Agency Relationships

Agency

By Sterling Dunn and C.Camille NeSmith, Esq.

An agent is someone who acts on behalf of another. The agent must agree to represent the principal and it is required that there is some kind of control the agent has. When people consent to do business with one another, or when one decides to work for another, an agency relationship may arise.

An agency relationship is created when one person or entity, known as the “principal,” declares to another person or entity, known as the “agent,” that the agent shall act on the principal’s behalf and be subject to the principal’s control. The agent consents to act on the principal’s behalf in writing, orally, or by conduct. When the principal consents to the agent acting for him and the agent consents to being under the principal’s control and to act on the principal’s behalf, an agency relationship is formed.

An agency relationship can also be formed through Agency by Estoppel. This is when an agency relationship is imposed by law. A principal acts in such a way as to lead a third party to reasonably believe that another is the principal’s agent and that third party is injured by relying on and acting in accordance with that belief. A principal has a duty to correct a third party’s mistaken belief in an agent’s (imposter’s) authority to act on the principal’s behalf. If the principal could have corrected this misunderstanding but failed to do so, the principal is stopped from denying the existence of the agency relationship and is bound by the agent’s acts in dealing with the third party.

Actual Authority or Apparent Authority

Actual authority can be expressed or implied. Actual authority is created when an individual is expressly given the authority based on an agreement or implicitly by their position or title.

Apparent authority is created when a third party reasonably believes that the agent has authority to act on behalf of the principal and the belief is supported by the principal’s conduct.

Liability

A principal is liable for the actions of the agent if the agent was acting within the scope of his authority. If an agent causes harm to a third party while conducting business or doing work within the scope of his authority, the principal is liable for the harm caused to the third party by the agent.

A principal can be liable for an agent’s actions through ratification. Ratification occurs when no express consent was given for the agent’s action, but the principal has knowledge of the agent’s actions and does nothing to correct the mistaken belief of the agent’s authority or ability to act on behalf of the principal.

A principal can be disclosed, undisclosed, or unidentified. A principal is disclosed when their identity is known by a third party. When a principal is disclosed and an agent does business with a third party, the principal is liable for that business or contract, not the agent.

When an agent is working on behalf of an unidentified principal (where the third party knows that the agent is working on behalf of a principal but the principal is not identified to the third party), the principal is liable for the contract or business deal, not the agent, unless the agent and third party agree otherwise.

An agent may be liable to a third party when working on behalf of a disclosed or unidentified principal if the agent makes a false representation about the agent’s authority to the third party. An agent may be subject to liability to a third party for harm caused by an agent’s tortious conduct or when an agent breached a duty he owed to a third party.

When an agent is working on behalf of an undisclosed principal and makes a contract on the principal’s behalf with a third party, the principal is still considered a party to the contract but the agent is a part of the contract as well with the third party.

­This information provided should in no way be considered legal advice. The accuracy of any legal information provided is not guaranteed. Please seek professional help if there are concerns about specific legal issues.

980-267-2338

www.nesmithlawpllc.com

Forming A Business Entity

Business Entities

By Sterling Dunn and C. Camille NeSmith, Esq.

Business entities are formed by a partnership between two or more persons.

General Partnership

A general partnership is an association of two or more persons to carry on as co-owners of a business for profit, as stated in N.C.G.S. § 59-36. General partners are held personally liable for the business. Each partner can be held liable for any harm caused by the business or by any of the partners. General partnerships do not require formal filings with the Secretary of State.

Limited Partnership

A limited partnership is a type of partnership in which the “limited partners” are not held personally liable for the business entity. Limited partnerships require a filing with the Secretary of State (or other government entity depending on the State), which gives notice to the world that this specific entity is a limited partnership and lists the general partner(s) and the limited partner(s).

Although limited partners are not held personally liable, every limited partnership requires at least one “general partner.” This general partner is also listed on the filing done with the Secretary of State, which announces to the world or anyone viewing the record that the named individual can be held personally liable for the business. If the elements of a limited partnership are not met, by default, it is considered a general partnership.

Limited Liability Company (LLC)

A Limited Liability Company is formed when the Articles of Organization are filed with the Secretary of State along with a copy of the LLC’s Operating Agreement. The name of the LLC requires the phrase “Limited Liability Company,” or some abbreviation (“LLC”) to be included in the name to signify the entity’s status as an LLC. Owners of an LLC are called members or managers.

An operating agreement is an agreement among the members that determines the LLC’s governance structure. It also provides its operating rules and responsibilities including: the amounts of initial capital contributions by the members, distributions of profits, method of allocating profits and losses, any restrictions on membership interest transfers, withdrawal of a member, and dissolution. Members of an LLC are not held personally liable for the LLC’s assets, obligations, or any harm done by the LLC.

Corporations

A corporation is formed by filing the Articles of Incorporation with the Secretary of State and drafting Bylaws. The name of the corporation must include the word “Inc.” or “Corp.” and list an agent for service of process. The Bylaws outline the shares of the corporation, who has the authority to hire and fire, and internal policies and procedures.

De Facto Corporation

A corporation can also be formed as a “De Facto Corporation.” This type of corporation is often referred to as a “near miss.” In order for a corporation to be considered a de facto corporation, there must be: (1) a valid law under which such a corporation can be lawfully organized; (2) a good faith attempt to organize thereunder; (3) Actual use or exercise of corporate powers; and (4) good faith in claiming to be and in doing business as a corporation.

Promoters can help form a corporation. Promoters are individuals taking actions on behalf of the unincorporated entity. The promoter’s action exposes the promoter to personal liability for most pre-incorporation activity.

A corporation is run by a Board of Directors. The Board of Directors exercise the corporate power to manage the corporation and are considered “Directors.” Directors manage the business and affairs within the corporation. Directors are elected by shareholders (investors). Shareholders are owners of the corporation but do not participate in the management of the corporation. Shareholders are not liable for the acts or conduct of the corporation. Officers are individuals, selected by the Board of Directors, responsible for the day-to-day management of the corporation and are governed by the Directors.

This information provided should in no way be considered legal advice. The accuracy of any legal information provided is not guaranteed. Please seek professional help if there are concerns about specific legal issues.

www.nesmithlawpllc.com

980-267-2338

Estate Planning

Wills and Trusts
Adam Brown and C. Camille NeSmith, Esq.

Wills and trusts are important documents that can help you care for your family and protect your assets both during your lifetime and after your death.

Wills

What is a Will? A will is a legal document that allows you to control how the assets you own are distributed at the time of your death.  A will can dispose of both real property, real estate such as your home, and personal property, such as bank accounts and automobiles. 

Testate vs. Intestate.  A person who dies with a valid will is said to have died testate, while a person who dies without a will is said to have died intestate.  If you die intestate North Carolina law determines how your assets are to be distributed to your surviving family.  If you die intestate and have no surviving family, North Carolina law disposes of your assets by giving them to the State.  Therefore, it is very important to have a valid will at the time of your death to insure that your assets are disposed of according to your wishes.

The Probate Process.  Probate is the process of administering a person’s estate.  Usually a will nominates an executor or personal representative to oversee the administration of the estate.  It is this person who distributes the assets of the estate as directed by the will under the oversight of the Clerk of the Superior Court.  Not all of a decedent’s assets will pass through the probate process after their death.  Any assets held with rights to survivorship will pass to the survivor automatically.  Any assets with designated beneficiaries such as life insurance policies, annuities, and some retirement plans will pass directly to the designated beneficiary.  Any assets held in trust are dealt with through the terms of the trust and generally do not pass through the probate process.  Should a decedent die owning no assets in their name alone, the probate process may not be necessary.  The probate process is over when all of the debts, taxes and expenses have been paid out of the estate and all of the decedent’s assets have been distributed.  At such time, the Clerk of Superior Court will release the executor or personal representative from any further responsibility and the estate will be closed.

Trusts

Revocable Living Trusts.  A revocable living trust (“RLT”) is an agreement between the maker, usually called the grantor, and the trustee under which the grantor transfers assets to the trustee with instructions as to how the assets are to be managed and used.  These instructions can include how the assets are to be managed and used both during the grantor’s lifetime and after the grantor’s death.  The assets held in a RLT will avoid probate upon the grantor’s death.  The term revocable refers to the fact that the grantor has the power to revoke, do away with, or even change the trust during his life time.  The grantor is able to add or remove assets from the trust and is able to direct how the assets are to be used at any time. 

Living Wills and Powers of Attorney

Often near the end of life, a person is unable to express their desires to loved ones or medical professionals concerning their medical care.  Living wills and powers of attorney allow you to direct how medical care should be given in the event that you are unable to make those decisions or unable to express your wishes. 

Living Wills

What is a Living Will?  A living will is a legal document that states whether you wish for your life to be prolonged by medical procedures.  A living will is used to express your wishes in any of three circumstances: (1) you have an incurable or irreversible condition that will result in your death within a relatively short period of time; (2) you become unconscious and your health care providers determine that, to a high degree of medical certainty, you will never regain consciousness; and/or, (3) you suffer from advanced dementia or any other condition which results in substantial loss of your cognitive ability, and your health care providers determine that, to a high degree of certainty, the loss is not reversible.  In North Carolina a living will is also referred to as an Advanced Directive for a Natural Death. 

What can a living will authorize or direct?  A living will can authorize or direct the withholding of life prolonging medical procedures that would only serve to delay your death, such as the use of a respirator, artificial nutrition, or hydration.  In a living will you can direct the use of artificial nutrition or hydration together or separate from life prolonging medical procedures.

** A living will is not a testamentary will and makes no provisions for your personal belongings and property after your death. **

Powers of Attorney

What is a Power of Attorney?  A power of attorney (“POA”) is a legal document in which a person referred to as the principal, gives authority to the agent to act on the principal’s behalf. 

Types of POA.  There are two main types of POAs, General Financial POA and Healthcare POA.  A Financial POA allows the agent to manage the financial matters of the principal such as paying bills and handling business or property transactions.  A Healthcare POA authorizes the agent to make all medical decision for the principal if the principal is unable to do so. 

What is a Durable POA?  Generally a POA does not survive the incapacity of the principal, meaning that when the principal no longer has the capacity to give authority to the agent to act on the principal’s behalf the POA is no longer valid and the agent no longer has the authority to act on behalf of the principal.  A Durable POA, however, survives the incapacity of the principal which allows the agent to make decisions for the principal when they are no longer able to make those decisions for themselves.  Durable POAs apply to both Financial and Healthcare POAs.

Where should you keep your Living Will and POA?  It is suggested that you keep multiple copies of these documents and give them to multiple different people.  You should give a copy of these documents to your family physician, your attorney, and your spouse or an adult family friend.  These documents should not be kept in a safety deposit box or in a locked safe because they should be easy to get to in an emergency.  For a nominal fee these documents can also be filed with the Advanced Health Care Directive Registry, which is maintained by the Secretary of State.  


The information provided should in no way be considered legal advice.  The accuracy of any legal information provided is not guaranteed.  Please seek professional help if there are concerns about specific legal issues.

980-267-2338

www.nesmithlawfirm.com