Business Associations on the MEE: What to Know and How to Practice

Agency law is the foundation of Business Associations on the MEE. You need to know the types of authority (actual, apparent, inherent, ratification) and when a principal is liable for an agent's actions. Respondeat superior, which makes employers liable for employee torts committed within the scope of employment, appears frequently. The distinction between employees and independent contractors is a common testing point.

Partnership and corporate governance are the other two pillars. For partnerships, the MEE tests formation (when does a partnership exist?), partner authority to bind the partnership, liability of partners for partnership obligations, and fiduciary duties partners owe each other. For corporations, the focus is on fiduciary duties of directors and officers (duty of care, duty of loyalty), the business judgment rule, shareholder derivative suits, and piercing the corporate veil.

LLC issues are a growing testing area. MEE questions may test LLC member duties, the distinction between member-managed and manager-managed LLCs, and the limited liability protections LLCs provide. The July 2023 MEE combined agency, partnership, and LLC issues in a single question. Understanding fiduciary duties across all entity types is essential because the examiners frequently cross entity boundaries within a single fact pattern.

Start by identifying the entity type and the relationship between the parties. Is this an agency relationship, a partnership, or a corporate governance dispute? The entity type determines which rules apply. If the facts describe people sharing profits and management of a business without a formal agreement, you are likely looking at a partnership formation issue.

For fiduciary duty questions, identify the specific duty at issue (care or loyalty), state the standard, and apply it to the facts. For duty of care, address whether the business judgment rule protects the decision. For duty of loyalty, look for self-dealing, usurpation of corporate opportunities, or conflicts of interest. Be precise about who owes the duty to whom, since the relationships in Business Associations questions can involve multiple layers (agent to principal, partner to partner, director to corporation).

Not identifying the entity type first. The rules differ depending on whether the entity is an agency relationship, general partnership, limited partnership, corporation, or LLC. Your first analytical step should be identifying what type of entity exists in the fact pattern. If the facts describe people sharing profits and management without formal documentation, you are likely looking at a general partnership.

Confusing types of authority. Actual authority (express or implied) and apparent authority have different requirements. Actual authority flows from the principal to the agent. Apparent authority flows from the principal's conduct toward the third party. Many examinees mix these up or analyze only one type. If the facts describe the principal telling the third party that the agent can act on their behalf, that is apparent authority. If the principal told the agent directly, that is actual authority.

Misapplying the business judgment rule. The business judgment rule is a presumption that directors acted in good faith, on an informed basis, and in the honest belief that the action was in the best interest of the corporation. It protects against duty of care claims, not duty of loyalty claims. If a director engaged in self-dealing or took a corporate opportunity for personal benefit, the business judgment rule does not apply. Many examinees invoke it for the wrong type of fiduciary duty claim.

Forgetting personal liability of partners. In a general partnership, each partner is personally liable for the obligations of the partnership. This is a fundamental distinction from corporations and LLCs, where liability is generally limited. If the question asks whether a partner is personally liable for a partnership debt, the answer is usually yes.

Be precise about who owes what to whom. Business Associations questions involve layered relationships. An agent owes duties to the principal. Partners owe duties to each other and to the partnership. Directors owe duties to the corporation (not to individual shareholders directly). State the relationship and the direction of the duty explicitly. This precision earns points.

Know the partnership dissociation rules. Dissociation (a partner leaving the partnership) is the most frequently tested method of ending a partnership relationship on the MEE. Know the difference between dissociation and dissolution. A partner can dissociate without dissolving the partnership, but the dissociating partner may remain liable for partnership obligations incurred before dissociation.

Address liability of the principal for agent contracts. When an agent enters a contract with a third party, liability depends on disclosure. If the principal is disclosed (identity known to the third party), the principal is bound but the agent generally is not. If the principal is undisclosed (third party does not know the agent is acting for another), both the principal and the agent are liable. If partially disclosed (third party knows an agent is acting for someone but does not know who), both are also liable.

Look for piercing the corporate veil as a secondary issue. When the fact pattern involves a thinly capitalized corporation or an owner who commingles personal and corporate assets, piercing the corporate veil may be tested. State the factors: inadequate capitalization, failure to observe corporate formalities, commingling of assets, and use of the corporate form to perpetrate fraud or injustice. This is often a secondary issue worth several points.