Transcript Business Organizations

Business Organizations
PARTNERSHIPS,
CORPORATIONS
AND THE VARIANTS
LECTURE 2, PGS. 31-74
What are we talking about?
 Two Umbrella Types of Entities:
 Limited personal liability for owners
Limited partnership
 Limited Liability Company
 Corporation
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No protection from personal liability:
General partnership
 Sole proprietorship
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Lec. 2, pp. 31-74
Corporations
Prof. McCann
Sole Proprietorship
 Single Owner
 Everyone else in organization works for that owner
 Owner is personally liable
 Not a separate identity independent of owner
 All profits and losses flow through directly to that
owner on his or her tax return
 Examples are many law firms
 Default form of ownership – no legal filing required
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Corporations
Prof. McCann
Some Basic Terms
 Partnership
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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
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Corporations
Prof. McCann
Corporation
 One or more owners
 No personal liability (assuming formalities met)
 Registered with Secretary of State
 Managed by its Board of Directors who are elected by
the owners
 Board names officers who run day-to-day operations
 Separate existence from its owners (perpetual life)
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Pays taxes
Distributes profits via dividends to owners
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Corporations
Prof. McCann
Overview of Corporate Structure
Shareholders
Directors
President
Lec. 2, pp. 31-74
Corporations
Secretary
Prof. McCann
Treasurer
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
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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
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.
Lec. 2, pp. 31-74
Corporations
Prof. McCann
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 agent
which 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
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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
KOVAL & KOVAL V SIMON
WHAT ARE THE LIMITS OF AN ATTORNEY’S
IMPLIED AUTHORITY?
Implied Authority Revisited
 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.
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Corporations
Prof. McCann
Power of Attorney
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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”
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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.)
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tangible personal property;
bond, share, and commodity transactions;
banking transactions;
insurance transactions;
business operating transactions;
beneficiary transactions;
gift transactions;
fiduciary transactions;
claims and litigation;
family maintenance;
benefits from military service;
records, reports, and statements;
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____.
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__________________________________
(Signature of principal)
Corporations
Prof. McCann
APPARENT AUTHORITY
FENNEL V TLB KENT CO.
 Apparent authority: that authority vested in agent
which 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
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Corporations
Prof. McCann
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
Disbarred Tawana Brawley lawyer C. Vernon Mason
aids Manhattan District Attorney-elect Cy Vance
BY Melissa Grace
DAILY NEWS STAFF WRITER
Saturday, November 7th 2009, 4:00 AM
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
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Corporations
Prof. McCann
Famed Attorney 'Dickie' Scruggs Pleads Guilty to Bribery Charges
Scruggs Was Charged With Conspiring to Pay a State Judge $40,000 in Cash in
Exchange for a Favorable Ruling
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.
Lec. 2, pp. 31-74
Corporations
Prof. McCann
RATIFICATION
Apparent
Was Patrick
Acting for
Scruggs at
time of first
meeting?
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Corporations
Prof. McCann
No
Ratification
Yes
Actual
authority
Ratification
THE SOLE REQUIREMENT IS A
MANIFESTATION OF ASSENT OR OTHER
CONDUCT INDICATIVE OF CONSENT BY THE
PRINCIPAL.
R E S T A T E M E N T 3 RD 4 . 0 1
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)
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Corporations
Prof. McCann
 § 4.01 Ratification Defined
 (1) Ratification is the affirmance of a prior act done by another,
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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.
Lec. 2, pp. 31-74
Corporations
Prof. McCann
Estoppel – Equity at Work
 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.
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Restatement 3rd (Agency) 2.05
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Corporations
Prof. McCann
Tort Liability
 Principal is Liable if:
Agent acted with actual or apparent authority
2. Principal was negligent in hiring or supervising the
agent
3. 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.
1.
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Corporations
Prof. McCann
Employee/Agents- Based Liability Broadened
 Title VII Sexual Harassment liability of employer
based on:
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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
Lec. 2, pp. 31-74
Corporations
Prof. McCann
Summary: Principal’s Liability for Torts of Agent
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Liable if agent has actual or apparent authority.
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Liable if principal ratifies the agent’s acts.
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Liable if negligent in selecting or supervising the
agent
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Liable if agent negligent in performance of act
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Liable if agent is employee acting in course and
scope.
Lec. 2, pp. 31-74
Corporations
Prof. McCann
Agent Liability: Su problema, mi problema
 African Bio-Botanica, Inc. v. Sally Leiner
Lec. 2, pp. 31-74
Corporations
Prof. McCann
Importance of Disclosure of Agency
 Example of Disclosed Principal:
 Alpha Corporation, Inc.
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 By: ____________________
George Smith, Pres.
 Other party aware of agency and principal.
 Principal alone is liable to third party.
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Lec. 2, pp. 31-74
Corporations
Prof. McCann
Partially Disclosed Agency
 Aka “unidentified principal” in Restate. 3rd Agency
 Real 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.
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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