Business Associations (Agency, Partnerships, Corporations, LLCs)
Business Associations tests agency authority, partnership liability, corporate formation and governance, LLCs, and fiduciary duties. Identify the entity and the actor before assigning liability.
Core rules
- Agency: actual authority (express or implied), apparent authority, and ratification; agents owe fiduciary duties; termination ends actual authority.
- Partnerships: UPA default rules; partners are jointly and severally liable for partnership obligations; fiduciary duties; dissociation and dissolution.
- Corporations: formation through articles and bylaws; promoter liability; ultra vires; veil piercing for fraud or undercapitalization.
- Directors and officers: duty of care and loyalty; business judgment rule; derivative suits require demand or excuse.
- LLCs: operating agreement controls; member-managed versus manager-managed; charging order is the exclusive remedy; members are not personally liable.
Worked example
Principal tells Agent to buy supplies up to $10,000. Agent buys $15,000 from Supplier, who dealt with Agent before and knew Principal paid prior invoices. Principal is bound by apparent authority if Supplier reasonably believed Agent had authority; actual authority was exceeded. If Agent pocketed a kickback, Agent breached fiduciary duty. A promoter who signs before incorporation remains personally liable unless the contract says otherwise or a novation occurs.
Traps
Apparent authority requires a manifestation by the principal, not just the agent's claim. A promoter is liable until novation. LLC members are shielded from entity debts. A derivative plaintiff must make demand or show futility.