Business Assocations

RUPA §202(a)

"the association of two or more persons to carry on as co-owners of a business for profit." -a GP is formed even if the parties are not aware of it. Hallmarks of GP: -unlimited liability for partners -pass-through taxation -right to participate in management -agency -fiduciary duties

Direct vs Derrivative

(1) Who suffered the alleged harm? (2) Who would receive recovery if the claim was successful? Corporation or Shareholders?

Registration process with the SEC under the Securities Act

(1) form s-1 restrigation statement including a prospectus has been filed with the SEC; (2) that registration statement has become effective; and (3) the prospectus (which is a disclosure document) must be delivered to the purchaser before the sale. Exemptions to registration process: (1) exemption based on type of security -usually government issued securities (bonds, municipal bonds, public utility stocks) (2) exemption based on type of transaction -private placements - *the transaction is exempt and NOT the security. So every time its traded, you must establish the exemption.

Elements

(1) manifestation of assent by the principal, (2) action by the agent on behalf (for the benefit) of the principal, (3) control by the principal

Basic requirements under 14(a)

(1) person soliciting proxy must file the proxy materials with the SEC at or before the time they are used to solicit proxies -Courts liberally interpret solicitation (2) rules detail the timing, type of information, and format that must be included in the solicitation materials delivered to the shareholders being solicited; (a) cannot solicit a proxy without first providing an annual report. Proxy cards must include: -date of meeting regardless of insurgents or incumbents -must give three options: (1) vote for all (2) vote for non (3) abstain

Problem 1. Kane and Alexander marriage.

(A) inquirer makes a 20 million dollar donation to start opera. The community wants it. If Alexander does not sing with the company is there a problem? -Directors are fiduciaries of shareholders, purpose of corp. is to generate profits for shareholders. Directors are obligated to look after interests of shareholders first, and in doing so they will try to create profits, but they have a great deal of discretion under the BJR, absent evidence of breach of duty or self dealing. So, could this charitable contribution indirectly benefit the shareholders by making it appear more sympathetic to consumers? -20 million is 1/5 of profits, and its likely that this is a pet project of his due to his wife's influence. The BJR could be set aside here because this is a rather large donation that appears to be more than just philanthropic. Debatable on either side. (B) What if the wife does sing, but does it for free? The donation is still seemingly to give his wife an edge in her career, even if she's not getting paid for it. She is still getting this opportunity for her career at the expense of the shareholders. (c) Suppose Kane owns 100% of the stock of the inquirier. Do your answers change? Yes. If all the shareholders are Kane, then he owes duties to himself. However, he could be using this as an alter ego for his own personal ends, and if he doesn't pay then we could peirce the veil. Yet, this has nothing to do with with the duty of loyalty for this question. (D) Suppose Alexander gets the singing position on her talent alone? In that case, it may be suspicious, but if you can prove that it was a unanimous decison that had nothing to do with kane, then the facts are better for her.

Shareholder Rights

- Right to Evidence of Ownership - Right of Transfer - Right of Inspection - Right to Vote - Right to Receive Dividends No management rights, however they have some ability to influence the direction of the firm. I.e. the power to vote. Indeed, corporations are required by statute to elect directors annually. However, there are millions of shareholders, they all do not have the same ownership power, and the average shareholder is ill-informed. Also, there must be a quorum or the presence of a majority of shares. So how we solve this?

Howey Test Defines a security or investment contract:

- SEC v. W.J.Howey, Co. (1946) - Three prong test to define a security: (1) investment of money (2) common enterprise (more than one person) (3) with the expectation of profits to generated primarily by someone other than the investor -it must be the case that these profits will be earned predominately from the efforts of others.

Federal Securities Regulation

33 act focuses on primary market transactions and provides for accurate information and disclosures. Does not require anything regarding the merit of the investment. Has registration requirements. 34 act focuses on secondary market transactions. Periodic disclosures for large publicly traded companies: 10-k & 10-Q.

Ratification

4 ways: Express: affirmation by the principal Implied: affirmation through acceptance of benefits of the transaction at a time when it is possible to decline to accept such benefits. Implied through silence or inaction

Indemnification of Directors and Officers

>When an officer or director has been sued in her capacity for the corporation, she cannot get indemnification if she was held liable to the corporation or was held to have received an improper personal benefit. >A corporation must indemnify her if she is successful in defending the suit, on the merits or otherwise. >A corporation may indemnify in any other situation. She must show that she met the duty of loyalty. >A court can order indemnification if it is justified in view of all the circumstances. >Articles can eliminate director liability to the corporation for damages and duty of care, but not for the duty of loyalty, or (1) intentional misconduct, (2) usurping corporate opportunities, (3) unlawful distributions, or (4) improper personal benefit. 1) Co barred from indemnifying if person was adjudged liable on the basis of an improper financial benefit. 2) Co MUST indemnify person if she is "wholly" successful on the merits or otherwise in defending the suit AKA she wins a judgment on the entire case. (Del. Gen. Corp. Law. §145) 3) Co MAY indemnify anything not satisfied by 1 or 2 (Ex: case settled) - must show she acted in good faith & w/ reasonable belief that her actions were in co's best interest determined by disinterested directors/disinterested shares/independent legal counsel. EXCEPTION: Court where director/officer was sued can ORDER REIMBURSEMENT if justified in view of all circumstances, but limited to costs/attorney's fees (not judgment against person). - Articles may provide for limitation/elimination of director liability to co for damages, but NOT for intentional misconduct, usurping co opportunities, unlawful distributions, or improper personal benefit, but can exculpate directors for breach of duty of care. Also, bylaw approved by SHs or resolution by ratified majority of disinterested shares entitled to vote can indemnify director subject to intentional misconduct limitation.

The BJR requires...

A breach of the duty of loyalty (fraud, illegality, self-dealing, or conflict of interest) A breach of the duty of good faith (subjective dishonestly, causing A breach of the duty of care

Partnership

A business organization owned by two or more persons who agree on a specific division of responsibilities and profits. Look to intention of parties, the sharing of profits for losses, language of the agreement, ownership, management, control, and conduct of parties towards third persons.

Securities Exchange Act of 1934

A federal law dealing with securities regulation that established the Securities and Exchange Commission to regulate and oversee the securities industry. An act that regulates the trading of securities such as stocks and bonds in the secondary market Extended the disclosure requirements to secondary market issues (investors trading amongst themselves).

Partnership by Estoppel

A judicially created partnership that may, at the court's discretion, be imposed for purposes of fairness. The court can prevent those who present themselves as partners (but who are not) from escaping liability if a third person relies on an alleged partnership in good faith and is harmed as a result.

Actual, apparent, or inherent authority

A principal can liable on a contract between the agent and a third party depending on authority.

What is a security?

A security is an investment that represents either an ownership stake or a debt stake in a company. It is a note, stock, bond, investment contract, variable annuity, profit-sharing or partnership agreement, certificate of deposit, option on a security, or other instrument of investment. or "any instrument commonly known as a 'security'."

Corporate proxy

A written authority granted by individual shareholders to others (usually members of corporate management) to cast the shareholders' votes. The relationship to the proxy giver to the proxy holder is an agency relationship, where the holder must vote in the direction of the principal.

Restatement (Third) of Agency §1.01- Agency Defined:

Agency is the fiduciary relationship that arises when one person (a pirncipal) manifests

Principal's control?

Agent's goals are set by the principal. An agent agrees to be SUBJECT to the principal's control, and a principal agrees to be BOUND by the acts of its agent within the scope of the agent's authority. The fact that a principal lacks the right to control the full range of an agent's actions (professional judgment), or fails to exercise the right to control the agent, does not eliminate the principal's rights or affect the existence of an agency relationship. It is sufficient that the principal has the right to control the result or the ultimate objectives of the agent's work.

When is an agent liable?

Agents are generally not liable for contracts made on behalf of principal, but they can be when made on behalf of partially disclosed principal, because you are the only person the counter party has access to.

Restatement § 8.01- General Fiduciary Principle

An agent has a fiduciary duty to act loyally for the principal's benefit in all matters connected with the agency relationship.

Actual authority

Arises from the manifestation from the principal to the agent, that the agent has the authority to enter into a contractual relationship to a third party. Test: if the principal's conduct, i.e. what manifestations are objectively given to the agent. Can be expressed or implied. actual expressed: when clearly intended and authorized actual implied: authority that can be reasonably inferred by the agent from the principal's words or conduct including the agent expectations from prior dealings with the principal and customs associated with the type of agency relation in general.

Corporate Opportunity Doctrine

Corporate officers, directors, and agents cannot take advantage of an opportunity that should have belonged to the corporation. Duty of loyalty prohibits the director from the taking the opportunity for himself. A business proposition or investment opportunity that a corporation would have an interest in pursuing; precludes directors from taking a profit opportunity when the corporation would have an interest.

New York Demand Futility Approach

Demand is excused because of futility when a complaint alleges with particularity that a majority of the board of directors did not fully inform themselves or the decision was so egregious on its face that it is not protected by the business judgment rule. What is the difference between the delaware and new york approach? The reasonable doubt standard. New york rejects dwants facts with particularity, instead in delware they want of reasonable doubt because of the subjectivity of a lower standard.

Proxy Materials

Documents regulated by the Securities & Exchange Commission in which a public company outlines its methods and procedures. These documents are used to inform shareholders and solicit votes for corporate decisions, such as the election of directors and other corporate actions.

3 Levels of protection for corporate directors

Exculpation, indemnification, and insurance

Reading v. Regem (1948)

Fiduciary Duties to principal.

Grimes v. Donald

If the board exercises their discretion in a way that the CEO does not like, he gets to quit and receive a golden parachute. The facts show that the board did not abdicate their power, and stayed by their decision. Derivative claim -if they wastefully paid the CEO too much, that money goes back to the corporation, therefore making it derivative. Demand requirement for Derivative suits -"is a recognition of the fundamental precept that directors manage the business and affairs of the corporation." Stockholder must show: (1) board rejected pre-suit demand regarding an action they were supposed to bring. (2) why the stockholder was justified in not making a demand i.e. proving demand futility. Demand futility: the board has an interest in rejecting claim because the claim is about how the board itself violated a duty. So what is the point in asking the board to bring a claim against themselves as defendants? Must show for demand futility: (1) majority of the board has a material financial interest or familial interest, (2) a majority of the board is incapable of acting independently for some other reason such as domination or control, or (3) the underlying transaction is not the product of a valid exercise of business judgment. If a demand is made on the board, and it refuses, but you can show that the board is doing so because it breached duty of loyalty or duty of care then that overcomes the business judgement rule protection. Must plead with particularity a breach of a duty.

Investment Contract

In securities law, a transaction in which a person invests in a common enterprise reasonably expecting profits that are derived primarily from the efforts of others.

P. 538 problem

Is this a policy or personnel contest? Seems like personnel, but could be policy. We need to know what policy that they are both advocating for. Now, are the expenses reasonable and proper. Seems like it was mostly just a lavish party, but shareholders are apathetic... so what kind of entertainment is reasonable and proper? If its just Kane trying to get the corporation to pay for a good-time, its not reasonable and proper. Fact specific. Only if he wins, and the shareholders ratify will geddes get reimbursed.

Doran v. Petroleum Management Corp.

Issue: Whether the sale of the LLP was exempt from registration because defendants violated federal securities laws by selling him an unregistered security. So was it exempt? Private offering exemption? -Trial court found that Doran was a sophisticated investor and was not entitled to protections under securities laws. This holding is appealed. -Was this LLP interest a security? Yes. Meets howey test. Should be impose 1 size fits all requirements on parties that do not need the protections? The appeals court does not think this is necessary because it causes needless expenses and flies against the policy goals of the exemption. §4(2) Exemption: 4 Factors -number of offerees and their relationship to each other and the issuer. -number of units offered -size of the offering -manner of the offering At issue: (1) Number of Offerees: (a) Magnitude of the offering -more people offered to then the offering is public. Here it was 8. Essentially, its not the number of people who actually bought the investment, its the number of people solicited for the investment. (b) Characteristics and knowledge of people identified -A person of Doran's expertise is not contemplated by the statute, but Doran was not the only person offered to. (2) Offerees' relationship to the issuer: (a) Investment sophistication Doran meets this. However, we must also look at... (b) Information available Was there sufficient, accurate, and adequate information? -Court of appeals says we just don't know what was available to the others, and whether all of the offerees had access to adequate and accurate information. Therefore, we must remand to determine these facts to properly decide if the exemption applies.

P. 531 problem

It would be reimbursed because its a policy change, provided that expenses were reasonable. Would your answer change if the hired public relations firm had a conflict of interest with the CEO? Yes, this might be a violation of a fiduciary duty and the business judgment rule. However, if this is disclosed, and the board is disinterested, then it would probably be fine because it still deals with a policy change. What if the corporations directors are personal friends of the illustrator of the new business plan? This might also be a violation of a "proper" expense if there was no disclosure.

Exculpation

Limits the scope/precludes shareholders of making a claim with respect to certain actions. Cannot violate duty of care.

Insurance: Directors & Officers Liability

Management or governance errors and omissions coverage that provides help in the event that a board, director or officer is accused of mismanagement of the organization. Provides a source of funds to cover legal costs and judgment and settlement fees associated with certain types of lawsuits naming board members as individuals. Limited by insurers in terms of scope of protection. Remember, we are trying to induce people to take on these positions and expand the hiring pool.

On behalf of the principal?

Means that it must be for the benefit of the principal and not of the agent.

Delaware Test for Demand Futility (Aronson Test)

Must show for demand futility: (1) majority of the board has a material financial interest or familial interest, (2) a majority of the board is incapable of acting independently for some other reason such as domination or control, or (3) the underlying transaction is not the product of a valid exercise of business judgment. If a demand is made on the board, and it refuses, but you can show that the board is doing so because it breached duty of loyalty or duty of care then that overcomes the business judgement rule protection. Must plead with particularity a breach of a duty. If the stockholder cannot plead such assertions, they must show the business judgement rule does not apply and the rejection is not protected by the business judgement rule.

Revised Uniform Partnership Act (RUPA)

Newest uniform revision of law on limited partnerships. Revised version of Uniform Partnership Act (UPA); use of RUPA varies from state to state

Cargill and KN&K

One factor is not dispositive, must assess all factors and the circumstances as a whole of a creditor-debtor relationship to find agency or partnership.

Duty of Care

Principle that organizations should take all steps that are reasonably possible to ensure the health, safety, and well-being of employees and protect them from foreseeable injury.

Duty of care provision

RMBCA §8.30. Ordinary prudent person standard was abandoned. This standard might leads courts to make business decisions, undermining the BJR. Courts should not be making substantive decisions on business judgement. Policy: Risk taking and willingness to engage controversial ideas is better for society as a whole because some of those ideas will work. Revolutionary ideas are a good thing for advancement. Entrepreneural attitude. RMBCA 8.30(b) Provides that the duty of care applies to directors "when becoming informed in connection with their decision making function or devoting attention to their oversight function." Duty of care applies to both functions: Breach in decision making=misfeasance Breach in oversight management=nonfeasance -Case with old woman who let her sons embezzle a bunch of the corporation's money.

How do we determine if its partnership property?

RUPA 204 (c) property is presumed to be partnership property if purchased with partnership assets, even if not acquired in the name of the partnership. however, (d) Property acquired in the name of one or more of the partners, without or purchased in the name of the partnership is partnership property.

RUPA §201(a)

Regards partnerships as a separate legal entity and causes partnership property to be owned by the partnership itself as an entity, and not by the partners individually. So, if one partner contributes property to the partnership, it becomes partnership property.

A. Gay Jenson Farms Co. v. Cargill Inc.

Restatement (second) of Agency 140 If takes over the managerial

Rosenfeld v. Fairchild Engine & Airplane Corp.

Rule: In a proxy contest over policy, corporate directors have the right to make reasonable and proper expenditures from the corporate treasury for the purpose of persuading the stockholders of the correctness of their position and soliciting their support for policies which the directors believe are in the best interests of the corporation. The insurgents win the contest and are repaid for their costs. The incumbents are also paid by the treasury for their costs in the proxy contest. Shareholders file a derivative suit in response, and seek reimbursement of the monies given to both incumbents and insurgents. Motives of the contest: -The main point of contention was that the former CEO's compensation package was excessive. The court found that reimbursement is not warranted where the dispute does not involve policy, because after all how does this benefit shareholders? If it seems self-serving and egotistical by new management for initiating the contest, then courts will not be convinced as to the benefit. Policy contests matter over personnel contests. First of all, we should think about what would happen if we didn't allow reimbursement of proxy related expenses. Corporations might exist for only a year because of shareholder apathy. If we didn't allow incumbents to fight off an insurgency with corporate funds, is there much of an incentive for directors to risk their personal wealth to fend off insurgents on behalf of shareholders? Not really. In this case, corporations would constantly be at risk of being taken over by third parties. Standard: In a contest over policy, incumbents can fight off insurgents with reasonable expenses from the corporate treasury so long as they are made in good faith. Also, if they win insurgents or incumbents can be reimbursed by an affirmative vote of the shareholders, subject to the court's scrutiny. The main point will always be that if it is determined that the money was spent on personal gain etc. than reimbursement would not be appropriate. General Rules: (1) the corporation may not reimburse either party unless the dispute concerns questions of policy. (2) the firm may reimburse only reasonable and proper expenses (what are these?) (3) the firm may reimburse incumbents whether they win or lose (4) the firm may reimburse insurgents only if they win. Dissent: This policy vs personnel distinction is wholly irrelevant because personnel changes are always couched in policy justifications. It seems that you will now be placing courts in the hard position of making arbitrary determinations. Additionally, even if we embrace the majority's test, the application of the test here on these facts chip away at the reasonableness requirement because alot of the expenses are not informative and were for things such as "entertainment."

Main Points form 11/3

Shareholders do not direct day-to-day activities of a corporation, but they have some power. For instance, in the event that management is not vindicating legal claims the corporation might have, then they can file derivative claims on corporation's behalf. Mandatory shareholder meetings and special meetings are required by statute in every state. However, there is rational apathy on behalf of shareholders by way of attending these meetings. This is because of the benefits between separation and ownership in the corporate scheme. In sum, time is not well spent because the information at issue is time consuming to grasp and the shareholder has no real impact on the outcome of these decisions or the direction of the company. However, corporations must have a quorum, so they use proxies to ensure this at annual shareholder meetings. Relationship of proxy-giver to proxy-holder is an agency relationship. It is assumed to be revokable, however, if ownership interest was sold with the proxy then it is irrevocable. So, how do you solicit proxies? Must follow SEC Regulation 14(a) of the Securities and Exchange Act of 1934. (1) person soliciting must file proxy materials with the SEC. Courts interpret solicitations liberally: "any communication that is reasonably calculated to influence a shareholder's role..." Reimbursement for proxy fights depend on how the fight was waged and who wins.

Shareholder Proposals

Shareholders have the right to make proposals for company action, which are then subject to vote at the annual meeting. -Proposals for the corporation given by shareholder to the board. Can be excluded if they are frivolous, repetitious, or meet exceptions under the Exchange Act.

14(a) of the Securities and Exchange Act of 1934

The process for soliciting proxies. This came about partly because the proxy solicitation process was being overtaken by fraud for publicly held companies. 14(a) only applies to "publicly held companies" as defined by §12 of the 34 act.: (1) has a class of securities listed on a national securities exchange or (2)

Agency Broadly

The relationship which results from the manifestation by one person to another that the other shall act on his behalf and subject to his control, and consent by the other so to act. (Restatement)

Levin v. Metro-Goldwyn-Mayer, Inc.

This corporation was worth billions in todays money in the 60s. One group of insurgents, "levin group" sought to contest for control. The incumbent group, "o'brian group", used corporate assets and connections to obtain support. Plaintiff, levins, asks for injunctive relief and 2.5 million in damages. Court dismissed this dispute. Reasoning, "the decision as to the continuance of the present management, however, rests entirely with the stockholders. A court may not override or dictate on a matter of this nature to stockholders." Even though both groups have vastly different policy and management ideas, the court held "the controlling question presented on this application is whether illegal or unfair means of communication, such as demand judicial intervention, are being employed by present management." The court concluded there was no such means employed here. There were proper disclosures of costs and who they were employing. The proxy statement stated that "MGM will bear all cost in connection with the management solicitation of proxies..." It also stated they would advertise publicly through newspapers and that they would be utilizing MGM employees. In sum, given the total sum (less than 200k compared to 200 million in gross income) the scale of this enterprise is not excessive and the nature of the proxy expenses are not problematic.

Proxy Contests for Corporate Control

Very costly. Both sides are required to follow 14(a) filing and other requirements. Who pays for this? -when uncontested, the board will recover 100% of costs by charging the firm itself. -this is because shareholders are typically apathetic yet a quorum must be reached.

Practice Problem

What are you worried about taking this chance on advertising as the Spa? -Not personally liable, agents are not liable to the principle. -Unless you've breached a duty... So what are my duties and to whom are they owned? Who is #1? -Shareholders. You are a fudiciary to them. -Number one purpose of the company is to make money for the shareholders. The nature of my role is to make decisions on their behalf to their benefit..... but I am bound by certain duties. Duties: Fiduciary Duty of Care -be informed (misfeasance) -do not fail to oversee (nonfeasance) Here, whats the duty? -Informed, i.e. misfeasance. Do we know all the information as to how we got here? How the problem started? -Lets say, we know how the problem came about and we have that information. So, lets consider the fudiciary duty of loyalty. You owe that to the shareholder over everybody else. -Secret profits? (a) No competition(b) No taking of corporate opportunities (c) No conflict of interests (d) No insider trading (e) No misrepresentations Are there any other duties that we owe? -Yes, to the employees. The current employees are working, and you know that you might not be able to pay their wages. There is also an up-front, annual customer policy. So you owe something to them too. Lastly, we an duty of good faith to act honestly. So what is the decision that should be made that complies with all duties? (Assume that the 5% estimate is reliable). -Lower the price -Fire employees -cut director's salaries. -Dont do ad capaign because it has a 95% chance of failure, and pay employees wages with the $5000. -Try to spark investment and raise capital. If you don't attempt the 5% chance, then you are given a 0% to your shareholders. Therefore, since they are the people you owe duties to over the employees and the creditors, you must act in the course that most benefits them. You are risking duty of loyalty even though you might be violating ethical good faith requirement to the creditors. What is legally required versus what is ethically required. If it was a 1 in 1000 chance to shareholders then maybe it would be a harder question.

Agency occurs when..

When there is an agreement, but not necessarily a contract, that results in the formation of an agency relationship, whether intended or not, that can be proved by evidence which shows course of dealing between the two parties. When circumstantial evidence is used, the principle must be shown to have consented to the agency since one cannot be the agent of another by consent of the latter. Agent does not have to assent verbally or through communication, they just act on the principals behalf. The conduct alone is the manifestation of assent by the agent to the relationship. Does not need to be a contractual relationship, i.e. no consideration. Courts do not care what label you ascribe to the relationship, if the elements are there then an agency relationship will be found.

Recap:

Whether or not agency relationship has been established has big ramifications. Contract disputes/binding agreements & tort liability. The principal is liable to a third party when the agent acts with actual authority, apparent authority, and inherent authority. Actual: manifestation from principal to agent that they have authority (can be express or implied). Express=statements. Implied=reasonably inferred from the principal's words or conduct, prior dealings, custom, or nature of the authority within the transaction. Apparent: manifestations from the principal to third parties where the agent is "held out" that would lead a reasonable third party to believe the agent is authorized to act on principal's behalf, regardless of whether that agent has actual authority to act. (depends on "holding out as"). What about undisclosed principal? Inherent authority must be assessed. Whether a reasonable third party would believe an agent to have under the same circumstances if the principal had been disclosed? If the principal wanted to avoid liability from Humble's action they could have disclosed themselves. They were in the best position to pay and carry the bag.

Duty of loyalty

a fiduciary duty owed by an agent not to act adversely to the interests of the principal or put their own interests or interests of a third party ahead of the principal. no secret profits (1) benefitting from their position: "an agent has a duty not to secretly acquire a material benefit from a third party in connection with transactions." (Restatement §8.02) (2) benefitting from acting as (or for) a part adverse to the principal: "an agent has a duty not to [secretly/without the principal's consent] deal with the principal as or on behalf of an adverse party in a transaction connected with the agency relationship." (§ 8.03) (3) benefitting from use of principal's property: "an agent has a duty not to secretly/without principal's consent use property of the principal for the agent's own purposes or those of a third party..."

Business Associations

a group organized to promote the collective business interests of an area or group of similar businesses

Business Judgement Rule

a presumption that in making a business decision, the directors of a corporation acted on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the company. Absent evidence of some impropriety, court will just not interfere in the business decisions of entities. (Amex case) But, a board can be held personally liable when the board failed to satisfy the duty of care (Van Gorkom) $55 dollar value of the stock was arbitrary determined, and in fact very little work was done during the leveraged buy out negotiation. Presented to board in 20 minute summary, board did not sufficiently review the details, nor did van gorkum himself. All the board relied upon was the word of the CEO, van gorkum, and there was no opportunity for shareholders to vote. At the very least they should have determined the market price, and the board through misfeasance was held liable. In response to this case, and the chilling effect it caused upon directors, Delaware adopted 102(b)(7). Which protects directors against duty of care, but not duty of loyalty.

Uniform Partnership Act (UPA)

act ordering common ownership interests, profit and loss sharing, and shared management responsibilities in a partnership

As agents of the partnership... partners can have

actual and apparent authority. RUPA 301(1) establishes (a) a partner is an agent of the partnership, (b) the circumstances under which a partner will have apparent authority...

Aparent authority

arises from manifestations made by the principal to third parties that would lead any reasonable third party to assume that the principal's agent has authority to act. Test: not looking at principal to the agent... but rather from the principal to the world. How do they present the agent to the world? Watteau v. Fenwick, agent that bought things that were regularly used in the course of the business on behalf of the principle... and the fact that the principal chose to remain undisclosed and were in the best position.... the agent had apparent authority and the principal was liable.

Federal Securities Act (1933)

passed in May 1933, required corporations to provide complete information on all stock offerings and made them liable for any misrepresentations

A director can avail himself of this risk if they...

present the business opportunity to the board of directors... this creates a safe harbor. This is not required, but is a good way to remove uncertainty in regards to the breach of opportunity.

The requirement of demand

procedural steps that must be taken by shareholders in derivative suits, and if not taken will result in dismissal.

Are there any circumstances where an agent can bind principal without actual, apparent, or inherent?

ratification or estoppel. Ratification-if you accept an agreement through actions even though there was no authority by agent on your behalf, then you ratify it. (1) accepting benefits of arrangement, (2) silence or an action, (3) by suing for breach of contract to enforce the agreement. Estoppel- Restatement §2.05- (1) the person intentionally or careless caused such a belief, (2) having notice of such belief and that it might induce others to change their positions, the person did not take responsible steps to notify them of the facts.

Life insurance policy problem

satisfies the definition of an investment contract, mostly because the investor is relying on the skill of the fund managers to negotiate.

Consequences of an agency relationship

the principal is liable for the actions of the agent. Policy? If there is an agreement where an agent furthers interests of principal, and is subject to their control, then it is reasonable to hold the agent liable for acting on the principal's behalf.

(Curran Salmon Case) When you hide who the principal is...

then you expose yourself, and you are personally liable because to avoid liability all you had to do was disclose the principal. Its not fair to hold the third party liable with the bag.

Business lawyer's work

-contracts/transactional law -compliance -formation of business -litigation

Who has the burden of establishing agency relationship?

The third party.