Business Associations - Agency, Partnerships, and Corporations
Business Associations tests agency, partnerships, corporations, and limited liability companies. The recurring issue is who is bound and who is liable.
Agency and partnerships
- Actual authority comes from the principal's manifestations; apparent authority comes from the principal's holding out.
- A general partner has apparent authority to bind the partnership in ordinary course; partners are jointly and severally liable for partnership obligations.
- Fiduciary duties include loyalty and care; dissolution triggers winding up. An LLC generally protects members like a corporation.
Corporations
- Formation requires articles of incorporation; the corporation is a separate legal person.
- Shareholders generally are not liable for corporate debts; piercing the veil requires alter ego or fraud.
- Directors owe duties of care and loyalty; officers owe similar duties.
Worked example
A partner signs a supply contract in the partnership name without actual authority. The supplier reasonably believes the partner has authority because the partnership website lists him as a managing partner. The partnership is bound by apparent authority, and the partner and other general partners may face personal liability for the obligation.
Traps
Do not confuse apparent authority with inherent agency power. Do not pierce the veil merely because a corporation is small. Do not treat a limited partner as a general partner.