corporations agency partnership

8/6/2019 Corporations Agency Partnership

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CORPORATIONS

I. ORGANIZATION OF A CORPORATION

A. FORMATION REQUIREMENTS

1. People - one or more incorporators.

2. Documents: Information in Articles

a. Corporate Name XYZ Co, ABC Inc, QRS Corp.

Assumed Name Issue

b. Numbers and Names of Important People

c. Statement of Duration - perpetual duration is o.k.

d. Statement of Purpose General statement of purpose is o.k. unless

Ultra Vires Doctrine Ultra Vires Ks cannot be voided.

e. Capital Structure Articles must include the (1) # of authorized stock and (2)number of shares per class (3) par value (4) voting rights as to each share

3. Filing the Articles

a. File with the Sec. of State

b. Certificate of Incorporation issued by the Sec. of State The Corp. is a De Jure Corporation .

B. LEGAL SIGNIFICANCE OF FORMATION OF CORPORATION

1. Corporation is a Legal Person Limited Liability unless PCV.

2. Limited Liability of SH - SH are only liable for the price of their stock.

C. DE FACTO CORPORATION DOCTRINE

1. De Facto Corporation - the incorporators made a good faith attempt to make acorporation but just didnt do it right. Used as a defense for incorporators. 2. Corporation by Estoppel A 3 rd Party dealing with a business as a corporation,

treating it as a corporation, will be estopped from denying the businesss corporatestatus.

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II. PRE-INCORPORATION KS & ISSUANCE

A. PROMOTER LIABILITY

1. Adoption - The corporation is liable until the it actually ADOPTS the K.

Adoption can be express or implied.

2. Adoption & Novation

B. FIDUCIARY DUTY - SECRET PROFIT RULE

C. ISSUANCE OF STOCK

1. Subscription An Offer to buy Stock in the future

a. Revocability of Pre-incorporation subscription irrevocable for sixmonths unless it says otherwise .

b. Post-incorporation subscriptions revocable any time before acceptance.

2. Consideration - Any Form of Consideration is o.k. - house, future interest, K for services, notes

3. Watered Stock Selling stock below the par value corp. and buyer of watered stock will be liable to creditors for the difference of par value andwatered stock.

4. Preemptive Rights

III. DIRECTORS AND OFFICERS

A. STATUTORY REQUIREMENTS

1. No. of Directors 1 or +2. Election of Ds Annually elected by the SH

B. ROLE OF DIRECTORS - Declares Distributions, recommends FundamentalCorporate Changes, Supervises over Officers, Sets Corporate Policy.

C. BOARD OF DIRECTOR: MEETINGS &ACTIONS

1. Valid Corporate Act Anything thats not a fundamental change

a. Informal Actions - Unanimous written consent by Director to act without ameeting

b. Formal Action A meeting that satisfies the quorum and voting rules.

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(1) Notice : Notice is required for special meetings

(2) Quorum If a quorum is present, then all you need is a majority vote of those present to pass a resolution

Proxies Not allowed

2. Removal By SH with or without cause

D. FIDUCIARY DUTIES

1. Duty of Care Director must act in (1) good faith and (2) exercise ordinarycare and prudence.

DEFENSE : The BJR Business Judgment Rule

2. Duty of Loyalty - Director must act in (1) good faith (2) with reasonable belief that it was in the corporations best interest.

a. Analysis : (1) Was the Deal FAIR? (2) Full disclosure to Corp. (3)Majority of Disinterested SH approved of the Deal at issue.

b. Remedy: Constructive Trust on profits

3. Usurpation Of a Corporate Opportunity Director must act in (1) GoodFaith; (2) D must have reason to know that the corp. opportunity would beinterested in that opportunity.

a. Analysis (1) Full disclosure (2) Give the Corp. the opportunity first.

b. Remedy Constructive Trust

E. LIABILITY OF DIRECTORS FOR A BREACH OF CARE

1. Rule A Director is presumed to have agreed with the Board Action unless he(1) expresses dissent in writing; (2) in the corporate records

a. Absent Directors - are not liable

b. Defense (1) Good faith reliance of financial statements prepared by anOfficer or a competent professional ; (2) BJR

F. INDEMNIFICATION FOR DIRECTORS

1. No Indemnification for intentional misconduct

2. Mandatory Indemnification successful in defending a claim on the merits.

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3. Permissive Indemnification If D is held liable, but D acted in good faith and with reasonable belief that her actions were in the companys best interest .

BAR FAV The articles can limit or eliminate Director and Officer liability for damages, but NEVER for intentional misconduct.

G. OFFICERS

1. Agents of the Corporation Apply Agency Rules Actual/Apparent Agency.Corp is liable for under agency principles

2. President & CEO

a. Ordinary Course of Business Transactions Inherent Authority to bind thecorporation for contracts entered in the ordinary course of business.

b. Real Estate Transactions Board needs to give actual authority beforeliability ever attaches for real estate transactions!!

3. Selection/Removal of Os - Board of Directors selects and removes

IV. SHAREHOLDERS

A. SHAREHOLDERS AS DEFENDANTS Piercing the Corporate Veil

1. When To Pierce the Veil Two Ways to Abuse the Corporate Form.

a. Alter Ego Theory Personal and Corp. are commingled - The corporation isa shell - SH commingle funds personal w/ corporate funds, SH use corp.

property for personal use. SH have abused the privilege of incorporating

b. Undercapitalization Corp. carries no insurance, assets are less than $1000.

2. Plaintiff Claims and Recover

a. Breach of K No recovery unless proof of FRAUD

b. Tort - Plaintiff can always recover

3. Liability of SH only active SH will be personally liable.

B. SHAREHOLDER MANAGEMENT OF CORPORATION

1. Close Corporation You create a close corporation by specifically mentioningin the Articles, This is a Close Corporation. There is no board of directors .

2. Shareholders Agreement Controls

3. Special Fiduciary Duties As a Mater of A Law

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C. VOTING

1. Who Votes RECORD Shareholder 10 to 60 days BEFORE the meeting .

a. Exceptions

(1) Death of SH the executor can vote(2) Proxies

(a) Only valid for 11 months(b) Always Revocable

2. The Meetings

a. Annual Meeting - Must be Held in order to select Directors

b. Special Meetings called by (1) Ds (2) Os (3) 10% SH.

NOTICE REQUIREMENT Every record SH must get notice 10 to 60days before the meeting, or else meeting is VOID.

Express Waiver in writing by the SHImplied Waiver attend the meeting anyway

3. How To Vote

a. Have A Quorum Present A majority of Shares must be represented. Andit can NEVER be less than 1/3 of shares represented.

b. of those Shares represented. for the proposal to be accepted

4. Voting Trusts and Voting Agreements Block Voting Strategy

a. Voting Trusts transfer legal title of shares to a voting trustee

b. Vote Pooling Agreements

RESTRICTION The Agreement is only for a proper SH purpose.

c. Cumulative Voting

[# of shares that the SH owns] [# of Ds up for election].

D. STOCK TRANSFER RESTRICTIONS

1. Right of First Refusals its o.k.

2. 3 rd Parties Takes free if it did not have notice of the transfer restriction.

E. RIGHT OF SH TO INSPECT BOOKS AND RECORDS

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1. SH ( owned stock for at least 6 months OR be a 5% owner) must have a Proper Purpose to inspect the books .

F. DISTRIBUTION

1. Distributions are declared by the Board of Directors - declaring a distributionmay be a breach of fiduciary duties and abuse of discretion ifa. Distribution is made when the Corp. is insolvent or distribution causing

insolvency

DEFENSES BJR, Good faith,

LIABILITY Directors are JSL for unlawful distributions to the extent itwas impermissible, unless Director dissents in writing.

G. SHAREHOLDER DERIVATIVE LAWSUITS

a. Generally The SH is suing to enforce the corporations claim.

b. Standing SH must have been a record shareholder when the act or omissionoccurred.

c. Procedure

(1) SH Makes a Written Demand to Directors that the corporation bring suit

(2) Wait 90 days for the Disinterested Directors response

(3) If rejected, SH may seek recourse from a court who can

(4) Recovery All goes to the corp, but AH can recover attorney fees.

V. FUNDAMENTAL CORPORATE CHANGE

A. PROCEDURE

1. Directors Propose Fundamental Change2. Call a Special Meeting3. Give Notice to All SH4. Have a Quorum of all outstanding Shares5. Get 2/3 Approval of all outstanding votes entitled to vote.not just those

represented at the meeting

B. EVENTS OF FUNDAMENTAL CHANGE

1. Mergers Surviving entity assumes all rights and liabilities2. Amendment to Articles3. Conversions No ultra vires violation

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4. Transfer of Assets / Sale of Shares Only concerns the transferring /selling corporation and Not the buying corporation.

C. DISSENTING SH APPRAISALS RIGHTS 1. Situations Sale of Shares, Transfer of Assets, Mergers, Conversion2. Procedure (1) File a written Notice of objection before the vote and demand

for payment; (2) Dont Vote or Vote against the corp. action; (3) After the vote,make a written demand that corp. buys out its shares for FMV calculated on theday prior to the vote ; (4) If a price is not agreed upon, court will decide a FMV.

VI. DISSOLUTION

A. VOLUNTARY/INVOLUNTARY

1. Voluntary 2/3 SH agree entitled to vote

2. Involuntary Court Ordered

a. Transacting business beyond the scope provided in the Articles

b. Failure to pay franchise taxes - The Sec. of State can dissolve thecorporation administratively for failure to pay franchise taxes , butthe incorporators can seek reinstatement. Between the reinstatementand the dissolution, Corp is liable & Defendants are all personally

pliable for the debts incurred.

B. WINDING UP

1. Gather Assets2. Sell and Convert assets into Cash3. Pay creditors and liabilities4. Pay SH- pro-rata share if liabilities exceed assets

C. Claims arising before dissolution can be asserted within 3 years afterdissolution.

D. Abandoning the Corporation Without Liquidating the Corp. - Directors andShareholders ARE PERSONALLY LIABLE for debts incurred after abandonment.

Agency & Partnerships

I. LIABILITY ON CONTRACT

A. GENERAL RULE OF AGENCY Principal becomes liable to a 3 rd party on acontract entered into by his (principals) agent if

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1. Consent : Agent and Principal both Consented2. Control : Agent is subject to Principals control

B. Principal MUST have K capacity, but Agent does not need K capacity

C. Statute of Frauds - requires a writing if the employment K between A & P is for morethan a year, or the Agent is selling real property to a 3 rd person.

II. Actual Authority

A. CREATION OF ACTUAL AUTHORITY

1. Express - Thats true even if the Principle is mistaken about the subject matter or the agents identity.

2. Implied Actual Authority Principles conduct leads Agent to believe that Agenthas the authority to act on Principles behalf.

B. Actual Authority must exist at the time Agent enters in a Contract with 3 rd forliability to attach.

C. Termination of Actual Authority effective upon receipt!!

1. Change of circumstances (subject matter is destroyed)2. When Agent acquires an interest adverse to Principles (Joining Ps competitor).3. When Agent or Principle says so (Agency is consensual), unless coupled with an

interest making it irrevocable.

D. Delegation of Duties Agent can delegate duties as long as Principle consents.

III. SUBSTITUTES FOR ACTUAL AUTHORITY

A. APPARENT AGENCY - Principle leads 3 rd party to believe that Agent hasauthority.

1. 3rd Reasonable belief that Agent has authority MUST be created by Principle.

2. Lingering Agency after Termination + Justifiable Reliance Key: Look at thetransaction from the perspective of the 3 rd party is it reasonable for 3 rd party to

believe that agent still has authority to act on Principles behalfif yes, then

theres apparent authority.

B. RATIFICATION

1. Rule - Even if A had no actual authority, P can ratify by (1) Expresslyaffirming the K (2) By Conduct: Accepting the benefit of the K.

2. Effect Agent is not liable, but Principle is liable.

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1. Requirements

a. Principle must have knowledge of all material facts surrounding the Kontract

b. Principle must accept the entire transaction and the contract along with it.(Principle cannot ratify a K while disavowing the representations made by

Agent).

c. Principle must have contractual capacity both at the time of ratification andat the time the original K because ratification is retroactivesee promoter liability of a not yet formed corporation.

d. Intervening Rights of BFPs If the BFP doesnt have notice of an earlier transaction entered into by Agent and that Principle would like to ratify, BFPcan enforce his agreement even though its later in time. Key: Cant cut off aBFPs intervening rights.

C. ADOPTION - acts currently. Liability attaches at the time of adoption .

Novation If the Principle Adopts and makes an agreement to substitute thecorporation for the promoter as the party who is obligated under the K.

IV. RELATIONSHIP OF PARTIES

A. RELATIONSHIP OF PRINCIPLE AND AGENT

1. Fiduciary Duties Agent owes Principle strict fiduciary duties

a. Duty of Care

b. Duty of Loyalty

2. Principle must compensate, reimburse, and indemnify Agent for actions done for the purpose of the agency (or partnership)

B. RELATIONSHIP OF PRINCIPLE AND 3 RD PERSON

1. Principles Liability - Principle is liable to a 3 rd party for As Ks with 3 rd

2. 3rds Liability to Principle generally liable to principle

a. Disclosed Principle & Partially Disclosed Principle 3 rd is liable to Principleand can be liable to partially disclosed Principle.

b. Undisclosed Principle 3 rd is liable unless

(1) Holding 3 rd would unduly burden 3rd (requirements K).(2) Principle fraudulently concealed her identity.(3) 3rd bargained for As personal performance

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C. RELATIONSHIP BETWEEN AGENT AND 3RD not liable to 3 rd unless (1)Tort ; (2) Agents power is coupled with an interest ; (3) Principle is partiallydisclosed or undisclosed or Agent breached her scope of authority.

V. LIABILITY IN TORT

A. KEY : Was the tort committed by a servant acting within the scope of employment? If sothe master (P) and servant (A) are jointly & severally liable to the injured party.

a. Detour minor deviation b. Frolic substantial deviation

A. Intentional Torts outside the scope of employment unless,

B. Plaintiffs Recovery vs. P & A - M & S are jointly & severally laible to 3 rd

1. Indemnification - If Agent is sued but was acting within the scope of employment, Agent can seek indemnity from employer or principle.

2. Release only parties specifically released by the plaintiff will be released

C. Principles Own Liability Negligent training of Servant, or Negligent Supervision,or Negligent hiring.

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TEXAS GENERAL PARTNERSHIPS

VI. FORMATION OF PARTNERSHIPS association of 2+ people to run a business for profit

A. LOOK FOR THE FOLLOWING INDICIAS

1. Intent or Agreement always consider partnership by estoppel2. Control3. Capital Distribution4. Sharing in Profits

a. Sharing in gross receipts is NOT sharing in profits.

b. Sharing in repayment of a debt, rents, wages is NOT sharing in profits.

5. Written Agreement NOT required , unless the partnership terms are withinthe SOF.

B. Partnership by Estoppel If no formal partnership has been formed, the parties maystill be liable as if they are partners in order to protect reasonable reliance by 3 rd

parties. Key: Look at the transaction from 3 rd partys perspective.

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VII. Property Interests

A. PARTNERSHIP PROPERTY

1. Property acquired in the name of the Partnership 2. Property acquired with PS funds is presumed to be PS property.

3. NON-Partnership Property - Property acquired in the name of one or more partners without using PS funds is presumed to belong to the partnersindividually

B. RIGHTS IN PARTNERSHIP PROPERTY - Since Partnership owns the property,the Partnership has unrestricted rights in how it uses partnership property . So aPartnership can freely encumber its property interest as collateral for a loan.

1. Partners rights in Partnership Property A partner may use partnership property ONLY FOR PARTNERSHIP PURPOSES

2. Transferring Rights of Partnership Property

a. For Partnership Purposes

b. For Personal Reasons - NO PARTNER has the right to transfer the rights of partnership property for personal reasons.

3. Transferring Partnership Interests its personal to the partner - Assignable,

Deviseable, or Transferrable to 3rd Parties non-partners BUT DOES NOTconfer management rights or any other attributes of ownership.

VIII. RELATIONS AMONG PARTNERS

A. THE PARTNERSHIP AGREEMENT - outlines the duties the partners owe to oneanother and the profit sharing plan.

B. STATUTE DEFAULT RULE TRPA When PA is silent follow TRPA

1. Sharing Profits and Losses Equally among partners NO MATTER how muchcapital partners put in.

2. Limiting 3 rd Parties Recover - Any agreement limiting the liability of a partner is VOID.

C. REMUNERATION/COMPENSATION Partners are NOT entitled toremuneration or compensation for the work they did. They are only entitled to sharein partnership profits.

D. MANAGEMENT RIGHTS & VOTING

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1. Ordinary Course of Business decided by % of interest owned by each partner and NOT by the number of partners in the partnership.

2. Extraordinary Decisions decided by the majority of partners.

E. INDEMNIFICATION & INTERESTS Individual Partners are entitled toindemnification for PARTNERSHIP PURPOSES.

F. FIDUCIARY DUTIES

1. Care2. Loyalty cant take advantage of a business opportunity3. Good Faith4. Full Disclosure

G. Admission of New Partners

1. Admittance - Unanimous consent by all Partners is NECESSARY

2. Liabilities New partners are personally liable for debts incurred after admissionBUT NOT pre-existing obligations!!

IX. RELATIONS BETWEEN PARTNERS AND 3RD PARTIES

A. APPLY BASIC AGENCY PRINCIPLES

1. Actual Authority - Express Partnership expressly authorizes or commandsPartner to act on Partnerships behalf.

2. Apparent Authority Partnership leads 3rd party to believe that Partner hasauthority to act on behalf of PS to run the ordinary course of businesseventhough agent may not have actual authority.

a. Partners Title b. The way the Partnership has conducted business in the past; or c. The way similar firms in the area conduct business

Key: Look at the transaction from the perspective of 3rd parties

B. IF NO AUTHORITY ALWAYS consider Ratification and Adoption

X. PARTNERS CONVEYANCE OF PARTNERSHIPS REAL PROPERTY

A. NO ACTUAL AUTHORITY TO SELL Any transfer of a partnerships real property to a 3 rd Party is voidable w/o actual authority to sell

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B. TRANSFER FROM 3 RD PARTY TO 4 TH PARTY (BFP) The transfer cannot bevoided.

XI. LIABILITY FOR PARTNERS & PARTNERSHIP

A. The Partnership itself is liable for all breaches of K (through agency principles)and for torts (through respondeat superior). Partnership is also liable for lossesoccurring in the ordinary course of business and misapplied by a partner committingfraud. But the partnership can seek indemnification from the fraudulent partners.

Key: The plaintiff must exhaust its remedies and resources from the Partnership before he recovers from the Partners joint & severally.

B. Liability of Partners : Joint & Several in Tort and K, but entitled to indemnification& contribution from the PS.

XII. WITHDRAWAL OF A PARTNER

A. WITHDRAWN PARTNERS LIABILITY

1. Liable to existing creditors

2. Liable to subsequent creditors who reasonable believed she was then a partner &were unaware of the withdrawa .- Exposure lasts for 2 years

3. Liable to Other Partners if Withdrawal was Wrongful theres liability based on breach of the Partnership Agreement.

B. APPARENT AUTHORITY LINGERS A withdrawn partner may have apparentauthority to bind the PS for 1 year after withdrawal if the 3rd party who was unaware of the partners withdrawal, but the The Partnership can seek indemnification from thewithdrawn partner because she has no actual authority to bind Partnership. To avoid this

problem altogether - The PS can protect itself by notifying potential creditors of thewithdrawal.

C. WINDING UP A PARTNERSHIP

1. Apparent Authority Lingers A partner may continue to have apparent authority to bind the PS even after an event requiring winding up has occurred, even on a new business. Therefore 3 rd can sue PS and partners are JSL. But if partner did not have

notice of the event of winding-up, then he will not have to indemnify anyone for theloss.

Notice Notice to potential creditors will extinguish apparent authority.

2. Distribution of Assets Order

a. Liabilities & Creditors pay first

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(1) Partners who are creditors paid first(2) Just creditors paid second

b. Partners pay second depending on how much is in their capital accounts(contributions + profits losses). A partnership account in the red means that the

partner is liable to partnership for his losses done in the ordinary course of business.

3. Insolvency of Partnership - Partnership Assets insufficient to Cover Liabilities

a. Pay all creditors pro-rata b. Remainder of Debt not paid The losses are shared proportionately among

the partners depending on their capital accounts (contribution + profits).

c. Priority Rules Creditors of the Partnership have priority over creditors of partners.

XIII. LIMITED LIABILITY PARTNERSHIPSA. TORT LIABILITY

1. Partner is NOT liable for torts committed by other partners

2. LLP is vicariously liable for the torts within the scope of the business

B. CONTRACT LIABILITY main advantage - Broad Shield Partners are NOTJSL on LLP Kontracts.Main feature of LLP. Only the LLP is liable.

XIV. LIMITED PARTNERSHIPS (L.P., Ltd.)

A. LIABILITY OF LIMITED PARTNERS All LPs require at least 1 GP and 1 LP.

1. The general partner Liability - JS-Liable and personally liable on partnershipKs and torts.

2. Liability of Limited Partner - limited by their capital contribution andinvestment, unless the EXCEPTIONS

a. Crossing the Control Line - Reliance Test

(1) If the Limited Partner leads 3rd

person to reasonably believe that hes a general partner. actively participating in the day to day functions of the Partnership.

(2) If Limited Partner knowingly lets his name be included in the L.P.s(Kwamu & Meyrat L.P.)

b. Safe Harbors Guaranteeing a note, giving advice no liability attaches.

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B. OBLIGATIONS

1. Limited Partners A promise to contribute is enforceable only if the promise isIN WRITING.

2. General Partners Doesnt have to put any money in the partnership, or haveany assets from his own pockets to pay off potential liabilities.

3. Liability The LP, Ltd. is liable on Ks & torts under agency principles.

4. TAX not taxed as an entity

XV. LIMITED LIABILITY COMPANIES

A. Formation : Like a corporation

1. No contribution required

B. Management:

1. LIMITED LIABILITY except in Piercing the Corp. Veil cases

2. EQUAL MANAGEMENT RIGHTS Just split stock equally

3. Investing Partners Management unlike an LP, they can manage the day to dayfunctions if the bylaws and articles allow them to without subjecting themselvesto liability like an LP.

4. TAX income gets 2 (1) the corp . (2) the dividend

5. Transferability of Interest need consent of other partners

XVI. ASSUMED NAME CERTIFICATE Failure to file a n assumed namecertificate does not impair the validity of Ks, but it bars the partnership from bringingsuit in TX. Ct. in which the PS used the assumed name.

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