Business Organizations: Entity Choice, Formation, Governance, and Authority
The Core Skill: Matching Facts to Entity Features
NCA Business Organizations questions reward candidates who can move quickly from a fact pattern to the legal consequences of a chosen entity. You must know the defining features of sole proprietorships, general partnerships, limited partnerships, limited liability partnerships, limited liability companies, and corporations, including the separate legal personality of the corporation, perpetual existence, limited liability, centralized management, free transferability of shares, and continuity of life. For partnerships, master the Revised Uniform Partnership Act defaults: equality in management and profits unless agreed otherwise, joint and several liability for torts, joint liability for contracts (in jurisdictions following the traditional rule), and dissociation and dissolution rules. For corporations, know de jure versus de facto incorporation, the ultra vires doctrine, promoter liability, preincorporation agreements, bylaws versus articles, and the roles of shareholders, directors, and officers.
Agency and Authority
Expect questions testing actual authority (express or implied), apparent authority, and inherent authority, plus ratification and estoppel. Distinguish an employee from an independent contractor and know respondeat superior limits. Understand fiduciary duties of care and loyalty, the business judgment rule, and the duty of disclosure when seeking shareholder action.
Common Traps
Frequent traps include confusing a limited partner's safe harbor activities with control that creates liability; assuming an LLC always has perpetual existence; treating a promoter's contracts as automatically binding on the corporation; and forgetting that apparent authority requires a manifestation by the principal, not merely the agent's claim.
Rule of Thumb and Worked Example
Ask three questions in order: Who bears loss? Who controls? How does the entity end? A worked example: A and B form a general partnership with no written agreement. A contributes cash, B contributes labor. Absent agreement, profits and losses are shared equally, each has equal management rights, and both are personally liable for partnership obligations. If A signs a contract with a supplier without telling B, A binds the partnership under actual implied authority if the purchase is within ordinary partnership business.
Exam Technique
Read for the call of the question first. If the question asks who prevails, identify the doctrine that resolves the conflict; if it asks the best argument, choose the strongest legal theory rather than the most sympathetic fact.