp b. Directors MUST 1. Exercise the same degree of care and skill w/ respect to corp matters as would an ordinarily prudent and diligent person w/ respect to his own affairs 2. Make a reasonable effort to apprise themselves of the facts necessary to make a proper decision a. Reports furnished by officers may normally be relied upon by directors in making a decision
1. 2. 3.
Test (In re Caremark) Director should have known that violations of the law were occurring Director took no steps in a good faith effort to prevent or remedy the situation AND Such failure proximately resulted in losses complained of
d. q. a.
DGCL 102(b)(7) – Eliminates or limits the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty of care as a director Duty of Loyalty: - Directors owe a duty of loyalty to the corp obligating them to put corp interests ahead of their own. Of particular concern are transactions in which a director arguably usurps a corporate opportunity, OR otherwise competes w/ the corp, AND self-dealing transactions, where a directors and corp are parties to a transaction, such that the director potentially is on both sides, approving a transaction, as a director, for the corp than benefits her directly. b. Ratification—where triggers strip the protection of the BJR, proper ratification might revive the protection 1. SH Vote OR Special Committee c. Transactions between director and the corp are no longer void or voidable, so long as 1. Director discloses the conflict 2. Disinterested committee makes well-informed decision about the transaction 3. SH ratifies OR 4. Directors show entire fairness r. Standards of Review
1. judgments AND a. b. c. 2. a.
Business Judgment Rule – ONLY Duty of Care issues This rule is a rebuttable presumption that directors are better equipped than cts to make business Directors are disinterested Reasonably diligent AND Acting in good faith Ct will not interfere w/ business decisions, even unwise business decisions UNLESS Not attributed to “any rational business purpose”
The standard is whether a reasonable person in like circumstances would have reached the same
"Well-informed" Decisions Required a. Reasonably good efforts to hire experts AND b. Expert advice is limited to the area of expertise 5. Inaction a. BJR arguably does not apply since no decision has been made HOWEVER b. So long as the decision NOT to take action is well-informed, the BJR should apply c. Compliance Procedures—failure to enact where directors were on notice that procedures were required might not be "well-informed" decision i. Notice that compliance procedures are required 1. Industry lends itself to violations of the law 2. Industry involves complex area of the law ii. HOWEVER, if directors know that full compliance is impossible AND decide it's too costly to implement a program, BJR might attach if well-informed decision reached
6. 7. s.
Limited liability: Permitted to rely on reports by Bd committees or delegates AND that committees Rebutted by plaintiff SH alleging specific facts showing director breached his or her duty
or delegates or acting in good faith Executive Compensation Agreements (Brehm v. Eisner – Disney/“Ovitz” case) (Duty of Loyalty issue) a. Executive compensation plans receive the protection of the Business Judgment Rule and are rarely struck down, even if the plan is for an existing director who has influence over the corp. b. The director's decision will stand IF 1. Rational 2. Informed AND 3. Made in good faith c. Even if a compensation plan is arguable, excessive or unreasonable, if the compensation level is related roughly to the value of the director's services, it will stand.
1. 2. d.
Exception 1: Deferred compensation plans that reward an executive in the future whether or not he remains w/ the company might be struck down as lacking in consideration. Exception 2: When a salary is based on a formula that is unchanged even though the corp's conditions have drastically changed (10% of profits as a salary and profits balloon so the director receives $50 million). IF the BJR does NOT attach, directors must show the entire fairness of the transaction (burden on ∆ ) Fair price based on generally accepted economic accounting methods Fair dealing beyond mere formalities
Corporate Opportunity Doctrine (MBCA §5.05) = Full disclosure (Duty of Loyalty issue) a. IF Directors and officers b. Come across a business opportunity 1. Corp is financially able to take opportunity 2. Corp is in that line of business AND 3. Reasonable expectancy that corp will take the opportunity c. THEN director or officer CANNOT seize the opportunity himself d. Director/Officer must present the opportunity to the corp and the corp must reject before the director can seize the opportunity for himself
Combination of line of business and fairness test: Cts will sometimes comine these two tests to determine A director has unfairly taken an opportunity Rightfully and reasonably w/in the business of the corp
whether 1. 2.
Self-dealing (Duty of Loyalty issue) a. A key player and the corp are on opposite sides of the transaction or the key player has helped influence the corp's decisions to enter the transaction. b. Proponent of self-dealing claim can avoid invalidation IF 1. Approval by maj of disinterested directors
Showing ratification by SHs (MBCA §8.63) Showing transaction was inherently fair (MBCA §8.61)
Conflict of Interest (Duty of Loyalty issue) a. Where director or officer has a direct financial interest in a transaction, he is ordinarily obliged to make full disclosure of his interest AND refrain from voting on the matter. Such a transaction is not void or voidable solely because of a director’s interest in the transaction IF 1. COI Safe Harbor statutes
a. Material facts of the director’s interest are fully disclosed to the bd, and the transaction is approved by a maj of disinterested directors OR b. Material facts of the director’s interest are fully disclosed to the SHs, and the transaction is approved by a maj of disinterested SHs OR c. Ct determines the transaction to be fair w. Shareholders a. Shares/Stock
a. b. 2. a. b. c. 3. a. i. ii. iii. iv. i. i. b. c. issued d. i. to pay the cumulative amount e. 1.
General rule—There must be one class of stock/shares that contains Voting rights AND Residual rights Common Stock Voting Rights Residual rights Appreciation and depreciation Preferred Stock General rule Preferential rights to dividends AND/OR Preferential rights to amounts paid after liquidation No voting rights No appreciation or depreciation Cumulative Dividends on preferred stock Preferred amount carries over to the next year if dividends are not issued Non-Cumulative Dividends on Preferred Stock Preferred amount does NOT carry over to the next year if dividends are not Cumulative to the extent earned Preferred amount carries over to the next year ONLY IF corp has earned enough Participating Preferred Preferred SH participates in excess dividends or residual rights (Assets – Amount Over)(n%) + Preferred Amount
Issuance of Stocks (MBCA §1.40(2), 2.02(a)(2), and 6.10(a)) 1. Bd must approve (authorize) the issuance of shares 2. Must amend the Articles (approved at SH mtg) 3. Must be in Art. of Incorp 4. Subscription agreements (MBCA §6.20): Contracts entered into between persons who promise to purchase a prescribed number of shares for a specified amount from the corp after it has been formed. a. Revocability (majority rule): Until the corp has been formed AND has accepted the offer 5. Consideration – Bd determines adequacy of consideration 6. Par value system – Pay an equal amount per share at same time a. The amount that must be paid for the shares to considered fully paid and nonassessable b. IF NOT, watered stock (issued for less than par value) c. Dominant Shareholders
Controlling SH owe fiduciary duties to minority SH Control the vote, vote controls major transactions Controlling SH can sell shares at a premium above the market price UNLESS Looting corporate assets Converting corporate opportunities Fraud OR Acts of bad faith Shareholder Voting Vote on: the people who serve as directors AND fundamental changes (amending the Art, selling all dissolving corp) Staggered Elections Election of directors at intervals Impacts on the ability of control once a SH obtains a controlling interest Straight Voting # of shares = # of votes for each director (10,000 shares, 3 directors, 10,000 votes per Cumulative Voting
a. b. c. d. d.
or subst all of corp’s assets, merges, 2. a. b. 3. a. director) 4.
# of shares x # of directors up for election = number of votes for any director (10,000 x Removal of director can be blocked w/ the # of votes that would elect one director under Proxy Fights Others soliciting proxies and SH appoints agent to vote on behalf of that SH Agent owes fiduciary duties to the SH relating to matters of corporate governance Preemptive Rights Power of existing SH to purchase a proportionate part of any newly issued shares Protects voting power Protects economic rights Newly authorized shares Previously authorized but NOT previously issued Treasury shares Preemptive rights do NOT exist between classes of shares Shareholder Actions Direct SH seeks to enforce rights based on an injury directly affecting the individual SH Inspect Books SH has an individual right to have an independent and autonomous board Dividends (can also be derivative)
3 directors = 30,000 for any director)
this scheme 5. a. b. 6. a. i. ii. b. c. d. e. x. a. 1. a. b. c.
Derivative – IF director harmed corp, SH can file suit on corp’s behalf (must be SH at time of alleged harm) Whether the wealth from the lawsuit will accrue to the corp Demand Requirement Although demand is generally required, SH argue that demand was EXCUSED i. SH must specifically allege w/ particularity ("tools at hand" no discovery) 1. Conflict OR 2. Directors are dominated OR 3. Failure to use proper methodology 3. Board can establish a special litigation committee to determine whether the corp should bring the suit on its own behalf (authorized by statute) a. Committee created at the initiation of the lawsuit i. Decision to bring suit or not is entitled to the BJR Presumption of good faith b. Committee created AFTER the SH brings an action i. Committee must show 1. Members are disinterested and independent 2. Used the proper methodology 3. Proceeded in good faith AND 4. Reasonably invested the claim ii. Committee must also show that the SH suit will HARM the corp more than benefit the corp 4. MBCA requires written demand in all suits. Failure of the board to take action w/in 90 allows SH to bring suit. If the board does act w/in 90 days, either a quorum of disinterested directors OR a disinterested special committee can make the decision. 5. Planning—Set up a committee early on and keep them disinterested. Notify all SH that this committee alone will proceed on behalf of the corp y. Federal Securities Regulations a. Registration Requirements 1. 2. a.
i. ii. iii. iv.
Blue Sky Laws – Regulated the offering and sale of securities to protect from fraud Definition of security – “Investment contracts” (Howey test) Investment in money In a common enterprise W/ expectation of profit Solely from the efforts of others Exemptions FSA of 1993 §3(a) Intrastate exemption – Excluded securities issued only to residents of the state
of incorp Private placement exemption – Securities sold by corp in transactions not involving public offering
FSA of 1993 §3(b) Regulation D exemptions 1. Allows corps to raise up to $5 million 2. Requires there be no general advertising and that purchasers be rich people (accredited investors) of whom there is no limit and not more than 35 nonaccredited investors 3. Safe harbor b. Inside Information 1. Common Law a. No Duty to disclose absent affirmative fraud b. Directors have a duty to abstain from trading or disclose information to SH c. Special Facts Test—Disclosure is required IF i. Concealment of identity in the transactions AND ii. Inside information would have a dramatic impact on stock value d. Anonymous purchase on the market is OK especially where information was highly speculative 2. Rule 10b-5 i. Unlawful for any person directly or indirectly by use of interstate commerce To employ any device, scheme, or artifice to defraud Make any untrue statement of a material fact OR omit to state a material fact necessary in order to make the statement made not misleading OR iii. Engage in any act, practice, or course of business operating as fraud iv. In connection w/ the purchase or sale of any security (information caused the purchase or sale) b. Basic elements of 10b-5 i. Material misrepresentation ii. Scienter (wrong state of mind) iii. Connection w/ purchase or sale of securities iv. Economic loss AND v. Loss causation i. ii. i. ii.
1. material nonpublic information 1. 2. 3. in
Insiders (Caty, Roberts duty = must disclose material facts) One who owes fiduciary duties to the issuing company Temporary insiders Hired for certain transaction relating to the issuing company leading to No duty to disclose IF Not the corp’s A Not a fiduciary Not a person the seller of the securities had place trust or confidence Tippees (Dirks v. SEC) No fiduciary ties to the issuing company Tipper (Insider) personally benefits from disclosing material nonpublic Tippee knows or has reason to know that the tipper is breaching a Misappropriation Theory (United States v. O’Hagan) Nonpublic, material information protected by confidentiality (lawyers) Trade on basis of the information Breach of a fiduciary duty to the source of the information Based on a corrective justice theory Reducing protection of market analysts Material Information Reasonable investor would attach importance in determining choice of action in Actually or inferred from the circumstances Never really litigated
1. 2. information to tippee 3. fiduciary duty 1. 2. 3. 4. 5. d. the transaction 1. 2. c.
a. b. c.
Section 16(b) prohibits short swing profits under a strict liability theory. Officers, directors, 10% beneficial owners of any class of stock Corp w/ 5M in assets and minimum 500 shares in a national exchange Equities and convertibles
d. More than one purchase e. W/in six (6) Months 2. Investor Confidence Theory: prevent the appearance of impropriety and prevent churning the market. The ct will construe the transaction to get the most money for the corp
Test—If officer, director, or 10% beneficial owner of stock participates in two covered transactions w/in six month period, the gains realized from the transactions must be returned to the corp regardless of intent II. z. a. b. PARTNERSHIPS Association of two or more persons who carry on as co-owners a business for profit (RUPA §202) Persons can be individuals, partnerships, corps, or other associations Business can be every trade, occupation, or profession Establishing existence of a Partnership (RUPA §202(c)) Sharing of profits is prima facie evidence of partnership existence Rebuttal Mere common interest in land Mere sharing gross revenues w/out sharing residual return OR Profits received as Payment for debt Wages or rent Payment for annuity to a widow of a deceased partner Payment for the sale of "good will" of a business Partners v. Employees a. Intent of parties b. Right to share profits c. Sharing losses d. Control/ownership of property e. Community of power f. Language in the agreement g. Conduct of Parties to 3rd persons Formation of Partnership Agreements Partnership agreement Specified time for expiration (date or undertaking expires) OR "At will" partnership Can be implied in the circumstances (ex—lease is up) General Rule: Partners do NOT have a duty to remain partners—they exist by agreement and "freedom to No person can become a partner unless all partners give consent Incoming partners are liable for all past debts of the partnership, but not personally liable PERSONAL liability attaches to future partnership debts Common Law Theories of Terminating a Partner in a Law Firm Reasons for Termination Partnership can be terminated for ANY reason OR Termination must be reasonable OR Termination for cause only Means of Termination—Two Approaches Only requires notice before termination OR Means of termination must be reasonable Where 3rd party buys interest of an outgoing partner, he buys EVERYTHING, including unknown contingent Buyout Agreements—method for "winding up" affairs after partnership is terminated
b. 1. 2. 3. a. b. c. d. bb.
contract" principals c. 1. 2. d. 1. a. b. c. 2. a. b. e. assets f.
Rights of Partners (RUPA §401) a. Partners shall be repaid capital contributions and share equally in profits and surpluses b. Partners shall contribute towards losses 1. Exception—Where one partner contributes ONLY services and no capital, service-providing partner does NOT contribute to losses c. Insolvent partners 1. Remaining partners contribute to insolvent's share of losses in proportion to remaining partner's contributions (ex—A contributes 60%, A must contribute 60% to insolvent's share of losses) d. Act of any partner binds the partnership ee. Fiduciary Obligations of Partners
a. b. c. d. e. ff. a. management) b. 1. a. b.
Dual Agency—partners are agents of each other Access to books at all times Disclose information affecting the partnership Account for any benefits and profits derived by or for the partnership Right to formal accounting of partnership affairs Mgmt Partners have equal rights to mgmt UNLESS OTHERWISE AGREED (There is no legal right to partnership Mgmt disputes resolved by majority vote Two-person partnerships 51%/49% determination Divide and Conquer Agreements Each partner has majority vote on certain matters Tie-Breaker Arrangements—request 3rd party to be the tie-breaker where
partners are deadlocked
Partnership Property (RUPA §§203 and 204)
General Rule—All property acquired by the partnership or acquired w/ partnership funds is partnership property b. Specific Partnership Property 1. Non-assignable, non-attachable for debt payment 2. Co-ownership of specific partnership property and holds as tenancy of partnership 3. Right to possession and use for partnership purposes UNLESS other partners give consent for nonpartnership use c. Interest in Partnership Property 1. Personal Property consists of a. Share of profits AND b. Surplus 2. Assignable d. Rights in Management 1. Cannot be transferred 2. Freedom of Contract principles e. Designated Partnership Property 1. Partners can designate property to partnership for use 2. Partnership will NOT own or acquire the property BUT 3. IF the donating partner breaches the partnership agreement, the property can be used for continuing the partnership affairs
1. 2. 3. b. 1. 2. 3.
Causes of Dissolution (RUPA §601) W/out violation of agreement AND Time expires or undertaking is over P'ship "at will" can be dissolved by the express will of any partner Express will of all partners who have not assigned any of their interests Expulsion Good faith W/out violating fiduciary duties In accordance w/ partnership agreement Violation of Partnership Agreement AND Express will of any partner, where circumstances do not allow dissolution otherwise Cts will try to find a way to dissolve w/out finding a violation of partnership agreements Others Unlawful to continue partnership (e.g., prohibition) Death of any partner Bankruptcy Dissolution by Decree of Ct Ct can decree dissolution for Mental incompetence Incapacity Guilty of conduct that prejudicially affects partnership business Breach of good faith OR Simply bad business strategies Breach of Partnership Agreement Willful
1. 2. d. 1. 2. 3. ii. a. 1. 2. 3. a. b. 4. a.
b. c. 5. 6. a. b.
Persistent OR Not reasonably practicable to carry on business because of partner's conduct Ct can decree dissolution where partnership is no longer making profits Any other equitable reasons Petty Discords OR Partnership Squabbles Rights of Partners After Dissolution (RUPA §802) No Breach/No Expulsion Absent agreement otherwise, partners are treated equally Assets liquidated to pay debt Surplus distributed equally among partners No Breach/Expulsion in Good Faith Absent agreement otherwise Expelled partner gets amount due AND Remaining partners have right to continue business Breach of Partnership Agreement (Cannot contract around these rights) Non-breaching partners Damages Assets liquidated to pay debt Surplus distributed equally Right to continue business Breaching partner Amount Due No rights to the value of "good will" of the partnership Rules for Distribution of Partnership Assets (RUPA §803)—Winding Up Partners must contribute equally throughout the distribution of partnership assets Absent agreement otherwise Gather partnership property and partner contributions Order of Payment Non-Partner Creditors Non-Capital, Non-Profits owed to any Partners (Partner Creditors) Capital Investments Profits Generally, partners share all losses
a. 1. a. b. b. 1. a. b.
1. a. b. c. d. 2. a. b. a. b. 1. 2. a. b. c. d. c.
This action might not be possible to undo. Are you sure you want to continue?
We've moved you to where you read on your other device.
Get the full title to continue listening from where you left off, or restart the preview.