Business Associations
Business Associations tests agency, partnership, LLC, and corporation law: formation, authority, fiduciary duties, liability, and governance. The most common fact pattern involves a business owner who acts without clear authorization.
Core rules
- Agency requires assent, benefit, and control; apparent authority arises from the principal's manifestations to a third party.
- A general partnership is formed by an association of two or more persons to carry on a business for profit; partners are jointly and severally liable for partnership obligations.
- A corporation is a separate legal entity; piercing the veil requires fraud, alter ego, or undercapitalization.
- LLC members are not personally liable for LLC debts solely by reason of membership.
Worked example
A and B agree to share profits from a food truck; they sign no writing. A orders $20,000 of supplies from Supplier in the partnership's name. B claims B is not liable. Reasoning: A and B have formed a general partnership because they associated to carry on a business for profit and share profits. Under RUPA, A has apparent authority to bind the partnership in the ordinary course of business. Supplier can recover from the partnership, and B is jointly and severally liable as a partner. A writing is not required for partnership formation unless the statute of frauds applies to the specific obligation.
Traps
- Confusing apparent authority with actual authority.
- Assuming an LLC always shields members from personal guarantees.
- Missing that a promoter can be liable on pre-incorporation contracts.
- Forgetting fiduciary duties of loyalty and care.