Agency, Partnership, and the LLC in a Nutshell
Authors:
Hynes, J. Dennis / Loewenstein, Mark J.
Edition:
6th
Copyright Date:
2016
31 chapters
have results for business organizations in a nutshell
Appendix E. Uniform Limited Liability Company Act (2006) 637 results (showing 5 best matches)
- (b) A surviving organization that is a foreign organization consents to the jurisdiction of the courts of this state to enforce any debt, obligation, or other liability owed by a constituent organization, if before the merger the constituent organization was subject to suit in this state on the debt, obligation, or other liability. A surviving organization that is a foreign organization and not authorized to transact business in this state appoints the [Secretary of State] as its agent for service of process for the purposes of enforcing a debt, obligation, or other liability under this subsection. Service on the [Secretary of State] under this subsection must be made in the same manner and has the same consequences as in Section 116(c) and (d).
- (7) if the surviving organization is a foreign organization not authorized to transact business in this state, the street and mailing addresses of an office that the [Secretary of State] may use for the purposes of Section 1005(b); and
- (F) if the converted organization is a foreign organization not authorized to transact business in this state, the street and mailing addresses of an office which the [Secretary of State] may use for the purposes of Section 1009(c); and
- (c) A converted organization that is a foreign organization consents to the jurisdiction of the courts of this state to enforce any debt, obligation, or other liability for which the converting limited liability company is liable if, before the conversion, the converting limited liability company was subject to suit in this state on the debt, obligation, or other liability. A converted organization that is a foreign organization and not authorized to transact business in this state appoints the [Secretary of State] as its agent for service of process for purposes of enforcing a debt, obligation, or other liability under this subsection. Service on the [Secretary of State] under this subsection must be made in the same manner and has the same consequences as in Section 116(c) and (d).
- (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.
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Chapter 14. The Limited Partnership 61 results (showing 5 best matches)
- A limited partnership is formed by filing a certificate of limited partnership with the secretary of state of the state chosen by the general partner or partners. Usually the state chosen is the state in which the firm plans to do business but a partnership can do business outside of the state of its organization, as many partnerships do. The firm will have to register in the other states as a “foreign limited partnership” (RULPA §§ 101(4) and 902). In its state of organization the firm is defined in RULPA § 101(7) as a “domestic limited partnership.”
- The limited partnership is a form of doing business made available by statute. A limited partnership is created by filing with the state a certificate for a partnership consisting of at least one general partner and one limited partner. It allows an investor who is a limited partner to participate in profits in an ownership capacity in a partnership without personal liability for the obligations of the business.
- A limited partnership dissolves less readily than a general partnership. Dissolution is covered in RULPA §§ 801 and 802. Section 801 deals with nonjudicial dissolution. It provides that a limited partnership is dissolved (i) at the time specified in the certificate or (ii) upon the happening of events specified in writing in the partnership agreement or (iii) upon written consent of all partners or (iv) when a general partner withdraws unless there is at least one other general partner and the agreement permits the business to be carried on by that partner. Alternatively, the partnership is not dissolved if, within 90 days after the withdrawal of a general partner, all partners agree in writing to continue the business and to the appointment of one or more additional general partners. As noted earlier, § 802 provides for judicial dissolution upon application by or for a partner “whenever it is not reasonably practicable to carry on the business in conformity with the partnership...
- In addition, even if inactive, a duty of good faith should apply to a limited partner who receives confidential information about the business. The duty would encompass not revealing the information to others who could do the business harm and not using it against the business to advance his own personal, competitive interests. Also, obligations attach to a limited partner who receives distributions to the disadvantage of creditors of the firm, as discussed below in § 100.
- The combination of these two changes, plus an expansion of the safe harbors to include, among other things, a limited partner being an officer, director, or shareholder of a corporate general partner of the limited partnership, voting to admit a general partner, or requesting a meeting of partners, means that a careful limited partner can play a dominant role in the business without incurring liability as a general partner. This flexibility constitutes a major change in direction and philosophy from the original act.
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Part IV. The Law of Unincorporated Business Enterprises 39 results (showing 5 best matches)
- A business trust is created by placing the assets of a business in trust with trustees. The trustees hold title to the assets for the benefit of holders of shares in the trust and thus are technically the legal owners of the business. The holders contribute capital, receiving shares reflecting the extent of each individual’s contribution, and are the beneficial owners of the trust. The shares can be made freely transferable without disrupting the continuity of the organization. The trustees manage the business. In the absence of a statute to the contrary, the trustees sue and are sued in their individual names and as legal owners of the business are personally liable for obligations incurred in the business. They have a right to reimbursement from the trust assets, however, if the obligation paid does not stem from their own wrongdoing.
- The topic of the corporation appears to fit poorly into material covering the law of unincorporated business organizations. It provides a useful contrast to the different forms of unincorporated business associations, however, and will be discussed in that context.
- In one sense, the sole proprietorship is not a “form” of doing business at all. A sole proprietorship is simply one person going into business without making any plans for an entity to carry on the business. No papers are filed in order to create the business. The sole proprietorship is one of the two “default” ways of doing business, in the sense that it applies if no other form is chosen. (The other default form, covering the situation in which there is more than one owner, is the general partnership.)
- The business trust originated at common law. The concept of a trust was utilized to create an unincorporated business association, usually known as the Massachusetts trust. The business trust was used early in the 20th century primarily as a device designed to provide limited liability for owners of a business while avoiding certain restrictions in some states (in particular, Massachusetts) on operating in corporate form. The business trust is used today primarily for asset securitization ventures in which income-generating assets, such as mortgages, are pooled in a trust, with participation (ownership) interests in the trust sold to investors. The common law business trust has certain drawbacks, as explained below. In 1990, Delaware passed a statute that avoids the common law defects and provides considerable freedom of contract among the owners and managers. Over half of the states have followed suit and a uniform act, called the Statutory Trust Entity Act, was completed in 2009.
- It is important to emphasize that liability protection does not exist for the personal wrongdoing of an owner in form of doing business. Thus realistically, with the exception of minor contracts, the issue of limited liability becomes important in many sole proprietor businesses only when the owner starts to engage the services of others in an agency capacity or brings in other owners for the business.
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Chapter 11. The Creation of a Partnership 58 results (showing 5 best matches)
- A general partnership is easy to form. If two or more persons associate as co-owners of a business and take no steps to formalize their relationship, they have created a partnership. No documents need be written or filed. This lack of formality is the fundamental characteristic that distinguishes the partnership from all other co-owner business organizations, which are statutory in origin and require that a document be filed before an organization can come into existence.
- UPA was promulgated in 1914 by the National Conference of Commissioners on Uniform State Laws (“NCCUSL”), an organization that prepares and recommends uniform laws to state legislatures. At one time UPA was adopted in all states except Louisiana. It still is governing law about a third of the states. (The other states have adopted RUPA, which is described below.) UPA is set forth in Appendix A to this book. A partnership is defined in § 6(1) of UPA as “an association of two or more persons to carry on as co-owners a business for profit.”
- The partnership thus is a residual (or “default”) form of doing business in a co-ownership relationship, applying to people who have done no planning and may not even know they are in a partnership relationship. Its use is not limited to that function, however. The partnership also is a widely and deliberately chosen form of doing business for many kinds of enterprise, including many professional businesses, like lawyers, doctors, and accountants.
- 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...
- UPA is based largely on the aggregate theory, known sometimes as the common law theory. That theory views a partnership as an aggregate of persons acting with a common purpose, sharing profits and losses, and holding partnership assets in joint ownership. It follows from this approach that a partnership is in existence only as long as its exact aggregate of partners exists. If a new partner joins, or a partner dies or resigns, the partnership is dissolved. Although this makes doing business in partnership form seem tenuous, the appearance is more frightening than the reality. Dissolution of the does not mean termination of the business. Termination of the business does not necessarily (or even usually) follow from dissolution of the partnership, as developed below.
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Copyright Page 4 results
- Nutshell Series, In a Nutshell
- © West, a Thomson business, 2001, 2005, 2008 © 2016 LEG, Inc. d/b/a West Academic
- 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.
- Printed in the United States of America
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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 unincorporated business entities, particularly cases dealing with limited liability companies.
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Appendix D. Uniform Limited Liability Company Act (1996) 472 results (showing 5 best matches)
- (b) A limited liability company may restate its articles of organization at any time. Restated articles of organization must be signed and filed in the same manner as articles of amendment. Restated articles of organization must be designated as such in the heading and state in the heading or in an introductory paragraph the limited liability company’s present name and, if it has been changed, all of its former names and the date of the filing of its initial articles of organization.
- (1) setting forth its name, or its name with any addition required by Section 1005, the State or country and date of its organization, and a brief description of the nature of the business in which it is engaged; and
- (1) “Articles of organization” means initial, amended, and restated articles of organization and articles of merger. In the case of a foreign limited liability company, the term includes all records serving a similar function required to be filed in the office of the [Secretary of State] or other official having custody of company records in the State or country under whose law it is organized.
- (b) Unless its articles of organization provide otherwise, a limited liability company has the same powers as an individual to do all things necessary or convenient to carry on its business or affairs, including power to:
- (iii) it is not otherwise reasonably practicable to carry on the company’s business in conformity with the articles of organization and the operating agreement;
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Chapter 15. The Limited Liability Company 54 results (showing 5 best matches)
- It is necessary to file a document with the state in order to create an LLC. Although the details vary considerably among the states, in many states one or more persons (called “members”) file articles of organization with the state, containing at a minimum provisions describing the name and identification of the firm as a limited liability company, the address of the principal place of business or registered office, and the name and address of the registered agent for service of process. The act of filing creates the LLC, unless a delayed effective date is specified in the articles.
- As noted above, on January 1, 1997, the IRS put into effect the “check-the-box” regulations. These regulations allow owners of unincorporated business organizations to elect partnership treatment even if their business organization would have been classified as a corporation under the Kintner regulations. Taxpayers are also free to elect treatment as an association taxable as a corporation. If the taxpayer does not specify otherwise, a domestic unincorporated organization of two or more owners is automatically qualified as a partnership for tax purposes. Also, the regulations clarify the status of the one-member LLC, disregarding it as an entity separate from its owner unless the owner elects treatment of the LLC as a corporation. Accordingly, the one-member LLC can offer limited liability and yet be treated as a sole proprietorship (if the member is an individual) or an unincorporated division (if the member is a corporation).
- The check-the-box regulations have had a major impact on business organization and planning, greatly simplifying the process for all concerned. Many states subsequently have amended their LLC statutes to remove mandatory dissolution and transferability provisions, allowing flexibility of drafting for the LLC by making most provisions default in nature.
- In order to understand the reasoning behind provisions relating to dissolution and transferability that still exist in a few LLC statutes and in some LLC operating agreements, it might prove helpful to take a brief look at the tax system that existed before January 1, 1997, when the check-the-box regulations became effective. For many years the Kintner regulations of the Internal Revenue Service (IRS) determined when an unincorporated business organization was taxable as a partnership. As noted earlier, this is important because of the flow-through feature of partnership taxation. Briefly, the Kintner regulations applied a four-part test that looked at four fundamental characteristics of a corporation to determine whether an entity should be taxed as a corporation rather than a partnership. It would be taxed as a corporation if it had at least three of the following four characteristics: limited liability, centralized management, continuity of life, and free transferability of...
- 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.
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Part I. Basic Terminology 33 results (showing 5 best matches)
- Business trust
- —A sole proprietorship occurs when a person carries on a business as its sole owner. No forms need to be prepared or filed with the state in order to create a sole proprietorship. The proprietor is personally liable for the debts of the business and pays income taxes on the net income of the business. The sole proprietorship is covered in the Introduction to part IV.
- —A special agent is an agent who is authorized to conduct a single transaction or a series of transactions not involving continuity of service, such as a real estate broker. In general, a special agent requires fresh authorization for each separate transaction. A general agent can be a special agent for a particular transaction, such as the manager of a business who is instructed to buy a vacation home for the owner of the business.
- —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.
- —The acronym “LLLP” stands for “limited liability limited partnership.” It refers to a limited partnership in which not only the limited partners but also the general partners have full liability protection from the debts of the business. This relatively new form of doing business is described in the Introduction to part IV and is covered in Chapter 14.
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Chapter 13. Dissociation of a Partner and Dissolution of a Partnership 89 results (showing 5 best matches)
- Goodwill has a variety of meanings but is generally used in partnership cases to refer to the going concern value of the business, as opposed to the breakup or liquidation value of its separate assets…. Goodwill in this sense includes favorable relationships with customers, employment relationships, credit rating, and other aspects of relationships with suppliers, the value of an assembled organization of property, equipment, and personnel, and such relatively objective components as trade name and customer records.
- Dissolution is defined in § 29 of UPA as “the change in the relation of the partners caused by any partner ceasing to be associated in the carrying on … of the business,” such as the withdrawal, death, or bankruptcy of a partner. This language reflects the aggregate theory. It appears to make the existence of a business operating in partnership form highly fragile and likely to be discontinued at any time by, among other events, resignation or death of a partner. In reality, however, as noted earlier, termination of the business need not and usually does not automatically follow from dissolution of the
- The word “dissolution” in RUPA is synonymous with termination of the business, a different meaning than it is given in UPA. Dissolution occurs under § 801 of RUPA (i) when a partnership is at will and a partner gives notice of intent to withdraw, (ii) when the term of a partnership expires, (iii) during the term of a partnership if, within 90 days after a partner’s dissociation by death, bankruptcy, or wrongful dissociation, at least half of the remaining partners agree to wind up the business, (iv) upon judicial dissolution based on misconduct or a finding that it is not reasonably practicable to carry on the business in conformity with the partnership agreement, (v) upon application by a transferee of a partner’s transferable interest, including the purchaser at foreclosure of a charging order, under certain circumstances, and (vi) upon any event that makes it unlawful to carry on the business.
- Termination of the business is avoided if there is planning ahead of time or if there is an agreement after dissolution to continue the business, although cooperation may not be as easy to come by in the latter situation because each partner has acquired on dissolution a liquidation right to sell the business and receive a cash payout (see immediately below). With regard to planning ahead, a partnership agreement can anticipate dissolution and provide for continuing the business and evaluating and distributing the departing partner’s interest in a way that is convenient to the business (by payment over a period of time, for example) and fair to the partner. Under such circumstance the departing partner’s liquidation right is waived by contract. Also, § 38(2) provides a statutory right to the remaining partners to continue the business when a partner wrongfully dissolves the partnership.
- This rule does not provide an easy answer to the issue posed above, however, because § 404(b)(1) and (2) provide that a partner is required to account for profits derived in the conduct and winding up of the partnership business and to refrain from dealing with the partnership in the conduct or winding up of the partnership business as or on behalf of an adverse party. It appears, therefore, that RUPA sees open competition during the winding up period as limited to new business only. Although the statutory scheme in RUPA is more complex, the RUPA and UPA standards turn out to be very similar in application.
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Chapter 5. Contractual Powers of Agents 59 results (showing 5 best matches)
- It is difficult to muster much enthusiasm for this illustration. T’s expectancy interest seems weak, A’s conduct bizarre, and the interest of the law in enforcing this unauthorized transaction obscure. The explanation in R2d § 161, comment a, is that the principal’s liability exists solely because of his relation to the agent. It is based primarily upon the theory that, if one appoints an agent to conduct a series of transactions over a period of time, it is fair that he should bear losses which are incurred when such an agent, although without authority to do so, does something which is usually done in connection with the transactions he is employed to conduct. Such agents can properly be regarded as part of the employer’s organization in much the same way as an employee is normally part of the employer’s business enterprise.
- Apparent authority can be “stacked” within an organization in the sense that it is possible, depending on the circumstances, for one agent to provide apparent authority to another agent within the same organization. For example, the Secretary to a board of directors of a corporation customarily prepares and certifies the minutes of the board. If a Secretary falsely prepares and certifies a board resolution that purports to grant authority to B, another officer of the corporation, to borrow money in the name of the corporation, B will have apparent authority to borrow upon display of the resolution based on the Secretary’s apparent authority by power of position to certify the minutes of the board.
- Apparent authority can be created by placing an agent in a position within an organization. This well-accepted and frequently invoked source of apparent authority is explained more fully in R3d § 3.03, comment c:
- Apparent authority in an organizational setting may also arise from the fact that a person occupies a type of position that customarily carries specific authority although the organization has withheld such authority from that agent.
- An example of subagency is when a person (P) engages a large law firm (A) to represent her in a complex commercial transaction and the law firm uses its regular employees (B) to carry out some of the tasks of the agency. Subagency is necessarily involved whenever a corporation is an agent because a corporation can only act through others. This result also applies to other business entities.
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Chapter 9. Notice and Notification; Imputed Knowledge 27 results (showing 5 best matches)
- If there is a contract between the parties, the requirements for notification and when it is effective often are established by agreement. Also, the issue of effective notice is sometimes defined by statute. A significant example of this is Uniform Commercial Code § 1–201(27), dealing with notice to an organization: “[N]otification received by an organization is effective for a particular transaction from the time it is brought to the attention of the individual conducting that transaction, and in any event from the time it would have been brought to his attention if the organization had exercised due diligence.”
- The adverse interest exception is similar to the scope of employment defense in respondeat superior (see § 25). If an agent is acting adversely to the principal and entirely for his own or another’s purposes, his knowledge is not imputed. (In one sense, the agent is “on a frolic” of his own.) The fact, however, that an agent has conflicting goals (like the desire to earn a commission and thus keep silent about an outstanding equity) will not rise to the level of an adverse interest. For instance, assume P retains A to negotiate on P’s behalf to acquire Blackacre from T, provided A finds no defects in T’s title. P promises A a commission on the purchase price if the deal closes. In investigating T’s title to Blackacre, A discovers an unrecorded equitable interest in favor of S. A withholds this information from P so as not to jeopardize A’s commission on the purchase, thus clearly acting adversely to P. P, unaware of S’s interest, agrees to buy Blackacre from T. If T did not know or...A
- . At times, an argument is made that an organization should be held to the composite knowledge of several of its employees. Assume, for example, that a power company (“Power”) enters into a contract with a bridge company (“Bridge”) to string high tension wires above the bridge. Power promises to provide safety personnel whenever Bridge paints the bridge upon receiving notice of that fact. Bridge decides to paint the bridge and does not give notice to Power. One employee of Power sees painters working on the bridge. Another employee knows that Power is supposed to supply safety personnel under that circumstance. Is Power subject to the composite knowledge of the two employees? The answer would be no unless this “affair was entrusted” to the agent who observed the painters. In other circumstances, however, the courts will hold a corporation to the composite knowledge of its employees. See, for instance, ...outside counsel to the corporation, imputed to the corporation and resulted in...a
- A notification can in some cases be effective at the moment it is given. For example, ordinarily a notice of acceptance of an offer given to an authorized or apparently authorized agent of the offeror is effective at the time it is given. But under other circumstances, in particular when action is required on the part of the one being notified, reasonable time must be given for the transmission of the information to the one who is to act.
- 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.
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Chapter 12. The Operation of a Partnership 112 results (showing 5 best matches)
- One issue that has arisen under UPA § 9(1) is whether the phrase “apparently carrying on” refers just to the business of the particular partnership or does it include the way other firms in the same business and locality carry on their trade. Courts have split on this, with the leading authority adopting the broader view. The broader view seems to reflect more fairly the expectations of persons dealing with a partnership. One would expect warning if the particular business one was dealing with operated in a manner different from other similar businesses. RUPA § 301 expressly adopts the broader view of apparent authority. (As an aside, it is useful to note that if an act is actually authorized by the other partners, a partner can bind the firm whether or not the act involves carrying on the business in the usual way. See UPA § 9(2) and RUPA § 301(2).)
- Section 18(b) of UPA states that “the partnership must indemnify every partner in respect of payments made and personal liabilities reasonably incurred by him in the ordinary and proper conduct of its business, or for the preservation of its business or property.” This partner’s right is similar to the indemnity rights of agents (see § 8 of this book) and reflects the same policy (“as the profits of the business will be [the partnership’s], so should be the expenses”). The right to indemnity under UPA § 18 is qualified by “reasonably incurred” and in the “proper” conduct of the business, similar to the right of an agent to indemnity described in § 8. With regard to contribution rights, if the partnership is insolvent and unable to indemnify a partner, §§ 18(a) and 40(d) of UPA state that each partner shall contribute the amount necessary to satisfy the liabilities of the firm, which would include a partner’s indemnity rights, “according to his share in the profits.”
- A frequent source of friction among partners arises when a partner decides to leave the business. Two issues immediately arise: what steps can the partner take prior to severing the relationship in order to prepare ahead of time for setting up his own business? And what limits are there on competition with former partners once one has left a partnership? This latter issue deals with post-dissociation or dissolution matters and will be covered in detail in the next chapter. In general, subject to agreement, former partners are free to compete for business, including business with clients of the firm, after leaving the firm if the competition is fair, meaning in large part that it does not involve use of confidential information and trade secrets.
- In cases of an even division of the partners as to whether or not an act within the scope of the business should be done … it seems that logically no restriction can be placed upon the power to act. The partnership being a going concern, activities within the scope of the business should not be limited, save by the expressed will of the majority deciding a disputed question; half of the members are not a majority.
- An example of implied actual authority is provided by , 488 P.2d 440 (Or. 1971). In this case a partnership of 19 partners owned two tube mills for making welded steel pipe. It leased the mills to a corporation in the steel business. One partner (John Beall) conducted the business of the partnership. No meetings were called nor were the other partners consulted on decisions made in the ordinary course of business. One day Beall agreed with the lessee to a sharp cut in the income the partnership would receive from a particular job in order that the lessee could make a low bid for the job. When the other partners heard of Beall’s action they complained and eventually filed a law suit on this and other issues. The complaint of the other partners was that they were deprived of their right to participate equally in the management of the partnership business (UPA § 18(e)) and thus that Beall’s act was unauthorized. The court quoted the following testimony from the trial below:
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Appendix A. Uniform Partnership Act (1914) 171 results (showing 5 best matches)
- (4) The receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the business, but no such inference shall be drawn if such profits were received in payment:
- (d) A partner wilfully or persistently commits a breach of the partnership agreement, or otherwise so conducts himself in matters relating to the partnership business that it is not reasonably practicable to carry on the business in partnership with him,
- (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) When all but one partner retire and assign (or the representative of a deceased partner assigns) their rights in partnership property to the remaining partner, who continues the business without liquidation of partnership affairs, either alone or with others, creditors of the dissolved partnership are also creditors of the person or partnership so continuing the business.
- (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.
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Appendix C. Uniform Partnership Act (1997) 365 results (showing 5 best matches)
- (3) A person who receives a share of the profits of a business is presumed to be a partner in the business, unless the profits were received in payment:
- (1) Each partner is an agent of the partnership for the purpose of its business. An act of a partner, including the execution of an instrument in the partnership name, for apparently carrying on in the ordinary course the partnership business or business of the kind carried on by the partnership binds the partnership, unless the partner had no authority to act for the partnership in the particular matter and the person with whom the partner was dealing knew or had received a notification that the partner lacked authority.
- (j) A difference arising as to a matter in the ordinary course of business of a partnership may be decided by a majority of the partners. An act outside the ordinary course of business of a partnership and an amendment to the partnership agreement may be undertaken only with the consent of all of the partners.
- (d) If a foreign limited liability partnership transacts business in this State without a statement of foreign qualification, the [Secretary of State] is its agent for service of process with respect to [claims for relief] arising out of the transaction of business in this State.
- (c) A partnership shall reimburse a partner for payments made and indemnify a partner for liabilities incurred by the partner in the ordinary course of the business of the partnership or for the preservation of its business or property.
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Chapter 3. Duties of Agent to Principal 46 results (showing 5 best matches)
- The duty of full disclosure includes a duty to inform the principal of all facts relevant to a transaction that the agent reasonably believes the principal would want to know. In one respect full disclosure is related to the duty of care. In
- A trade secret, broadly defined, consists of confidential information used in the employer’s business that gives the employer an advantage over competitors. Restatement (Third) Unfair Competition § 39. A customer list is an example of a trade secret, assuming that, as stated in , 147 N.E.2d 724 (N.Y.1958), the list was compiled by “business effort and the expenditure of time and money, constituting a part of the good-will of a business which enterprise and foresight have built up.”
- One area of frequent litigation concerning the duty of loyalty involves disputes over whether a business opportunity belonging to a principal has been pre-empted by an employee or other fiduciary. A pre-emptive business opportunity is one that is so closely related to the business that it is fairly considered an incident of it. An employee or other fiduciary can take personal advantage of a pre-emptive opportunity only if the employer knows and consents. This concept was involved in one of the most famous cases involving fiduciary duties,
- Noncompete covenants cannot be used simply to stifle competition. Such use would violate the common law’s long-standing policy against unreasonable restraints on competition. In order for a noncompete covenant to be enforceable it must rest upon a protectable interest and must be reasonable in time and geographic scope. The interests entitled to be protected by a covenant include “trade secrets, the goodwill of the business, and an extraordinary investment in the training or education of the employee.” P.2d 623 (Utah 1982). In this context goodwill usually means protection of the employer-customer relationship. The reason for protecting this relationship apparently is that the employee, upon joining the business, acquires knowledge of and access to the employer’s customers as part of a relationship of trust. It is considered wrong for the employee to appropriate some or all of those customers upon leaving the business, at least when he has agreed not to do so.
- A noncompetition covenant can be of considerable assistance to an employer when attempting to prevent misuse of a trade secret or invasion of the goodwill of the business. The employer can by contractual agreement define the trade secret and obtain the employee’s consent to that definition and agreement not to use or disclose the trade secret after terminating the employment. Also, limits can be set on post-employment competition, defined in part by the nature of the business and of the work the employee was doing.
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Halftitle Page 1 result
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.
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Chapter 2. Duties of Principal to Agent 29 results (showing 5 best matches)
- 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.
- An employer is subject to a common law duty of care toward its employees arising from its control over the work environment. This duty includes using due care in the construction, repair, or inspection of the premises where employees work, in the selection of fellow employees, and in the management of the work. The duty to provide a safe place to work is nondelegable, which means that the employer cannot absolve itself of liability by hiring an outside business to make repairs. If the work is done negligently, the employer will be vicariously liable even in the absence of control over the physical conduct of the contractor (see § 23 B).
- An implied duty is imposed by courts on the principal to deal fairly and in good faith with the agent. This duty is broad and largely undefined, with the potential to cover many different situations. As one example of its application in a fairly broad but understandable context, the principal is required to maintain a standard of conduct that will not harm the agent’s business reputation or reasonable self-respect. Breach by the principal allows the agent to terminate the relationship and to sue for breach of contract, assuming the relationship is not at will.
- A subagent is entitled to indemnity from both the immediate principal (the person who hired the subagent) and the remote principal (the one for whom the immediate principal works), on the reasoning expressed above. If the subagent obtains indemnity from the immediate principal, the immediate principal can in turn obtain indemnity from the remote principal, again on the theory that it is the remote principal’s business that is being done and “as the profits will be his, so should be the expenses.” This situation was involved in . (In litigation matters, the agent should notify the principal and attempt to put the financial burden upon it, thus avoiding the risk of unknown defenses or a claim by the principal that the agent’s defense was ineffective or litigation costs too high.)
- Deonier filed a cross-claim against Paul Revere, arguing that Paul Revere’s failure to inform her that it would invoke the defense under such circumstances breached a fiduciary duty that Paul Revere owed to her. The District Court disagreed and ordered summary judgment in favor Paul Revere. The Montana Supreme Court reversed. In the Court’s view, there was a likelihood that a policyholder would fail to properly disclose a pre-existing condition, would file a claim after the two-year incontestability period expired, a Montana court would rule that the incontestability clause precluded a denial of coverage (in other words, reject the defense) and, as a result of all of this, a Paul Revere agent who sold the policy would incur liability to the policyholder for failing to inform the policyholder of this possibility. Given this likelihood, the Court concluded, summary judgment in favor of Paul Revere was error. In short, Paul Revere had a duty to inform its agents of its intention to...
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Chapter 1. The Agency Relationship 73 results (showing 5 best matches)
- A controlling creditor runs certain risks under the law of agency in some jurisdictions, particularly if the creditor (often referred to as a trade creditor) engages in trade with the debtor and bargains for a stronger trade position as part of the consideration for the loan. If its control over a debtor’s business is substantial, particularly if it is affirmative in nature and includes the right to initiate transactions, the creditor may be classified as a principal with the debtor its agent, exposing it to liability for losses incurred by the debtor’s business.
- The ability of a creditor to initiate transactions (which surely must be a rare situation in the business world, with the possible exception of debtor insolvency, where creditors are attempting to salvage a failing business) is deemed by some authority to be incompatible with creditor status. See R2d § 14 0. The law of agency is invoked to characterize the creditor-debtor relationship, apparently on the reasoning that the creditor both benefits from the transaction and controls the debtor. The use of agency doctrine in this setting is doubtful, however, because it focuses exclusively on control without considering the equally important “on behalf of” element, an element that seems hard to satisfy in this context where the debtor is generating profits in its own interest.
- Agency status of directors of a corporation.
- 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.)
- Franchisor, Inc. (“FR”), a well-known name in the restaurant business, and Franchisee, Inc. (“FE”), have a contractual relationship that grants FE the exclusive right to use FR’s name in a certain territory. In return, FR is granted 5% of the gross sales of FE, the right to specify the items and products that FE can sell, to require FE to purchase all flour and pancake mixes from FR, and to promulgate a standard operations manual binding upon FE covering quality control, record keeping, hours of operation, employees’ appearance and demeanor, and training of managers. Plaintiff claims that FE is an agent of FR because FR both has extensive control over FE and benefits from its relationship with FE, and thus plaintiff is able to serve process on FE for a claim it has against FR. Is plaintiff’s claim valid?
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Chapter 4. Vicarious Tort Liability 99 results (showing 5 best matches)
- Also, a broad application of the nondelegable duty exception can lead to a misallocation of the burdens and costs of doing business by placing the costs of doing business on the customers of the independent contractor’s business rather on the business itself. It is true that indemnity can be sought against the independent contractor, as explained below, but litigation costs, among others, would be unfairly
- The Restatement (Third) has abandoned the use of the term “independent contractor.” Instead, it uses the term “employee” (see § 16 above) to describe those agents with respect to whom the principal (or employer) bears vicarious liability. In comment f to R3d § 7.07, the drafters have set forth the “indicia” that are relevant to determining whether an agent is an employee. These include: “the extent of control that the agent and the principal have agreed the principal may exercise over the details of the work; whether the agent is engaged in a distinct occupation or business; whether the type of work done by the agent is customarily done under a principal’s supervision; the skill required in the agent’s occupation; whether the agent or the principal supplies the tools or other instrumentalities required for the work and the place in which to perform it; the length of time during which the agent is engaged by a principal; whether the agent is paid by the job or by the time worked;...
- court also articulates the re-entry test, which applies after an employee has abandoned his employment and the issue is whether he subsequently returned to his duties prior to the accident. Although location in time and space are important, it must also be proved that the “dominant purpose” of the employee is performance of the employer’s business before re-entry will be found. As Judge Cardozo stated in , “We are not dealing with a case where in the course of a continuing relation, business and private ends have been coincidentally served. Division [from the frolic] more substantial must be shown before a relation, once ignored and abandoned, will be renewed and re-established.” Comment e to R3d § 7.07 captures these concepts: “De minimis departures from assigned routes are not ‘frolics’ … and [f]rolics end when an employee reenters employment, that is, when the employee is once again performing assigned work and taking actions incidental to it.”
- A building contractor is an example of the other kind of independent contractor, one who is not an agent. It is true that the building contractor’s work benefits the owner. But it cannot fairly be inferred that the contractor is working on the owner’s behalf or that the owner has any control over the details of the work. Instead, the contractor is conducting its own business and reaping its own profit. It orders materials for the job in its own name and pays for them, and is in control over the manner and means of accomplishing the construction work involved in the job.
- But when is an employee regarded as “borrowed”? The test in many jurisdictions is whether it can reasonably be inferred that the employee’s allegiance has been transferred to the borrowing employer. As stated in one of the most famous cases in this area, , 135 N.E. 199 (N.Y.1922), “[A]s long as the employee is furthering the business of his general employer by the service rendered to another, there will be no inference of a new relation unless command has been surrendered, and no inference of its surrender from the mere fact of its division.” Under this test, called the transfer of allegiance test, relatively few employees would be borrowed. Usually the employee is furthering the business of his employer and command rarely is completely surrendered by the general employer. This approach is consistent with the basic definition of the agency relationship because the court is looking to see to whom the agent gives his loyalty. Usually an employee will give his allegiance to the person...
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Chapter 8. The Doctrine of Ratification 35 results (showing 5 best matches)
- … In many cases, the third person is a distinct gainer as where the purported principal ratifies a tort or a loan for which he was not liable and for which he receives nothing. This result is not, however, unjust, since, although the creation of liability against the ratifier may run counter to established tort or contract principles, the liability is self-imposed. Even one who ratifies to protect his business reputation or who retains unwanted goods rather than defend a law suit, chooses ratification as preferable to the alternative. Further, the sometimes-derided doctrine of relation back not only is used in other parts of the law, but it tends to give the parties what they wanted or said they wanted. If it sometimes happens that a mistaken or over-zealous agent is relieved from liability to the third person, the net result causes no harm to anyone. However, perhaps the best defense of ratification is pragmatic; that it is needed in the prosecution of business. It operates...
- The actor would not be entitled to compensation if the principal is obliged to ratify in order to avoid losses, such as ratifying by filing a claim in a bankruptcy proceeding of the other party in order to validate a security interest the actor had obtained in the course of making an unauthorized loan to the bankrupt. Also, the actor would not be entitled to compensation if the principal was induced to affirm by the fraud or duress of the actor.
- On a separate point, when formalities are requisite for the authorization of an act, its affirmance must be by the same formalities in order to constitute a ratification. For a case involving this concept, see , 51 Cal.App.4th 1721 (1997). In this case an agent operating under a power of attorney granted by Ms. Huston purchased an annuity for a person who had devotedly cared for the elderly Ms. Huston long after others had abandoned her. The power of attorney did not authorize gifts. Ms. Huston, mentally alert up to the time of her death, orally approved the gift in a conversation with her banker, among others. After her death her relatives challenged the gift as not properly authorized. The court agreed with this, stating: “Because a power of attorney must be in writing, any act performed by the agent acting under the power must therefore be ratified in writing. Even though it is apparent decedent in fact wished to make [the] gift, nonetheless she failed to comply with the...
- R3d § 4.03 provides that “[a] person may ratify an act if the actor acted or purported to act as an agent on the person’s behalf.” This limits, in certain circumstances, the liability of one who appears to have ratified a tort. For instance, in , 141 A. 870 (Conn.1928), the statement of a car owner that he would pay for damages caused by a prospective purchaser of the car who was aimlessly driving the car around town with two friends was not binding on the reasoning that the owner “could not ratify an act which was not done in his behalf.” The statement instead was a mere voluntary assumption of liability, which requires consideration or a substitute for consideration (such as reliance on the statement) in order to be binding on the car owner.
- The manifestation need not be communicated to the other person, although that happened in both , 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.
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Chapter 7. Liability of the Agent to Third Persons 29 results (showing 5 best matches)
- An agent must disclose the identity of his principal with such complete information that the principal can be readily distinguished from all others. This rule is adopted and applied in the overwhelming majority of jurisdictions. It can catch an agent by surprise, especially an agent contracting on behalf of an organization that operates with a trade name. For example, in , 432 So.2d 656 (Fla.App.1983), Rosenberg, the president of Seascape Restaurants, Inc., a corporation that owned a restaurant called “The Magic Moment,” contracted for the creation of a “magical entrance” to the restaurant. Rosenberg signed the contract “Jeff Rosenberg, The Magic Moment.” Seascape did not pay for the work done.
- 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.
- 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).
- An agent is fully liable for personal tortious behavior. Acting as the agent of another does not somehow confer immunity upon the actor. An exception to this exists by statute under the worker’s compensation laws in many states. These statutes absolve from liability a negligent worker who injures a fellow worker, assuming the injured worker is successful in claiming worker’s compensation.
- 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.
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Chapter 10. Termination of the Agency Relationship 14 results (showing 5 best matches)
- A principal has 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.
- Only if a power is coupled with an interest, Justice Marshall noted, could it become irrevocable at death. A power is coupled with an interest when the interest is conveyed at the time the power is created, thus allowing sale without the necessity of selling in the name of the deceased. A power of sale in a mortgage in a title theory state, where the lender is conveyed title to the property subject to defeasance if the loan is paid, is the purest example of a true power coupled with an interest because the power holder can convey in his own name.
- 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.)
- The power coupled with an interest problem.
- This limitation includes the revocation by a principal of an offer of compensation in order to avoid paying a commission or bonus or with the intent to give the benefit to another.
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Chapter 6. The Undisclosed Principal 29 results (showing 5 best matches)
- Policy arguments can be made on both sides of this issue. In favor of the majority rule is the argument that P’s good faith payment to A does not harm T, who had no expectation that A was anything other than a sole contracting party and who thus took a credit risk with A. To the extent that T’s rights against P can be viewed as subrogation (in effect) to A’s indemnification rights against P (see § 8), P’s payment to A discharges those rights and so should discharge T’s rights as well. In favor of the minority rule, embraced by R2d § 208 and R3d § 6.07, is the argument made in the Reporter’s Notes to § 208 that, “An agent receiving support from the principal is a different kind of person from an independent trader who by hypothesis the third person believes to be the owner ...business. Further, the principal has ample means to protect himself…. The other party should not lose because the principal has chosen to rely upon his agent’s honesty rather than upon his own investigation.”...
- 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
- The limitations described in this section are designed to ensure that the expectations of parties contracting with the agent are not materially disadvantaged by the assertion of the rights of the undisclosed principal. As one illustration of this, the undisclosed principal cannot claim status as a party to the contract if the terms of the contract exclude other parties. For example, in , 171 So.2d 152 (Miss. 1965), the court held that a clause in a lease prohibiting subletting without the landlord’s consent excluded an undisclosed principal, stating, “Lessor has a right to elect the person with whom he will deal. There are elements of confidence other than credit involved in leasing property.” A clause in a contract prohibiting assignment may operate as evidence of intent to exclude an undisclosed principal, but does not in itself prevent suit by an undisclosed principal on the contract.
- In most jurisdictions a misrepresentation by A of her status as an agent will not in itself avoid the underlying transaction on the reasoning that the misrepresentation is not material if it affects only the price of the property. Thus T’s complaint that she was disadvantaged because she would have charged a lot more money if she had been aware of P’s existence is not alone regarded as sufficient to avoid the contract.
- The undisclosed principal doctrine also is unusual because it appears to endorse prearranged misleading behavior. The doctrine exists in all states, however, perhaps in part because it serves a useful role by, for example, addressing the problem of the holdout in a private land assemblage. The problem of the holdout would exist if the identity of the buyer had to be disclosed. Under such circumstances the last few owners in an area targeted for assemblage would hold out for a price vastly in excess of the market value of the land independent of the assemblage. Disneyworld, Rockefeller Center, and large portions of Grand Teton National Park (subsequently given to the federal government) are all illustrations of private land assemblages that took advantage of the undisclosed principal doctrine.
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Outline 58 results (showing 5 best matches)
- 2. Recent Changes in Limited Liability and Pass-Through Taxation for Unincorporated Businesses
- G. Rights of the Estate of a Deceased Partner When the Business Is Continued
- § 95. Organization of the Limited Partnership
- C. Pre-Empting Business Opportunities
- PART IV. THE LAW OF UNINCORPORATED BUSINESS ENTERPRISES
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Index 5 results
Table of Cases 6 results (showing 5 best matches)
Dedication 1 result
- 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.
