What anyone who is in business, wants to be in business or wants to form a business relationship should know -

1. Business Associations: Briefed by Tiffani L Hume (3L) Agency ,Partnership & Limited Liability Companies Sources: * ALL SLIDES IN THIS PRESENTATION ARE REFERENCED FROM THE BELOW SOURCES: Conviser, R.J (2003) Gilbert Law Summaries: Agency, Partnership & Limited Liability Companies BAR/BRI, Chicago, IL Kaufman, M.J (2006) Gilbert Law Summaries: Agency and Partnership Loyola University of Chicago School of Law CD Series

2. What is an “Agency”? Definition: “An agency is a fiduciary relationship arising from the mutual manifestation of consent that an agent shall act on behalf of and subject to the control of the principal” [Conviser, R.J (2003)].

3. What is a “Principal”? Definition: A Principal is the one for whom the agent will perform the work for. There are (3) types of principals: Disclosed Principals – the principal’s identity is known to the third party Undisclosed Principals – the third party does not know there is a principal or the identity of the principal, the third party only sees the agent. Partially Disclosed Principals – the third party knows the

4. What is an “Agent” ? An agent is the person who assents to perform tasks for the benefit of the principal and is subject to be under the control of the principal. There are different types of agents: General Agent Special Agent Factors Subagents

5. The General Agent A general agent has authority to conduct a series of transactions involving a continuity of service.

6. The Special Agent A special Agent has authority for only a single transaction or a series of transactions not involving continuity of service.

7. FACTORS Definition: A Factor is a commercial agent employed to sell consigned merchandise in the agents own name for the principal

8. The Subagent When an agent has the authority to appoint another to assist in performing tasks for the principal – this person is considered a subagent If the agent is authorized to appoint a subagent, the subagent will perform tasks for the principal just as the agent does. The Agent is responsible for the subagent primarily (pay, torts, etc) The Principal is liable for the “authorized” subagent “Secondarily”

9. The Subagent – part 2 UNAUTHORIZED SUBAGENTS These people are not considered subagents They are considered “agents of the agent” The principal is not responsible for the unauthorized agent – the agent who appointed the unauthorized agent is liable for the torts, contracts, payment of the agent and actions therein.

10. Working into Agency Law Liability The most common question is: Is the principal liable for the torts of his agent? The second part of this is: “When, how and why?” To get to the answer, we must first find out IF there is an agency relationship in existence.

11. Requirements For An Agency To find out if there is a “Principal – Agent” relationship established three things must exist: ASSENT BENEFIT CONTROL “ABC” “ABC” “ABC” “ABC” “ABC” “ABC” “ABC”

12. Agency ASSENT Assent is an informal agreement between a principal with capacity and an agent

13. Agency BENEFIT The agent’s conduct must be for the principals benefit only

14. Agency CONTROL The principal must have the right to control the agent by having the power to supervise the manner of the agents performance Subagents & Borrowed Agents – There can be no vicarious liability for a subagents or borrowed agents tort unless there is assent, benefit and the right to control the subagent or borrowed agent.

15. Agency Independent Contractors: there is no power to control an independent contractor because there is no power to supervise the manner of an independent contractors performance GENERALLY – there can be no liability for an independent contractors torts EXCEPTION: If the independent contractor is engaged in ULTRA HAZARDOUS activities or Estoppel is raised by a third party based on the principal holding out the I.C as one of his agents.

16. Determining the Liability Once the relationship has been established and you can clearly state that there is a principal – agent relationship, we can then ask the question: “When is a principal liable for the torts of his agent (s)?”

17. Agency: Determining Liability 1. There must be an agency relationship that exists 2. The agents must be working within the scope of their duties when the tort occurred. 3. See the next slide

18. Agency: Determining Liability 2 RE: SCOPE OF PRINCIPAL- AGENT RELATIONSHIP The questions that need to be answered 1. Was the conduct of the kind that this agent is hired to perform? 2. Did the tort occur on the job or was it in some other place? a. Frolic = a new and independent journey (not liable) b. Detour = a mere departure from an assigned task (liable) c. Did the agent intend to benefit the principal? (if Yes, Liable)

19. Agency: Determining Liability 3 Regarding Intentional Torts: a. Intentional torts are generally outside of the scope of agency b. Exceptions: 1. If the act of the agent was authorized by the principal 2. If the intentional tort was natural from the nature of the employment 3. If the conduct was motivated by a desire to serve the principal

20. BREAK TIME 15 minutes When we come back we will talk about the “Liability of a principal to third parties for contracts entered into by an agent”

21. Agency: Principal liability for the contracts entered into by his agent RULE: The principal is liable for contracts entered into by its agent if the principal authorized the agent to enter the contract

22. Agency: Contract Liability Ways in which the principal can authorize the agent to enter into a contract: 1. By actual express authority 2. By actual Implied Authority 3. By Apparent Authority 4. By Ratification

23. Agency: Contract Liability Actual Express Authority: The principal has used words to express authority to an agent to enter a contract on the principals behalf. Can be oral Can be private Narrowly construed EXCEPTION: Equal Dignity Doctrine: “if the contract must be in writing, then so to equally must the expressed authority to enter that contract be in writing” [Conviser, R.J (2003)]

25. Death or incapacity of the principalEXCEPTION: Express authority cannot be revoked if the principal gives the agent a durable power of attorney: “ A power of attorney is a written expression of authority to enter a transaction”

26. Agency: Contract Liability Actual Implied Authority Necessity – There is implied authority to do all tasks that are necessary to accomplish an expressed task Custom: There is implied authority to do all tasks customarily performed by persons with the agents title or position Prior Dealings: There is implied authority to do all tasks that the agent believes to have been authorized from prior acquiescence by the principal

27. Agency: Contract Liability Apparent Authority This is what the principal “holds out to the third party or the public” by indicating he has an agent or that a certain person “is” his agent Two prong test: (1) the principal has cloaked the agent with the appearance of authority & (2) the third party reasonably relies on the appearance of authority

31. Actual Implied,

32. Apparent authority, or

35. No usurping the principals opportunity

37. GENERAL PARTNERSHIP FORMATION General partnership formations do not require any formalities to form or become a general partnership Definition: a general partnership is an association of two or more people, carrying on as co-owners of a business for a profit The contribution of money or services in return for a share of the profits creates a presumption that a general partnership exists

38. General Partners: Liabilities of Partners to Third Parties Agency principles apply Partners are agents of the partnership for carrying on usual partnership duties The partnership is bound by torts committed by partners in the scope of partnership business The partnership is bound by contracts entered into by partners with partnership authority

39. General Partners are personally liable for debts and obligations of the partnership Incoming partners liability for pre existing debt: there is no direct personal liability for prior debts Dissociating partners liability for subsequent debts - dissociating partners retain liability on future debts until actual notice of dissociation is given to creditors, or until 90 days after filing of dissociation with the state

40. General Partnership Liability by Estoppel A person who represents to a third party that he is a partner in a partnership will be liable to that third party as if he was a partner in the partnership even if he is not

41. Comparing and Contrasting Partnerships Now that we have covered “general partnerships” lets discuss some other types of partnerships: Limited Partnerships Registered Limited Partnerships

42. Limited Partnerships Definition: a limited partnership is a partnership with at least one general partner and one limited partner Formation: must file a limited partnership certificate that includes the names of all general partners Limited Liability Control: General Partners are liable for all debts and obligations. General partners have substantial managerial control; Limited Partners are not liable for debts and obligations. Must pay full consideration for their interests. Generally, they have limited control.

43. Registered Limited Liability Company [RLLC] Formation – must register with the state by filing a statement of qualification Must file annual reports Liabilities: No partner is liable for debts and obligations of the partnership Example: A, B, C and D are partners in an RLLC. A wracks up a $10 million dollar trial through the law firm, A has to cover all of the expenses, debts and obligations of that case, not B,C and D. Each person is responsible for their own partnership debts and obligations. The partnership is not going to be sued for the debt, Person A will be individually sued as an agent of the company. Each person pays into their own interest within the company.

45. No usurping partnership opportunities

46. Partners may never make as secret, undisclosed profit at the expense of the partnership

48. Rights continued Management: absent an agreement, all partners are entitled to equal control Salary- absent an agreement, no partner gets a salary Winding up – partners do get compensated for winding up a partnership Partners share of profits and losses – absent an agreement profits are shared equally. Regarding losses - absent an agreement, losses are shared like profits

49. Partnership Dissolution In a partnership at will where there is no agreement among partners, the partnership will dissolve when any single partner expresses the will to dissociate In a partnership NOT at will, where there is an agreement among the partners, the partnership will dissolve according to the terms of the agreement, OR if any single partner dissociates and the remaining partners by majority vote, vote to dissolve within 90 days of the dissociation of the single partner Termination = the real end of the partnership.

50. Winding up The winding up period is the period between dissolution and termination in which the remaining partners liquidate the partnerships assets to satisfy the partnership creditors

51. Compensation for winding up Partners do receive compensation for helping to wind up the partnership business Partnerships liability for winding up: a. old business: The individual general partner still retains liability to all transactions entered into to wind up business with existing creditors b. New Business – the partnership and its individual partners, still retain liability until actual notice of dissolution is given to creditors or until 90 days after the filing a statement of dissolution with the state

52. Break down of Priority Distribution Rule: Each partner must be repaid his or her loans and capital contributions, plus the partners share of profits or minus the partners share of losses

53. *All slides are referenced from the above stated sources* References Conviser, R.J (2003) Gilbert Law Summaries: Agency, Partnership & Limited Liability Companies BAR/BRI, Chicago, IL Kaufman, M.J (2006) Gilbert Law Summaries: Agency and Partnership Loyola University of Chicago School of Law CD Series PLEASE BE SURE AND REFERENCE YOUR COURSE MATERIALS FOR A MORE INDEPTH LEARNING OF THE LAW AND ASK YOUR LAW PROFESSORS ANY QUESTIONS YOU MAY HAVE – THIS IS INTENDED AS A “BRIEF” AND MAY NOT CONTAIN EVERYTHING YOU NEED TO KNOW ALTHOUGH IT IS CONSICE.

54. END OF AGENCY AND PARTNERSHIP PRESENTATION