Business Associations: Agency, Partnerships, and Corporations
Agency
Agency arises from consent, and the agent acts subject to the principal's control. Actual authority (express or implied), apparent authority, and ratification bind the principal. Fiduciary duties: care, loyalty, and obedience. Vicarious liability for employee torts within the scope of employment, versus independent contractors.
Partnerships
General partnerships form by association and profit-sharing; partners are jointly and severally liable. Limited partnerships have limited partners; LLPs and LLCs limit liability. Partner duties of loyalty and care, and dissociation and dissolution rules.
Corporations
Formation, articles, bylaws, and the corporate veil (piercing requires alter ego or fraud). Governance: shareholders, directors, officers. Duty of care and the business judgment rule; duty of loyalty and self-dealing. Shareholder rights: voting, inspection, derivative suits, and preemptive rights. Securities basics under Rule 10b-5.
Traps
Do not conflate apparent authority with actual authority; apparent authority requires a manifestation by the principal. The business judgment rule protects informed decisions made in good faith, not conflicts of interest. Piercing the veil is rare and requires more than undercapitalization alone.
Worked Example
A manager signs a contract with a supplier without board approval. If the manager had actual or apparent authority, the corporation is bound. If not, the corporation may ratify, or the manager may be personally liable for breach of warranty of authority.