Introduction 1 result
- This book is organized as follows. The basic terminology used in the law of agency, partnership, the LLC, and other unincorporated business enterprises will be defined in a Glossary at the beginning of Part I, followed by a brief essay on the basic elements of the agency relationship and the differences between agency and other relationships that appear similar to it. The internal rights and liabilities of the parties to an agency relationship will be described in Part II. External rights and liabilities, including those of parties who are strangers to the relationship, will be explained in Part III. The partnership, the limited partnership, and the LLC will be the main focus in Part IV, which will cover creation of the business entity, ownership status, management rights and agency powers of owners, limitations on distributions, transfer of ownership interests, dissolution, and liquidation or sale of the business.
- Open Chapter
Chapter 15. The Limited Liability Company 57 results (showing 5 best matches)
- Most statutes limit the right of non-managing members in a manager-managed LLC to act in the business. ULLCA § 301(a) states that in a manager-managed company, “A member is not an agent of the company solely by reason of being a member.” This rule has the planning and tactical advantage of stripping away apparent authority from members who are not involved in management, something that cannot be done in a general partnership due to the statutory conferral of agency status upon all partners (see § 70 of this book). In this sense the nonmanager members in a manager-managed LLC resemble limited partners in a limited partnership. If an LLC is member-managed, however, under most statutes each member has agency powers, including apparent authority, similar to a partner in a partnership.
- The combination of control, limited liability, and partnership tax status in the LLC is less extraordinary today due to the subsequent development of the LLP and the LLLP, which also offer control, limited liability, and partnership tax status. Also, a few states impose franchise or other taxes on LLCs that they do not levy on partnerships. Nevertheless, it is important to understand the LLC, which is the preferred entity of many attorneys for small businesses, in part because of the flexibility they provide.
- The limited liability company (LLC) is a relatively new form of doing business that offers investors who make a proper filing with the state freedom from personal liability for the obligations of the business, flexibility of management, control of the business in an ownership capacity, and the tax advantage of partnership status. This was an extraordinary combination of attractive options for investors when the LLC first appeared on the scene in a Wyoming statute in 1977, patterned on a European model. Eleven years later the IRS issued a revenue ruling approving partnership taxation for the LLC. Thereafter enabling legislation for the LLC was rapidly adopted by all of the states, with considerable variation from state to state. Most states adopted enabling legislation in 1991 or 1992, and there is a growing body of judicial precedent on the LLC.
- The LLC is preferable to a general partnership because the LLC members are not personally liable for the obligations of the business. The fact that, unlike the general partnership, documents have to be prepared and filed in order to create an LLC is of little concern to the sophisticated investor. (The recent creation of the LLP in all 50 states (see § 61) now neutralizes the concern about personal liability.) Also, a number of states allow LLCs to be organized for nonbusiness purposes, such as co-ownership of a vacation cabin. This is not possible in partnership form because the statutory definition of a partnership requires co-ownership of “a business for profit.” (See § 60.)
- Contribution rights are not so central to the LLC because there is no personal liability for LLC obligations, unlike the general partnership. Liabilities and losses incurred when a member acts as an agent of the LLC are handled as they would be for any other agent of the firm (see § 8 of this book).
- Open Chapter
Chapter 14. The Limited Partnership 65 results (showing 5 best matches)
- The limited partnership remains viable even after the appearance of the LLP and LLC in part because of its clear and well-defined distinction between the roles of the partners. The general partners run the business and the limited partners occupy a passive role in the usual case, making the limited partnership “hard-wired” in the sense that the distinct roles of general and limited partners are clearly defined in the statute. That feature makes it a favorite, among other things, for estate planning, allowing a family to include children in a partnership without sharing control with them and without granting them agency powers. There are other ways of achieving this objective, such as creating an LLC with two classes of members, only one of which enjoys managerial powers. Nevertheless, there is a comfort level with the limited partnership. It has been a prominent part of the law for over 100 years, generating a considerable body of precedent on many issues.
- Prior to the LLP and the LLC, the limited partnership was the only flexible and convenient form of doing business that allowed an investor the combined benefits of profits, ownership status, limited liability, and the advantage of partnership taxation. The limited partnership satisfied this need for many years and it remains in significant use today. The most recent figures available from the Internal Revenue Service show that in 2008 there were approximately 400,000 limited partnerships in this country, with the great bulk operating as real estate and holding and investment companies. While the number of limited partnerships is about one-fifth of the number of LLCs (1,898,000), the number of limited partnerships has grown from 271,000 in 1991, although the number seems to be leveling off. http://www.irs.gov/pub/irs-soi/08pa returnsbul.pdf.
- A general partner of a limited partnership “has the rights and powers and is subject to the restrictions [and liabilities] of a partner in a partnership without limited partners.” RULPA § 403. Thus the provisions of UPA or RUPA apply to general partners, including fiduciary duties, personal liability for partnership obligations (unless the state of origin has made the LLLP available), agency powers, and managerial rights.
- A limited partnership differs from a general partnership in a number of ways beyond the filing requirement and the liability protection for limited partners. Under its default rules, limited partners do not have an equal right to management, profits are shared according to capital contributions instead of equally, limited partners do not have agency powers, and the limited partnership is harder to dissolve, as developed below.
- This is in recognition that the partnership agreement, not the certificate of limited partnership, has become the authoritative and comprehensive document for most limited partnerships, and that creditors and potential creditors of the partnership do and should refer to the partnership agreement and to other information furnished to them directly by the partnership and by others, not to the certificate, to obtain facts concerning the capital and finances of the partnership and other matters of concern.
- Open Chapter
Part IV. The Law of Unincorporated Business Enterprises 46 results (showing 5 best matches)
- It seems a safe assumption that today many lawyers think first about recommending that clients do business in LLC (limited liability company) or LLP (limited liability partnership) form when dealing with a closely held business. In large part this is because operating as an LLC or LLP can be informal and flexible, carries no disadvantage in terms of limited liability, and provides the benefits of partnership taxation. Under partnership taxation the income of the partnership flows directly through to the partners and is not first taxed separately to the partnership (this is commonly referred to as taxation on a “flow-through” or “pass-through” basis).
- The sole proprietorship and the business trust will receive most of their coverage at this point. A more detailed treatment of the partnership, the LLP, the limited partnership, the LLLP (limited liability limited partnership), and the LLC will take place in Chapters 11–15.
- The limited liability company (“LLC”) first appeared as a form of doing business in Wyoming in 1977. This unincorporated entity form offers owners the benefits of limited liability, taxation as a partnership, and management flexibility. Liability is limited in the sense that owners (called “members”) are not liable for the debts of the business and in that respect are in a similar position to shareholders of a corporation. The LLC is covered in Chapter 15.
- With regard to the four major concerns: (1) Management is shared among the owners, just as it is among partners in a partnership, in a “member-managed” LLC. Owners are free to form a “manager-managed” LLC, placing management in the hands of one or more managers, thus creating an entity similar to a LLLP. (2) Liability of owners is limited, as explained above. (3) Taxation, as in a partnership, is on a flow-through basis, unless an election is made under the check-the-box regulations to be taxed as a corporation. (4) Exit from the entity need not cause dissolution of the LLC under statutes that have been amended following adoption of the check-the-box regulations.
- The organizing document of an LLC generally is referred to as an “operating agreement” (and in Texas as “regulations”). The LLC is desirable for small businesses due to the enactment of enabling legislation in all 50 states and the flexible management and operational structure of the LLC, as contrasted with the corporation.
- Open Chapter
Part I. Basic Terminology 34 results (showing 5 best matches)
- Definitions of the most frequently used terms and concepts in agency, partnership, the LLC, and other unincorporated business enterprises are set forth below. Of course, no definition is final because the law continually is responding to changing notions of social and economic policy. Nevertheless, there is considerable agreement among lawyers and judges with regard to the basic terminology and principles in this area of the law, making a description of the basic terminology useful to the reader.
- —An operating agreement is an agreement of all the members of an LLC relating to the affairs of the LLC and the conduct of its business. It is analogous to a partnership agreement. In most states, the operating agreement need not be in writing.
- —The acronym “LLP” stands for “limited liability partnership.” It is a recent innovation in the law of partnership, following the widespread adoption of statutes authorizing the LLC. It refers to a general partnership in which the partners acquire liability protection from the debts of the business through the proper filing of a statement of qualification. This relatively new form of doing business is described in the Introduction to Part IV and is covered in Chapter 11. All states have legislation providing for the LLP.
- —An agent is a person (which can include an entity, like a corporation, partnership, or LLC) who acts on behalf of and subject to the control of another.
- LLC—The acronym “LLC” stands for “limited liability company.” The LLC is a relatively new form of doing business in an unincorporated capacity. Upon proper filing, the owners of the business enjoy full liability protection from the debts of the business. The LLC is described in the Introduction to Part IV and is covered in detail in Chapter 15. All states allow the creation of LLCs.
- Open Chapter
Chapter 12. The Operation of a Partnership 123 results (showing 5 best matches)
- As controversial as § 103 has proven to be, however, recent legislation in Delaware and elsewhere on the issue of fiduciary duties is likely to generate even more discussion. Delaware amended its partnership and LLC laws to liberalize further the ability of the owners of unincorporated business entities to contract out of fiduciary duties. For instance, § 15–103(f) of Delaware’s general partnership law provides:
- The above text dealt briefly with notice, knowledge, and notification, but not in the context of attribution of notice to a partnership. In general, the partnership rules of attribution follow closely the common law agency rules relating to imputed knowledge of and notification to an agent (see §§ 55–56 of this book), which is appropriate because partners are general agents of the partnership. Thus, partners have broad apparent authority to receive a notification. See UPA § 12 (dealing with notice and notification) and RUPA § 102 (defining in detail the concepts of knowledge and notice and stating as follows in its subsection (f): “A partner’s knowledge, notice, or receipt of a notification of a fact relating to the partnership is effective immediately as knowledge by, notice to, or receipt of a notification by the partnership, except in the case of a fraud on the partnership committed by or with the consent of that partner”).
- Partners are general agents of their partnership. See UPA § 9(1) (“Every partner is an agent of the partnership for the purpose of its business”). Also, § 18(e) of UPA states that, unless otherwise agreed, “All partners have equal rights in the management and conduct of the partnership business.” These provisions relate to the actual and apparent authority of partners to transact partnership business. RUPA adopts the same concepts in virtually identical language in its §§ 301 and 401(f). Thus the discussion of authority, apparent authority, inherent agency power, and estoppel set forth in §§ 35–40 of this book is fully applicable to the actions of partners as well as to employees of the partnership.
- Partners are agents. As noted earlier, § 9(1) of UPA states that, “Every partner is an agent of the partnership for the purpose of its business….” RUPA § 301(1) contains virtually the same language. Among other things, this statutory declaration of agency status establishes a fiduciary relationship among partners. The partnership relationship is a special kind of agency relationship, however, as developed below.
- The former issue relates directly to the ongoing operation of a partnership. There are common law restrictions on behavior prior to leaving the firm, traced to the duty of loyalty. For example, while a partner can plan ahead by arranging for a lease, printing letterhead, preparing incorporation or LLC or LLP registration forms and agreements, and so forth, he cannot while still a partner solicit customers of the firm for his business. Nor can he conspire with other partners or employees to depart en masse in a way that will materially damage the partnership business.
- Open Chapter
Chapter 11. The Creation of a Partnership 63 results (showing 5 best matches)
- The creation of the LLP makes a major change in Anglo-American partnership law as it has existed for over a thousand years. Historically all partners were jointly and severally liable for the obligations of the partnership (this remains true for partnerships that have not filed a statement). That was the common law rule and it was adopted in UPA and the first three versions of RUPA. The LLP change may be in part a response to the LLC (see Chapter 15), which established the principle that a person can do business in noncorporate form and yet enjoy both limited liability and the benefits of partnership taxation (see Introduction to Unincorporated Businesses, immediately preceding this Chapter, or see Chapter 15). A partner in an LLP enjoys a liability status similar to that of a shareholder in a corporation. RUPA § 306(c). Of course, a partner’s capital interest is subject to the debts and obligations of the business, but that is distinct from the personal liability being discussed in...
- With regard to liability protection, many professional businesses, including lawyers and accountants, use the partnership in LLP form today, instead of using the LLC or the professional corporation. If the professional business is formed as an LLC or professional corporation, there is a danger that co-owners will refer to each other as “partners,” a natural form of reference and far more comfortable to use than “member” or “shareholder.” It is dangerous for a co-owner in a nonpartnership to consent expressly or impliedly to being held out as a partner because it runs a risk of partner liability by estoppel (see § 65), resulting in a loss of liability protection. This danger does not exist in a true partnership that is an LLP.
- —Ownership is defined in the Comment to UPA § 6 and RUPA § 202 as including “the power of ultimate control.” The comment is referring to ownership of the business, not of the capital contributed to the partnership (capital can consist of cash, property, or intangible assets; capital contributions can vary among the partners). “Business” is defined in UPA § 2 as “every trade, occupation, or profession” and RUPA § 202, Comment 1. Interestingly, some states have amended their partnership statutes to allow “non-equity” partners; that is, partners who make no capital contribution to the firm and do not share the profits (or losses) of the firm. The non-equity partner would have the agency authority and liability of an equity partner. Law firms may find this attractive as a way to recognize the value of lawyer to the firm without making that person a “full” equity partner.
- This problem was addressed in UPA in §§ 8 and 10, providing that a partnership could acquire title to real property and prescribing detailed standards for conveyances from the partnership, depending on how title was taken by the firm. For example, if title was taken in the partnership name, it must be transferred out in the partnership name in order to pass legal title. If title was taken in the name of all of the partners, it must be conveyed out in the same way in order to pass legal title. In this respect UPA treats a partnership as an entity, a sensible solution to a difficult problem.
- UPA § 25(2)(b) states: “A partner’s right in specific partnership property is not assignable except in connection with the assignment of rights of all the partners in the same property,” and in § 25(2)(c): “A partner’s right in specific partnership property is not subject to attachment or execution, except on a claim against the partnership.” Only partnership creditors can attach partnership property. On dissolution partnership creditors have priority over partnership property. UPA § 40(h).
- Open Chapter
Chapter 1. The Agency Relationship 83 results (showing 5 best matches)
- As noted above, a corporation pays taxes on its income. Shareholders also are taxed when the corporation distributes profits to them, usually in the form of dividends. (In contrast, partnership income is taxed only at the individual partner level. The partnership itself pays no tax. The double taxation in the corporate form makes it unattractive to some investors, inspiring a search for forms that offer both protection from liability for the obligations of the business and the attractiveness of partnership taxation. See Part IV, discussing the LLP, the LLLP, and the LLC, all forms of doing business that satisfy these concerns.)
- As the example indicates, the relationship of principal and agent can be created without any awareness of the consequences to the parties. In fact, an agency relationship can be created even when the parties expressly deny the existence of an agency relationship between them. A great deal turns on whether an agency relationship exists because this legal relationship can generate costs as well as benefits for both the agent and the principal. The finding of an agency relationship usually is made by the jury as trier of fact. If the facts are not in dispute and inference of agency or nonagency is clear, however, the decision will be made by the court as a matter of law on the reasoning that a question of law exists whenever the court determines that reasonable people could not differ on a matter.
- Agency costs.
- These materials will distinguish the agency relationship from several other common legal relationships that contain elements that overlap or appear to overlap with agency. Distinguishing among these relationships may reinforce an understanding of the conceptual nature of agency and help to define boundaries between different kinds of distinct legal relationships that sometimes appear close to agency.
- The Restatement of Agency is published by the American Law Institute (“ALI”), a voluntary, nonofficial association of judges, lawyers, and law professors. One of the main activities of the ALI is preparing and publishing restatements of the law, which describe the law in a particular area by black letter text with comments and illustrations. One of the goals of the ALI is to restate the common law in an organized and reasonably clear way. The Restatement of Agency (Second) (1958) (“R2d”) is one of the most respected and influential of the many restatements published by the ALI, in large part because of the careful and competent analytical and taxonomical work of its authors. It is heavily used by courts as a source of agency law. The ALI recently completed preparation of the Restatement
- Open Chapter
Appendix E. Uniform Limited Liability Company Act (2006) 709 results (showing 5 best matches)
- Section 301 (de-codifying statutory apparent authority) does not require any special transition provisions, because: (i) applying the law of agency, as explained in the Comments to Sections 301 and 407, will produce appropriate results; and (ii) the notion of “lingering apparent authority” will protect any third party that has previously relied on the statutory apparent authority of a member of a particular member-managed LLC or a manager of a particular manager-managed LLC. RESTATEMENT (THIRD) OF AGENCY § 3.11, cmt. c (2006).
- (B) for a limited partnership or foreign limited partnership, its certificate of limited partnership and partnership agreement;
- (15) “Person” means an individual, corporation, business trust, estate, trust, partnership, limited liability company, association, joint venture, public corporation, government or governmental subdivision, agency, or instrumentality, or any other legal or commercial entity.
- (a) The name of a limited liability company must contain the words “limited liability company” or “limited company” or the abbreviation “L.L.C.”, “LLC”, “L.C.”, or “LC”. “Limited” may be abbreviated as “Ltd.”, and “company” may be abbreviated as “Co.”.
- (9) “Organization” means a general partnership, including a limited liability partnership, limited partnership, including a limited liability limited partnership, limited liability company, business trust, corporation, or any other person having a governing statute. The term includes a domestic or foreign organization regardless of whether organized for profit.
- Open Chapter
Appendix A. Uniform Partnership Act (1914) 222 results (showing 5 best matches)
- (1) When any new partner is admitted into an existing partnership, or when any partner retires and assigns (or the representative of the deceased partner assigns) his rights in partnership property to two or more of the partners, or to one or more of the partners and one or more third persons, if the business is continued without liquidation of the partnership affairs, creditors of the first or dissolved partnership are also creditors of the partnership so continuing the business.
- (2) A partner is discharged from any existing liability upon dissolution of the partnership by an agreement to that effect between himself, the partnership creditor and the person or partnership continuing the business; and such agreement may be inferred from the course of dealing between the creditor having knowledge of the dissolution and the person or partnership continuing the business.
- (3) When any partner retires or dies and the business of the dissolved partnership is continued as set forth in paragraphs (1) and (2) of this section, with the consent of the retired partners or the representative of the deceased partner, but without any assignment of his right in partnership property, rights of creditors of the dissolved partnership and of the creditors of the person or partnership continuing the business shall be as if such assignment had been made.
- (1) Every partner is an agent of the partnership for the purpose of its business, and the act of every partner, including the execution in the partnership name of any instrument, for apparently carrying on in the usual way the business of the partnership of which he is a member binds the partnership, unless the partner so acting has in fact no authority to act for the partnership in the particular matter, and the person with whom he is dealing has knowledge of the fact that he has no such authority.
- Notice to any partner of any matter relating to partnership affairs, and the knowledge of the partner acting in the particular matter, acquired while a partner or then present to his mind, and the knowledge of any other partner who reasonably could and should have communicated it to the acting partner, operate as notice to or knowledge of the partnership, except in the case of a fraud on the partnership committed by or with the consent of that partner.
- Open Chapter
Preface 3 results
- This Nutshell seeks to describe, succinctly, the law as it relates to agency and unincorporated business entities. These areas, particularly agency law, have ancient origins, yet are constantly being reexamined. Indeed, the American Law Institute published a third restatement of the law of agency in 2006 and the law related to unincorporated business entities—partnerships (general and limited), business trusts and limited liability companies—has been the subject of considerable legislation at the state level in recent years. Uniform acts in these areas that once stood unchanged for decades are now being revised frequently. These developments prompted this sixth edition.
- Despite these legal developments, this sixth edition follows the excellent organization of the prior editions, with the principles of agency law set forth first, followed by an examination of the various forms of unincorporated business entities. This is a logical sequence, as agency law is a powerful influence on the law as it relates to unincorporated business entities, and explains why, in many law schools, the two subjects are taught together in a single course.
- Another development that inspired this edition relates to the philosophy that now characterizes statutes relating to unincorporated business entities. Although, traditionally, the rights and liabilities of the owners of such entities were statutory questions, increasingly they have become matters of contract. The statutes have thus largely become default rules when the parties have not agreed otherwise. The drafters of these statutes are taking this trend to its logical extreme, even permitting the waiver of fundamental fiduciary duties in the agreements of the owners. This edition updates the growing body of judicial precedents on
- Open Chapter
Appendix C. Uniform Partnership Act (1997) 473 results (showing 5 best matches)
- (a) Except as otherwise provided in subsection (b), relations among the partners and between the partners and the partnership are governed by the partnership agreement. To the extent the partnership agreement does not otherwise provide, this [Act] governs relations among the partners and between the partners and the partnership.
- (4) maintaining offices or agencies for the transfer, exchange, and registration of the partnership’s own securities or maintaining trustees or depositories with respect to those securities;
- (c) A person winding up a partnership’s business may preserve the partnership business or property as a going concern for a reasonable time, prosecute and defend actions and proceedings, whether civil, criminal, or administrative, settle and close the partnership’s business, dispose of and transfer the partnership’s property, discharge the partnership’s liabilities, distribute the assets of the partnership pursuant to Section 807, settle disputes by mediation or arbitration, and perform other necessary acts.
- (1) to account to the partnership and hold as trustee for it any property, profit, or benefit derived by the partner in the conduct and winding up of the partnership business or derived from a use by the partner of partnership property, including the appropriation of a partnership opportunity;
- (b) Each partner is entitled to a settlement of all partnership accounts upon winding up the partnership business. In settling accounts among the partners, the profits and losses that result from the liquidation of the partnership assets must be credited and charged to the partners’ accounts. The partnership shall make a distribution to a partner in an amount equal to any excess of the credits over the charges in the partner’s account. A partner shall contribute to the partnership an amount equal to any excess of the charges over the credits in the partner’s account but excluding from the calculation charges attributable to an obligation for which the partner is not personally liable under Section 306.
- Open Chapter
Chapter 13. Dissociation of a Partner and Dissolution of a Partnership 90 results (showing 5 best matches)
- “[n]either the Partners nor the Partnership shall have any claim or entitlement to clients, cases or matters ongoing at the time of the dissolution of the Partnership other than the entitlement for collection of amounts due for work performed by the Partners and other Partnership personnel prior to their departure from the Partnership. The provisions of this [section] are intended to expressly waive, opt out of and be in lieu of any rights any Partner of the Partnership may have to “unfinished business” of the Partnership, as the term is defined in Jewel v. Boxer, 156 Cal.App.3d 171 [203 Cal.Rptr. 13] (Cal.App. 1 Dist.1984), or as otherwise might be provided in the absence of this provision through the interpretation of the [California Uniform Partnership Act of 1994, as amended].”
- From the perspective of these courts, the former partnership has been dissolved, accounts among partners have been settled, and the rights of creditors attach to the new partnership. There is nothing left of the former partnership to be concerned about. This seems sensible. Nevertheless, the more usual use of the phrase “winding up” contemplates liquidation of debts and it will be so used in the remainder of these materials.
- UPA addresses this concern in its §§ 17 and 41, providing for continuity of obligation to creditors when there is some continuity of partners in the new partnership. The underlying principle is that all creditors of the business should have equal rights in the assets of the business, regardless of the time they became creditors and of the exact combination of persons then owning the business. This right against the assets of the new partnership ends when the new partnership has no partners in common with the partnership incurring the obligation. UPA § 41(4) (by necessary implication).
- Section 38(2) addresses wrongful dissolution, as noted in the above quotation from . A common use of § 38(2) is when a partnership is for a term and one partner dissolves prior to completion of the term. The dissolution breaches the partnership agreement and undermines the reliance the other partners may have made on the capital contribution and services of the withdrawing partner during the agreed term.
- The title of this chapter draws a distinction between dissociation of a partner and dissolution of a partnership. The concept of “dissociation” was introduced into partnership law by RUPA. It is part of the reformulation of the underlying theory of partnership law by those drafting RUPA, with the goal of stabilizing the partnership form of doing business. Dissociation does not always or even usually result in dissolution of a RUPA partnership. This is a sharp departure from the theory underlying UPA, where any change in the membership of partners results in an automatic dissolution of the partnership, as developed below.
- Open Chapter
Appendix D. Uniform Limited Liability Company Act (1996) 536 results (showing 5 best matches)
- (c) An agreement of conversion must set forth the terms and conditions of the conversion of the interests of partners of a partnership or of a limited partnership, as the case may be, into interests in the converted limited liability company or the cash or other consideration to be paid or delivered as a result of the conversion of the interests of the partners, or a combination thereof.
- (b) The terms and conditions of a conversion of a partnership or limited partnership to a limited liability company must be approved by all of the partners or by a number or percentage of the partners required for conversion in the partnership agreement.
- (4) except as prohibited by other law, all of the rights, privileges, immunities, powers, and purposes of the converting partnership or limited partnership vest in the limited liability company; and
- (d) After a conversion is approved under subsection (b), the partnership or limited partnership shall file articles of organization in the office of the [Secretary of State] which satisfy the requirements of Section 203 and contain:
- (3) in the case of a partnership or domestic limited partnership that is a party to the merger, by the vote required for approval of a conversion under Section 902(b); and
- Open Chapter
Chapter 10. Termination of the Agency Relationship 14 results (showing 5 best matches)
- A principal has the to terminate the agency relationship and thus the agent’s authority at any time. This rule holds true even if the principal had contracted not to terminate the agency and thus did not have the to do so. The underlying theory is that it should always be in the power of the principal to manage its own business and to determine who shall act on its behalf, subject to paying damages for breach of contract when appropriate. An agent also has the power to quit the agency at any time, again subject to paying damages for breach of contract if, for example, a term contract is involved.
- With regard to true agency, unless termination results from the completion of the purpose of the agency or the expiration of an agreed term, it is necessary for the principal to notify the agent of termination of the relationship. Until the agent receives notice, he or she continues to be actually authorized to commit the principal to transactions within the scope of the agency.
- The limitation is that, in any case of indefinite agency where it is revoked by the principal, if it appears that the agent, induced by his appointment has in good faith incurred expense and devoted time and labor in the matter of the agency without having had a sufficient opportunity to recoup such from the undertaking, the principal will be required to compensate him in that behalf; for the law will not permit one thus to deprive another of value without awarding just compensation.
- If a principal does not have the power to end a relationship, it is not an agency relationship even though it may look like one. For example, a power of attorney authorizing a lender to sell an asset of the borrower in the event of nonpayment of the loan does not create an agency relationship. Although the instrument looks like a conventional power of attorney, in reality it is a security power. Exercise of it by the holder of the power has nothing to do with acting on behalf of the best interests of the borrower. Instead, it is designed and intended to help the lender secure payment of the loan. The power thus is given to the lender to do something for itself, not for the borrower; it is not a true agency power. It would be held irrevocable during the maker’s lifetime by nearly all courts. (As an aside, it is not wise for a lender to cast a security interest in this form, in part for reasons explained in § 59. Instead, the lender should receive an assignment of the security interest.)
- Even if there is not an express breach of contract, a principal’s right to end an agency relationship is subject to equitable considerations. , 117 S.W.2d 624 (Mo. App. 1938) states the limitation on the right to terminate an agency relationship:
- Open Chapter
Chapter 4. Vicarious Tort Liability 107 results (showing 5 best matches)
- The law of borrowed servant thus bears some relationship to the independent contractor concept. If an employee is found not to be borrowed, “the general employer is an independent contractor providing a man to do the job.” Seavey, Reuschlein and Hall, Agency and Partnership 23 (1962). Many cases involve the operation of cranes on construction sites. The general employer (the crane service company) ordinarily continues paying the wages of the employee (the crane operator) and the borrowing employer (the general contractor) necessarily has control over the work of the employee while on the job site. An issue is raised when the employee commits a tort while working under the orders of the borrowing employer. Suppose, for example, the crane operator negligently injures someone while working pursuant to the hand signals of the general contractor’s foreman. The crane operator is employed and being paid by the crane service company but was under the direction and control of the general...
- The joint enterprise doctrine strikes many people as unfair because it imposes vicarious liability on a person who does not have control over the physical conduct of the tortfeasor and thus realistically is not in a position to minimize the risk of loss. For this reason, as noted above, there is a trend away from the doctrine today, confining liability to commercial ventures. See , 741 P.2d 89 (Wyo.1987), refusing to apply the doctrine to a hunting accident in which one hunter in a joint outing negligently shot and killed an outsider. The court stated, “[B]y limiting the doctrine of joint enterprise to those having a business or pecuniary purpose, it avoid[s] the imposition of a basically commercial concept, derived from the law of partnership and principles of agency, to non-commercial situations which are more often matters of friendly or family cooperation and accommodation.”
- (iii) Torts “Aided by the Agency Relation.”
- Under the concept of vicarious liability by estoppel, one can be held vicariously liable for the tort of another in the absence of an agency relationship, which sounds extraordinary. Liability is based on appearance, not reality, however. , 844 F.2d 156 (4th Cir.1988), is a typical case. Plaintiffs, who were staying at a Holiday Inn and were criminally assaulted on the motel premises, filed a negligence claim against Holiday Inns. The defense was that the particular inn in question was owned and operated by a franchisee of Holiday. The franchisee was allowed to use the Holiday name in return for granting Holiday a percentage of gross income. Holiday argued that it was not actually in charge of the premises nor was there any agency relationship between it and the franchisee, which was running its own business, and thus any negligence was attributable to the franchisee, not Holiday.
- As noted above, the common law and the Restatement (Second) of Agency referred to such agents as “independent contractors,” although such agents might more accurately have been referred to as “nonservant agents.” This less ambiguous phrase does not enjoy widespread usage in the law of agency. Perhaps this is because historically the phrase “independent contractor” was first used to distinguish between kinds of agents in this context and it has dominated usage ever since. Whether the courts will abandon the term independent contractor as have the drafters of the Restatement (Third) only time will tell. For the sake of consistency, if not clarity, this book will refer to agents who are not employees as non-employee agents.
- Open Chapter
Chapter 5. Contractual Powers of Agents 64 results (showing 5 best matches)
- The term ‘inherent agency power,’ used in the Restatement Second of Agency and defined therein by § 8 A, is not used in this Restatement. Inherent agency power is defined as ‘a term used … to indicate the power of an agent which is derived not from authority, apparent authority or estoppel, but solely from the agency relation and exists for the protection of persons named by or dealing with a servant or other agent.’ Other doctrines stated in this Restatement encompass the justifications underpinning § 8 A, including the importance of interpretation by the agent in the agent’s relationship with the principal, as well as the doctrines of apparent authority, estoppel, and restitution.
- B is an agent of P as well as A, which means that the actions of B within the scope of the agency can bind P as the remote principal and expose P to liability for wrongdoing. This underscores the importance of consent by P to the subagency relationship. The customs and usages of particular industries can play an important role in determining consent, especially implied consent.
- An agent has the capacity to bind his principal under two circumstances: when he has the to commit the principal, and when he has the to do so. An agent has the right to bind the principal when he acts with the actual authority (express or implied) of the principal (see §§ 35–37). An agent has the power to bind the principal when circumstances of apparent authority, estoppel, or inherent agency power enable him to bind the principal to a transaction without the consent of the principal. Under these circumstances the agent is acting in an unprivileged manner and incurs liability to the principal for whatever damages may be occasioned by this departure from instructions. Apparent authority is discussed in this section. Estoppel and inherent agency power are covered in §§ 39 and 40.
- The inherent agency power ramifications of general agency are set forth in R2d § 161, which states that a general agent can bind his principal to contracts where there is neither authority nor apparent authority so long as the acts done “usually accompany or are incidental to” transactions that the agent is authorized to conduct. At first glance this limitation is puzzling because there seems to be almost a complete overlap of inherent agency power with apparent authority, in particular the “power of position” type of apparent authority (see § 38), which ordinarily would accompany general agency. That is, acts that “usually accompany” or “are incidental to” authorized acts of an agent in a certain position would almost certainly fall within the ambit of conventional apparent authority. One of the difficulties in understanding the inherent agency power doctrine is that almost all of its well-known cases can be classified as apparent authority cases.
- This controversial doctrine extends the liability of a principal beyond apparent authority and estoppel. It was created in the second Restatement of Agency and rests upon a vague kind of enterprise liability, by analogy to the law of respondeat superior. The term has been expressly abandoned in the Restatement (Third). Comment b to § 2.01 provides:
- Open Chapter
Chapter 3. Duties of Agent to Principal 46 results (showing 5 best matches)
- An agent must obey all reasonable directions of the principal. This rule holds true even if the principal had promised not to limit or terminate the agent’s authority and commits a breach of contract with the agent by doing so. “If the principal does not have this kind of control over the conduct of the agent, the relation is not an agency.” W. Seavey, Law of Agency 240 (1964).
- Some courts base the agent’s duty to indemnify the principal on the law of restitution, applying the policy that an active wrongdoer should ultimately bear liability for the losses he or she causes, not an innocent party held vicariously liable because of a relationship with the wrongdoer. Other courts characterize the duty as an implied term in the contract between principal and agent to act with reasonable care or, if the relationship is noncontractual, as inherent in the agency relationship. The parties to the agency relationship can by agreement alter or abrogate this duty.
- The duties described in this chapter exist in the absence of specific agreement between the principal and agent. The Restatement of Agency (Third) includes a section describing how a principal may consent to an agent’s conduct that would otherwise constitute a breach of the agent’s duty of loyalty. R3d § 8.06.
- A useful summary of many of the duties of an agent is contained in Seavey, Law of Agency 236 (1964). It is quoted immediately below. It does not describe all of an agent’s duties (it does not include the duty of obedience and the duty to indemnify for losses caused by wrongful conduct, for example), but it nevertheless constitutes a helpful summary of much of an agent’s duties.
- As noted in § 1, an agent is a fiduciary, a status created by the agent’s consent to act on behalf of the principal. The responsibilities attached to the agent’s status as fiduciary include a duty to account for money or property received as agent for the principal. An account is usually defined as a detailed statement in writing of debts and credits or of receipts and payments, covering monetary transactions engaged in by the agent while acting on behalf of the principal, although it sometimes can be more informal. Whenever a principal has trusted an agent to handle its money or property the principal is entitled to an explanation, in the form of an accounting, of the existence, location, and status of such assets upon demand by the principal or at times specified by agreement or custom, and upon termination of the agency.
- Open Chapter
Chapter 2. Duties of Principal to Agent 30 results (showing 5 best matches)
- The primary common law duties a principal owes its agent are: (i) to pay compensation for services rendered when compensation is reasonably expected, (ii) to reimburse for expenses reasonably incurred during the course of the agency, (iii) to indemnify for losses and liabilities resulting from authorized, good faith performance of the agency, (iv) to act with due care toward the agent; and (v) to deal with the agent fairly and in good faith. Most of these duties can be characterized as implied terms of the principal-agent contract or as inherent in the agency relationship, which is not always contractual. All of them can be altered or negated by express agreement between principal and agent with the possible exception of the duties of good faith and care, which probably cannot be completely negated.
- An agent is entitled to be reimbursed by the principal for expenses reasonably incurred in the performance of the agency (for example, P directs A to pay a debt owed by P and supplies A with no money) and to be indemnified (that is, to be made whole) for any losses suffered during the course of the agency, but not for losses caused solely by his or her fault. R3d § 8.14. The policy underlying this right is well explained by Judge Learned Hand in 201 (2d Cir.1936). In upholding a grant of indemnity to an agent for litigation expenses incurred in successfully defending a suit arising out of proper performance of the agency, Judge Hand stated:
- Most agency arrangements include an express agreement by the principal to pay for work performed. This does not resolve all issues, however. Even with an express contract, litigation is frequent in, for example, the sales commission context over the meaning or application of phrases like “exclusive agency,” “exclusive right to sell,” “exclusive representative,” and “procuring cause,” among others. See , 741 F.Supp. 650 (E.D. Mich. 1990), an opinion that discusses at length the meaning of these phrases. The court rejects an agent’s argument that he was entitled to commissions on all future sales made to customers he had brought to the principal even though he had not made the particular sale involved. The court held that, in the absence of specific language in the contract supporting the agent’s broad claim, he must be the “procuring cause” of the particular sale for which a commission is claimed. Also, the court defined “exclusive agency” to allow the principal to itself make sales...
- Many agency relationships involve full time employment of the agent, which introduces the complexities of modern employment law in addition to the common law principles summarized above. There is considerable regulation of the employment relationship at both the state and federal level. Much of employment law is statutory in nature and is sufficiently comprehensive and complex to support a separate course in law school. Legislation covers, among other things, unemployment compensation, worker’s compensation, sexual harassment, age and racial discrimination, safety regulations, minimum wage, disability, and labor laws. Some of the legislation, especially federal legislation, covers only employers of a certain size. These materials will not attempt to cover the field of employment law, instead concentrating on the fundamental common law principles of agency.
- The agent’s right to indemnity, unless expressly agreed to, depends on reasonable inferences drawn from the circumstances. The customs of the business and the nature of the relationship play a role in drawing an inference with regard to the existence of an agent’s right to indemnity. For example, a real estate broker operating in an agency capacity would ordinarily be expected to bear certain expenses, like advertising costs, in carrying out the agency. Such expense would be regarded as part of the real estate business, not of selling one’s home.
- Open Chapter
Chapter 6. The Undisclosed Principal 33 results (showing 5 best matches)
- The result in is appealing but the basis of liability is troubling because it seems too broad. The arrangement established by Fenwick sent a misleading signal to persons who dealt with Humble, a signal of apparent ownership of the tavern and all of its assets. Fenwick should be responsible for that and thus should be estopped from denying Humble’s ownership under these circumstances, allowing Watteau to execute against the tavern and its assets after obtaining a judgment against Humble. But to base liability on an inherent agency power that would hold an undisclosed principal liable for all transactions that usually accompany an agency of that character, whether or not there is a misleading appearance of ownership, seems to go too far when the other party has no idea an agency of any character is involved in the transaction.
- The undisclosed principal is liable on the contract despite the fact that T was satisfied solely with the credit of A. The policy underlying P’s liability is that P “is the one who initiated the activities of the agent and has a right to control them. [Thus, P is liable] in accordance with the ordinary principles of agency.” R2d § 186, comment a. As stated in W. Seavey, Law of Agency 7 (1964), “It is not unfair to the principal to make him liable on an authorized contract since it was his business which was being done, and there is no reason why the ordinary rules that the principal is responsible for authorized acts should not be followed.” The rationale provided by the Restatement (Third) is somewhat less persuasive:
- The law of agency declares that the principal (P) is a party to the contract between T and A, if A intended to be acting on behalf of P when making the contract and the contract is within A’s power to bind P. Once P reveals his identity and interest in the contract, T is not thereafter free, for example, to pay A (or otherwise perform) without running the risk of having to pay again to P. The parol evidence rule does not prevent assertion of undisclosed principal rights even when the contract is an integrated, written agreement, perhaps on the functional reasoning that T’s rights against A remain fully intact and thus the evidence is not contradicting the obligations involved; instead, it is adding a party.
- The Restatement (Second) takes the contrary view, favoring liability for certain unauthorized transactions by invoking the inherent agency power doctrine (see § 40). If A is an unauthorized general agent doing something she usually does, liability for the undisclosed principal follows, in the Restatement view. The primary case authority for this view is , 1 Q.B. 346 (1893). In that case Humble, the owner of a tavern, sold it to Fenwick. Fenwick retained Humble as manager of the tavern and left Humble’s name over the door. The license for the tavern was taken out in Humble’s name. Humble agreed to purchase his supplies from Fenwick but departed from these instructions and bought cigars and other tavern accessories on credit from plaintiff, who sued Fenwick for payment upon discovering his interest. The court held Fenwick liable, stating that an undisclosed principal is liable for all acts of the agent that are within the authority usually confided to an agent of that character and...
- The election rule has been under successful attack recently in a number of states on the theory that T should have a right to two judgments (but only one satisfaction), one on the contract and the other based on the agency principle underlying the liability of P. The right against the principal thus is viewed as additional, not alternative, in those jurisdictions that have recently overturned the election rule. See , 432 A.2d 453 (Md. 1981), quoting the following language: “They [the cases supporting the election rule] are unjust, since as a result the principal who ordinarily profits from the transaction and who has not met his obligations is relieved by the mistake of the other party in believing that the agent has sufficient assets to pay the debt, since in all cases where the matter is of importance, the agent is insolvent.”
- Open Chapter
Chapter 7. Liability of the Agent to Third Persons 34 results (showing 5 best matches)
- As noted above, an agent who seeks to avoid contractual liability has the burden of proving that the other party was aware of the agency relationship and the identity of the principal. The problem of unintentional nondisclosure of agency often arises when a person incorporates her business but fails to notify persons with whom she has been dealing. She thinks she is no longer personally liable for the debts of the business but from the perspective of the persons with whom she is contracting nothing has changed. Although she does not know it, she is an agent for an unidentified principal and thus is fully liable on the contracts.
- In contrast to Roman law and primitive legal systems, the common law of agency has always embraced the principle of direct representation, which allows a person to make contracts through others rather than requiring that contracts be made personally. Under this principle a legal transaction by A acting manifestly on behalf of P and with P’s authority binds P without creating liability for A. Thus, if an agent is expressly authorized to make a contract for a principal, does so and the principal is disclosed, the agent is not liable in the absence of special facts.
- It is important that the agent make it clear that he is acting in a representative capacity. If the contract is in writing, it would be advisable for the agent to sign the contract as “P, by A, agent” or “A as agent for P” or “P corp. by A, Vice-president.” The parol evidence rule can create a problem for the agent who signs an apparently complete and final written agreement in just his own name or in both the principal’s and his names without any indication of agency status. At a minimum, the agent who does not make his representative status clear runs a risk of litigation and the expense of introducing extrinsic evidence of the actual understanding of the parties (assuming the language of the writing is ambiguous, allowing the introduction of extrinsic evidence).
- The issue of harm to the economic interests of others arises when an agent fails to perform his duties to his principal and a third party is injured. See, for example, , 846 F.2d 1302 (11th Cir.1988), in which Coker was instructed by his principal to open an escrow account for the plaintiff third party and place funds in the account. Coker failed to open the account and was sued for the resulting substantial loss to plaintiff. The court found no liability, stating, “The general rule is that an agent is not liable for pecuniary harm to a person other than his principal that results from his failure to perform his duties to his principal.” See, also, Restatement (Third) of Agency § 7.02.
- It may be that under some circumstances the other person could make a plausible claim to be a third party beneficiary of the principal-agent contract and hold the nonperforming agent liable on that ground. This liability is difficult to establish, however, because ordinarily the plaintiff must prove intent to benefit him on the part of both the principal and the agent. That would be highly unlikely in most situations.
- Open Chapter
Chapter 9. Notice and Notification; Imputed Knowledge 28 results (showing 5 best matches)
- It is useful to note that one must be especially careful when attempting to notify government agencies. Statutes or administrative regulations often specify in detail the steps required to make an effective notification to a particular agency and specifically reject notification by any other means.
- In general, a notification is effective whether or not the person authorized or apparently authorized to receive the notification forgets it and does nothing with it. As stated in Seavey, Law of Agency 173 (1964), “Since a notification, as such, operates to determine the rights of the parties to it, the effect continues indefinitely.” A notification “crystalizes the rights of the parties.” Id.
- A notification is an act that is intended to convey information to another. Knowledge is cognitive awareness of a fact. When a person has received a notification or has knowledge of a fact, he or she is deemed to have “notice” of the fact and must act accordingly. The law of notice has significance in the law of agency when notification or knowledge is claimed to have taken place through an agent, binding the principal whether or not the information actually is received by the principal.
- Notification involves a deliberate effort to bring some fact to the attention of a person. The key agency issue is, under what circumstances will notification to an agent bind the principal? The law of apparent authority plays a major role in resolving notification issues unless the agent is actually authorized to receive the particular notification.
- Because the doctrine of imputed knowledge is not expectation based, perhaps it makes sense to return to the core issues of responsibility stemming from the agency relationship.
- Open Chapter
Chapter 8. The Doctrine of Ratification 41 results (showing 5 best matches)
- The following language from comments c and d to R2d § 82 expresses clearly both the uniqueness of ratification and its justification. Nothing in Restatement (Third) of Agency would call into question this succinct observation of the law:
- In both of the above circumstances a number of cases exist that characterize such behavior as implied ratification. For a case recognizing but distinguishing those circumstances, see , 104 S.E. 593 (W. Va. 1920). In this case, Cook signed his wife’s name to a promissory note without her consent. The wife discovered this and said nothing. The holder of the note claimed implied ratification. The court rejected this claim, holding that the wife’s silence was not sufficient evidence of ratification in the absence of a pre-existing agency relationship or of receipt and retention of benefits.
- Also, under some circumstances the actor might be entitled to claim compensation from the principal following ratification, subject to any conditions imposed by the principal at the time of ratification and agreed to by the actor, who may be willing to agree because he will be relieved of warranty of authority liability. A claim to compensation would rest on the rationale that the affirmance operates retroactively, granting the actor the same rights against the principal as if the act originally had been authorized, including compensation and indemnity (see §§ 7 and 8). Also, if the actor was not an agent when he acted, ratification has the effect of making him a fiduciary of the principal with respect to the transaction.
- The concept of ratification … is unique. It does not conform to the rules of contracts, since it can be accomplished without consideration or manifestation by the purported principal [to the other party] and without fresh consent by the other party. Further, it operates as if the transaction were complete at the time and place of the first event, rather than the last, as in the normal case of offer and acceptance. It does not conform to the rules of torts, since the ratifier may become liable for a harm that was not caused by him, his property, or his agent. It cannot be justified on a theory of restitution, since the ratifier may not have received a benefit, nor the third party a deprivation. Nor is ratification dependent upon estoppel, since there may be ratification although neither the agent nor the other party suffer a loss resulting from a statement of affirmance or a failure to disavow….
- The manifestation need not be communicated to the other person, although that happened in both and , and in that sense ratification is different from accepting an offer of a contract. The manifestation need not even be communicated to the unauthorized actor in order to be effective, although of course it will have to be proven in some way.
- Open Chapter
Table of Cases 7 results (showing 5 best matches)
- Milford Power Company, LLC v. PDC Milford Power, LLC………………373
- 8182 Maryland Assoc., Ltd. Partnership v. Sheehan………………307
- Appletree Square I Limited Partnership v. Investmark, Inc.………………266, 339
- Connor v. Great Western Sav. and Loan Ass’n………………116
- Kaycee Land and Livestock v. Flahive………………361
- Open Chapter
Outline 126 results (showing 5 best matches)
Index 44 results (showing 5 best matches)
Acknowledgments 7 results (showing 5 best matches)
- Restatement of the Law Second, Agency, Copyright © 1958 by the American Law Institute. All rights reserved. Reprinted with permission.
- Restatement of the Law Third, Agency, Copyright © 1999 by the American Law Institute. All rights reserved. Reprinted with permission.
- Uniform Partnership Act (1914), Copyright © 1914 by the National Conference of Commissioners on Uniform State Laws
- Uniform Partnership Act (1997), Copyright © 1994, 1996, 1997 by the National Conference of Commissioners on Uniform State Laws.
- We gratefully acknowledge the American Law Institute and the National Conference of Commissioners on Uniform State Laws for granting permission to reprint portions of copyrighted material:
- Open Chapter
Copyright Page 4 results
- and the Nutshell Logo are trademarks registered in the U.S. Patent and Trademark Office.
- The publisher is not engaged in rendering legal or other professional advice, and this publication is not a substitute for the advice of an attorney. If you require legal or other expert advice, you should seek the services of a competent attorney or other professional.
- West, West Academic Publishing, and West Academic are trademarks of West Publishing Corporation, used under license.
- Printed in the United States of America
- Open Chapter
Advisory Board 4 results
- Publication Date: November 24th, 2015
- ISBN: 9781634600156
- Subject: Agency and Partnership
- Series: Nutshells
- Type: Overviews
- Description: This comprehensive guide explains the law of agency, partnership, and limited liability companies, and includes numerous references to the Restatement of the Law Third–Agency and the most recent versions of the partnership and LLC statutes. The authors seek to provide concise and accurate explanations of fundamental principles in these areas of the law as well as useful applications of those principles.