Corporations Rule Statements

A sole proprietorship is the default business organization when there is only one owner of a business. In a sole proprietorship the business and the owner are one and the same. The owner of a sole proprietorship is going to be personally liable for any liabilities that result from the business.

Agency is a fiduciary relationship that allows an agent to act on behalf of the principal. An agency relationship is created through the consent (either express through words or implied through conduct) of the principal and the agent. The agent will be subject to the control of the principal.

Actual authority is the power of the agent to affect the legal relations of the principal by acts done in accordance with the P’s manifestation of consent to him either express or implied.

Apparent authority is the power to affect the legal relations of another person by transactions with third persons professedly as an agent for the other arising from and in accordance with the principal’s manifestation to such third parties.

The nature of the role of the agent creates an inherent ability of the agent to bind the principal in contract.

A franchisor-franchisee is not always a principal agent relationship. Regardless of the terms of any agreement that they have, if there is a heightened level of control of the franchisee then there might be a vicarious liability. Determination of such a relationship existing is highly fact-specific.

Respondeat Superior liability is when a principal might be liable for the torts of their agent when there is a master servant relationship. A servant is employed to perform services for another and subject to the control with respect to physical conduct of performing services for the master. If the person is engaged in the scope of employment while committing the tort then there is vicarious liability however, if the employee is merely engaged in a frolic then there is none. An important exception to respondeat superior is the independent contractor; independent contractors do not fall under the master-servant relationship and thus are liable for their own torts.

A partnership is an association of two or more persons to carry on, as co-owners a business for profit. It is the default form of business with more than 1 owner. The partnership is considered an entity separate and distinct from its owners, meaning it can own its own property, but is considered a pass-through entity for taxation purposes. Each partner is an agent of the partnership and generally will be jointly and severally liable for the obligations of the partnership. A partner is not entitled to a salary but may get one in the partnership agreement. The primary source of law regarding partnerships is the partnership agreement; if the partnership agreement is silent on an issue, then RUPA governs by default. There are certain provisions of RUPA that can’t be overwritten by the agreement; one of the most important being that a partnership agreement cannot restrict the rights of 3rd parties.

A person may sell their interest in a partnership, but only their share of profits/losses and the right to receive a distribution is transferable. A right to participate in management or access information, books, records are not. A person who has purchased a partnership interest has no right to force a distribution. The transferee may become a partner upon the unanimous consent of the other partners.

Under RUPA, each partner by default has equal rights in the management of the partnership and distribution of income. A difference arising as to a matter in the ordinary course of business may be decided by a majority of the partners. Acts outside the ordinary course of business and amendment to the partnership agreement requires the consent of all partners. These are modifiable by the partnership agreement.

A partnership can grow by having the partners make capital contributions. It can also borrow money, and can introduce new owners.

A partner has the right to dissociate at any time, rightfully or wrongfully by express will. When a dissociation is wrongful the partner may receive a lesser redemption price because of the damages associated with dissociation, and it may delay them getting their redemption. Generally the partnership will govern the result of a partners death or dissociation. RUPA will govern if the partnership agreement is silent on the matter. There are several ways to withdraw including a partner providing notice of the intent to withdraw, there may be a dissociating event per the partnership agreemeent, or the unanimous vote of other partners in certain circumstances, expulsion per the partnership agreement, or judicial determination; for a death, appointment of guardian/conservator for the partner, or judicial determination of iincapacity.

A dissolution of a partnership is characterized as the beginning of the end; completion of partnership operations need to run their course and such a process is called winding up of the partnership. Not all dissociations by a partner trigger dissolution. Dissolution occurs depending on the nature of the partnership: in a partnership-at-will, dissolution happens when a partners gives notice of their intent to dissociate, in a partnership for a definite term or undertaking, dissolution occurs upon the completion of the task or term as agreed up on partnership agreement; may occur subject to a court order; simple majority (50%) of partners agree to dissolution of the partnership; or an event causing illegality of the partnership.

Winding Up is the completion of work in progress, selling assets, pay debts and distribution of any net balance to partners in cash. Net assets are to be distributed equally to the partners of the partnership, and must pay each partner the amount in his partnership account. Once winding up is complete, the partnership terminates.

In general a partner is jointly and severally liable for the partnership’s liabilities; any or all partners can be sued. A judgment against a partnership may not be satisfied from a partner’s assets unless there is also a judgment against the partner. To reach a partner’s personal assets you need a judgment and a writ of execution against the partner based on a claim against the partnership and there must be an exception from RUPA 307d. (partnership is insufficient or partner agrees to it.) A partnership can sue or be sued and may be liable to contracts entered into by any agents of the partnership. Partners are generally not personally liable for any liabilities the partnership has incurred prior to their admission as a partner.