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71 Cards in this Set
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Partnerships |
An association of 2 or more persons/entities acting as co-owners for a profit.
There are specific laws that govern partnerships: 1.Uniform Partnership Act 2. Uniform Limited Partnership Act 3. In LA, they are governed by the Civil Code 4. AND case law interpreting statutes and code provisions
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General Partnerships
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An association with 2 or more persons or entities.
Remember person's means, natural OR juridical. They have invested money. They have unlimited liability for the debts of the partnerships. General partnerships have a significant amount of liability. All partners are jointly and severably/solidarily liable for all debts in the partnership, in every state EXCEPT LA. In LA General Partners are ONLY liable for their share of the partnership or virile share. Not very liquid, limitations on selling or transferring a partnership interest. There are no formal creation requirements. |
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Limited Partnerships |
Same as general partnerships, except that there can be as few as 1 person, but the definition says it can be 1 or more individuals that are deemed to be a "limited partner" who therefore have limited liability. Which means only investors have less control over that entity. 1 or more limited partners OR 1 or more general partners. Limited partners have a more passive role in the partnership, this is what allows them to have limited liability. In LA they are called Partnership in Commendam. |
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Limited Liability Partnerships or LLP's |
For certain types of professionals, example, accountants or lawyers. Commercial partnerships. Created to protect law firms and accounting firms from having the liability for their partners. So, in an LLP you are NOT liable for your partner's mistake. Will have different liability than a general partnership. Keep in mind there is a Uniform Limited Partner Act. |
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Virile Share |
It appears that a partner's virile share is determined simply by dividing the total amount of the debt owed by the number of partners personally liable for those debts. |
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Limited Liability Companies or LLC's |
Relatively new and fairly popular. Very flexible, very contract based. Can almost pick and choose features of a corporation and partnership that are best for you, this is makes it so attractive. A cross between a partnership and a corporation. Has the tax advantages of a partnership, flow through taxation, which is a huge plus. The partnership itself is not taxed. Only the individual partners are taxed. Usually corporations are double taxed. Has the limited liability of corporations. Will only lose what you put in. But the corporate veil can still be pierced. LLC's make up the majority of partnerships in the US. |
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Corporations |
Most household name companies, such as Apple. A legal person possessing the following critical attributes; legal personality, limited liability, separation of ownership and control, liquidity, and flexible capital structure. Shareholders are separated from control, they only have limited voting rights, there is also a Board of Directors. Liquidity means that they are able to sell ownership interest very quickly or to turn ownership interest into cash quickly. Corporations require formal creation under state auspices, must file with Secretary of State. Everyone investing in a corporation gets a share of stock, these people are called Shareholders or Stockholders. They own the corporation and have limited liability, they will only lose what they have invested, their personal assets cannot be attacked. Corporations account for the vast majority of business receipts in the US. |
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Closely Held or Privately Held Companies |
They have a limited number of people, natural or juridical. They do not file reports or disclosures with the SEC. Examples are usually mom and pop businesses such as; Chick Fil A, Toys R'Us, and Cox Enterprises. No public marker shares, usually technically limited ownership between family members or close friends. |
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Publicly Held or Publicly Traded Companies |
There are substantial number of people, natural or juridical. There are a substantial number of shareholders. They file reports and other disclosures with the SEC. They also have registered ownership interest with the SEC so that they can gain access to more investors. Most are corporations. Examples include; Facebook, Apple, Wal-Mart, and Yahoo, Inc. Companies would want to go public to access the vast pool of investors and raise significant amounts of money. |
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Question to ask with all business entities |
How was the business formed? Who formed the business? Who owns the entity? Who controls each entity? Who gets to vote for what? Who is potentially liable? What duties are owed to who? And, what happens if their is a breach of fiduciary duties? How are entities terminated? |
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Agent and Principle |
An agent is essentially stepping into the shoes of the principle. An agent must have physical capacities to carry out an act. A principle must be legally empowered to carry out an act. Can use agent and mandate interchangeably. Agent is a common law term and Mandate is a LA term. |
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2985. Representation |
A person may represent another person in legal relations as provided by law or by juridical act. This is called representation. |
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2986. The authority of the representation. |
The authority of the representative may be conferred by law, by contract, such as mandate or partnership, or by the unilateral act of procuration. |
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2987. Procuration defined; person to whom addressed |
A procuration is a unilateral act by which a person, the principal, confers authority on another person, the representative, to represent the principle in legal relations. The procuration may be addressed to the representative or to a person with whom the representative is authorized to represent the principle in legal relations. |
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2988. Applicability of the rules of mandate |
A procuration is subject to the rules governing mandate to the extent that the application of those rules is compatible with the nature of the procuration. |
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2989. Mandate defined, AKA agency |
A mandate is a contract by which a person, the principal, confers authority on another person, the mandatary, to transact one of more affairs for the principal. |
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2992. Interest served. |
The contract of the mandate may serve the exclusive or the common interest of the principal, the mandatary or a third person. |
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3010. Performance of obligations contracted by the mandatary |
The principal is bound to the mandatary to perform the obligations that the mandatary contracted within the limited of his authority, the agent's authority. The principle is also bound to the mandatary for obligations contracted by the mandatary after the termination of the mandate, if at the time of contracting the mandatary did not know the mandate had been terminated. The principle is NOT bound to the mandatary to perform the obligations that the mandatary contracted which exceed the limits of the mandatary's authority unless the principle ratifies those acts. So, if the mandate exceed authority, the resolution is governed by the second paragraph in 3010 and by 3019. |
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3019. Liability when authority is exceeded |
A mandatary who exceeds his authority is personally bound to the third person with whom he contracts. Unless that person knew at the time the contract was made that the mandatary had exceeded his authority or unless the principle ratifies the contract. |
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3012. Reimbursement of expenses and remuneration |
The principle is bound to reimburse the mandatary for the expenses and charges he has incurred and to pay him the remuneration to which he is entitled. The principle is bound to reimburse and pay the mandatary even though the purpose of the mandate was not accomplished. As long as it was not the mandatary's fault that caused the problem. |
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3016. Disclosed mandate and principal |
A mandatary who contracts in the name of the principal within the limits of his authority does NOT bind himself personally for the performance of the contract. Except, if a mandatary who enters into a contract with a third person in the name of the principle and EXPRESSLY promises the performance of the contract, then the mandatary binds himself personally for that performance. |
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3020. Obligations of the Principle to third persons |
The principle is bound to perform the contact that the mandatary, acting within the limits of his authority, made with a third person. This binds the principle to the third person, or the person to whom the agent contracted. |
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3022. Disclosed mandate or principle; third person bound |
A third person with whom a mandatary contracts in the name of the principle. or in his own name as mandatary, is bound to the principle for the performance of the contract. |
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2992. Onerous or gratuitous contract |
The contract of mandate may be either onerous or gratuitous. It is gratuitous in the absence of contrary agreement. So this is the assumption you start with, that is if it is NOT agreed upon, the mandatary relationship is gratuitous, which means for no payment. Normally deal with onerous mandates. |
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2993. Form |
The contract of mandate is not required to be in any particular form. It can be in writing or oral. Nevertheless, when the law prescribes a certain form for an act, a mandate authorizing the act must be in that form. This is also known as the Equal Dignities Rule. Example; purchase of an immovable must be in writing. This is major exception to the form requirement. |
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How might you know someone is an agent or mandate? |
They may sign a document as " Agent for so and so", this will disclose the agent and the principle. |
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Actual Authority with an Agent |
It is express in either written or oral form. Implied actual authority is when an agent, through his position, has permission to undertake acts that are reasonably related to the agent's express authority. Often this is a task that is necessary for the agent to do, in order to fulfill his express authority. Actual authority is highly contextual, based on prior practices and industry or business custom. What the principle told the agent and the agent believed the authority to be. |
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2994. General authority |
The principle may confer on the mandatary general authority to do whatever is appropriate under the circumstances. |
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2995. Incidental, necessary or professional acts |
The mandatary may perform all acts that are incidental to or necessary for the performance of the mandate. The authority granted to a mandatary to perform an act that is an ordinary part of his profession or calling, or an act that follows from the nature of his profession or calling, need not be specified. Example; need not be told specifically to do something, but have the power to do it in order to accomplish the duty. |
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2996. Authority to alienate, acquire, encumber, or lease |
The authority to alienate, acquire, encumber, or lease a thing must be given expressly. Neither the property nor its location need be specifically described. |
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2997. Express authority required |
Authority must be given expressly to: 1. Make an inter vivos donation... 2. Accept or renounce a succession, 3. Contract a loan, acknowledge or make remission of a debt, or become a surety, 4. Draw or endorse promissory notes and negotiable instruments, 5. Enter into a compromise or refer a matter to arbitration, 6. Make health care decisions. |
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3008. Liability for acts beyond authority; ratification |
If the mandatary exceeds his authority, he is answerable to the principle for the resulting loss that the principle sustains. The principle is not answerable to the mandatary for loss that the mandatary sustains because of acts that exceed the mandatary's authority, so the principle is not bound to the contract, unless the principle ratifies those acts. |
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3019. Liability when authority is exceeded |
A mandatary who exceeds his authority is personally bound to the third person with whom he contracts, unless that person knew at the time of the contract was made that the mandatary had exceeded his authority or unless the principle ratifies it. |
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3020. Obligations of the principle to third persons |
The principle is bound to perform the contract that the mandatary, acting within the limits of his authority, makes with a third person. |
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3022. Disclosed mandate or principle; third person bound |
A third person with whom a mandatary contracts in the name of the principle, or in his own name as a mandatary, is bound to the principle for performance of the contract. |
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Apparent authority |
Apparent authority is a judicially created estoppel remedy. We have apparent authority when; the apparent principle makes a manifestation, the manifestation reaches the third party, and the manifestation, alone or in the context of circumstances, causes the third part to reasonably believe that the apparent agent is authorized to act for the apparent principle. With apparent authority we are looking of a reasonable belief by the third party that the agents action is on behalf of the principle. And, the belief is based on an expression by the purported principle. |
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What do the court's look at to determine if there is apparent authority? |
Fact specific. Expression manifestation either oral or written. Pattern of conduct. Putting person in a position that is common to a local or industry custom. Creating implied actual authority. Example; a Vice President of advertising usually has the authority to enter into advertising contracts. Use of an intermediary. Example; relying on a secretary or assistant. Acquiescence by the principle. Example; employee tells third party he can write up a contract for him, principle is standing right there with them and says nothing. |
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3021. Putative mandatary |
One who causes a third person to believe that another person is a mandatary is bound to the third person who in good faith contracts with the putative mandatary. |
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3008. Liability for acts beyond authority; ratification |
If the mandatary exceeds his authority, he is answerable to the principle for resulting loss that the principle sustains. The principle is NOT answerable to the mandatary for loss that the mandatary sustains because of acts that exceed the mandatary's authority, so principle is not bound to the contract, UNLESS the principle ratifies those acts. |
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3019. Liability when authority is exceeded |
An agent who exceeds his authority is personally bound to the third person with whom he contracts, unless that person knew at the time the contract was made that the mandatary had exceeded his authority or unless the principle ratifies it. |
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Differences between Actual and Apparent Authority |
All forms of authority or ratification require some act or series of acts by the principle that cause either the agent or the third party REASONABLY to believe that the agent's acts in a given situation are authorized by the principle. If the agent is a person led by the principle reasonably to believe that his acts are authorized, then the authority is ACTUAL AUTHORITY. if it is the third party, reasonably led by the principle, then authority is APPARENT. If neither form of authority exists at the time the agent purports to act on behalf of the principle, then the un-authorized act may still be ratified by the principle by means of after the fact manifestations of consent by the principle that "expressly" or "tacitly" affirm the un-authorized act. |
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Ratification |
Ratification is the "affirmance by a person of a prior act which did not bind him but which was done or professedly done on his account." So, principle is bound to fulfill an obligation agent made that principle ratified. Ratification requires; acceptance of the results of the act, with an intent to ratify, and with full knowledge of all the material circumstances. You can have "agency by ratification" which means that a principle agent relationship is established through principle's ratification. Ratification cannot be to the detriment of the third party. Principle ratifies through performance, example, some sort of documentation. Principle need to know ALL the facts about what they are getting into. Principle must accept the benefits of that particular contract. Principle must have intent to ratify and time to decline. |
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Express Ratification |
Evidencing intent in writing or orally. Some action that when viewed objectively by a reasonably person, indicates that the act has been ratified. |
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Tacit Ratification |
When principle retains or accepts benefits from the unauthorized act, while knowing that the benefits result from the unauthorized act. This is trying to get a a just result. You cannot take the benefits of an activity and then say that you don't authorize the activity. If I retain some benefit coming from my agent's unauthorized actions, then I've tacitly ratified his or her actions. Implied affirmance through acceptance of the benefits of the transaction at the time when it is possible to decline or accept such benefits. Implied affirmance through silence or inaction, a principle cannot wait forever before repudiating an unauthorized transaction, a rule based largely on notions of economic fairness. |
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3008. Liability for acts beyond authority; ratification |
If the mandatary exceeds his authority, he is answerable to the principle for resulting loss that the principle sustains. The principle is NOT answerable to the mandatary for loss that the mandatary sustains because of acts that exceed the mandatary's authority, so principle is not bound to the contract, unless the principle ratifies those acts. |
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1843. Ratification |
Ratification is a declaration whereby a person gives his consent to an obligation incurred on his behalf by another without authority. |
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1844. Effects of confirmation and ratification |
The effects of confirmation and ratification are retroactive to the date of the confirmed or ratified obligation. Neither confirmation nor ratification may impair the rights of third persons. Confirmation is different from ratification. Confirmation is when a person cures a relative nullity of an obligation. Example of a relative nullity is when a person lacks legal capacity. |
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Agency by estoppel |
Based on tort principle of preventing loss to innocent persons. Looking for the third person to show 2 things; a reliance on something that the principle did, and some sort of change in position by the third party. This change in position would make it impossible for the purported principle to deny the agency relationship. So, essentially the principle is at fault in some respect, so we are NOT going to let principle deny that there is an agency relationship. Keep in mind, in this situation, only the principle is bound. Often argued in the alternative if apparent authority does not work. |
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Undisclosed Agency/ Undisclosed Principle |
Either, agent does not disclose the fact he is an agent, OR agent discloses he is an agent, but does not disclose the principle. It is not clear what level of disclosure is required. Express statement versus circumstantial evidence of an agency relationship. Regardless, the agent HAD actual authority. Questions to answer: Is the principle bound? Is the agent bound? Can the third party enforce the contract? |
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Section 186. General Rule |
An undisclosed principle is bound by contracts and conveyances made on his account by an agent acting within his authority, except that the principle is not bound by a contract which is under seal or which is negotiable, or upon a contract which excludes him. |
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Section 302. General Rule |
A person who makes a contract with an agent of an undisclosed principle, intended by the agent to be on account of his principle and within the power of such agent to bind his principle, is liable to the principle as if the principle himself had made the contract with him. Unless he is excluded by the form or terms of the contract, or his existence if fraudulently concealed, or unless there is a set-off or similar defense against the agent. |
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Section 304. Agent misrepresents existence of principle. |
A person with whom an agent contracts on account of an undisclosed principle can rescind the contract if he was induced to enter into it by a representation that the agent was not acting for a principle, and if, as the agent or principle had notice, he would not have dealt with the principle. |
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Section 310. When performance must be rendered to a principle. |
An undisclosed principle upon whose account an agent has acted within his power to bind the principle in making a contract, unless he is excluded by its terms, can require the other party to render performance to him instead of the agent, EXCEPT in that case of personal services or where performance to the principle would subject the other to a substantially different liability from that contemplated. |
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3016. Disclosed mandate and principle. |
A mandatary who contracts in the name of the principle within the limits of his authority does not bind himself personally for the performance of the contract, UNLESS the agent "expressly promises" a performance, if this is the case, the agent will have bound himself personally to the third party |
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3017. Undisclosed mandate |
A mandatary who contracts in his own name without disclosing his status as a mandatary binds himself personally for the performance of the contract. |
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3018. Disclosed mandate; undisclosed principle |
A mandatary who enters into a contract and discloses his status as a mandatary, though not his principle, binds himself personally for the performance of the contract. The mandatary ceases to be bound when the principle is disclosed. |
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3023. Undisclosed mandate or principle; obligations of third person |
A third person with whom a mandatary contracts without disclosing his status or identity of the principle is bound to the principle for the performance of the contract, unless the obligation is strictly personal or the right non-assignable. The third person may raise all defenses that may be asserted against the mandatary or the principle. |
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Fiduciary duties of an agent |
Fiduciary obligation or duty of loyalty owed by agents to their principles. A fiduciary relationship is one in which one of the parties is under a duty to act for the benefit of the other, with respect to matter with which the relationship is concerned. Agent is the fiduciary. Need to ask, is someone benefiting because of their own actions or because of their actions within the agency itself? If is it own action, then no breach of fiduciary duty. If it is because of position within agency, then breach of fiduciary duty, |
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Duty of Loyalty owed by agent to principle |
An agent cannot put his own interests before the interests of the principle, nor can the agent put the interests of third parties before the interests of the principle; this is known as the Duty of Loyalty. This is the duty most often breached. An agent is entitled to reasonable compensation for their role as an agent, but this prevents the agent from getting ADDITIONAL compensation for their role as an agent. Meaning an agent is not entitled to secret profits because of his status as an agent. |
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3 common situations where there is a breach of Duty of Loyalty by the agent |
1. A payment by a third party because there is some sort of relationship between the agent and the third party. Example; a kickback, bribe, or a gratuity/tip. 2. A secret transaction by the agent that the principle does not know about, where the agent makes a profit that the principle does not know about. Example; principle gets an agent to sell a house, and agent sells it so that the agent secretly makes a profit. To avoid this agent just need to disclose AND get principle's consent. 3. Agent used his position as an agent, for that particular principle, to make some sort of personal profit from a third party, where the third party has not relationship to the principle. |
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Tort Liability of Principle to third parties |
Legal theory involved is respondeat superior, where a master/employer is liable for the torts of is servants/employees. The master/servant relationship exists when; the servant has agreed to work on behalf of the master, the servant has agreed to be subject to the master's control OR the master has the right to control the "physical conduct" of the servant. Meaning the master has some control over how the job is done rather than just the result of the job. So, you must ask some basic questions. Is there master/servant relationship? Was a tort committed within the scope of employment? What is the level of control? In LA you want to ask, is there an economic relationship? For the principle to be responsible for the actions of the agent, there must be a master/servant relationship. |
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Servant versus Independent Contractor |
There are 2 types of independent contractors. 1. Agent, one who has agreed to act on behalf of another, the principle, but is NOT subject to the principle's control over how the result is accomplished. 2. Non-agent, one who operates independently and only interacts with the principle at arm's length. So there are 3 possibilities; servant, independent contractor agent, and independent contractor non agent. |
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3024. Termination of the mandate and the mandate's authority |
In addition to causes of termination of contracts under the Titles governing Pretty much can terminate agency like a regular contract. |
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3025. Termination by principle |
The principal may terminate the mandate and the authority of the mandatary at any time. A mandate in the interest of the principle, and also of the mandatary or of a third party, may be irrevocable, if the parties so agree, for as long as the object of the contract may require. One exception is if the object/goal of the principle/agent relationship has not been completed, then the principle/agent relationship will continue until that goal has been reached. |
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3028. Rights of third person with notice of revocation. |
Principle has the responsibility to notify the third party that the principle/agent relationship has terminated. The principle must notify third persons with whom the mandatary was authorized to contract, of the revocation of the mandate, or of the mandatary's authority, revocation of the mandatary's authority. If the principle fails to do so, he is bound to perform the obligations that the mandatary has undertaken. A mandatary who purports to represent the principle despite the revocation of the mandate acts without authority. Such a mandatary is personally bound to a third person with whom he contracted AND further, the mandatary is liable to the principal under civil code articles 3001, and 3008. |
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3029. Termination by the mandatary |
The mandate and the authority of the mandatary terminates when he notifies the principle of his, resignation OR renunciation of his authority. Agent can resign or quit. The mandatary is bound to give notice of termination in accordance with article 2024, EVEN if the mandate is for a specified period of time. If termination of a mandate for remuneration causes injury to the principle, the liability of the mandatary is governed by the Titles of "Obligations in General", and "Conventional Obligations or Contracts". In the case of a gratuitous mandate, the court may reduce the amount of the loss for which the mandatary is liable. |
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3031. Contracts made after termination of the mandate or the mandatary's authority |
If the mandatary does not know that the mandate or his authority has terminated and enters into a contract with a third person who is in good faith, the contract is enforceable. But, it is unclear as to the level of knowledge required. An express statement is clear, but unsure beyond this. |
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How to identify a partnership |
We are looking for: sharing of losses and liabilities, sharing of profits and assets, sharing of control, and 2 plus people. We are looking at the conduct of the business to determine if a partnership exists, or if a inadvertent partnership has formed. Because for general partnership, you can be deemed to be partners without actually forming a partnership. And further because there are no formation requirements, you do NOT have to file anything with the Secretary of State. But to be effective against third parties, the partnership must file with the Secretary of State. |
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Partnership as a legal entity |
Have the capacity to sue, and be sued. Can have judgments collected from their assets. These judgments can be collected against the individual partners as well. Can own property. Essentially, should have their own books AND keep their own records. Should be separate from those of the individual partners. Can and HAVE to file separate federal and state tax returns |
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2 factors that might make a partnership a legal aggregate, which is a group of individuals who do NOT have a separate legal existence |
1. The partnerships entity itself pays no taxes and taxes are paid by the individual partners. So profits and losses flow through the individual partners. 2. In the rest of the US, partners have joint and several liability, so that if the partnership cannot pay, then the partners are liable. But, in LA partner's liability is limited to their virile share. So, the liability for each partners is limited to the amount of the debt divided by the number of partners. This is not an advantage for creditors in LA. |
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2801. Partnership; definition |
A partnership is a; juridical person, distinct from its partners, created by a contract between 2 or more persons, this can be people OR other types of business entities, to combine their efforts or resources in determined proportions. Created by a nominate contract. If partnership is to acquire immovable property, the contract MUST be in writing, equal dignities rule, and it must be filed for registry for a partner to acquire as in commendam status, regarding third persons. With intention to collaborate at mutual risk for their common profit or commercial benefit. Trustees and succession representatives, in their capacities as such, and unincorporated associations may be partners. The consensual element underlying the creation of a partnership distinguishes it from the fortuitous creation of a community interest. The contract of partnership is based upon a community of interest AND gives rise to a juridical person distinct from its partners. Each member of a partnership must make a contribution; may have economic value or may aid in achievement of partnership goals. A partnership has its own; domicile, patrimony, right to sue and be sued on its own behalf, capacity to make donations, and capacity to receive legacies and donations. |
