Agency & Partnership—Mini Outline

Almost every question turns on authority—did this person have the power to bind that person, and who's liable when things go wrong? Nail the authority framework, then partnership liability and dissolution.

1. Agency—authority

• An agency forms when a principal manifests intent that an agent act on its behalf and both consent. An agent binds the principal to a contract with actual or apparent authority (or later ratification).
• Actual authority—what the agent reasonably believes he has from the principal's dealings; express or implied (incidental to express authority, from custom, or from prior acquiescence).
• Apparent authority—the principal holds the agent out so a third party reasonably believes authority exists; it survives even a secret limitation, and after termination until third parties get notice.
• Ratification—the principal affirms an unauthorized act with knowledge of the material facts, adopting the whole contract.

2. Principal & agent liability

• Contract liability: a disclosed principal is bound (agent not liable); with a partially disclosed (unidentified) or undisclosed principal, both the principal and the agent are liable.
• Tort liability (respondeat superior): a principal is liable for an employee's torts within the scope of employment. Intentional torts are usually outside scope unless force is inherent in the job or the act serves the employer. Frolic (outside scope) vs. detour (within).
• Independent contractors: the key is the right to control the manner of work. A principal generally isn't liable for an IC's torts—exceptions: inherently dangerous activities, non-delegable duties, and apparent-agency/estoppel.
• Duties: the agent owes duties of loyalty, obedience, and care; the principal owes compensation and indemnification.

3. Partnership formation & the partners' relationship

• A general partnership forms when two or more people carry on as co-owners of a business for profit—no filing required. Sharing profits raises a presumption of partnership (unless for a debt, wages, rent, etc.).
• Partnership property belongs to the partnership; a partner's transferable interest is only their share of profits and distributions.
• Management: absent agreement, partners have equal management rights; ordinary matters by majority, extraordinary matters need unanimity. Absent agreement, profits are shared equally and losses follow profits.
• Fiduciary duties: partners owe each other duties of loyalty (no self-dealing, competing, or usurping opportunities) and care, plus good faith.

4. Partnership liability to third parties

• Each partner is an agent of the partnership; a partner's act in the ordinary course binds the partnership unless the partner lacked authority and the third party knew/had notice.
• Partners are jointly and severally liable for all partnership obligations—but a creditor must generally exhaust partnership assets first, and a partner not served isn't personally bound. Incoming partners aren't personally liable for pre-existing debts (only their capital contribution).

5. Dissociation, dissolution & winding up

• Dissociation—a partner ceases to be associated (e.g., notice of withdrawal). If the business continues, the partnership buys out the dissociated partner's interest, and the partner has lingering apparent authority/liability until third parties get notice (up to ~two years).
• Dissolution & winding up: in a partnership at will, a partner's notice of withdrawal triggers dissolution and winding up (unless the others unanimously agree to continue). During winding up, authority is limited to completing existing business; the partnership is bound by winding-up acts and by non-winding-up acts as to third parties without notice.
• Distribution priority: creditors (including partner-creditors) first, then partners' capital contributions, then profits.

6. Limited partnerships, LLPs & LLCs

• Limited partnership (LP): at least one general partner (personally liable, manages) and one limited partner (liability capped at the investment, no management control)—formed by filing a certificate.
• Limited liability partnership (LLP): partners aren't personally liable for partnership obligations—formed by filing a statement of qualification.
• LLC: limited liability, pass-through taxation, flexible management; governed by an operating agreement.