I.

AGENCY

a. Agency (§1.02): Agency is the fiduciary duty that arises when one person (a “principal”) manifests another person (an
“agent”) that the agent shall act on the principal’s behalf and subject to the principal’s control and the agent manifests assent or otherwise
consents so to act.
b. Actual Authority (§2.01): Arises where the principal's words or conduct reasonably cause the agent to believe that he
or she has been authorized to act
a. Express in the form of a contract OR
b. Implied because what is said or done make it reasonably necessary for the person to assume the powers of
an agent
c. Principal will be bound IF
1. Principal gave actual authority to agent and all the agent's actions fall w/in the scope of the
authority given
a. This will be the result even if, having actual authority, the agent in fact acts fraudulently
for his own benefit UNLESS
i. the 3rd party w/ whom the agent is dealing was aware of the agent's personal
agenda
2. There is no contract but the principal's words or conduct reasonably led the 3rd party to believe
that the agent was authorized to act, OR
3. What the agent proposes to do is incidental and reasonably necessary to accomplish an actually
authorized transaction or a transaction that usually accompanies it
c. Apparent Authority (§2.03): Exists where the principal's words or conduct would lead a reasonable person in the 3rd
party's position to believe that the agent was authorized to act, even if the principal and the purported agent had never discussed such a
relationship.
a. “Position of power” (ex: public office)
1. IF the position carries w/ it agency-like powers
2. THEN those who know of the appointment are entitled to assume that there is apparent authority to
do the things ordinarily entrusted to one occupying such a position
d. Implied Authority: Considered held by the agent by virtue of being reasonably necessary to carry out his express
authority
a. Authority by virtue of position held: To deter fraud and other harms that may befall individuals dealing w/
agents, there is a concept of Inherent Agency power, which is power derived solely by virtue of the agency relation.
1. Example: Partners have apparent authority to bind the other partners in the firm, their liability
being joint and several, and in a corp, all executives and senior employees w/ decision-making authority by virtue of their declared position
have apparent authority to bind the corp.
e. Agency By Estoppel (§2.05): A principal who has not made a manifestation to an agent is subject to liability to a 3rd
party who justifiably is induced to make a detrimental change in position because the transaction is believed to be on the person's account,
IF
a. The person intentionally or carelessly caused such belief OR
b. Having notice of such belief and that it might induce others to change their positions, the person did not
take reasonable steps to notify them of the facts
f. Liability of Agent to 3rd Parties: If the agent has actual or apparent authority, the agent will not be liable for acts
performed w/in the scope of such authority, so long as the relationship of the agency and the identity of the principal have been disclosed.
a. IF undisclosed principal THEN both the agent and the principal are liable
g. Liability of Agent to Principal: If the agent has acted w/out actual authority, but the principal is nevertheless bound
because the agent had apparent authority, the agent is liable to indemnify the principal for any resulting loss or damage.
h. Liability of Principal to Agent: If the agent has acted w/in the scope of the actual authority given, the principal must
indemnify the agent for payments made during the course of the relationship whether the expenditure was expressly authorized or merely
necessary in promoting the principal’s business.
i. Fiduciary Duties
a. An agent owes a fiduciary duty to be loyal to the principal.
b. An agent must not accept any new obligations that are inconsistent w/ the duties owed to the principal. An
agent can represent the interests of more than one principal, conflicting or potentially conflicting, ONLY after full disclosure and consent
of the principal.
c. An agent also must not engage in self-dealing, or otherwise unduly enrich himself from the agency. An agent
must not usurp an opportunity from the principal by taking it for himself or passing it on to a 3rd party.
d. In return, the principal must make a full disclosure of all information relevant to the transactions that the
agent is authorized to negotiate and pay the agent either a prearranged commission or a reasonable fee established after the fact.

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j. Ratification: Creates the effect of actual authority
a. Even if the agent does act w/out authority, the principal may ratify the transaction and accept liability on
the transactions as negotiated. This may be express or implied from the principal's behavior, e.g. IF
1. the agent has purported to act in a number of situations AND
2. the principal has knowingly acquiesced,
b. THEN the failure to notify all concerned of the agent's lack of authority is an implied ratification to those
transactions and an implied grant of authority for future transactions of a similar nature
k. Termination
a. Actual authority (§3.06)
1. Agent’s death, principal’s death, or principal’s loss of capacity
2. Agent would reasonably believe principal would no longer assent OR
3. Revocation by principal to agent
b. Apparent authority (§3.11)
1. It is no longer reasonable for the 3rd party w/ whom an agent deals to believe that the agent
continues to act w/ actual authority

I. CORPS

l. Promoters (MBCA §2.04): Prior to formation, promoters are, in effect partners. They therefore owe a fiduciary
obligation of full disclosure to the corp and may not engage in self-dealing the detriment of the corp.
a. Liability
1. A warranty that the corp will be formed AND
2. That promoter will use his best efforts to create the corp
b. Protecting Promoters
1. Novation—agreement between principal and 3rd party to voluntarily substitute an old contract w/ a
new contract that changes either the subject matter or parties of the old contract (Moneywatch Co. v. Wilbers)
a. All parties must be identified before novation can take place
b. Novation BEFORE the transaction requires a document to account for the novation (e.g.,
"subject to novation")
2. IF promoters specifically disclaim personal liability, THEN corp will not be able to successfully
maintain an action against him
m. Incorp Mechanics
a. Internal Affairs doctrine
1. Provides that the "internal affairs" of a corp (e.g. conflicts between SHs and mgmt figures such as
the board of directors and corporate officers) will be governed by the corporate statutes and case law of the state in which the corp is
incorporated UNLESS
a. The relevant rules of the other state embody important policy of that state AND
b. The matter involved does not affect the corp’s organic structure or internal administration
b. Reserving the name (MBCA §4.02)
1. Usually 90 to 180 days and small fee
2. Must be distinguishable from every other corp on file w/ secretary of state
3. Must contain some evidence that the entity is a corp
4. Must not contain words falsely suggesting that the corp will engage in certain businesses
c. The incorp documents (MBCA §2.02)
1. Corp name and address of incorporators
2. Name a person who will act as the corp’s agent
3. State maximum number of shares the corp may issue
4. State the purpose (“any lawful purpose”)
d. Filing
1. Deliver Articles to the secretary of state (MBCA §2.01)
2. One copy and required fees and taxes delivered to the secretary of state (MBCA §1.20)
3. The secretary will file them (MBCA §1.25)
4. Corp comes into existence at the close of business on the day Articles are filed (MBCA §2.03)
e. Organizational mtg (MBCA §2.05)
1. Elect directors
2. Adopt bylaws
3. Appoint officers
n. Incorp and Limited Liability
a. De Jure Corp- Substantial compliance w/ mandatory provisions

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 1. Limited liability attaches once the articles of incorp are filed
b. De Facto Corp (Facts from Corp's Perspective)
1. Good faith effort to incorporate (sent the articles to department of state)
2. Legal right to incorporate AND
3. Operating as a corp
c. Corp by Estoppel (Facts from 3rd Party's Perspective)
1. IF Person dealing w/ alleged corp
a. Thought it was a corp AND
b. Would get a windfall if alleged corp would be personally liable
2. THEN 3rd party is estopped from contesting the existence of a corp
d. Enterprise liability Factors – Attempts to hold corp parent liable for its subsidiary’s debts
1. Similar corp names
2. Common corp officers, directors and employees
3. Same offices and used same telephone numbers and business cards
4. Single business enterprise doctrine – Corps not operated as separate entities but integrate their
resources to achieve a common purpose (In re U-Haul International, Inc.)
e. Commercial and Bankruptcy Doctrines
1. Doctrine of fraudulent conveyances (to protect creditors) – If corporate debtor transfers assets for
less than fair value at a time when it was insolvent and for the purpose of harming its other creditors,
those transferees are liable.
2. Doctrine of equitable subordination – A bankrupt corp’s creditors can recover property transferred to
certain corporate insiders w/in one year of the bankruptcy IF
a. The transfer was for an antecedent debt
b. Had the effect of giving the insiders more than they would have received in the bankruptcy
c. Made while the corp was insolvent
f. Successor liability
1. General rule: A corp that purchases the assets of another corp assumes no liability for the transferring
corp’s debts and liabilities UNLESS
a. The buyer agrees to be held liable
b. The two corps consolidate or merge
c. Mere continuation exception (Pancratz v. Monsanto Co.)
i. MUST have proof of continuity of mgmt AND
ii. Ownership
d. Transaction amounts to fraud
e. Product line exception
i. Successor acquired substantially all the transferor’s assets AND
ii. Produces the same products
g. Direct Liability of Corporate Officers IF
1. Agree that the agent will be liable
2. Guaranteed performance
3. Relies to its detriment of the guarantee
4. For his or her own tort
5. Fraud or conversion
h. Piercing the Corporate Veil—seek assets of the SH where corp has none (two part Kansas test)
1. Unity of Interest/Ownership (“separate corp identity” prong)
a. Disregard of corporate entity
b. Commingling funds and assets
c. Undercapitalization
d. Treating corporate assets as its own AND
2. Injustice (“fraud or inequitable consequences” prong)
a. Π is barred from recovery AND
i. SH/Corp would be Unjustly enriched
ii. Parent takes all assets leaving no funds for subsidiary OR
iii. Fraud
o. Directors
a. Bd must consist of one or more individuals (MBCA §8.03(a))
b. At least one director must be elected at every annual SH mtg by SHs
1. Classified Bd – Power is vested in at least one class of stock
2. Staggered terms – Divide the Bd in 3rds so each have 3-yr term
3. Holdover – Director will continue in office until another is elected
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4. Interim vacancy filled by maj of directors
c. Removal by
1. Amotion
2. W/ or w/out cause (MBCA §8.08(a)) (only by same set of SHs that elected him)
3. Bd has NO power to remove Bd member
d. Conduct, manage, and direct the business of the corp at mtgs
1. Properly called
2. Proper notice
3. Quorum (1/2) (SH mtg – maj)
4. Sufficient vote (if consent, then unanimous; if acting at a mtg, then maj of votes)
e. Appoint officers and form committees
f. Issue Dividends (declared)
1. Can SHs compel the Bd to issue dividends? ONLY where fraud or gross abuse of discretion
2. Insolvency test (MBCA §6.40)
a. Corp may not pay a dividend if after the corp would not be able to pay its debts OR
b. The corp’s total assets would b less than its total liabilities
3. Restrictions on transfer
a. A matter of mgmt
b. Regulatory reasons
c. Buy-sell agreements (may require or grant option to purchase to the corp)
g. Types
1. Inside Directors—director AND employee or officer
2. Outside—director but NOT officer or employee
h. Ultra Vires
1. To enfoce the specific purposes (now JUST “any lawful purpose”)
2. ONLY waste is beyond power (ex: gift)
p. Duty of Care (MBCA §8.30): Apply BJR (Burden on ∆ )
a. Directors owe a duty of care to the corp
b. Directors MUST
1. Exercise the same degree of care and skill w/ respect to corp matters as would an ordinarily prudent
and diligent person w/ respect to his own affairs
2. Make a reasonable effort to apprise themselves of the facts necessary to make a proper decision
a. Reports furnished by officers may normally be relied upon by directors in making a decision
c. Test (In re Caremark)
1. Director should have known that violations of the law were occurring
2. Director took no steps in a good faith effort to prevent or remedy the situation AND
3. Such failure proximately resulted in losses complained of
d. DGCL 102(b)(7) – Eliminates or limits the personal liability of a director to the corporation or its
stockholders for monetary damages for breach of fiduciary duty of care as a director
q. Duty of Loyalty: - Directors owe a duty of loyalty to the corp obligating them to put corp interests ahead of their own.
a. Of particular concern are transactions in which a director arguably usurps a corporate opportunity, OR
otherwise competes w/ the corp, AND self-dealing transactions, where a directors and corp are parties to a transaction, such that the
director potentially is on both sides, approving a transaction, as a director, for the corp than benefits her directly.
b. Ratification—where triggers strip the protection of the BJR, proper ratification might revive the
protection
1. SH Vote OR Special Committee
c. Transactions between director and the corp are no longer void or voidable, so long as
1. Director discloses the conflict
2. Disinterested committee makes well-informed decision about the transaction
3. SH ratifies OR
4. Directors show entire fairness
r. Standards of Review
a. Business Judgment Rule – ONLY Duty of Care issues
1. This rule is a rebuttable presumption that directors are better equipped than cts to make business
judgments AND
a. Directors are disinterested
b. Reasonably diligent AND
c. Acting in good faith
2. Ct will not interfere w/ business decisions, even unwise business decisions UNLESS
a. Not attributed to “any rational business purpose”

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 3. The standard is whether a reasonable person in like circumstances would have reached the same
decision
4. "Well-informed" Decisions Required
a. Reasonably good efforts to hire experts AND
b. Expert advice is limited to the area of expertise
5. Inaction
a. BJR arguably does not apply since no decision has been made HOWEVER
b. So long as the decision NOT to take action is well-informed, the BJR should apply
c. Compliance Procedures—failure to enact where directors were on notice that procedures
were required might not be "well-informed" decision
i. Notice that compliance procedures are required
1. Industry lends itself to violations of the law
2. Industry involves complex area of the law
ii. HOWEVER, if directors know that full compliance is impossible AND decide it's
too costly to implement a program, BJR might attach if well-informed decision reached
6. Limited liability: Permitted to rely on reports by Bd committees or delegates AND that committees
or delegates or acting in good faith
7. Rebutted by plaintiff SH alleging specific facts showing director breached his or her duty
s. Executive Compensation Agreements (Brehm v. Eisner – Disney/“Ovitz” case) (Duty of Loyalty issue)
a. Executive compensation plans receive the protection of the Business Judgment Rule and are rarely struck
down, even if the plan is for an existing director who has influence over the corp.
b. The director's decision will stand IF
1. Rational
2. Informed AND
3. Made in good faith
c. Even if a compensation plan is arguable, excessive or unreasonable, if the compensation level is related
roughly to the value of the director's services, it will stand.
1. Exception 1: Deferred compensation plans that reward an executive in the future whether or not he
remains w/ the company might be struck down as lacking in consideration.
2. Exception 2: When a salary is based on a formula that is unchanged even though the corp's
conditions have drastically changed (10% of profits as a salary and profits balloon so the director receives $50 million).
d. IF the BJR does NOT attach, directors must show the entire fairness of the transaction (burden on ∆ )
1. Fair price based on generally accepted economic accounting methods
2. Fair dealing beyond mere formalities
t. Corporate Opportunity Doctrine (MBCA §5.05) = Full disclosure (Duty of Loyalty issue)
a. IF Directors and officers
b. Come across a business opportunity
1. Corp is financially able to take opportunity
2. Corp is in that line of business AND
3. Reasonable expectancy that corp will take the opportunity
c. THEN director or officer CANNOT seize the opportunity himself
d. Director/Officer must present the opportunity to the corp and the corp must reject before the director
can seize the opportunity for himself
e. Combination of line of business and fairness test: Cts will sometimes comine these two tests to determine
whether
1. A director has unfairly taken an opportunity
2. Rightfully and reasonably w/in the business of the corp
u. Self-dealing (Duty of Loyalty issue)
a. A key player and the corp are on opposite sides of the transaction or the key player has helped influence
the corp's decisions to enter the transaction.
b. Proponent of self-dealing claim can avoid invalidation IF
1. Approval by maj of disinterested directors
2. Showing ratification by SHs (MBCA §8.63)
3. Showing transaction was inherently fair (MBCA §8.61)
v. Conflict of Interest (Duty of Loyalty issue)
a. Where director or officer has a direct financial interest in a transaction, he is ordinarily obliged to make
full disclosure of his interest AND refrain from voting on the matter. Such a transaction is not void or voidable solely because of a
director’s interest in the transaction IF
1. COI Safe Harbor statutes

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 a. Material facts of the director’s interest are fully disclosed to the bd, and the transaction
is approved by a maj of disinterested directors OR
b. Material facts of the director’s interest are fully disclosed to the SHs, and the
transaction is approved by a maj of disinterested SHs OR
c. Ct determines the transaction to be fair
w. Shareholders
a. Shares/Stock
1. General rule—There must be one class of stock/shares that contains
a. Voting rights AND
b. Residual rights
2. Common Stock
a. Voting Rights
b. Residual rights
c. Appreciation and depreciation
3. Preferred Stock
a. General rule
i. Preferential rights to dividends AND/OR
ii. Preferential rights to amounts paid after liquidation
iii. No voting rights
iv. No appreciation or depreciation
b. Cumulative Dividends on preferred stock
i. Preferred amount carries over to the next year if dividends are not issued
c. Non-Cumulative Dividends on Preferred Stock
i. Preferred amount does NOT carry over to the next year if dividends are not
issued
d. Cumulative to the extent earned
i. Preferred amount carries over to the next year ONLY IF corp has earned enough
to pay the cumulative amount
e. Participating Preferred
i. Preferred SH participates in excess dividends or residual rights
1. (Assets – Amount Over)(n%) + Preferred Amount
b. Issuance of Stocks (MBCA §1.40(2), 2.02(a)(2), and 6.10(a))
1. Bd must approve (authorize) the issuance of shares
2. Must amend the Articles (approved at SH mtg)
3. Must be in Art. of Incorp
4. Subscription agreements (MBCA §6.20): Contracts entered into between persons who promise to
purchase a prescribed number of shares for a specified amount from the corp after it has been formed.
a. Revocability (majority rule): Until the corp has been formed AND has accepted the offer
5. Consideration – Bd determines adequacy of consideration
6. Par value system – Pay an equal amount per share at same time
a. The amount that must be paid for the shares to considered fully paid and nonassessable
b. IF NOT, watered stock (issued for less than par value)
c. Dominant Shareholders
1. Controlling SH owe fiduciary duties to minority SH
a. Control the vote, vote controls major transactions
2. Controlling SH can sell shares at a premium above the market price UNLESS
a. Looting corporate assets
b. Converting corporate opportunities
c. Fraud OR
d. Acts of bad faith
d. Shareholder Voting
1. Vote on: the people who serve as directors AND fundamental changes (amending the Art, selling all
or subst all of corp’s assets, merges, dissolving corp)
2. Staggered Elections
a. Election of directors at intervals
b. Impacts on the ability of control once a SH obtains a controlling interest
3. Straight Voting
a. # of shares = # of votes for each director (10,000 shares, 3 directors, 10,000 votes per
director)
4. Cumulative Voting

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 a. # of shares x # of directors up for election = number of votes for any director (10,000 x
3 directors = 30,000 for any director)
b. Removal of director can be blocked w/ the # of votes that would elect one director under
this scheme
5. Proxy Fights
a. Others soliciting proxies and SH appoints agent to vote on behalf of that SH
b. Agent owes fiduciary duties to the SH relating to matters of corporate governance
6. Preemptive Rights
a. Power of existing SH to purchase a proportionate part of any newly issued shares
i. Protects voting power
ii. Protects economic rights
b. Newly authorized shares
c. Previously authorized but NOT previously issued
d. Treasury shares
e. Preemptive rights do NOT exist between classes of shares
x. Shareholder Actions
a. Direct
1. SH seeks to enforce rights based on an injury directly affecting the individual SH
a. Inspect Books
b. SH has an individual right to have an independent and autonomous board
c. Dividends (can also be derivative)
b. Derivative – IF director harmed corp, SH can file suit on corp’s behalf (must be SH at time of alleged harm)
1. Whether the wealth from the lawsuit will accrue to the corp
2. Demand Requirement
a. Although demand is generally required, SH argue that demand was EXCUSED
i. SH must specifically allege w/ particularity ("tools at hand" no discovery)
1. Conflict OR
2. Directors are dominated OR
3. Failure to use proper methodology
3. Board can establish a special litigation committee to determine whether the corp should bring the
suit on its own behalf (authorized by statute)
a. Committee created at the initiation of the lawsuit
i. Decision to bring suit or not is entitled to the BJR Presumption of good faith
b. Committee created AFTER the SH brings an action
i. Committee must show
1. Members are disinterested and independent
2. Used the proper methodology
3. Proceeded in good faith AND
4. Reasonably invested the claim
ii. Committee must also show that the SH suit will HARM the corp more than
benefit the corp
4. MBCA requires written demand in all suits. Failure of the board to take action w/in 90 allows SH to
bring suit. If the board does act w/in 90 days, either a quorum of disinterested directors OR a disinterested special committee can make
the decision.
5. Planning—Set up a committee early on and keep them disinterested. Notify all SH that this
committee alone will proceed on behalf of the corp
y. Federal Securities Regulations
a. Registration Requirements
1. Blue Sky Laws – Regulated the offering and sale of securities to protect from fraud
a. Definition of security – “Investment contracts” (Howey test)
i. Investment in money
ii. In a common enterprise
iii. W/ expectation of profit
iv. Solely from the efforts of others
2. Exemptions
a. FSA of 1993 §3(a)
i. Intrastate exemption – Excluded securities issued only to residents of the state
of incorp
ii. Private placement exemption – Securities sold by corp in transactions not
involving public offering

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 b. FSA of 1993 §3(b)
i. Regulation D exemptions
1. Allows corps to raise up to $5 million
2. Requires there be no general advertising and that purchasers be rich
people (accredited investors) of whom there is no limit and not more than 35 nonaccredited investors
3. Safe harbor
b. Inside Information
1. Common Law
a. No Duty to disclose absent affirmative fraud
b. Directors have a duty to abstain from trading or disclose information to SH
c. Special Facts Test—Disclosure is required IF
i. Concealment of identity in the transactions AND
ii. Inside information would have a dramatic impact on stock value
d. Anonymous purchase on the market is OK especially where information was highly
speculative
2. Rule 10b-5
a. Unlawful for any person directly or indirectly by use of interstate commerce
i. To employ any device, scheme, or artifice to defraud
ii. Make any untrue statement of a material fact OR omit to state a material fact
necessary in order to make the statement made not misleading OR
iii. Engage in any act, practice, or course of business operating as fraud
iv. In connection w/ the purchase or sale of any security (information caused the
purchase or sale)
b. Basic elements of 10b-5
i. Material misrepresentation
ii. Scienter (wrong state of mind)
iii. Connection w/ purchase or sale of securities
iv. Economic loss AND
v. Loss causation
c. Insiders (Caty, Roberts duty = must disclose material facts)
i. One who owes fiduciary duties to the issuing company
ii. Temporary insiders
1. Hired for certain transaction relating to the issuing company leading to
material nonpublic information
iii. No duty to disclose IF
1. Not the corp’s A
2. Not a fiduciary
3. Not a person the seller of the securities had place trust or confidence
in
iv. Tippees (Dirks v. SEC)
1. No fiduciary ties to the issuing company
2. Tipper (Insider) personally benefits from disclosing material nonpublic
information to tippee
3. Tippee knows or has reason to know that the tipper is breaching a
fiduciary duty
v. Misappropriation Theory (United States v. O’Hagan)
1. Nonpublic, material information protected by confidentiality (lawyers)
2. Trade on basis of the information
3. Breach of a fiduciary duty to the source of the information
4. Based on a corrective justice theory
5. Reducing protection of market analysts
d. Material Information
i. Reasonable investor would attach importance in determining choice of action in
the transaction
1. Actually or inferred from the circumstances
2. Never really litigated
c. Short-Swing Profits
1. Section 16(b) prohibits short swing profits under a strict liability theory.
a. Officers, directors, 10% beneficial owners of any class of stock
b. Corp w/ 5M in assets and minimum 500 shares in a national exchange
c. Equities and convertibles

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d. More than one purchase
e. W/in six (6) Months
2. Investor Confidence Theory: prevent the appearance of impropriety and prevent churning the
market. The ct will construe the transaction to get the most money for the corp
3. Test—If officer, director, or 10% beneficial owner of stock participates in two covered transactions
w/in six month period, the gains realized from the transactions must be returned to the corp regardless of intent

II. PARTNERSHIPS

z. Association of two or more persons who carry on as co-owners a business for profit (RUPA §202)
a. Persons can be individuals, partnerships, corps, or other associations
b. Business can be every trade, occupation, or profession
aa. Establishing existence of a Partnership (RUPA §202(c))
a. Sharing of profits is prima facie evidence of partnership existence
b. Rebuttal
1. Mere common interest in land
2. Mere sharing gross revenues w/out sharing residual return OR
3. Profits received as
a. Payment for debt
b. Wages or rent
c. Payment for annuity to a widow of a deceased partner
d. Payment for the sale of "good will" of a business
bb. Partners v. Employees
a. Intent of parties
b. Right to share profits
c. Sharing losses
d. Control/ownership of property
e. Community of power
f. Language in the agreement
g. Conduct of Parties to 3rd persons
cc. Formation of Partnership Agreements
a. Partnership agreement
1. Specified time for expiration (date or undertaking expires) OR
2. "At will" partnership
a. Can be implied in the circumstances (ex—lease is up)
b. General Rule: Partners do NOT have a duty to remain partners—they exist by agreement and "freedom to
contract" principals
c. No person can become a partner unless all partners give consent
1. Incoming partners are liable for all past debts of the partnership, but not personally liable
2. PERSONAL liability attaches to future partnership debts
d. Common Law Theories of Terminating a Partner in a Law Firm
1. Reasons for Termination
a. Partnership can be terminated for ANY reason OR
b. Termination must be reasonable OR
c. Termination for cause only
2. Means of Termination—Two Approaches
a. Only requires notice before termination OR
b. Means of termination must be reasonable
e. Where 3rd party buys interest of an outgoing partner, he buys EVERYTHING, including unknown contingent
assets
f. Buyout Agreements—method for "winding up" affairs after partnership is terminated
dd. Rights of Partners (RUPA §401)
a. Partners shall be repaid capital contributions and share equally in profits and surpluses
b. Partners shall contribute towards losses
1. Exception—Where one partner contributes ONLY services and no capital, service-providing partner
does NOT contribute to losses
c. Insolvent partners
1. Remaining partners contribute to insolvent's share of losses in proportion to remaining partner's
contributions (ex—A contributes 60%, A must contribute 60% to insolvent's share of losses)
d. Act of any partner binds the partnership
ee. Fiduciary Obligations of Partners
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 a. Dual Agency—partners are agents of each other
b. Access to books at all times
c. Disclose information affecting the partnership
d. Account for any benefits and profits derived by or for the partnership
e. Right to formal accounting of partnership affairs
ff. Mgmt
a. Partners have equal rights to mgmt UNLESS OTHERWISE AGREED (There is no legal right to partnership
management)
b. Mgmt disputes resolved by majority vote
1. Two-person partnerships
a. 51%/49% determination
b. Divide and Conquer Agreements
i. Each partner has majority vote on certain matters
ii. Tie-Breaker Arrangements—request 3rd party to be the tie-breaker where
partners are deadlocked
gg. Partnership Property (RUPA §§203 and 204)
a. General Rule—All property acquired by the partnership or acquired w/ partnership funds is partnership
property
b. Specific Partnership Property
1. Non-assignable, non-attachable for debt payment
2. Co-ownership of specific partnership property and holds as tenancy of partnership
3. Right to possession and use for partnership purposes UNLESS other partners give consent for non-
partnership use
c. Interest in Partnership Property
1. Personal Property consists of
a. Share of profits AND
b. Surplus
2. Assignable
d. Rights in Management
1. Cannot be transferred
2. Freedom of Contract principles
e. Designated Partnership Property
1. Partners can designate property to partnership for use
2. Partnership will NOT own or acquire the property BUT
3. IF the donating partner breaches the partnership agreement, the property can be used for
continuing the partnership affairs
hh. Causes of Dissolution (RUPA §601)
a. W/out violation of agreement AND
1. Time expires or undertaking is over
2. P'ship "at will" can be dissolved by the express will of any partner
3. Express will of all partners who have not assigned any of their interests
b. Expulsion
1. Good faith
2. W/out violating fiduciary duties
3. In accordance w/ partnership agreement
c. Violation of Partnership Agreement AND
1. Express will of any partner, where circumstances do not allow dissolution otherwise
2. Cts will try to find a way to dissolve w/out finding a violation of partnership agreements
d. Others
1. Unlawful to continue partnership (e.g., prohibition)
2. Death of any partner
3. Bankruptcy
ii. Dissolution by Decree of Ct
a. Ct can decree dissolution for
1. Mental incompetence
2. Incapacity
3. Guilty of conduct that prejudicially affects partnership business
a. Breach of good faith OR
b. Simply bad business strategies
4. Breach of Partnership Agreement
a. Willful

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b. Persistent OR
c. Not reasonably practicable to carry on business because of partner's conduct
5. Ct can decree dissolution where partnership is no longer making profits
6. Any other equitable reasons
a. Petty Discords OR
b. Partnership Squabbles
jj. Rights of Partners After Dissolution (RUPA §802)
a. No Breach/No Expulsion
1. Absent agreement otherwise, partners are treated equally
a. Assets liquidated to pay debt
b. Surplus distributed equally among partners
b. No Breach/Expulsion in Good Faith
1. Absent agreement otherwise
a. Expelled partner gets amount due AND
b. Remaining partners have right to continue business
c. Breach of Partnership Agreement (Cannot contract around these rights)
1. Non-breaching partners
a. Damages
b. Assets liquidated to pay debt
c. Surplus distributed equally
d. Right to continue business
2. Breaching partner
a. Amount Due
b. No rights to the value of "good will" of the partnership
kk. Rules for Distribution of Partnership Assets (RUPA §803)—Winding Up
a. Partners must contribute equally throughout the distribution of partnership assets
b. Absent agreement otherwise
1. Gather partnership property and partner contributions
2. Order of Payment
a. Non-Partner Creditors
b. Non-Capital, Non-Profits owed to any Partners (Partner Creditors)
c. Capital Investments
d. Profits
c. Generally, partners share all losses

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