Business Associations MEE Prep
Business Associations on the MEE tests your understanding of agency, partnerships, and corporations. The exam focuses on fiduciary duties of agents, partners, and corporate directors and officers, as well as the formation and governance of different business entities.
Corporate law questions frequently test the duty of care, the duty of loyalty, the business judgment rule, and piercing the corporate veil. Partnership questions focus on formation by conduct, fiduciary duties among partners, authority to bind the partnership, and the consequences of dissociation. Agency questions test actual and apparent authority, ratification, and respondeat superior.
The examiners expect you to distinguish between general partnerships, limited partnerships, LLCs, and corporations, and to apply the correct default rules when the parties have not specified terms in their agreement.
High-Yield Topics
| Topic | Frequency | Tips |
|---|---|---|
| Fiduciary Duties of Directors and Officers | Very High | Know the duty of care (act as a reasonably prudent person) and the duty of loyalty (no self-dealing, corporate opportunity doctrine, no competition). The business judgment rule protects directors who act on an informed basis, in good faith, and in the honest belief that the action is in the corporation's best interest. Distinguish between duty of care and business judgment rule analysis. |
| Piercing the Corporate Veil | Very High | Factors include undercapitalization, failure to observe corporate formalities, commingling of funds, using the entity as an alter ego or mere instrumentality, and fraud or injustice. Courts are more willing to pierce for tort creditors than contract creditors. Always check whether the shareholder treated the corporation as a separate entity. |
| Agency: Actual and Apparent Authority | High | Actual authority (express or implied) flows from principal to agent. Apparent authority arises when the principal's conduct causes a third party to reasonably believe the agent has authority. Also know inherent agency power for undisclosed principals and ratification (principal affirms an unauthorized act after the fact). |
| Partnership Formation and Liability | High | A partnership is formed by the association of two or more persons to carry on as co-owners a business for profit — no formal filing required. Sharing of profits creates a presumption of partnership. All general partners are jointly and severally liable for partnership obligations. A partner's authority to bind the partnership depends on whether the act is in the ordinary course of business. |
| Shareholder Derivative Suits | Moderate-High | Know the requirements: contemporaneous ownership, demand on the board (or demand futility), and fair and adequate representation. Distinguish derivative suits (harm to the corporation, recovery goes to the corporation) from direct suits (harm to the shareholder individually). The board can appoint a special litigation committee to evaluate the suit. |
| Respondeat Superior | Moderate-High | An employer is vicariously liable for the torts of an employee committed within the scope of employment. Key distinctions: employee vs. independent contractor, and whether the conduct was within the scope of employment (even if unauthorized). Detours vs. frolics: minor deviations from duty are still within scope, major departures are not. |
| Corporate Opportunity Doctrine | Moderate | A director or officer who diverts a business opportunity that belongs to the corporation breaches the duty of loyalty. Test whether the opportunity is in the corporation's line of business, whether the corporation has a financial ability to take the opportunity, and whether the opportunity was presented to the fiduciary in their corporate capacity. |
| LLC Formation and Management | Moderate | LLCs offer limited liability to all members by default. Know the distinction between member-managed and manager-managed LLCs. Default fiduciary duties apply unless modified by the operating agreement (within limits). An LLC requires a filing to be formed, unlike a general partnership. |
Essay Approach
Business Associations MEE essays reward organized, methodical analysis. Begin by identifying the type of entity involved (corporation, partnership, LLC, or agency relationship) because the applicable rules differ for each. If the question involves multiple entities or relationships, address each one separately.
For fiduciary duty questions, use a structured framework: state the duty, define its elements, apply the facts, and then address any defenses (business judgment rule for duty of care, fairness test for duty of loyalty). Do not skip the defense analysis even if the breach seems clear — the examiners want to see that you know the full analytical framework.
For agency and partnership questions, start with formation (was a partnership or agency relationship created?) before moving to liability (who is bound and on what theory?). Always consider multiple theories of authority: actual express, actual implied, apparent, and ratification. When piercing the corporate veil, list the specific factors present in the fact pattern rather than stating the test abstractly.
Commonly Tested Issues
Key Rules to Memorize
Business Judgment Rule
Courts will not second-guess a business decision made by directors who acted on an informed basis, in good faith, and in the honest belief that the action was in the best interest of the corporation. The burden is on the challenger to rebut the presumption.
Duty of Loyalty
Directors and officers must act in the interest of the corporation and its shareholders, not in their own self-interest. Self-dealing transactions are voidable unless approved by disinterested directors, disinterested shareholders, or shown to be entirely fair.
Duty of Care
Directors must act with the care that an ordinarily prudent person would exercise in a like position and under similar circumstances. This requires making informed decisions — directors should review available material information before acting.
Actual Authority (Express and Implied)
An agent has actual authority when the principal's words or conduct would lead a reasonable person in the agent's position to believe they are authorized. Express authority comes from explicit instructions; implied authority comes from what is reasonably necessary to carry out express authority.
Apparent Authority
A principal is bound when the principal's manifestations to a third party cause the third party to reasonably believe the agent is authorized. The key is the principal's conduct toward the third party, not the agent's representations.
Partnership by Estoppel / Formation by Conduct
A partnership is created when two or more persons associate to carry on as co-owners of a business for profit. No written agreement is required. Sharing of profits creates a rebuttable presumption of partnership.
Joint and Several Liability of General Partners
Each general partner is personally liable for all debts and obligations of the partnership. A creditor can pursue any one partner for the full amount of the obligation, regardless of that partner's ownership share.
Piercing the Corporate Veil
Courts disregard the corporate form when the corporation is the alter ego of the shareholder and observing the corporate form would sanction fraud or promote injustice. Factors include undercapitalization, commingling of funds, failure to observe formalities, and use of the entity for personal purposes.
Respondeat Superior
An employer is vicariously liable for torts committed by an employee acting within the scope of employment. This includes acts that are of the same general nature as, or incidental to, the conduct authorized by the employer.
Ratification
A principal can ratify an unauthorized act of an agent, making it binding as if originally authorized. Ratification requires that the principal had knowledge of the material facts and manifested assent to be bound. Ratification relates back to the time of the original act.
Shareholder Derivative Suit Requirements
A shareholder must have owned stock at the time of the wrongdoing, must have made a demand on the board to take action (or shown demand futility), and must fairly and adequately represent the interests of the corporation. Recovery goes to the corporation, not the individual shareholder.
Corporate Opportunity Doctrine
A fiduciary may not take a business opportunity for personal benefit if the opportunity is in the corporation's line of business, the corporation has the financial ability to take advantage of it, and the opportunity is of practical advantage to the corporation.
Common Mistakes
- Confusing the duty of care with the business judgment rule — the duty of care is the standard; the business judgment rule is the defense that protects directors who meet the standard
- Forgetting that apparent authority depends on the principal's conduct toward the third party, not the agent's claims about their own authority
- Assuming a written agreement is required to form a partnership — sharing profits as co-owners is sufficient
- Failing to distinguish between derivative suits (injury to the corporation) and direct suits (injury to the shareholder personally)
- Applying corporate rules to partnerships or vice versa — always identify the entity type first
- Neglecting to discuss the entirely fair standard as an alternative when the duty of loyalty is breached but disinterested approval was not obtained
- Forgetting that a dissociated partner may still be liable to third parties who did not have notice of the dissociation
- Ignoring the distinction between employee and independent contractor when analyzing vicarious liability
Study Tips
- Create a comparison chart of entity types (general partnership, LP, LLP, LLC, corporation) covering formation, liability, management, and dissolution — the MEE loves crossover questions
- Memorize the fiduciary duty framework as a flowchart: identify the duty, apply the elements, then analyze defenses
- Practice writing out the piercing the corporate veil factors and applying them to specific facts — this is one of the most commonly tested MEE topics
- Know the differences between actual authority, apparent authority, inherent authority, and ratification cold — agency questions almost always require distinguishing among these
- Review past MEE questions on business associations from the NCBE's published exams to see how issues are combined in a single fact pattern
- Focus on default rules — the MEE frequently tests what happens when parties have not addressed an issue in their agreement