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Business Organizations

Community Counseling Service Need for non-competition clause in contract – but must be careful not to violate public ppolicy What is the duty of a party to the firm when he is planning to leave but hasn’t yet left? You cannot seek out firm’s clients while you are still working there Hamburger Did not solicit clients’ business while he was still their employ Anderson Rule: categorical – fiduciary duty obliges the fiduciary to act in the best interests of his client or beneficiary and to refrain from self-interested behavior not specifically allowed by the employment contract.

Easterbrook and Fischel Rule: difficult to apply in practice – socially optimal fiduciary rules approximate the bargain that iinvestors and agent would strike if they were able to dicker at no cost. (not a great rule because there are always transaction costs) Limitations on the right to discharge Foley Must decide what the relationship between the parties is: independent contractor, employee, etc? Cannot be fired for irrational reasons or for certain protected reasons (if employee) Employees invest and rely, therefore they need protection

Alleged public ppolicy: employees doing the right thing for their employer Court says there is no public interest in helping a private employer Employer’s interest ? public interest Employer handbook can be used as evidence to prove it is not at-will employment Tortious breach of good faith and fair dealing – Court says no, there would be no duty to mitigate for contract breaches, therefore it’s not a good idea Duty to Creditors (39-49) Blackburn P reasonably believed A was acting with the authority of P, P did nothing to discourage her belief Sennot All partners are agents for the principal, by default PARTNERSHIP Partnerships and other Non-Corporate Forms GPs An association of two or more people to carry on, as co-owiners of a business for profit A lot of litigation is decided on whether or not the parties were co-owiners Intent that counts is not the creation of a partnership, but the intent to carry on a business for profit as co-owner Evidence of whether or not there is a partnership:

Control Sharing of profits and losses JVs Partnership for a limited time and limited purpose LPs Limited partners are very much like stockholders – they are just investing their money, they don’t have management rights/ powers and are not liable for partnership debts Generally, only one general partner and multiple limited partners/ passive iinvestors Cannot accidentally fall into a limited partnership because LPs must be registered with the government (gen.

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state) LLCs

Form of a business organization for a small number of people with a relatively close relationship but who don’t want to be personally liable for business expenses As ssimilar as possible to a corporation without being taxed like a corporation Interests are not freely transferrable like in a corporation LLPs Same as general partnership except creditors cannot go after partners personal wealth for partnership debt LLLPs The general partner is no longer liable for partnership debts Same can be achieve if the GP is a company (or some other non-human) Characterizing the Relationship

Byker v. Mannes The definitive way to ensure your relationship is not characterized as a general partnership is to become a different type of business organization You can always leave a partnership, at any time You can fall into GPship Hynansky v. Vietri H never filed a partnership tax return and treated the losses as his own Pretty iron-clad rule: you have a to have a right to profits to be considered a partner Sharing Profits and losses Kovacik v. Reed Didn’t talk about who was going to share losses One gave money, the other gave only labor Default rule is that losses follow profits

Lost oopportunity costs for both parties Fiduciary Duty (75-87) Duty of Loyalty Meinhard v. Salmon Question of fiduciary duty Meinhard claims Salmon should have told him about the new deal Salmon got the oopportunity through being a partner, therefore he owes Meinhard, at least, the duty to disclose Salmon has a duty to Meinhard in their common business – what is their common business? Revised Partnership Act §403: Duty of care §404: Duty of loyalty §103(b): Set of default rules, subject to limitations – (3) duty of loyalty cannot be taken away Self-dealing