One of the main reasons that contract disputes arise is because of ambiguous contract terms.  Of course, this can be prevented with meticulous drafting, but in the event that issues do come up after the contract is completed and signed, it is important to understand how the provisions will be interpreted. Most contracts include an “Interpretive Provision” or “Other Definitional Provision.”  There may also be  certain clauses that provide that some clauses or terms will...

Although it is not required to have a formal written agreement to form a general partnership, having one is highly recommended, not only because it can be very difficult to prove the existence of and enforce informal oral arrangements, but also because the “default” statutory laws a court will apply in the absence of an agreement may not ensure an equitable result. Before creating any partnership, the parties should work with an attorney to create...

The two most common types of partnerships are general partnerships and limited partnerships. Depending on the type of business involved, one type of partnership may be a better option than the other. General Partnerships All it takes to form a general partnership is an agreement between two or more people to enter into business for profit.  There does not need to be a written agreement, and no state or local filings are required. This formation requirement...

Disputes between business partners often center on issues of money and control. As common as business partnership are, they can be quite difficult to sustain. Partnerships between any number of people often entail complicated relationships, which lead to conflicts within partnerships. Most issues between partners do not necessarily mean that the entity should be dissolved, liquidated, and split-up.  Rather, the problems can be solved with a collaborative approach and the relationships preserved. Concerns about control...

Understanding the principal-agent relationship  is critical for all business transactions. The laws of agency govern this relationship, and they establish when an agent can bind a principal to an agreement, how far an agent’s liability extends, and what the fiduciary duties are that arise from the relationship. The Principal-Agent Relationship Generally (in terms of an “actual agency”), a principal hires an agent to act on his or her or its behalf.  The principal-agent relationship is not...

Generally, corporate shareholders cannot be held liable for the acts or debts of their corporation because liability is specifically limited to their investment in the corporation via the purchase of shares. However, a shareholder may be held personally liable if a court permits another party to “pierce the corporate veil” to avoid fraud or unfairness to as a result of circumstances where the corporation has taken advantage others of by abusing corporate protections. Because there...

A director will not be found personally liable for a breach of duty of care if he or she meets the requirements of the business judgment rule ("BJR"). Under the BJR, a court will not second guess a business decision that in hindsight turned out to be poor or erroneous if the director acted in good faith and exercised due caution. Under California law, in discharging his or her duties “a director is entitled to rely on...

Generally, a corporation’s articles may limit directors’ personal liability for money damages to a corporation or to its shareholders for actions taken or for failure to take action. However, the articles may not eliminate liability for a director’s breach of duties owed to the corporation. For example a corporation’s articles cannot eliminate liability for receiving financial benefits to which the director is not entitled, intentionally inflicting harm on the corporation or its shareholders, unlawful...

The relationship between an officer or director and a corporation gives rise to certain fiduciary obligations as a matter of law. One of the fiduciary duties that an officer or director owes the corporation is a duty of loyalty. The duty of loyalty requires every officer or director to act in good faith and with a reasonable belief that what he or she does is in the corporation’s best interest. A classic example of a...

A fiduciary relationship is about trust and confidence; it exists where one or more parties are bound to act in good faith toward and for the benefit of one or more other parties.  A fiduciary relationship is often comprised of the duties of care, loyalty, confidentiality, and obedience, i.e., fiduciary duties to the parties in the relationship. Before a person can be charged with a fiduciary obligation, he or she or it must either knowingly undertake...