Siblings Kendall, Roman, and Shivonne agree to be partners in Succession Holdings. Kendall quickly earns his CPA license and makes more money than the other two siblings. Kendall also contributes 80 percent of the capital. The partners agree to split the profits equally. After three years of no profits, Succession eventually dissolves. Succession's liabilities are greater than its assets. The losses are paid by:

• Kendall, because he is the majority partner.

• Roman and Shivonne because they contributed less of the capital.

• All of the partners in proportion to their capital contributions.

• All of the partners in proportion to their profit-sharing percentages.

Answer explanation

"All of the partners in proportion to their profit-sharing percentages" is correct. Unless there is an agreement to the contrary, losses will be shared in the same manner as profits are shared. The other choices are incorrect per the above explanation.

Black Umbrella, Inc. has only four shareholders. Each shareholder will have the right to approve:

• The hiring of an officer.

• The declaration of corporate dividends.

• An amendment to the corporation's article of incorporation.

• All of the above.

Answer explanation

"An amendment to the corporation's articles of incorporation" is correct. Shareholders have the right to vote on all fundamental corporate changes, including amendments to the articles of incorporation.

"The hiring of an officer" is incorrect. The hiring of officers is a right that the directors have.

"The declaration of corporate dividends" is incorrect. Directors have the sole discretion to declare dividends.

"All of the above" is incorrect as it includes the other options, both of which are incorrect per the above explanations.

Which of the following statements is correct regarding the apparent authority of a partner to bind the partnership in dealings with third parties? The apparent authority:

• Must be derived from the express terms contained in the partnership agreement

• Can be effectively limited by an agreement of the partners of which third parties are unaware

• May allow a partner to bind the partnership to a contract or the sale of goods to a third party

• Would only create liability for the partner signing the contract

Answer explanation

"May allow a partner to bind the partnership to a contract for the sale of goods to a third party" is correct. Apparent authority of one partner arises from the actions or statements of the partnership or another partner to third parties that the first partner has authority. Once granted, apparent authority gives the partner ability to bind the partnership.

Thus, "would only create liability for the partner signing the contract" is incorrect.

"Must be derived from the express terms contained in the partnership agreement" is incorrect because apparent authority can result from any statement made by the partnership to a third party indicating that the partner has authority; it need not be derived from the partnership agreement. Therefore, "

"Can be effectively limited by an agreement of the partners of which third parties are unaware" is incorrect because statements, resolutions, or agreements attempting to limit a partner's apparent authority are not binding on the third party if the third party is unaware of them.

A limited partnership must have:

• One general partner and two limited partners

• All must be general partners

• One general partner and one limited partner

• All limited partners

Answer explanation

"One general partner and one limited partner" is correct. A limited partnership must have at least one general partner and one limited partner. Be careful of answers that include the word "all."

Cumulative voting arrangements allow:

• A supermajority to elect at least one director

• Total domination by shareholders owning 51% or more of the shares

• Minority shareholders to elect directors if they have enough votes—even if they own less than 51%

• Majority stakeholders to always control all seatss

Answer explanation

"Minority shareholders to elect directors if they have enough votes—even if they own less than 51%" is correct. If Minority shareholders can cumulate their votes, they have a better opportunity to elect at least one director than they would in a straight voting arrangements.

Therefore, "Total domination by shareholders owning 51% or more of the shares" and "Majority stakeholders to always control all seats" are incorrect.

"A supermajority to elect at least one director" is incorrect because supermajority requirements may be imposed pursuant to shareholder agreements but are not necessary to have cumulative voting.

What are the elements of a 10b(5) claim?

What are the elements of agency?

• Mutual Assent, Fiduciary Duty of Loyalty, Control

• Mutual Assent, Benefit, Control

• Actual authority, mutual assent, control

• Apparent authority, benefit, control

Answer explanation

The elements of agency are: (1) mutual assent, (2) benefit, and (3) control. This is a consensual relationship with no consideration required. If these three elements are met, a general partnership is automatically formed.

Under agency law, does an employee owe a duty of loyalty to their employer?

• Yes

• No

Answer explanation

Yes, under agency law, an employee owes a duty of loyalty to their employer. he essence of the DOL is that the agent must act "loyally for the principal's benefit in all matters connected with the agency relationship." Thus, if the agent’s and principal’s interests ever conflict, and the conflict implicates the agency, then the agent must subordinate her own interests to the principal’s. Restatement (Third) of Agency § 8.01.

What are the three tortious ways the duty of loyalty may be breached?

• (1) Misappropriation of profits or opportunities, (2) Self-dealing, (3) disclosure or use of confidential information

• (1) Competition (2) Improper withdrawal, (3) Self-dealing

• (1) Disclosure or use of confidential information, (2) Self-dealing, (3) Acting as an agent

• (1) Competition, (2) Misappropriation of profits or opportunities, (3) disclosure or use of confidential information

Answer explanation

The duty of loyalty may be breached by: (1) competition (Rest. § 8.04), (2) misappropriation of profits or opportunities (Rest. § 8.03), or (3) disclosure or use of confidential information (Rest. § 8.05(2)). 

A man agreed to loan his bike to his brother. Before the brother rode off, the man asked his brother to drop a letter off at the post office for him. The brother did not respond in any way and rode off without taking the letter. Unfortunately, the man’s brother rode the bike extremely quickly and negligently hit a jogger.

Can the jogger recover from the man on the theory that the man and his brother were in an agency relationship?

• Yes

• No

Answer explanation

No. The jogger may not recover from the man on the theory that the man and his brother were in an agency relationship. An agency relationship arises if an agent and a principal manifest assent that the agent will act for the principal’s benefit and subject to the principal’s control. This assent may be manifested verbally, in writing, or through conduct. If an agency relationship exists, both the principal and the agent may be liable to third parties in tort for the agent’s conduct.

Here, although the man asked his brother to take a letter for the man’s benefit, the brother said nothing and did not take the letter. There is nothing else showing or manifesting any agreement that the brother was acting for the man’s benefit and subject to the man’s control. Thus, there is no agency relationship between the man and his brother, and the man is not liable to the jogger under an agency theory.