Fall 2012 Business Organizations

Topics: Fiduciary, Stock, Partnership Pages: 45 (14332 words) Published: August 26, 2013
Reciprocal Duties of Agent and Principal (20-39)
Community Counseling Service
Need for non-competition clause in contract – but must be careful not to violate public policy What is the duty of a party to the firm when he is planning to leave but hasn’t yet left? You cannot seek out firm’s clients while you are still working there Hamburger

Did not solicit clients’ business while he was still their employ Anderson Rule: categorical – fiduciary duty obliges the fiduciary to act in the best interests of his client or beneficiary and to refrain from self-interested behavior not specifically allowed by the employment contract. Easterbrook and Fischel Rule: difficult to apply in practice – socially optimal fiduciary rules approximate the bargain that investors and agent would strike if they were able to dicker at no cost. (not a great rule because there are always transaction costs) Limitations on the right to discharge

Must decide what the relationship between the parties is: independent contractor, employee, etc? Cannot be fired for irrational reasons or for certain protected reasons (if employee) Employees invest and rely, therefore they need protection

Alleged public policy: employees doing the right thing for their employer Court says there is no public interest in helping a private employer Employer’s interest ≠ public interest
Employer handbook can be used as evidence to prove it is not at-will employment Tortious breach of good faith and fair dealing – Court says no, there would be no duty to mitigate for contract breaches, therefore it’s not a good idea Duty to Creditors (39-49)

3P reasonably believed A was acting with the authority of P, P did nothing to discourage her belief Sennot
All partners are agents for the principal, by default

Partnerships and other Non-Corporate Forms
An association of two or more people to carry on, as co-owners of a business for profit A lot of litigation is decided on whether or not the parties were co-owners Intent that counts is not the creation of a partnership, but the intent to carry on a business for profit as co-owner Evidence of whether or not there is a partnership:

Sharing of profits and losses
Partnership for a limited time and limited purpose
Limited partners are very much like stockholders – they are just investing their money, they don’t have management rights/ powers and are not liable for partnership debts Generally, only one general partner and multiple limited partners/ passive investors Cannot accidentally fall into a limited partnership because LPs must be registered with the government (gen. state) LLCs

Form of a business organization for a small number of people with a relatively close relationship but who don’t want to be personally liable for business expenses As similar as possible to a corporation without being taxed like a corporation Interests are not freely transferrable like in a corporation LLPs

Same as general partnership except creditors cannot go after partners personal wealth for partnership debt LLLPs
The general partner is no longer liable for partnership debts Same can be achieve if the GP is a company (or some other non-human) Characterizing the Relationship
Byker v. Mannes
The definitive way to ensure your relationship is not characterized as a general partnership is to become a different type of business organization You can always leave a partnership, at any time
You can fall into GPship
Hynansky v. Vietri
H never filed a partnership tax return and treated the losses as his own Pretty iron-clad rule: you have a to have a right to profits to be considered a partner Sharing Profits and losses
Kovacik v. Reed
Didn’t talk about who was going to share losses
One gave money, the other gave only labor
Default rule is that losses follow profits
Lost opportunity costs for both parties
Fiduciary Duty (75-87)
Duty of Loyalty
Meinhard v. Salmon
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