PARTNERSHIPS,CORPORATIONS

AND THE VARIANTS

LECTURE 2, PGS. 31-74

Business Organizations

What are we talking about?

Two Umbrella Types of Entities: Limited personal liability for owners

Limited partnership Limited Liability Company Corporation

No protection from personal liability: General partnership Sole proprietorship

Lec. 2, pp. 31-74 Corporations Prof. McCann

Sole Proprietorship

Single OwnerEveryone else in organization works for that

ownerOwner is personally liable Not a separate identity independent of ownerAll profits and losses flow through directly to

that owner on his or her tax returnExamples are many law firmsDefault form of ownership – no legal filing

requiredLec. 2, pp. 31-74 Corporations Prof. McCann

Some Basic Terms

Partnership Two or more persons (and by “person” we also mean other

entities) Share power Share profits Share losses Partnership reports its profits and losses to the partners

who each take their percentage on their own tax return (pass through)

Partnership itself is not taxed Each partner personally liable Dissolves on death of partner or other No formal registration required with State

Lec. 2, pp. 31-74 Corporations Prof. McCann

Corporation

One or more ownersNo personal liability (assuming formalities met)Registered with Secretary of StateManaged by its Board of Directors who are

elected by the ownersBoard names officers who run day-to-day

operationsSeparate existence from its owners (perpetual

life) Pays taxes Distributes profits via dividends to owners

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Overview of Corporate Structure

Lec. 2, pp. 31-74 Corporations Prof. McCann

Misc. Terms

Equity Refers to an owner’s ownership interest in a business

entity. How many shares owned. What percentage interest she has.

The total equity in a company is the difference between what all of its assets are worth and what all of its liabilities are.

Debt A legal obligation to pay money to someone In business organizations, the two ways to raise

money are to (a) sell shares, or “equity”, or (b) borrow money, incur “debt”

Lec. 2, pp. 31-74 Corporations Prof. McCann

More Terms

Passive Investor Someone who acquires equity but is not active in

management of the company. They may have voting rights but otherwise do not

participate

Active Investor Someone who works actively in the business or plays

a material role in management

Lec. 2, pp. 31-74 Corporations Prof. McCann

More Terms

Capital Refers simply to the assets of a company – its cash in

the bank, its investments, its equipment and inventory

Stock (or shares) Units of ownership in a corporation A corporation is authorized to issue given number of

shares

Shareholder Person or entity holding shares in entity

Director Person elected by shareholders to govern corporation

Lec. 2, pp. 31-74 Corporations Prof. McCann

AGENCY

Lec. 2, pp. 31-74 Corporations Prof. McCann

A relationship whereby one person or entity ( a principal) empowers another person or entity to act on behalf of the principal with the same force and effect as if the principal was acting herself.

AGENCY

Elements of relationship:

1. Principal manifests assent that agent act for principal and be subject to principal’s control

2. Agent manifests consent or otherwise consents to act.

Lec. 2, pp. 31-74 Corporations Prof. McCann

Scope of Authority of Agent Derived From

Actual authority: that authority which principal has expressly granted to the agent or which agent reasonably believes was granted based on understanding of principals intentions or circumstances. NOTE: Perspective is that of the agent.

Apparent authority: that authority vested in agentwhich principal has informed or manifested to third party has been so vested. NOTE: Perspective is that of third person– did the principal somehow indicate agency

Implied authority: that authority reasonably required to accomplish the objectives of the agency

Lec. 2, pp. 31-74 Corporations Prof. McCann

Lec. 2, pp. 31-74 Corporations Prof. McCann

Agent Is a Fiduciary

A fiduciary duty is the highest standard of care at either equity or law. A fiduciary is expected to be extremely loyal to the person to whom he owes the duty (the "principal"): he must not put his personal interests before the duty, and must not profit from his position as a fiduciary, unless the principal consents. The word itself comes originally from the Latin fides, meaning faith, and fiducia, trust.

Lec. 2, pp. 31-74 Corporations Prof. McCann

Corp Code 313

Subject to the provisions of subdivision (a) of Section 208, any note, mortgage, evidence of indebtedness, contract, share certificate, initial transaction statement or written statement, conveyance, or other instrument in writing, and any assignment or endorsement thereof, executed or entered into between any corporation and any other person, when signed by the chairman of the board, the president or any vice president and the secretary, any assistant secretary, the chief financial officer or any assistant treasurer of such corporation, is not invalidated as to the corporation by any lack of authority of the signing officers in the absence of actual knowledge on the part of the other person that the signing officers had no authority to execute the same.

Lec. 2, pp. 31-74 Corporations Prof. McCann

WHAT ARE THE LIMITS OF AN ATTORNEY’S IMPLIED AUTHORITY?

KOVAL & KOVAL V SIMON

Implied Authority Revisited

Lec. 2, pp. 31-74 Corporations Prof. McCann

Implied authority: that authority reasonably required to accomplish the objectives of the agency

Attorney is vested with broad powers but those do not include the power to compromise the very claim she was retained to pursue or defend.

Power of Attorney

Lec. 2, pp. 31-74 Corporations Prof. McCann

I (the above named principal), appoint the above named Attorney(s)-in-fact to act as my attorney(s)-in-fact:   FIRST: To act for me in any way I myself could act with respect to the following matters, as each of them is defined in Minnesota Statues section 523.24:   (To grant to the attorney-in-fact any of the following powers, make a check or”X” on the line in front of each power being granted. You may, but need not, cross out each power not

granted. Failure to make a check or “X” on the line in front of the power will have the effect of deleting the power unless the line in front of the power of (N) is checked or x-ed.   CHECK or “X”   ____ (A) real property transactions: I choose to limit this power to the real property in__________, County, Minnesota, described as follows: (Use legal descriptions. Do not use the street address.) (Note: A person

may not grant powers relating to real property transactions in Minnesota to his or her spouse.)   ____ (B) tangible personal property; _____(C) bond, share, and commodity transactions; ____ (D) banking transactions; ____ (E) insurance transactions; ____ (F) business operating transactions; ____ (G) beneficiary transactions; ____ (H) gift transactions; ____ (I) fiduciary transactions; ____ (J) claims and litigation; ____ (I) family maintenance; ____ (K) benefits from military service; ____ (L) records, reports, and statements; ____ (M) All of the powers listed in (A) through (M) above and all other matters.     SECOND: (You may indicate below weather or not this power of attorney will be effective if you become incapacitated or incompetent. Make a check or “X” on the line in front of

the statement that expresses your intent.)   ____ This power of attorney shall continue to be effective if I become incapacitated or incompetent.   ____ This power of attorney shall not be effective if I become incapacitated or incompeten  

  In Witness Whereof I have hereunto signed my name this ____ day of ___________, 20____.     __________________________________ (Signature of principal)

FENNEL V TLB KENT CO.

APPARENT AUTHORITY

Lec. 2, pp. 31-74 Corporations Prof. McCann

Apparent authority: that authority vested in agentwhich principal has informed or manifested to third party has been so vested. NOTE: Perspective is that of third person– did the principal somehow indicate agency

Disbarred Tawana Brawley lawyer C. Vernon Mason aids Manhattan District Attorney-elect Cy VanceBY Melissa Grace DAILY NEWS STAFF WRITER Saturday, November 7th 2009, 4:00 AM

Disbarred lawyer C. Vernon Mason - a civil rights leader at the heart of the Tawana Brawley case - is on the transition team for Manhattan District Attorney-elect Cy Vance.

Mason, who lost his law license for mistreating poor clients, is among 35 advisers who will help shape policy and prosecutions.

"C. Vernon Mason is a well-respected clergy member who cares deeply about his community and the criminal justice issues faced by youth and adults," said Michael Cherasky, head of Vance's prep team.

Vance declined to comment.

Mason, a deacon at Harlem's Abyssinian Baptist Church and a faculty member at the New York Theological Seminary, did not return calls for comment.

A longtime civil rights advocate, Mason is best known for his ties to the polarizing Brawley case. He and the Rev. Al Sharpton advised the black teenager, who claimed she was kidnapped and raped by six white cops upstate in 1987.

A grand jury later concluded Brawley fabricated the story. In 1998, Mason, Sharpton and activist Alton Maddox lost a defamation suit brought by prosecutor Stephen Pagones, whom they falsely accused in the Brawley case.

Mason was ordered to pay $185,000 in damages, a debt that has not been paid, said Pagones, 48, who runs a private investigation firm.

Lec. 2, pp. 31-74 Corporations Prof. McCann

Lec. 2, pp. 31-74 Corporations Prof. McCann

United States of America, Plaintiff-appellee, v. International Brotherhood of Teamsters, Chauffeurs, warehousemen and Helpers of America, AFL-CIO; The commission of La Cosa Nostra; Anthony Salerno, Also Known as Fat Tony; Matthew Ianniello, Also Known As Matty The horse; Anthony Provenzano, Also Known As Tony Pro; Nunzio Provenzano, Also Known As Nunzi Pro; Anthony Corallo, Also known As Tony Ducks; Salvatore Santoro; Christopher Furnari, Sr., Also Known As Christie Tick; Frank Manzo; Carmine Persico, Also Known As the Snake, Also Known As Junior; Gennaro Langella, Also Known As Gerry Lang; Philiprastelli, Also Known As Rusty; Nicholas Marangello, Also known As Nicky Glasses; Joseph Massino, Also Known As Joey Messina; Anthony Ficarotta, Also Known As Figgy; Eugene Boffa, Sr.; Francis Sheeran; Milton Rockman, Also Known Asmaishe; John Tronolone, Also Known As Peanuts; Joseph Johnaiuppa, Also Known As Joey Aiuppa, Also Known As Joe Doves, also Known As Joey O'brien; John Phillip Cerone, Also Known as Jackie Cerone, Also Known As Jackie the Lackie; Joseph Lombardo, Also Known As Joey the Clown; Angelo Lapietra, also Known As Nutcracker, The; Frank Balistrieri, Also known As Mr. B; Carl Angelo Deluna, Also Known As Toughy; Carl Civella, Also Known As Corky; Anthony Thomas Civella, also Known As Tony Ripe; et al. Appellants United States Court of Appeals, Second Circuit. - 986 F.2d 15 Argued Dec. 4, 1992.Decided Feb. 16, 1993

Famed Attorney 'Dickie' Scruggs Pleads Guilty to Bribery ChargesScruggs Was Charged With Conspiring to Pay a State Judge $40,000 in

Cash in Exchange for a Favorable Ruling

Lec. 2, pp. 31-74 Corporations Prof. McCann

March 14, 2008

Attorney Richard "Dickie" Scruggs, famous for winning billions of dollars from the big tobacco companies, has pleaded guilty to charges of trying to bribe a Mississippi judge, according to the Associated Press.

Scruggs and two other lawyers in his firm, including his son Zach, had been charged with conspiring to pay a state judge with $40,000 in cash in exchange for a favorable ruling in a case over disputed legal fees.

According to the indictment, Circuit Court Judge Henry Lackey cooperated with FBI agents to help document the bribery scheme. Lackey was presiding over a case in which Scruggs had been sued by another law firm for more than $26.5 million in attorneys fees related to Hurricane Katrina insurance claims.

RATIFICATION

Lec. 2, pp. 31-74 Corporations Prof. McCann

THE SOLE REQUIREMENT IS A MANIFESTATION OF ASSENT OR OTHER CONDUCT INDICATIVE OF

CONSENT BY THE PRINCIPAL.

RESTATEMENT 3RD 4.01

Ratification

Daynard v Ness, et al

"For purposes of personal jurisdiction, the actions of an agent may be attributed to the principal." Daynard v. Ness. Motley. Loadholt. Richardson & Poole. P.A., 290 F.3d 42, 55 (1st Cir. 2002). Thus, if one member of the joint venture or joint enterprise  or their agent acts in the forum, his contacts with the forum will be imputed to all the other members of the joint venture or joint enterprise. State Dept. of Finance v. Tenney, 124 Idaho 243, 858 P.2d 782, 786 (Idaho App. 1993)

Lec. 2, pp. 31-74 Corporations Prof. McCann

Lec. 2, pp. 31-74 Corporations Prof. McCann

§ 4.01 Ratification Defined (1) Ratification is the affirmance of a prior act done by

another, whereby the act is given effect as if done by an agent acting with actual authority.

(2) A person ratifies an act by (a) manifesting assent that the act shall affect the person's

legal relations, or (b) conduct that justifies a reasonable assumption that the

person so consents. (3) Ratification does not occur unless (a) the act is ratifiable as stated in § 4.03, (b) the person ratifying has capacity as stated in § 4.04, (c) the ratification is timely as stated in § 4.05, and (d) the ratification encompasses the act in its entirety as

stated in § 4.07.

Estoppel – Equity at Work

Lec. 2, pp. 31-74 Corporations Prof. McCann

Where there is no ratification.Where act of agent was unauthorized.

Imposes liability on principal because the principal induced the third party to detrimentally rely on on a belief that the agent’s conduct was binding on the principal when it was not legally binding. `

Restatement 3rd (Agency) 2.05

Tort Liability

Lec. 2, pp. 31-74 Corporations Prof. McCann

Principal is Liable if:1.Agent acted with actual or apparent authority2.Principal was negligent in hiring or

supervising the agent3.Agent is negligent in the performance of an

act which was delegated to her by the principal; or

4.The agent is acting within the “course and scope” of his employment.

Employee/Agents- Based Liability Broadened

Lec. 2, pp. 31-74 Corporations Prof. McCann

Title VII Sexual Harassment liability of employer based on: Hostile environment created by one with authority

over victim/co-employee where power to dominate was created by employer

Liability may also arise from acts within the scope of employment or outside the scope if the employer knew and failed to prevent

Liability may be based on the apparent authority of the employee/perpetrator

Summary: Principal’s Liability for Torts of Agent

Liable if agent has actual or apparent authority.

Liable if principal ratifies the agent’s acts.

Liable if negligent in selecting or supervising the agent

Liable if agent negligent in performance of act

Liable if agent is employee acting in course and scope.

Lec. 2, pp. 31-74 Corporations Prof. McCann

Agent Liability: Su problema, mi problema

Lec. 2, pp. 31-74 Corporations Prof. McCann

African Bio-Botanica, Inc. v. Sally Leiner

Importance of Disclosure of Agency

Example of Disclosed Principal:

Alpha Corporation, Inc. By: ____________________ George Smith, Pres.Other party aware of agency and principal.Principal alone is liable to third party.

Lec. 2, pp. 31-74 Corporations Prof. McCann

Partially Disclosed Agency

Aka “unidentified principal” in Restate. 3rd AgencyReal estate agent represents anonymous

purchaser.

Why? To keep secret identity of purchaser because of publicity or in order to maintain negotiation advantage.

Other party is aware of agency but not identity of principal.

Both agent and principal liable to third party.

Lec. 2, pp. 31-74 Corporations Prof. McCann

Undisclosed Agency

Real estate agent represents that she is purchasing the property for herself.

Why? Take advantage of personal relationship with seller to get better price.

Other party unaware of agency or existence of principal.

Both principal and agent liable.

Lec. 2, pp. 31-74 Corporations Prof. McCann