Memory tricks for business entities, agency, employment & the UCC
Business law governs how companies are formed, how they operate, and how they're held responsible. From choosing between an LLC and a corporation to understanding agency authority to navigating the UCC — these memory tricks give you fast, reliable recall of every business law concept on your exam.
SPELL·C covers the five main entity types ranked by complexity. The key questions for each: Who has personal liability? Who manages? How is it taxed? Sole proprietors and general partners have unlimited personal liability. LLCs and corporations shield owners from business debts — the critical difference most students mix up.
Sole proprietorship
Simplest — no formation required. Owner and business are one legal entity. Unlimited personal liability. Taxed on owner's personal return.
General partnership
Two or more persons carrying on a business for profit. No filing required. Each partner has unlimited personal liability and equal management rights.
LLC
Limited liability + pass-through taxation. Members shielded from business debts. Flexible management. Most popular small business entity.
Corporation
Separate legal entity — shareholders have limited liability. C-corp: double taxation (entity + shareholder). S-corp: pass-through. Managed by board of directors.
Agency
AIR
Actual authority · Implied authority · Apparent authority
3 Types of Agent Authority
Agency law determines when a principal is bound by an agent's acts. AIR: Actual authority (principal expressly or impliedly authorized the act) · Implied authority (reasonably necessary to carry out actual authority) · Apparent authority (principal's conduct led third party to reasonably believe agent had authority). All three bind the principal.
Actual express
Principal explicitly authorizes the agent — "You are authorized to sign contracts up to $10,000." Clear, direct grant of authority.
Actual implied
Authority reasonably necessary to accomplish the express authority — a store manager hired to run the store has implied authority to hire staff.
Apparent authority
Created by principal's conduct — not agent's claims. Third party reasonably believes agent has authority based on principal's representations or course of dealing.
Ratification
Principal approves an unauthorized act after the fact — binds principal as if authority existed originally. Must ratify the entire transaction.
Corporate Veil
FUFA
Fraud · Undercapitalization · Formalities ignored · Alter ego
Piercing the Corporate Veil — When Owners Pay
Limited liability is the whole point of a corporation or LLC — but courts can pierce the corporate veil and hold owners personally liable when FUFA applies. Fraud · Undercapitalization (not enough money to cover foreseeable liabilities) · Formalities ignored (no minutes, commingled funds) · Alter ego (owner treats business as personal piggy bank).
Fraud
Corporate form used to perpetrate fraud — courts won't allow the shield to protect wrongdoers who abused the entity.
Undercapitalization
Starting a business without enough capital to cover reasonably foreseeable liabilities — courts may pierce when creditors are left holding the bag.
Formalities
Failure to hold meetings, keep minutes, maintain separate accounts, or file required documents. Treating the entity as if it doesn't exist.
Alter ego
Owner and company are so intertwined they are effectively the same — personal and business funds commingled, corporate formalities ignored entirely.
Fiduciary Duties
CLOC
Care · Loyalty · Obedience · Candor
Directors' & Officers' Fiduciary Duties
Corporate directors and officers owe fiduciary duties to the corporation and its shareholders. CLOC: Duty of Care (act as a reasonably prudent person in a similar position) · Duty of Loyalty (put corporation's interests above personal interests) · Obedience (follow the law and corporate charter) · Candor (full disclosure to shareholders).
Duty of Care
Informed, good-faith business decisions. Business Judgment Rule: courts defer to directors' decisions if made in good faith, informed, and rationally believed to be in corp's best interest.
Duty of Loyalty
No self-dealing, usurping corporate opportunities, or competing with the corporation. Interested director transactions require board approval after full disclosure.
Business Judgment Rule
Protects directors from liability for bad business decisions — courts won't second-guess informed, good-faith decisions. Doesn't protect breaches of loyalty.
Corporate opportunity
Director cannot personally take a business opportunity that belongs to the corporation — must first offer it to the corporation or get disinterested board approval.
WAVED covers the core employment law concepts. At-will employment (default in US — either party can end the relationship) has exceptions: Wrongful termination (firing for illegal reasons) · protected classes under federal law (Title VII, ADA, ADEA) · vicarious liability (employer liable for employee's on-duty torts) · EEOC enforcement.
At-will employment
Either party may terminate for any reason or no reason — with exceptions. Most US states follow at-will. Contracts and handbooks can modify this.
Title VII
Prohibits employment discrimination based on race, color, religion, sex, national origin. Applies to employers with 15+ employees. EEOC enforces.
Protected classes
Title VII · ADA (disability) · ADEA (age 40+) · GINA (genetic info) · FMLA (family/medical leave) · Equal Pay Act (gender pay equity).
Vicarious liability
Respondeat superior — employer liable for employee's torts committed within the scope of employment. Independent contractors generally do not trigger vicarious liability.
UCC Article 2
GAPS
Gap fillers · Acceptance (battle of forms) · Perfect tender · Sellers' remedies
UCC Article 2 — Sale of Goods Key Rules
UCC Article 2 governs the sale of goods and is more flexible than common law. GAPS: Gap fillers (UCC supplies missing terms like price and delivery) · Acceptance via battle of forms (§2-207) · Perfect tender rule (buyer can reject goods that fail in any respect) · Sellers' remedies (resell, recover price, damages).
Gap fillers
If parties leave terms open, UCC supplies reasonable terms — reasonable price, reasonable time, seller's place of business for delivery. Contract not void for indefiniteness.
Battle of the forms §2-207
Additional terms in acceptance become part of contract between merchants unless: offer limits acceptance, terms materially alter, offeror objects. Between non-merchants: additional terms are proposals only.
Perfect tender rule
Buyer may reject goods that fail to conform in any respect. But seller has right to cure if time for performance has not expired.
Implied warranties
Merchantability (goods fit for ordinary purpose — from merchants) · Fitness for particular purpose (seller knows buyer's specific need and buyer relies on seller's judgment).
Partnership Liability
JUMP
Joint · Unlimited · Mutual agency · Personal liability
General Partnership — Why It's the Riskiest Entity
General partnerships are the default when two or more people do business together — no paperwork needed. But JUMP captures the danger: Joint and several liability · Unlimited personal liability for all partnership debts · Mutual agency (each partner binds the partnership) · Personal assets at risk. One partner's bad deal = all partners' problem.
Joint and several liability
Creditor can sue any one partner for the full amount of the debt — that partner must then seek contribution from other partners.
Mutual agency
Each partner is an agent of the partnership — any partner can bind the entire partnership on ordinary business matters without other partners' consent.
Partnership dissolution
UPA: dissociation occurs when partner leaves. Winding up: completing existing business, liquidating assets, paying creditors, distributing remainder to partners.
LLP vs. LP
LLP (Limited Liability Partnership): partners shielded from other partners' malpractice. LP (Limited Partnership): general partners manage + unlimited liability; limited partners invest + limited liability.
Antitrust
SHIP
Sherman Act · Horizontal restraints · Interstate commerce · Per se vs. rule of reason
Antitrust Law — Protecting Competition
Antitrust law prevents businesses from unlawfully restricting competition. SHIP: Sherman Act §1 (agreements in restraint of trade) and §2 (monopolization) · Horizontal restraints (competitors agreeing — most serious) · Interstate commerce required · Per se illegal (price-fixing, bid-rigging, market allocation) vs. Rule of reason analysis.
Sherman Act §1
Every contract, combination, or conspiracy in restraint of trade is illegal. Requires two or more parties — unilateral conduct not covered by §1.
Per se illegal
Price-fixing · bid-rigging · market allocation among competitors · group boycotts. No need to show actual harm — automatic violation.
Rule of reason
Most other restraints — court weighs anticompetitive effects against procompetitive justifications. Most vertical restraints analyzed under rule of reason.
Sherman Act §2
Monopolization: willful acquisition or maintenance of monopoly power in a relevant market. Having a monopoly is not itself illegal — abusing it is.
Bankruptcy gives debtors a fresh start and fairly distributes assets to creditors. 7·11·13: Chapter 7 (liquidation — trustee sells assets, debts discharged) · Chapter 11 (business reorganization — company keeps operating under a repayment plan) · Chapter 13 (individuals with regular income restructure debt over 3–5 years).
Automatic stay
Filing bankruptcy immediately halts all collection actions, lawsuits, foreclosures, and wage garnishments. Gives debtor breathing room. Applies in all chapters.
Chapter 7
Means test required. Non-exempt assets liquidated by trustee. Most unsecured debts discharged. Process takes ~4–6 months. Cannot file again for 8 years.
Non-dischargeable debts
Student loans (generally) · child support/alimony · recent tax debts · debts from fraud · criminal fines. These survive bankruptcy and must still be paid.
Priority of claims
Order of payment: secured creditors first (up to collateral value) · then priority unsecured (taxes, wages) · then general unsecured creditors · equity holders last.