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AGENCY & PARTNERSHIP SHORT OUTLINE/CHECKLIST

CHECKLIST

I. AGENCY
a. FORMATION
b. DUTIES OF AGENT
c. DUTIES OF PRINCIPAL
d. REMEDIES
e. CONTRACT LIABILITY
i. Agent's Authority
ii. Liability of Agent/Principal
f. TORT LIABILITY
i. Vicarious Liability

II. PARTNERSHIP
a. FORMATION
b. PARTNERSHIP PROPERTY
c. RIGHTS & DUTIES OF PARTNERS
d. LIABILITY TO THIRD PARTIES
e. DISSOCIATION & DISSOLUTION
f. LPs
g. LLPs
h. LLCs
i. TAXATION

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AGENCY & PARTNERSHIP SHORT OUTLINE/CHECKLIST

I. AGENCY
A. FORMATION
i. Agency is a fiduciary relationship which results from the manifestation of consent by one person
to another that the other shall act on his behalf and subject to his control, and consent by the
other so to act. Each of the following must be met:
1. (1) the principal must have capacity (agent need not have capacity)
2. (2) consent by both parties
3. (3) a writing is NOT required (SoF may still require it), and consideration is NOT required
ii. It can be created by actions of the parties, or by operation of law (estoppel or by statute)
B. DUTIES OF AGENT
i. An agent is a fiduciary of its principal. It owes the following duties:
1. Duty of CARE – owes a duty to carry out agency with reasonable care
2. Duty of LOYALTY – duty of loyalty, which includes (1) account for profits, (2) act solely
for principal’s benefit, (3) not self-deal, (4) not deal adversely to principal, (5) not
compete, (6) not use principal’s property for own benefit.
3. Duty of OBEDIANCE – obey all reasonable directions of principal
C. DUTIES OF PRINCIPAL
i. The principal’s duties are NOT fiduciary. But, a principal still has any express contractual duties,
as well as:
1. Duty to INDEMNIFY – pay agent’s losses/expenses incurred in carrying out principal’s
instructions
2. Duty to COMPENSATE – pay agent for services unless otherwise agreed
3. Duty to COOPERATE – and not interfere with agent’s performance
D. REMEDIES
i. Principal’s Remedies
1. Usual K remedies, tort actions, actions for secret profits, equitable actions for
accounting, withholding compensation for torts/breaches of fiduciary duty.
ii. Agent’s Remedies
1. Usual K remedies, plus right to possessory lien for any money due from the principal,
including compensation owed for services.

E. CONTRACT LIABILITY
i. AGENT’S AUTHORITY:
1. Actual Authority
a. Actual authority is authority that the agent reasonably thinks she possesses
based on the principal’s dealings with her. It is either express or implied.
b. Express Authority
i. Express authority is authority granted by the principal by in words,
whether written or oral.
c. Implied Authority
i. Implied authority exists when the agent reasonably believes she has
authority as a result of the principal's conduct or circumstances, such as
incidental/necessary acts to authority given, custom b/w the parties,
prior dealings, emergency measures – anything inferred from principal’s
words/conduct.
1. Can exist through an agent’s title or position.
d. Termination of Actual Authority
i. Lapse of time, happening of specific event, change in circumstances,
agent’s breach of fiduciary duty, unilateral termination by one of the
parties, death/incapacity of one of the parties
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2. Apparent Authority
a. Apparent authority exists where the principal's words or conduct would lead a
reasonable person in the third party’s position to believe that the agent has
authority to bind the principal. Can exist through an agent’s title or position.
i. Lingering Apparent Authority – If agent’s actual authority is terminated,
agent will still have apparent authority until the third party receives
notice of the termination.
b. Apparent authority cannot be created by the mere representations of an agent
or other actor (there must be something from the principal…)
3. Ratification
a. Even if the agent lacked authority at the time of entering into the K, the
principal can still be bound by the agent's actions if the principal ratifies the K
b. Ratification can be express or implied. Express ratification is usually and oral or
written affirmation of the K. Implied ratification is when the principal accepts
the benefits of the K and has knowledge of all material facts regarding the
contract.
i. Must accept the ENTIRE transaction, not just a portion
ii. Cannot alter the terms of the contract
iii. Cannot interfere with third-party rights

ii. LIABILITY TO THIRD PARTIES


1. General Rule: The principal is liable on its authorized contracts, and therefore as a rule
an authorized agent is not liable on an authorized contract.
a. Exception: The agent will be liable, in addition to the principal, if there is an
undisclosed principal (fact that principal exists is concealed) or partially
disclosed principal (identity of principal is concealed).
F. TORT LIABILITY
i. Vicarious Liability:
1. Employer/Employee: A principal is liable for any torts committed by the agent under an
employee/employer relationship, as long as the agent is acting within the scope of the
relationship. (DETOUR – minor deviation, still liable. FROLIC – major deviation, not
liable).
a. NOT liable for intentional torts unless:
i. (1) job duties include use of force (bouncer)
ii. (2) job creates friction (repo man)
iii. (3) agent acts to further benefit the principal
2. Independent Contractor: A principal is NOT liable for any torts committed by an
independent contractor, which is determined by the amount of control the principal has
over the independent contractor (day-to-day control), unless:
a. (1) it’s an ultra-hazardous activity
b. (2) it’s a non-delegable duty
3. Employee v Independent Contractor: Generally determined by the level of control the
principal exercises over the party
a. Cts look at (1) skills required; (2) who supplies tools and facilities; (3) the period
of employment; (4) the basis of compensation; (5) the business purpose; and (6)
if the person has a distinct business
ii. Direct Liability - Every person is liable for his own torts
iii. Borrowed Servant - Whoever has primary right of control over the employee is liable

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AGENCY & PARTNERSHIP SHORT OUTLINE/CHECKLIST

II. PARTNERSHIP
A. FORMATION
i. General Rule: A general partnership is formed when two or more persons associate to carry on,
as co-owners, a business for profit for any lawful purpose. There are no formalities or
agreement required to form the GP, the parties’ intent is implied through their conduct.
1. A GP is a separate legal entity.
2. All partners must have capacity & all partners must consent to any new partners joining

ii. Factors to Imply a Partnership:


1. Intent of the Parties: courts generally look at the intent of the parties to determine
whether a partnership exists
a. Subjective intent to form a partnership does not matter
b. Intent to carry on as co-owners is all that matters
2. Profit Sharing: the sharing of profits creates a presumption of partnership unless the
share is received for (1) payment of debt, (2) wages/compensation, (3) rent payment, or
(4) interest on a loan.
a. Sharing of gross returns/revenues is not the same as profits, so no presumption
3. Right to Participate in Control of the business is another impt factor
4. Sharing Losses is another factor. Lack thereof can be used to try to rebut presumption

iii. Writing - Partnership law does not require a writing, but the SoF may

iv. Partnership by Estoppel: If no partnership is formed in fact, parties may still be liable as if they
were partners to protect reasonable reliance by third parties (apparent partnership).

B. TYPE OF PARTNERSHIP
i. At will partnership - Default form of partnership - Partnership has no agreed upon duration
ii. Term Partnership - Agmt to remain partners for a definite term or until completion of a
particular undertaking

C. PARTNERSHIP PROPERTY
i. Determining Partnership Property
1. Partnership Property – partnership property is any property (1) titled in the
partnership’s name or (2) in partner’s name where it is apparent from the transferring
document that the partner is acting for the partnership.
2. Presumed Partnership Property – Property is presumed to be partnership property if
partnership funds are used to obtain the property, regardless of title.
3. Presumed Partner Separate Property – Property is presumed to be a partner’s separate
property if property is in the partner’s name, partnership funds were not used, and
there is no sign the partner is acting for the partnership.
ii. Rights in Partnership Property
1. The partnership's rights to partnership property is completely unrestricted
2. Partners are not co-owners of partnership property and have no interest in it that can
be transferred, although they can use the property for partnership purposes
3. Partner's Ownership Interest in the Partnership itself - Partnership interest is personal
property of the partner, but there are restrictions to its use
a. Partnership interest = management rights and financial rights
i. Mngmt rights cannot be transferred w/o unanimous vote of partners
ii. Financial rights can be unilaterally transferred, but transferor does not
become a partner
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D. RIGHTS & DUTIES OF PARTNERS


i. Right of Partners
1. Management – Each partner has an equal right to manage the partnership business
absent an agreement otherwise. Matters within the ordinary business can be controlled
by majority vote, but outside matters require unanimous vote.
a. Contribution % or profit sharing % doesn't matter unless agreed to, just plain #s
2. Salary/Compensation - Absent agmt otherwise, partners get no salary
3. Distribution – Absent agreement otherwise, each partner shares profits and losses
equally. If agreement states profits but not losses, losses will be distributed in the same
manner as profits (BUT NOT VICE VERSA – PROFITS DON’T FOLLOW LOSSES)
4. Remuneration – Absent agreement otherwise, partner has no right to remuneration
(wages) for services rendered to the partnership.
5. Indemnification & Contribution – A partner has a right to indemnification and
contribution from other partners for payments made and obligations incurred in
carrying out partnership business, and if partner paid more than his share of partnership
liability.
6. Inspection – Each partner has a right to inspect and copy partnership books – and is
entitled a full accounting of all things affecting the partnership.
7. Lawsuits – Each partner may sue the partnership to enforce its rights under the
agreement, and a partnership may sue a partner for breach of any of its duties.

ii. Duties of Partners


1. Each partner owes a fiduciary duty to the partnership and the other partners, which
includes (cannot eliminate duties of loyalty and care, but can eliminate disclosure):
a. Duty of LOYALTY – which includes duty to (1) account for profits, (2) not self-
deal, (3) not deal adversely with partnership, (4) not compete.
b. Duty of CARE – must act with reasonable care, and not engage in any grossly
negligent or intentional misconduct (ordinary negligence is okay)
c. Duty of DISCLOSURE - Statutory duty, not fiduciary. Each partner must furnish
i. Without demand - Any info concerning partnership rsbly required for
proper exercise of the partner's rights and duties
ii. On demand - Any other info concerning the partnership's business

E. LIABILITY TO THIRD PARTIES


i. Agency Theory – Agency theories apply to bind the partnership.
1. Apparent Authority: Every partner is an agent and has apparent authority to bind the
partnership for any acts in the ordinary course of the partnership, unless (1) he had no
authority to do so, AND (2) the third party knew the partner lacked authority.
2. Actual Authority: A partner has actual authority from a partnership agreement or by
majority vote from the partners.
3. Statement of Authority: A partnership can file a statement of authority with the
secretary of state which shows the grants and restrictions on partner authority to bind
the partnership. The statement gives conclusive notice of any grants of authority. But
the statement regarding limitations on authority is only conclusive as to real property
transactions, not personal property transactions.
ii. Civil Liability
1. All partners are liable for any contract entered into by another partner in the scope of
the partnership, as well as all torts by any partner within ordinary course of partnership.
2. All partners are jointly and severally liable, but the partnership assets must first be
exhausted before going after a partner individually.
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a. Partners may not limit liability to third parties w/o third parties's consent
3. Although each partner is liable for the entire amount of partnership obligations, a
partner who pays more than his fair share is entitled to reimbursement/contribution
from the other partners.
4. An incoming partner is NOT liable for any obligations of the partnership before
becoming partner.
5. An outgoing partner is still liable for any obligations that the partnership incurred while
he was a partner.
iii. Criminal Liability
1. Partners are NOT liable for crimes of other partners committed in the scope of the
partnership unless that partner participated in the crime.

F. DISSOCIATION & DISSOLUTION


i. Dissociation
1. Dissociation occurs when a partner withdraws from a partnership. It does not terminate
the partnership.
2. Events of Dissociation
a. A partner dissociates by (1) giving express will (notice), (2) upon the happening
of an agreed upon event, (3) expulsion, death, or bankruptcy, or (4)
appointment of a receiver.
b. A partner wrongfully dissociates if dissociation is in breach of an express term
in the partnership agreement, or if the partner withdraws before the end of an
agreed upon term – and will be liable to the partnership for damages caused by
the dissociation
3. Consequence of Dissociation
a. Upon dissolution, the partnership can be dissolved by the remaining partners, or
the partners must buy-out the dissociating partner’s interest.
i. If it’s an “at-will” partnership, the dissociated partner can compel the
winding up of the partnership.
ii. If it’s a “term” partnership, it is only wound up if at least one-half of the
remaining partners agree to wind up w/in 90 days after the dissociation
4. Dissociated Partner’s Power to Bind Partnership
a. Dissociated partner has apparent authority to bind partnership within two-years
if (1) the act would have bound the partnership while partner, and (2) another
party reasonably believed the partner was still a partner and did not have notice
of the dissociation. Partnership can protect itself by notifying creditors directly
or filing a public statement of dissociation
5. Dissociated Partner’s Liability to Other Parties
a. A dissociated partner remains liable for pre-dissociation obligations, and may
also be liable for post-dissociation obligations for up to two-years if another
party reasonably believed the person was still a partner, and did not have notice
of the dissociation. The partner can cut-short this period by filing a notice of
dissociation with the SAS which is effective after 90 days.
ii. Dissolution
1. Dissolution requires the partnership business to be wound up.
2. Events of Dissolution
a. (1) in a partnership at will – the express withdrawal of a partner, (2) consent by
all partners, (3) expiration of term or completion of undertaking, (4) happening
of agreed upon event, (5) event that makes partnership unlawful, (5) one-half of
partners agree to wind up after death, BK of a parter.
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3. Partner’s Power to Bind Partnership after Dissolution


a. Partnership is bound by any act of a partner appropriate to wind up the
partnership, as well as acts by partner with party who did not have notice of the
dissolution.
b. Statements of dissolution do not become effective until 90 days after filing
4. Distribution of Partnership Assets
a. FIRST – creditors (outside creditors first, then inside/partner creditors),
b. SECOND – partnership contributions paid by partners
c. LAST – profits and losses, if any.

G. LIMITED PARTNERSHIPS (LPs)


i. A limited partnership is a partnership with at least one general partner, and at least one limited
partner. General partnership provisions above apply unless displaced by specific LP provisions.
ii. Formation
1. The LP is formed by filing a certificate of limited partnership with the secretary of state
with (1) names/address of partnership, (2) names/addresses of the general partner, and
(3) name/address of agent for service of process
a. Name of the LP must contain the phrase "limited partnership" or "LP"
b. Failure to file this certificate means you're just a general partnership
2. LP must keep in the records office, records of the certificate, any partnership
agreements, tax returns, contributions of partners, etc.
iii. Management & Operation
1. Most LPs have a partnership agreement, which can be written, oral, or implied
2. The LP is managed by the general partner, and each general partner has equal
management rights. The limited partners have no management rights unless given in
the partnership agreement.
3. Majority vote of the general partners is required for ordinary business activities
4. Unless agmt says otherwise, vote of all partners (including limited partners) is required
for extraordinary activities like amending partnership agmt, admission of new partner,
or sale of all or substantially all of the LPs property
iv. Financial Rights
1. Distributions of the partnership are made in proportion to each of the partners’
contribution (distinction from the general partnership rule)
v. Liability
1. The general partner is jointly and severally liable for all of the obligations of the
partnership just like in a GP.
2. The limited partner is NOT personally liable for any LP obligations. They are only liable
up to the amount of their contribution into the partnership (this is hallmark of LPs)
vi. Duties
1. A general partner is a fiduciary to the partnership and other partners, and thus owes the
same duties of loyalty and care stated above. A limited partner is NOT a fiduciary of the
partnership and owes no duties to the LP.

H. LIMITED LIABILITY PARTNERSHIPS (LLPs)


i. An LLP is typically a general partnership where all partners have limited liability
ii. Formation
1. A limited liability partnership is created by filing a statement of qualification with the
secretary of state. It must include (1) name/address of partnership, (2) a statement of
election to be an LLP, and (3) an effective date. It also must include the words “limited
liability partnership” or “LLP.”
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2. Note - A LP can also file as a LLP, making it a LLLP (limited liability limited partnership)
where both the general partners and the limited partnerships have limited liability
iii. Liability of Partners
1. All of the partners have LIMITED LIABILITY, meaning that the partners are NOT
personally liable for any of the partnership’s obligations. Partners can still lose their
contributions to the partnership though
2. A partner of course remains liable for his own personal acts.

I. LIMITED LIABILITY COMPANY (LLCs) (most likely for testing)


i. LLC is a hybrid between a corporation and a partnership in which the owners (called members)
have limited liability as well as the benefits of partnership tax treatment
1. This is neither a corporation nor a partnership; it's its own business form
2. LLCs are treated as a separate legal entity distinct from its members
ii. Formation
1. An limited liability company is formed by filing articles/certificate of organization with
the secretary of state, which must include (1) statement that entity is LLC, (2)
name/address, (3) registered agent, and (4) names of all of the members of the LLC.
iii. Management
1. Detail on the operation and governance of a LLC is typically found in an operating
agreement (or an LLC agmt), although such an agreement is not necessary)
2. An LLC can be managed by the members of the LLC (member-managed), or by managers
(manager-managed). The details of operation are typically governed by the operating
agreement.
a. If member-managed, each member is an agent of the LLC and may bind the LLC.
This is the default rule
b. If manager-managed, each manager owes a duty of care and loyalty similar to
those owed by a director of a corporation.
3. Majority vote of members (or managers if manager managed) is required to approve
ordinary business decisions. A unanimous vote of members (or managers if manager
managed) is required to approve extraordinary business decisions, including amending
the operating agreement
iv. Liability
1. Members are NOT personally liable for LLC obligations.
v. Distribution
1. Profits and losses are allocated on the basis of contribution.
vi. Duties of Members
1. Each member owes the LLC & the other members the fiduciary duties of:
a. Duty of LOYALTY – which includes duty to (1) account for profits, (2) not self-
deal, (3) not deal adversely with partnership, (4) not compete.
b. Duty of CARE – must act with reasonable care, and not engage in any grossly
negligent or intentional misconduct (ordinary negligence is okay)
vii. Transferability of Ownership Interests:
1. Financial rights are unilaterally transferable; management rights are not
2. Only can only become a member w/ the consent of all other members
viii. Dissociation - Can dissociate from LLC anytime, rightfully or wrongfully, by express withdrawal
ix. Dissolution - Dissolution occurs if (1) event/circ that operating agmt states causes dissolution;
(2) consent of all members; (3) 90 consecutive days w/o any members; (4) judicial dissolution

J. TAXATION - Partnerships and LLCs have no entity-level tax and are taxed on a "pass-through" basis
where business profits are reported on owner's individual tax returns, even if not actually distributed
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