Actual Authority is the authority that the agent reasonably believes that they have based upon the

manifestations of the
principal. Actual authority can be express or implied. In the event that the court finds that there was no actual authority, they
could find apparent authority to bind the principal. Apparent authority is the authority that a third party reasonably believes that
the agent possesses based upon the manifestations of the principal. One form of manifestation by the principal would be if the
principal placed the agent in a position that is usually associated with the grant of authority. Ratification. Another form of
authority is ratification. Ratification occurs where the agent entered into a contract and then the principal gained knowledge of it
and accepted its benefits. Express Actual Authority is the authority given from the four corners of the agency agreement.
Implied actual authority is the authority that the agent reasonably believes that they have based upon necessity in order to
carry out their express authority, customs of the position held by the agent, and by prior dealings with the principal. Liability of
Promoters on Pre-Incorporation Contracts: Until such time as a corporation complies with all formalities of incorporation and
files its articles of incorporation, it does not have a separate legal existence, and cannot enter into contractual obligations such
as a lease. Prior to incorporation, it is typical for the corporation’s promoters and/or founders to enter into contracts on its
behalf. Under the law, a promoter remains personally liable on a pre-incorporation contract unless there has been a
subsequent novation (i.e., all parties agree to substitute the corporation for the promoters as the party liable on the contract
whereby the promoters are thereafter relieved of further personal liability) or unless the contract is explicit in providing that the
promoter has no personal liability on the contract. Derivative Suit- A derivative suit is proper to enforce a right of the
corporation. The following two requirements must be met. (1) A shareholder must, before filing a derivative suit, make a
demand on the board of directors unless the board refuses or it is futile to do so. (2) The person must have standing. Standing
is met by a showing that the shareholder was a shareholder at the time of the injury.
FIDUCIARY DUTIES OWED: Duty of Care- Directors have a duty of care to (1) use judgment as any reasonably prudent
person would; (2) to act in good faith; and (3) act in the best interest of the corporation. Duty of loyalty: A director owes the
corporation a duty of loyalty as a fiduciary to act in the best interests of the corporation and to avoid self-dealing to his or her
own benefit and/or to the detriment of the corporation. If a director comes across a situation which would breach his duty of
loyalty, the director or officer may cure the problem by disclosing the information and getting approval by a majority of
disinterested directors or disinterested shareholders. Business Judgment Rule. In exercising his or her duty of care, a director
can rely on the business judgment rule if he or she acted in (1) a reasonable; (2) informed manner with due care; and (3) in
good faith. Note: This is more of a defense for directors. INTERESTED DIRECTORS- Approach to Duty of Loyalty: There are
two common sub-issues under the duty of loyalty. These are (1) the Interested Director Transaction and (2) Usurpation of
Corporate Opportunities. (1) Interested Directors Transaction An interested director transaction occurs when a director has a
personal interest in a transaction in which the corporation is also a party. In other words, directors are not permitted to “sit on
both sides of the transaction. Cure for Interested Director Transaction: Interested director transactions will be upheld if: (1) a
majority of disinterested directors approve the transaction; (2) a majority of disinterested shareholders with voting power
approve the transaction; and (3) the transaction was reasonably fair to the corporation. Usurping Corporate Opportunities:
Directors’ fiduciary duties dictate that they must first offer a business opportunity to the corporation before entering into it
themselves. The corporation must have an expectancy or interest in the business opportunity. The closer the opportunity to the
corporation’s line of business, the more likely it will be a “business opportunity.”

General Partnership, Limited Liability Partnership (LLP), Corporation, Limited Liability Company (LLC).
General Partnership are formed by two or more persons carrying on a business for profit. There are no filing requirements for
forming a GP. GPs can be made up of general partners and limited partners. General partners have a duty to manage the
business and can be held personally liable for partnership debts and/or obligations. Limited partners, however, are not liable for
partnership debts and may lose their limited status if they engage in management. Absent any agreement each partner has an
equal vote, profits are shared equally, and losses are shared as profits are.Limited Liability Partnership (LLP) The main
benefit of an LLP is that the partners have limited liability – meaning that they are not personally liable for the debts and
obligations of the partnership. To be properly formed, the LLP papers must be filed with the Secretary of State. Corporation is
formed when articles of association are filed with the Secretary of State. The articles need to have the name of the corporation,
the names and addresses of the incorporators and registered agent, the authorized stock of the company and associated
rights, and the purpose of the corporation which can be any lawful purpose. LLC is a hybrid organization. Its owners (members)
have limited liability like a corporation. However, LLCs get the pass-through tax treatment that partnerships get. On the other
hand, corporations are subject to double-taxation (taxed once at the corporation level and then again when distributions are
made to shareholders). To form a limited liability company, a certificate of formation must be filed with the [Secretary of S]tate.
Status of the Corporation- De Jure Corporation. If the corporation is a de jure corporation, it has been validly created by
observing the formalities of incorporation and receiving its articles of incorporation from the state. De Facto Corporation. A
corporation is a de facto corporation where the formalities have been entered into, and the corporation had a good faith belief
that it is a corporation, but the paperwork has not been processed and the state has not actually issued corporate status. A
corporation can rely on its de facto status in such a situation to enforce a contract that it might not otherwise be able to enforce.

Corporation By Estoppel results when a corporation holds itself out to the public as a corporation, acts as such, and enters
into contracts under that banner, but is not actually a corporation at the time. Such an entity is estopped from claiming that it
was not in fact a
corporation when it entered into those contracts, as it benefited from claiming that it was.

Piercing the Corporate Veil is an extraordinary remedy that is only awarded when the directors, officers, and shareholders do
not provide for sufficient capital [undercapitalization] or insurance for the corporation's debts and where the corporation is but
an alter ego of the shareholders. The latter can be established in part by the officers and managers not observing sufficient
corporate formalities. Ultra Vires: If a corporation’s purpose is narrowly defined in its articles of incorporation, it may not enter
into business activities unrelated to that purpose. In doing so, it is said to be acting ultra vires. Moreover, the corporation may
be estopped from using the defense of ultra vires. As such, the ultra vires act may be enforceable. However, the corporation
may sue an officer or director for damages arising from the act. Third parties have no duty to inquire as to the limitations in the
articles.

Insider Trading
Rule 10b-5 is a federal law that makes it illegal for a person to use any means or instrumentality of interstate commerce to
engage in a scheme to defraud in connection with
the purchase or sale of a security. The elements of a violation of Rule 10b-5 therefore include an (1) instrumentality of interstate
commerce; (2) scienter; (3) a misstatement; (4) the purchase or sale of a security and (5) reliance. Tipper Black: The tipper is
a person with a fiduciary duty that reveals inside information. The tippee is the person who knowingly uses the information to
make a trade. A tippee is usually aware that there is a breach of fiduciary duties involved with the use of such
information. Rules 16(b) If an (1) officer, a director or a shareholder (of 10% or more) of a publicly traded corporation or with
assets of over $10,000,000 and 500 shareholders, (2) realizes a profit from buying and selling stock (3) within a six-month
period, the trader may be held liable under the strict liability rule for such so-called “short swing” profit. Shareholder
Agreement: A shareholders' agreement amongst a company's shareholders describes how the company should operate. The
rights and obligations of the shareholders are also stated within this document. The following topics have been covered in past
exams: (1) Proxies and Irrevocable Proxies and (2) Rights to elect and remove directors. Perpetual Proxies and the 11th-
Months-Rule. A proxy is usually valid for 11 months unless otherwise agreed upon.Rights of Shareholders to Elect and
Remove Directors. Shareholders have the right to elect and fire directors, both with and without cause. An agreement that
prohibits shareholders from being able to exercise these powers would be contrary to public policy and likely unenforceable. At
the very best, shareholders must have the authority to fire directors for cause (ie, breach of duty of care, duty of loyalty,
etc.).Distribution of General Partnership: Upon dissolution of a general partnership, there is a specific order in which assets
must be distributed. First, creditors must be paid and general partners who loaned money to the partnership. Second in line to
[be] paid are general partners who made capital
contributions. Lastly, any surplus or profits will go to the general partners or the general partners may be personally liable for
existing debt of a dissolved corporation. Partners who
contributed capital contributions and made loans to the company should receive their
money back if it is possible upon dissolution.