CALIFORNIA BUSINESS ASSOCIATIONS — BAR ONE-SHEET (ELEMENTS & MNEMONICS)
Lean California issue-spotting checklist — elements and mnemonics only. Pair with the full California Business Associations Master Outline for depth, then practice timed essays at BarExamNextGen.
KEY PRINCIPLE #1 — AGENCY (THRESHOLD FOR EVERYTHING)
- Agency = assent + benefit + control. Principal liable for agent's acts within actual (express/implied) or apparent authority.
- Respondeat superior: employer liable for employee torts within scope of employment; frolic vs detour.
- Partners are agents of partnership for carrying on business (Corp. Code §16301).
KEY PRINCIPLE #2 — PARTNERSHIPS
- GP formed by association of 2+ to co-own a business for profit — no writing needed; sharing of profits = presumption of partnership.
- Partners jointly & severally liable for obligations (§16306); each owes fiduciary duties of loyalty + care (§16404).
- LP: general partners manage + personally liable; limited partners liable to capital only. LLP shields partners from co-partners' malpractice — required for CA law/accounting firms.
- Dissociation/dissolution & winding up; creditors before partners on distribution.
KEY PRINCIPLE #3 — FORMATION & THE §2115 PSEUDO-FOREIGN CORP (CA-SPECIFIC)
- Incorporate by filing articles with Secretary of State; de facto corp / corp by estoppel for defects.
- §2115 "pseudo-foreign corporation": a corp incorporated elsewhere but with majority of business + shareholders in California is subject to many CA Corp. Code provisions (cumulative voting, director liability, distributions, etc.) despite the internal-affairs doctrine.
- Promoter liability: personally liable on pre-incorporation contracts until novation; corp liable only if it adopts.
KEY PRINCIPLE #4 — SHARES, VOTING & CUMULATIVE VOTING (CA DEFAULT)
- §708 cumulative voting is the DEFAULT for CA (non-listed) corporations — shares × directors to be elected, all cast for one nominee allowed.
- Quorum = majority of shares unless articles set higher (not below ⅓).
- Voting agreements, voting trusts, proxies (irrevocable only if coupled with interest).
- Preemptive rights only if articles grant; classes/series of stock.
KEY PRINCIPLE #5 — DIRECTORS & OFFICERS — DUTIES
- Duty of care (§309): good faith, ordinary prudent person, best interests; protected by business judgment rule.
- Duty of loyalty / interested-director transactions §310: valid if (a) disclosed + approved by disinterested directors, (b) disclosed + approved by shareholders, OR (c) just and reasonable / fair to corporation when entered.
- Usurping corporate opportunity prohibited; competing with corp breaches loyalty.
- Indemnification & §317; reliance on reports/experts defense.
KEY PRINCIPLE #6 — DERIVATIVE SUITS (CA REQUIREMENTS)
- §800: shareholder must (1) be a contemporaneous owner, (2) make written demand on the board (or plead futility), and (3) may be ordered to post security for expenses (bond) on defendant's motion.
- Recovery runs to the corporation, not the plaintiff.
- Distinguish direct (individual harm) vs derivative (harm to corp).
KEY PRINCIPLE #7 — DISTRIBUTIONS & PIERCING THE VEIL
- §500–501 distribution tests (CA-specific): a distribution is lawful only if EITHER (a) retained-earnings test (retained earnings ≥ amount distributed) OR (b) the balance-sheet/liquidity test — assets ≥ 1.25× liabilities AND current assets ≥ current liabilities; AND corp able to pay debts as they come due (§501).
- Directors who approve unlawful distributions are personally liable (§316).
- Alter ego (piercing) — two-prong: (1) unity of interest (commingling, undercapitalization, ignoring formalities) AND (2) inequitable result / injustice if treated as separate.
KEY PRINCIPLE #8 — FUNDAMENTAL CHANGES & LLCs
- Mergers, sale of substantially all assets, dissolution: board + shareholder approval; dissenters' appraisal rights.
- LLC (RULLCA, Corp. Code §17701+): limited liability + pass-through; member- vs manager-managed; operating agreement controls; members owe loyalty/care.
- Securities: 10b-5 fraud + §16(b) short-swing insider profits (federal overlay).
KEY PRINCIPLE #9 — CLOSE CORPORATIONS & CONTROLLING SHAREHOLDERS
- Close corp (≤35 shareholders, articles so state, §158): may dispense with board, operate by shareholder agreement.
- Controlling shareholders owe fiduciary duty to minority — no oppression, no looting, fair dealing in sale of control.
- Shareholders generally owe no duty to each other in public corps; closely-held = heightened good-faith duty.
- Involuntary dissolution (§1800) for deadlock, fraud, abuse by those in control; buyout remedy (§2000).
ADDITIONAL HIGH-YIELD POINTS
Ratification & estoppel. A principal may be bound even without actual/apparent authority by ratifying (accepting benefits with knowledge of material facts) or by agency by estoppel (principal's negligence leads a third party to rely on an apparent agent). Undisclosed principal is liable for the agent's authorized acts; inherent authority covers acts usual for the agent's position.
Partnership property & transferable interest. Property acquired with partnership funds or in the partnership name is the firm's; a partner's only transferable interest is the share of profits/distributions, not management rights or specific assets (§16501–16503). A creditor reaches a partner's interest via a charging order.
Partner liability timing (§16306–16307). Incoming partners are not personally liable for pre-admission obligations (limited to capital contributed); a dissociated partner remains liable for prior debts and may bind the firm for up to 2 years absent notice. Creditors must generally exhaust partnership assets before reaching individual partners.
RUPA dissociation buyout (§16701). In an at-will partnership a partner may dissociate and force a buyout of her interest at the greater of liquidation or going-concern value; wrongful dissociation in a term partnership delays payout and exposes the partner to damages. Dissociation no longer automatically dissolves the firm.
Shareholder inspection (§1600–1602). CA grants an absolute right to inspect the shareholder list to any holder of 5%+ of voting shares (or 1%+ who has filed a Schedule 14B); other books/records are inspectable for a purpose reasonably related to the holder's interest. CA's 5% absolute-list right is broader and more concrete than the MBE's general “proper purpose” standard.
Director inspection (§1602). Every director has an absolute, unqualified right to inspect all corporate books, records, and properties—no proper-purpose showing required.
Shareholder voting thresholds. Quorum is a majority of shares (articles may lower to one-third); ordinary matters pass by majority of the quorum, but fundamental changes (merger, sale of substantially all assets, dissolution, charter amendment) require approval by a majority of all outstanding shares. Action by written consent permitted absent a charter bar.
Professional corporations (Corp. Code §13400+). Licensed professionals may incorporate, but the PC does not shield a professional from personal liability for her own malpractice; shareholders/directors generally must be licensed in the profession. CA-distinct: limited liability protects business debts, not personal negligence.
Sale of control. A controlling shareholder may sell her shares (even at a premium) but breaches fiduciary duty if she sells to known looters, sells a corporate office/asset disguised as stock, or usurps a collective opportunity belonging to all shareholders. CA enforces a heightened good-faith duty in control transactions.
Squeeze-outs & oppression. Majority/controlling shareholders in a close corporation owe minority a duty akin to partners'; oppressive conduct (termination, withholding dividends, freeze-outs) supports involuntary dissolution (§1800) by holders of one-third of shares, with a statutory buyout (§2000) at fair value as the alternative remedy.
Ultra vires (§208). Lack of corporate capacity is generally not a defense to enforce a contract; ultra vires may be raised only by the corporation against a director/officer, by a shareholder to enjoin the act, or by the Attorney General.
Alter-ego factors (CA). Beyond the two-prong test, CA courts weigh commingling of funds, inadequate capitalization, failure to observe formalities, identical ownership, treating corporate assets as personal, and use of the entity as a mere instrumentality/sham. Undercapitalization alone is a strong CA factor.
Defective incorporation. A de facto corporation arises from a good-faith but flawed attempt to incorporate under a valid statute plus exercise of corporate powers; corporation by estoppel bars a party who dealt with the business as a corporation from later denying its existence. Knowing actors may face personal liability.
LLC fiduciary & charging order. In a manager-managed CA LLC, only managers owe loyalty/care; members in a member-managed LLC owe those duties. A judgment creditor's exclusive remedy against a member's interest is a charging order (§17705.03). The operating agreement may not eliminate the good-faith covenant.
Officer authority. Officers bind the corporation through actual authority (bylaws/board) or apparent authority from their position; a president/CEO has apparent authority over ordinary-course transactions but not extraordinary acts. The board, not officers, decides fundamental matters.
★ ONE-LINE ATTACK ORDER
Entity type → formation → §2115 pseudo-foreign check → management & fiduciary duties (BJR §309; loyalty/interested-director §310) → veil piercing (alter ego two-prong) → shareholder rights (cumulative voting §708; derivative §800) → distributions (§500–501) → fundamental changes / dissenters’ rights.