Business Associations
Business Associations
The NextGen bar exam tests agency and the core business entities: general partnerships, LLCs, and corporations. Fact patterns usually combine formation, authority, governance, fiduciary duties, and liability, so identify who acted, for whom, and with what authority before applying entity-specific rules.
Core rules
- Agency: actual authority may be express or implied; apparent authority arises from the principal's manifestation to a third party and reasonable reliance; ratification can bind a principal after the fact.
- Principal liability: a principal is liable for an agent's torts when the agent is an employee acting within the scope of employment; independent contractors generally do not create respondeat superior liability.
- General partnership: under RUPA, each partner is an agent of the partnership for ordinary business; partners are jointly and severally liable for partnership torts and obligations.
- LLC: a separate legal entity; members are not personally liable for LLC debts solely because of membership; management may be member-managed or manager-managed.
- Corporation: the board manages; shareholders have limited liability, voting, inspection, and derivative rights; piercing the veil requires unity of interest and injustice.
Worked example
A dispatcher for a delivery company tells a customer that a driver is authorized to collect a package. The driver lacks actual authority, but the customer reasonably relies on the dispatcher's statement. The company is bound by apparent authority because the principal's manifestation, through its dispatcher, created reasonable reliance. If the driver negligently injures a pedestrian during the pickup, the company is also liable under respondeat superior because the tort occurred within the scope of employment.
Traps
Do not treat every agent statement as apparent authority; there must be a manifestation by the principal and reasonable reliance. LLC membership alone does not create personal liability. A partner's liability for partnership obligations is not the same as a shareholder's limited liability. In derivative suits, demand or futility matters.