Agency Law Principles and Types
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Questions and Answers

A corporation's name must be followed by the term 'company', 'corporation', 'incorporated', or 'limited'.

True

A registered agent for a corporation can use a PO Box as their address.

False

The Business Judgment Rule (BJR) protects directors from liability if they have acted fraudulently.

False

Form 201 requires that at least three members are listed on the Board of Directors to avoid tie voting.

<p>True</p> Signup and view all the answers

Cumulative voting allows shareholders to multiply their votes by the number of directors up for election.

<p>True</p> Signup and view all the answers

The liability of a promoter ends if the corporation ratifies the pre-incorporation contract.

<p>False</p> Signup and view all the answers

A corporation must keep records of past shareholders' names and addresses according to corporate law.

<p>True</p> Signup and view all the answers

A promoter is completely divested of rights and responsibilities after a novation occurs.

<p>True</p> Signup and view all the answers

A director needs to show that their purpose for inspecting records is unrelated to their service as a governing person.

<p>False</p> Signup and view all the answers

The surplus of a corporation is calculated by subtracting stated capital from net assets.

<p>True</p> Signup and view all the answers

An agent is liable on a contract if the principal is undisclosed.

<p>True</p> Signup and view all the answers

Express authority is given through implied actions and behaviors.

<p>False</p> Signup and view all the answers

The inherent authority of an agent includes performing activities not explicitly mentioned in the agreement as long as they are necessary to carry out an authorized act.

<p>True</p> Signup and view all the answers

Apparent authority depends solely on the agent's understanding of their role.

<p>False</p> Signup and view all the answers

The factors determining the scope of an agent's authority include the time, place, and purpose of the act.

<p>True</p> Signup and view all the answers

An agent who acts on behalf of a disclosed principal generally has no implied warranty of authority.

<p>True</p> Signup and view all the answers

A court can strike a choice of law provision if there is a substantial relationship between the state chosen and the transaction.

<p>False</p> Signup and view all the answers

An agent's authority can include acts that are commonly performed by their employer.

<p>True</p> Signup and view all the answers

The principal can indemnify the agent for misconduct regardless of the circumstances.

<p>False</p> Signup and view all the answers

The dual purpose rule states that an employer is responsible for their employee's actions if the employee is conducting personal business alongside their work duties.

<p>True</p> Signup and view all the answers

Principals are generally liable for the torts of independent contractors while they perform tasks for the principal.

<p>False</p> Signup and view all the answers

An agent must keep any benefits received outside of what the principal has provided.

<p>False</p> Signup and view all the answers

Unanimity is required to change a partnership agreement according to section 152.208.

<p>True</p> Signup and view all the answers

Partners are not responsible for each other's debts to third parties.

<p>False</p> Signup and view all the answers

The three key people in a corporation include only Shareholders and Officers.

<p>False</p> Signup and view all the answers

For a partnership to be held liable due to false representation, it must first engage in fraudulent activity.

<p>True</p> Signup and view all the answers

Partners have unlimited access to books and records of the partnership at any time.

<p>False</p> Signup and view all the answers

A partner can still be held liable for debts incurred while they were a partner, even after they have withdrawn from the partnership.

<p>True</p> Signup and view all the answers

Limited partners are allowed to actively manage the business.

<p>False</p> Signup and view all the answers

A partnership can only be terminated once all partners have withdrawn.

<p>True</p> Signup and view all the answers

A partner can be expelled only through a unanimous vote of the other partners.

<p>False</p> Signup and view all the answers

If a partner withdraws from the partnership, they lose the right to bind the partnership immediately.

<p>False</p> Signup and view all the answers

Once a partner withdraws from a partnership, they are completely free from any obligations incurred during their partnership.

<p>False</p> Signup and view all the answers

Partnership property can be used to pay individual debts of partners.

<p>False</p> Signup and view all the answers

A corporation can indemnify a person if they had reasonable cause to believe their actions were criminal.

<p>False</p> Signup and view all the answers

Controlling shareholders can use their authority to give themselves special advantages over minority shareholders.

<p>False</p> Signup and view all the answers

A derivative suit proceeding can be dismissed if the corporation conducts a reasonable inquiry showing it is not in the corporation's best interest to continue.

<p>True</p> Signup and view all the answers

Shareholder agreements in Texas do not have to be in writing.

<p>False</p> Signup and view all the answers

A corporate board must include independent and disinterested members to respond to a derivative demand or suit.

<p>True</p> Signup and view all the answers

A 'freeze out' strategy aims to increase the investment value for minority shareholders.

<p>False</p> Signup and view all the answers

The plaintiff in a derivative suit has the burden to prove the corporation's investigation was done in bad faith.

<p>True</p> Signup and view all the answers

A corporation must take no action after receiving a derivative demand if there is no response within 90 days.

<p>False</p> Signup and view all the answers

What must follow the chosen name for a corporation?

<p>It must be easily distinguishable</p> Signup and view all the answers

What is required for Form 201 concerning the address of a registered agent?

<p>It must be a physical street address</p> Signup and view all the answers

What is a promoter in the context of corporate formation?

<p>A founder who helps to organize the corporation</p> Signup and view all the answers

What happens to a promoter's liability under a pre-incorporation contract if the corporation only ratifies it and does not perform a novation?

<p>The liability of the promoter remains active.</p> Signup and view all the answers

What must Form 201 include regarding the Board of Directors?

<p>A list of at least three Board members to prevent tie votes</p> Signup and view all the answers

What determines the process of making decisions within the ordinary course of business for a partnership?

<p>Approval of the majority interest in the partnership</p> Signup and view all the answers

What is required for a partnership decision that is outside the ordinary course of business?

<p>Unanimous approval by all partners</p> Signup and view all the answers

What must a partner do if they acquire knowledge of an opportunity capable of benefiting the partnership in their business capacity?

<p>Inform the other partners</p> Signup and view all the answers

Which of the following best describes capital accounts in a partnership?

<p>Claims by each partner indicating their stake in the partnership</p> Signup and view all the answers

When a corporation is formed, what is one of the primary documents required to file in Texas?

<p>201 Form from the Secretary of State</p> Signup and view all the answers

What is the primary role of officers in a corporation?

<p>Run the corporation as delegated by the Board</p> Signup and view all the answers

Which document outlines the name of the corporation among other requirements in the certificate of formation?

<p>Form 201</p> Signup and view all the answers

What distinguishes a closely held corporation from other types of corporations?

<p>It issues stock to only a few individuals</p> Signup and view all the answers

What is the primary factor in determining if a person is an employee?

<p>Extent of control</p> Signup and view all the answers

Under what circumstances can a principal indemnify an agent?

<p>When the principal is found liable for the agent's misconduct</p> Signup and view all the answers

Which of the following best describes the Borrowed Servant Doctrine?

<p>The employer who controls the employee's actions is responsible for their conduct.</p> Signup and view all the answers

What obligations does an agent have toward their principal?

<p>Loyalty, care, and obedience</p> Signup and view all the answers

What must an agent do with benefits they receive that exceed what the principal provides?

<p>Return the benefits to the principal</p> Signup and view all the answers

Which section governs the distribution of profits and losses in a partnership?

<p>152.051</p> Signup and view all the answers

What is a requirement for a partnership to be held liable for false representation?

<p>Fraudulent activity must first occur to suggest a partnership</p> Signup and view all the answers

Which individuals are considered the key participants in a corporation?

<p>Shareholders, Board of Directors, and Officers</p> Signup and view all the answers

What is the consequence for a limited partner who participates in the control of the business?

<p>They can be held liable to those who thought they were a general partner.</p> Signup and view all the answers

What happens if a partnership formed as an LLP does not renew its registration after one year?

<p>It becomes a general partnership.</p> Signup and view all the answers

What is necessary for shareholders to remove a director from the board of directors?

<p>A meeting called specifically for that purpose with majority vote.</p> Signup and view all the answers

What does the 'By' indicate in a signature block for a corporation's contract?

<p>It denotes that the signer is representing the corporation.</p> Signup and view all the answers

What two conditions must be met to pierce the corporate veil?

<p>Unity of interest and a situation threatening injustice.</p> Signup and view all the answers

How is undercapitalization defined?

<p>Insufficient funds to sustain the business and pay creditors.</p> Signup and view all the answers

What is the significance of a shareholder derivative action?

<p>Shareholders may act on behalf of the corporation to address wrongs done to it.</p> Signup and view all the answers

What is required for a foreign corporation to conduct business in another state?

<p>Compliance with the laws of the state where business is being conducted.</p> Signup and view all the answers

What standard becomes applicable when a business decision results in misfeasance?

<p>Gross negligence</p> Signup and view all the answers

How can a director properly dissent from a corporate decision?

<p>By filing a written dissent</p> Signup and view all the answers

Is it permissible for a company to take actions that harm its shareholders if the motivation is solely humanitarian?

<p>No, it is unacceptable regardless of motivation</p> Signup and view all the answers

What is one example of a less obvious breach of loyalty by an officer or director?

<p>Consciously acting in violation of the law</p> Signup and view all the answers

What is the burden of a fiduciary when there is a conflict of interest?

<p>To demonstrate that the decision was fair to the corporation</p> Signup and view all the answers

Which of the following factors does not contribute to escaping self-dealing transaction invalidity?

<p>Personal benefits accrued to the director</p> Signup and view all the answers

What defines a disinterested director?

<p>A director not part of the transaction and without material financial interest</p> Signup and view all the answers

What three conditions allow a contract between a corporation and an interested director to be valid?

<p>Material facts disclosed, approval from shareholders, transaction fairness</p> Signup and view all the answers

What claim can arise when a director sets their own salary, suggesting a conflict of interest?

<p>Duty of loyalty claim</p> Signup and view all the answers

Which of the following is NOT a looting factor when evaluating the sale of controlling stock?

<p>The seller's ownership duration</p> Signup and view all the answers

What is the primary focus of the duties imposed on controlling shareholders?

<p>Fairness</p> Signup and view all the answers

How is the value of stock determined when there is no market value available?

<p>Assets minus liabilities, then divide by shares</p> Signup and view all the answers

Under Texas indemnification laws, which statement is accurate regarding mandatory indemnification?

<p>Indemnification is required for governing persons if successful in legal matters.</p> Signup and view all the answers

Which of the following claims asserts that a board was grossly negligent in its procedures for setting executive compensation?

<p>Procedural duty of care claim</p> Signup and view all the answers

What legal principle allows a court to find that one should be compensated for services rendered under certain circumstances?

<p>Quantum meruit</p> Signup and view all the answers

What obligation do controlling shareholders have when dealing with minority shareholders?

<p>To maintain transparency in transactions</p> Signup and view all the answers

Study Notes

Agency Relationship Requirements

  • There must be a mutual agreement between the agent and principal
  • The agent must act on behalf of the the principal
  • The agent must act under the principal's control

Three Forms of Agency

  • The Relationship of principal and agent
  • The Relationship of master and servant
  • The Relationship of employer or proprietor and independent contractor

Express Authority

  • The principal gives a clear and actual command regarding a particular act
  • The principal dictates the actions and right to perform a particular act

Implied Actual Authority

  • The principal's actions or words cause the agent to reasonably believe he has the authority implied through their acts and behaviors

Apparent Authority

  • Third parties believe the agent has authority based on the principal's behavior or actions

Inherent Authority

  • The agent's authority to perform activities that aren't specifically mentioned in the agreement but are necessary or customary.

Four Rules for Agent Liability

  • If an agent contracts with a third party on behalf of a disclosed principal, the agent is not liable.
  • If an agent contracts on behalf of a partially disclosed or undisclosed principal, the agent is typically liable.
  • An agent who purports to act on behalf of a principal impliedly warrants that he has the authority to do so.

Factors to Weigh for Scope of Agent's Authority

  • Whether the acts are commonly performed by the servant
  • The extent the acts deviate from typical performance or methods
  • Whether the master would reasonably expect the agent to perform the act

When Can a Choice of Law Provision Be Struck by a Court?

  • There is no substantial relationship between the chosen state's law and the parties or transaction.
  • There is no reasonable basis for the chosen state.
  • The state whose law would otherwise apply has a greater interest and fundamental policy interest that would be contravened by the application of the chosen state's law.

Rules for Partnership

  • Every partner has the right to perform the partnership's business and participate in management
  • Partners have equal voting power
  • Partners share profits and losses equally
  • The partnership is liable for contracts entered into by partners acting with actual or apparent authority
  • The partnership is liable for torts committed by partners while acting with authority or in the ordinary course of the partnership's business
  • It takes unanimous agreement to admit new partners
  • Partners owe fiduciary duties to each other
  • Every partner can dissolve an at-will partnership

Scope of Employment Partnership Law Rule

  • The action must occur within the authorized time and geographic limits of the partnership, and also in part for the partnership's success

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Description

Explore the fundamental principles and types of agency relationships, including mutual agreement, express and implied authority, and the roles of principal and agent. Understand how authority can be expressed, implied, apparent, or inherent within these relationships.

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