Agency Law Principles and Types

A relationship where one party (agent) acts on behalf of another (principal), subject to the principal's control.

Clearly stated authority given by the principal to the agent for a specific action.

Authority not explicitly stated but reasonably inferred from the principal's actions or words.

Authority a third party reasonably believes an agent possesses, based on the principal's actions.

Agent is not liable on contracts if the principal is disclosed.

Agent is usually liable on contracts if the principal is undisclosed.

Factors that determine if an agent's act falls within the authority granted.

A court's power to reject a chosen state's law in a case.

A designated individual or entity who receives legal documents, such as lawsuits, on behalf of a corporation, for service of process.

A corporation's name must be distinctive and easily distinguishable from other entities to prevent confusion and establish legal identity.

A person who helps start a corporation can be held responsible for pre-incorporation contracts made, even if the corporation later accepts or ratifies agreements. Liability only ends with a novation.

A corporation can adopt an agreement made by a promoter before its formation, making it a valid obligation of the corporation.

Represents ownership in a corporation, offering voting rights and potentially increasing in value based on the corporation's profits.

A shop owner must take reasonable care to protect customers from dishonest sales staff.

Key factors used to determine if someone is an employee (vs. independent contractor).

A principal can sometimes protect an agent from the agent's wrongful acts.

The employer with most control (authority) over employee conduct is responsible if harm happens to someone else.

Employers are responsible for employee's actions even if those actions include personal business at the same time.

A principle isn't liable for the torts of independent contractors they hire.

Agents must be loyal, careful, and follow orders.

Agents must give any unexpected benefits to their employers.

A legal presumption that directors acted in good faith and with due care when making decisions, unless proven otherwise. It protects directors from liability for honest mistakes or bad business decisions, so long as they weren't acting in bad faith, illegally, or in conflict of interest.

The Business Judgment Rule doesn't apply in situations where directors acted fraudulently, illegally, in conflict of interest, or with gross negligence. These situations can lead to personal liability for the directors.

The total par value of all the shares issued by the corporation, representing the minimum amount investors contributed for the stock. It's a key part of calculating the surplus.

The amount of money left over after subtracting the stated capital from the corporation's net assets. It reflects the value of the corporation's assets above its minimum capital requirements.

Straight voting lets shareholders vote for each director individually, while cumulative voting gives shareholders more power by allowing them to concentrate their votes on a specific director.

Partners have a right to access the partnership's books and records, but this access must be reasonable and cannot occur outside of business hours.

Once a partnership dissolves, partners only have a fiduciary duty to each other. The partnership no longer owes them any obligations.

A partner can be expelled from a partnership through a judicial decree. This is usually a last resort.

Partnership property can only be used to pay partnership debts incurred in the ordinary course of business. It cannot be used to pay individual debts.

All partners are jointly and severally liable for the partnership's debts and obligations.

When a partner ceases to be a part of the partnership.

The process of winding down a partnership's business after dissolution, including settling debts and distributing assets.

A corporation may choose to indemnify an individual if they acted without reasonable belief that their actions were criminal. This can be decided by a majority vote of disinterested and independent directors, a committee, special legal counsel, disinterested and independent owners, or a unanimous vote of the owners.

In Texas, a corporation can expand the scope of mandatory indemnification (protecting officers/directors from certain lawsuits) beyond the standard legal requirements through its governing documents (e.g., bylaws) or resolutions passed by authorized groups.

Indemnification typically covers the cost of any judgment against the individual and any reasonable legal fees associated with defending the judgment.

A freeze-out happens when a controlling shareholder manipulates a corporation's operations (e.g., by not declaring dividends) to make it unfavorable for minority shareholders, effectively forcing them to sell their shares at a low value.

A written shareholder agreement must be signed by all shareholders, and must meet specific requirements like outlining shareholder rights, being in writing and signed by all involved.

In Texas, a shareholder must file a written demand with the corporation for a derivative suit, and if they don't receive a response after 90 days, they can bring the suit to court.

A Texas corporation must decide how to respond to a derivative demand or suit by a majority vote of independent and disinterested board members, a committee, or a special panel.

A corporation can dismiss a derivative lawsuit if it determines, after a reasonable investigation, that the suit is not in the corporation's best interest. The plaintiff bears the burden of proving the investigation was conducted in bad faith.

A principal can sometimes pay back an agent for losses caused by the agent's wrongful actions.

All partners are equally responsible for partnership debts, even if one partner caused it.

Decisions about regular operations require a majority vote of partners.

Major changes require unanimous approval from all partners.

Partners must disclose opportunities that benefit the partnership, even if they're not working for the partnership.

The board is the decision-making body that oversees the corporation's management.

Officers execute the company's policies and decisions, but they have to be authorized by the board.

A corporation with a small number of shareholders, usually family or friends.

The registered agent's address must be a physical street address, not a PO Box, according to Form 201 Art 2.

Form 201 Art 3 requires listing the board of directors (BoD) for a corporation. Traditionally, there are at least 3 BoD members to avoid tie votes.

Form 201 Art 4 requires specifying the number of shares of stock and their par value. Par value is a nominal amount, but it can be important for legal reasons.

A limited partner is not liable for the partnership's debts unless they participate in controlling the business, in which case they are only liable to those who reasonably believed they were a general partner.

An LLP is registered with the Secretary of State, but the registration only lasts one year. After that, it becomes a general partnership.

Shareholders can vote to remove a director or the entire board, with or without cause, at a meeting called for that purpose.

The first board meeting sets up the corporation's structure by approving stock issuance, bylaws, officers, and initial business transactions.

The word 'By' in a corporate signature block protects the corporation from liability, because the individual signing is acting on behalf of the corporation, not personally.

Courts can hold shareholders personally liable for corporate debts if there's unity of interest between the corporation and the individual, and if ignoring corporate separateness would be unfair.

A corporation is undercapitalized if it doesn't have enough funds to sustain its operations, leading to an inability to pay debt.

When a corporation is wronged, shareholders can sue the third party responsible on behalf of the corporation.

A claim that a director or officer had a conflict of interest when setting their own executive compensation.

A claim that a board was negligent in setting executive compensation because of flawed procedures or insufficient information.

A claim that a board committed waste by setting unfairly high executive compensation.

A legal principle where a court can order compensation for services rendered even without a contract, if it's clear that compensation was expected.

The board of directors is responsible for setting the salaries of corporate officers.

Controlling shareholders have a duty to disclose any information that could affect the value of minority shareholders' stock when making a transaction.

These factors help determine if a buyer is trying to exploit a corporation after buying controlling shares: immediate control demand, liquid assets, and excessive purchase price.

When a company's stock has no market value, its value can be calculated by dividing equity by the number of shares (equity = assets - liabilities).

The standard for evaluating business decisions made by directors is the business judgment rule, which presumes that directors acted in good faith and with due care. This presumption shifts to gross negligence if misfeasance occurs.

A director can express disagreement with a board decision by dissenting at the meeting, filing a written dissent, or sending a written dissent by certified mail. This helps protect the director from liability.

Companies cannot prioritize humanitarian concerns over shareholder interests, even if the directors' intentions are good. This means actions harmful to shareholders, even for charitable purposes, are generally not allowed.

An officer or director taking advantage of a business opportunity that rightfully belongs to the corporation is a breach of loyalty, even if it's not explicitly stated in the company's policies.

If a fiduciary has a conflict of interest in a decision, they must prove that the decision was fair to the corporation.

Transactions between a corporation and an interested director can be valid if they are approved by disinterested directors, ratified by shareholders, or demonstrably fair to the corporation.

When evaluating if a corporate opportunity should be pursued, consider the corporation's financial ability, whether the opportunity aligns with its business, potential profitability, interest in the opportunity, and potential conflicts for officers.

A disinterested director is someone who has no personal or financial interest in the transaction being considered.