Business Associations for the Bar Exam: Agency, Partnerships, and Corporations

Business Associations: The Subject Nobody Expects to Love

Business associations (also called business organizations or corporations) covers how businesses are formed, operated, and dissolved -- and the duties that arise among owners, managers, and agents. It is tested on both the MEE and the NextGen bar exam, and many students underestimate its weight.

The key to this subject is recognizing that the same fiduciary duty principles run through every entity type. Master those principles, and the specific rules for each entity become much easier.

Build your study materials: Explore our Business Associations outline templates covering agency, partnerships, and corporate law.

The Four Major Entity Types

Entity	Formation	Liability	Management	Taxation
Sole Proprietorship	No formalities needed	Unlimited personal liability	Owner controls everything	Pass-through
General Partnership	Agreement to carry on business for profit (no filing required)	Joint and several unlimited liability	Equal management rights	Pass-through
Limited Liability Company (LLC)	File articles of organization with state	Limited to investment	Member-managed or manager-managed	Flexible (usually pass-through)
Corporation	File articles of incorporation with state	Limited to investment (absent piercing)	Board of directors (centralized)	Double taxation (unless S-corp)

Sub-Topic Deep Dives

This pillar covers the big picture. For exam-ready detail on each major area, dive into these focused guides:

Topic	What You'll Learn	Key Concepts
Agency Law	Principal-agent relationships, authority types, liability, and ratification	Actual vs. apparent authority, respondeat superior, undisclosed principals
Partnerships & LLCs	Formation, management, liability, dissociation, and dissolution	Partner liability, charging orders, fiduciary duties in partnerships
Corporate Governance & Fiduciary Duties	Board duties, shareholder rights, derivative suits, and piercing the corporate veil	Business judgment rule, duty of care, duty of loyalty, Revlon duties

The Fiduciary Duty Thread

The concept that unifies all of business associations is fiduciary duty. Every entity type involves people who owe duties to others:

Relationship	Who Owes the Duty	Duties Owed
Agency	Agent to principal	Loyalty, obedience, care, accounting
Partnership	Partners to each other and the partnership	Loyalty, care, good faith and fair dealing
LLC	Managers/members to the LLC and its members	Loyalty, care (can be modified by operating agreement)
Corporation	Directors and officers to the corporation and shareholders	Care, loyalty, good faith

Exam Trap: Fiduciary duties run in specific directions. Corporate directors owe duties to the corporation (and derivatively to shareholders), NOT to individual shareholders directly. Partners owe duties to the partnership and other partners.

Agency Law: The Foundation

Agency law underpins all business entity law. The core question is always: When does one person's actions bind another?

An agency relationship exists when: (1) the principal manifests assent that the agent shall act on the principal's behalf, (2) the agent consents to act, and (3) the principal has the right to control the agent.

Trigger: "Employee did X while at work..." -- agency liability issue. "Contractor did X..." -- is this an employee (respondeat superior applies) or independent contractor (generally no vicarious liability)?

Deep dive: Agency Law

Partnerships: Default Rules

A partnership is created whenever two or more persons carry on a co-ownership of a business for profit. No filing is required -- which means partnerships can be created accidentally.

Key default rules (under RUPA):

• Profit sharing: Equal shares, regardless of capital contribution
• Management: Equal voting rights; ordinary matters decided by majority; extraordinary matters require unanimity
• Liability: Joint and several personal liability for partnership obligations
• Transferability: Cannot transfer management rights without consent of all partners

Exam Trap: "Two friends agree to split profits from flipping houses." This is a partnership -- even without a written agreement or filing. The profit-sharing arrangement creates a presumption of partnership.

Deep dive: Partnerships & LLCs

Corporations: The Exam's Heavy Hitter

Corporate law generates the most bar exam questions in this subject. The key areas:

• Formation: Articles of incorporation filed with the state; includes purpose, shares, registered agent
• Piercing the corporate veil: When courts disregard the corporate form to hold shareholders personally liable (alter ego, undercapitalization, fraud, commingling of funds)
• Directors and officers: Business judgment rule protects informed, disinterested decisions made in good faith
• Shareholder rights: Voting, inspection, derivative suits, appraisal rights

Deep dive: Corporate Governance & Fiduciary Duties

The Most-Tested Business Associations Topics

Topic	Approximate Exam Weight	Difficulty
Fiduciary Duties (all entities)	~25%	High
Agency Authority & Liability	~20%	Medium
Partnership Formation & Liability	~15%	Medium
Piercing the Corporate Veil	~15%	Medium-High
Shareholder Rights & Derivative Suits	~15%	Medium
LLC Formation & Management	~10%	Low-Medium

Bar Exam Strategy

When you see a business associations question:

1. Identify the entity type: Partnership, LLC, or corporation?
2. Identify the relationship: Agent-principal? Partner-partner? Director-corporation?
3. Identify the duty at issue: Care, loyalty, obedience, good faith?
4. Apply the specific rules for that entity type and relationship
5. Check for defenses: Business judgment rule, exculpation clauses, ratification

Next Steps

Start with Agency Law (the foundational topic), then move to Partnerships & LLCs and Corporate Governance.

Build your study outline with our Business Associations outline templates.