LA245 Test #2 Concepts/Cases

Registration Statement (form S-1)

Registration Statement contains the prospectus, which must be delivered to anyone who buys the securities.

Corporations

Regular corporations account for about 18% of all businesses Pros: Limited liability Protects managers and investors from personal liability for the debts of the corporation and the actions of others. Transferability of interests-easy to do. Duration Perpetual existence - can continue without their founders. Cons: Logistics: Corporations involve a lot of expense and effort to create and operate. Taxes: Because corporations are taxable entities, they must pay taxes and file returns. Corporations are taxed at 35% and then each shareholder is again taxed on dividends at a rate of 15%.

Duty of Care

Requires officers and directors to: Act in the best interests of the corporation. Use the same care that an ordinarily prudent person would in the management of her own needs. Consider the legality of the action. Consider all relevant information; evaluate corporate actions, ask questions; understand the terms of transactions; have candid discussions and make sure the action has a rational business purpose.

Securities Act of 1933 "1933 Act"

Requires that before offering or selling securities, the issuer must register the securities with the SEC unless the securities qualify for an exemption. Issuer: A company that sells its own stock When an issuer registers securities, the SEC does not investigate the quality of the offering. Exemptions from registration - Issuer must determine whether they are exempt from the registration under the 1933 Act. Based on two factors: Type of security Type of transaction

Shareholders rights

Right to information Shareholders with a proper purpose have the right to inspect and copy corporation's minute book, accounting records, and shareholder lists, and annual report. Right to vote Corporation must have at least one class of stock with voting rights

Liability Under the 1934 Act

Section 18 (filings) Anyone who makes a false or misleading statement in a filing under the 1934 Act is liable to buyers and sellers who: Acted in reliance on the statement Can prove that the price at which they bought or sold was affected by the false filing Section 10(b) Prohibits fraud in connection with the purchase and sale of any security whether or not it is registered under the 1934 Act. It is a catchall provision.

Occupational Safety and Health Act (OSHA)

Sets specific health and safety standards. Requires employers to keep workplace "free from recognized hazards that are likely to cause serious harm or death." Requires records of all work place injuries and accidents.

Direct lawsuits

Shareholders are permitted to sue the corporation directly only if their own rights have been harmed.

proof of disparate impact

Step 1 - Plaintiff must present a prima facie case that she is a member of a protected class and suffered an adverse employment practice. Step 2 - Defendant must offer some evidence that the employment practice was a job-related business necessity. Step 3 - To win, plaintiff must prove either that the Employer's reason is a pretext or that other, less discriminatory rules would achieve the same results.

Disparate treatment discrimination proof

Step 1 - Plaintiff presents evidence that he belongs to a protected category; that he suffered adverse employment action, and the action occurred under conditions giving rise to a inference of discrimination. Step 2 - Employer must present evidence that its decision was based on legitimate, nondiscriminatory reasons. Step 3 - To win, plaintiff must prove that the employer intentionally discriminated by showing that the reasons offered were false (pretext) or that the real reason was motivated by discriminatory intent/motive.

Concerted action

Tactics taken by union members to gain bargaining advantage. NLRA guarantees the right of employees to engage in concerted action for mutual aid or protection. Strikes - NLRA guarantees employees the right to strike, but with limitations. Picketing the employer's workplace in support of a strike is generally lawful.

Fair Labor Standards Act (FLSA)

The Fair Labor Standards Act (FLSA) regulates minimum wage, child labor and overtime.

Free Speech in the workplace

The National Labor Relations Act (NLRA) protects all employees who engage in collective activity, in connection with work conditions, as long as they are not supervisors. This right translates to all non-supervisory employees being able to discuss their working conditions, whether the discussion takes place in a lunch room or chat room on line.

Sarbanes-Oxley Act of 2002

The Sarbanes-Oxley Act of 2002 protects employees of publicly traded companies who provide evidence of fraud to investigators.

Issuing Stock

The charter must provide three items of information about the company's stock: 1. Par value: nominal figure: $.01 (this is not the same as market value) 2. Number of shares Authorized and unissued or issued. 3. Classes and series. (preferred and common)

Duty of Loyalty

The obligation of a manager to act without conflict of interest. Prohibits managers from making a decision that benefits them at the expense of the corporation.

Minute book

The official record of a corporation.

preferred stock

The owners have preference on dividends and in liquidation.

Quorum

The percentage of voters who must be present for a meeting to count

Proxies

The person whom a shareholder appoints to vote for her at a meeting of the corporation and also: The document a shareholder signs appointing this substitute voter

Firm commitment underwriting

The underwriter (Investment Bank) buys stock from the issuer and sells it to the public.

Best efforts underwriting

The underwriter does not buy the stock from the issuer but instead acts as the issuer's agent in selling the securities.

Duty of Loyalty Issues Arise When:

There is a conflict of interest Misappropriation of corporate opportunity Competition with the corporation Misappropriation of corporate assets Egregious conduct

Tippees

Those who receive tips are liable for trading on inside information, even if they do not have a fiduciary relationship to the company, as long as: They know the information is confidential They know it came from an insider who was violating his fiduciary duty The insider expected some personal gain

Title VII OF THE CIVIL RIGHTS ACT

Title VII of the Civil Rights Act states that it is illegal for employers with 15 or more employees to discriminate on the basis of: Race Color Religion Sex National Origin Under Title VII, employees are protected under every aspect of the employment process including hiring, firing, promoting, placement, wages, benefits and working conditions.

Plurality voting

To be elected, a candidate only needs to receive more votes than any other competitor, not a majority of the votes

Registration statement

Two purposes Notify the SEC that a sale of securities is pending Disclose information to prospective purchasers

Terminating a corporation is a three-step process:

Vote: The directors recommend to the shareholders that the corporation be dissolved and a majority of shareholders agree. Filing: The corporation can file "Articles of Dissolution" with the Secretary of State. Winding up: The officers of the corporation pay its debts and distribute the remaining property to shareholders. When winding up ceases, so does the corporation.

Whistleblowers

Whistleblowers are employees who disclose illegal behavior on the part of their employer.

Anderson v. Bellino (Lottery v. Keno, Inc.)

facts: bellino and anderson formed la vista lottery inc; each owned 50%, both officers and directors --> bellino did more work, resentful of anderson's work ethic --> put keno game contract up for competitive bid --> bellino planned to resign and bid(with kino inc) on contract --> belino was still an officer, director, and 50% shareholder of lottery at the time he submitted bid --> awarded contract to keno --> anderson and lottery filed suit issue: did bellino usurp a corporate opportunity? is he liable to lottery? decision: bellino and keno argued that they ddi nothing to impede lottery from bidding by submitting a competing bid ; however, corporate opportunity was not the right to bid, it was simply a preliminary step to acquire the opportunity in the contract. the CONTRACT was the corporate opportunity --> since officer/director has fiduciary duty to corp and stockholders, must prove that entered into separate business entity with good faith and did not want to cause/contribute to injury of corp --> failed: breach of fiduciary trust because deprived lottery of its only source of business, so bellino/keno should not have competed - affirmed district court's order

Schuette v. Coalition to Defend Affirmative Action

the Supreme Court upheld a Michigan voter initiative to ban AA Justice Sotomayor: "the way to stop discrimination on the basis of race is to speak openly and candidly on the subject of race, and to apply the Constitution with eyes open to the unfortunate effects of centuries of racial discrimination."

disparate impact

the employer's rule, policy or test is neutral on its face but in practice excludes too many people in a protect category.

common stock

the owners have voting rights but are paid after preferred stockholders.

Disparate treatment discrimination

treatment-treated less favorably than others because of membership in a protected category

Death of a corporation

voluntary - Shareholders elect to terminate the corporation forced - by court order Pierce the corporate veil

Prospectus

what the buyers of securities receive

Carmen Segarra

worked for Federal Reserve in NY, one of their clients was Goldman Sachs, noticed they didn't have a conflict of interest/ethics policy, loaned one of clients money to meet threshold, told boss they need to issue warnings but her boss disregarded. tape-recorded meetings on phone, she was fired and sued under whistleblower statute, case dismissed, ethics policy issued after case

Lilly Ledbetter

worked for GoodYear Tires, found out she had been paid less than male employees, lost case because the statute of limitations was 6 months, later changed

Frank Richie

worked in New Haven fire dept, passed all tests for promotion but was denied. the city wanted the rank to reflect the demographics of the city, had company product test with race neutral results but white firefighters still outperformed black and latinos so they threw out the results. Richie sued for disparate treatment and won in SC

When I started work at BU, the employee handbook I received stated that I am entitled to 4 weeks vacation leave. Is that handbook an agreement?

yes - handbooks are agreements

What is the federal minimum wage?

$7.25

Labor Law and Collective Bargaining Stages

1. Campaign. 2. Authorization cards - If organizers get enough cards, they seek recognition as the official representative for the bargaining unit-need 30% cards signed. 3. Petitions the NLRB for an election. 4. Election: If more than 50% of workers vote in favor, NLRB designates union as the exclusive representative.

Sexual Harassment

1. Hostile work environment Unwelcome sexual advances, requests for sexual favors and any other verbal or physical conduct of sexual nature that interferes with an employee's ability to work. 2. Quid Pro Quo Conditioning the terms and conditions of employment based on acceptance or rejection of sexual advances

Liability Under the 1933 Act

1. Liability for selling unregistered securities. Imposed on anyone selling unregistered and non-exempt securities. 2. Fraud- the seller of a security may not make any material misstatement or omission in the connection with the offer or sale of a security. 3. Liability for the Registration Statement.

Initial public offering (IPO):

A company's first public sale of securities.

Pierce the corporate veil

A court holds shareholders personally liable for debt of a corporations under four circumstances: Failure to observe formalities Commingling of assets Inadequate capitalization Fraud

LLCs and Piercing the Company Veil

A court will hold members of an LLC personally responsible for the debts of the organization if there is: Failure to observe formalities. Commingling of assets. Failure to provide adequate capital. Commission of fraud.

Insider trading

A crime punishable by fines, imprisonment and disgorgement of profits.

Bylaws

A document that specifies the organizational rules of a corporation or other organization such as when shareholder meetings are held and what constitutes a quorum.

The Business Judgment Rule (BJR) + 3 goals

A judicially created presumption that officers and directors make informed decisions in good faith and in the honest belief that their conduct was in the best interests of the company. If managers comply with the business judgment rule, a court will not hold them personally liable for any harm their decisions cause the company or rescind their decisions. Accomplishes three goals: Permits directors to do their job Keeps judges out of corporate management Encourages directors to serve

Self-dealing

A manager makes a decision benefiting either himself or another company with which he has a relationship. When a manager engages in self-dealing, the Business Judgment Rule no longer applies. The action is valid only when: Disinterested members of the board of directors approve the transaction; or Disinterested shareholders approve it; or The transaction was entirely fair to the corporation.

Social Enterprises

A new business form created under state law-very few states allow for this The goal of the business is to make a profit + social mission Social Mission is part of the Articles of Organization Legal duty to pursue that social mission Board of Directors must include Benefits Director Monitor Yearly Benefits Report Different duty to shareholders Survives the owners

Shareholder activists

A new development in corporate democracy—they advise institutional investors on how to vote their shares.

Election & Removal of Directors

A nominating committee from the board of directors produces a slate of directors, with one name per opening. The names are approved by the CEO. The slate of directors is then presented to the shareholders for vote. (not truly a democratic vote)

Close Corporation

A private company whose stock is not publicly traded and usually has no more than 50 shareholders. Common provisions of close corporations: Protection of minority shareholders. Transfer restrictions. Usually are family owned and operated.

S Corporations

A type of corporation with a special S designation by the IRS. Pros: Shareholders of S corps have: The limited liability of a corporation The tax status of a partnership Cons: There can only be one class of stock. There can be no more than100 shareholders. Shareholders cannot be partnerships or other corporations. Shareholders must be U.S. citizens or residents. Shareholders must all agree that company should be an S corporation.

Affirmative Action

Affirmative action - Goal is to remedy the effects of past discrimination. Title VII does not require affirmative action plans/policies but it also does not prohibit them. Sometimes, affirmative action is required through government contracts or court ordered remedial action.

I work for a big public company and I need health insurance, does the company have to provide it?

Affordable Care Act

A corporation is required to have at least one director, unless

All shareholders sign an agreement that eliminates the board or The corporation has 50 or fewer shareholders

Limited Liability Companies (LLCs)

An LLC offers the limited liability of a corporation and the tax status of a partnership (very few companies are organized this way) Pros: Limited liability - Members are not personally liable for the debts of the company. Tax status - Income flows through the company to the individual members, avoiding double taxation of a corporation. Flexibility - Can have members that are corporations, partnerships, or nonresident aliens. Duration - LLC can continue in operation even after a member withdraws. Ease of formation: Need a Charter and Operating Agreement. Cons: Newer form of business and there are still legal uncertainties as to how corporate law applies. Going public - Loses its favorable tax status and is taxed as a corporation, not a partnership. Transferability of interests - Members must obtain the unanimous permission of the remaining members before transferring ownership rights.

General Partnership

An unincorporated association of two or more co-owners who operate a business for profit. Pros: Taxes pass through to each partner. Cons: Liability - A partner is personally liable for the debts of the enterprise and for the acts of the other partners.

Sole Proprietorship

An unincorporated business owned by one person (72% of all businesses) Pros Can run a business without taking any formal steps. Not required to register with the government. Not required to file a separate tax return. Cons Owner responsible for all of the business' debts. Owner has limited options for financing the business.

Fiduciary duty

Any corporate insider who trades while in possession of nonpublic, material information in violation of his fiduciary duty to his company is liable under Rule 10b-5. The fiduciary's spouse, child, parent and sibling also have duty not to trade.

Secondary offering

Any public sale of securities by a company after the initial public offering.

security

Any transaction in which the buyer invests money in a common enterprise and expects to earn a profit predominately from the efforts of others.

Stakeholders

Anyone who is affected by the activities of a corporation, such as: Shareholders Employees Customers Creditors Suppliers

Dodd-Frank Wall Street Reform and Consumer Protection Act

Anyone who provides information to the government about violations of securities or commodities laws is entitled to a financial reward.

Tippers

Anyone who reveals material nonpublic information in violation of his fiduciary duty is liable if he: Knows the information is confidential Expected some personal gain

Misappropriation

Anyone with 1. material, non-public information, 2. who breaches a fiduciary duty to the source of that information, (3) by revealing or trading on it, is also guilty of insider trading.

Derivative lawsuits

Brought by shareholders to remedy a wrong that the board of directors has committed against the corporation. First shareholders must make a demand on the directors in order to file a derivative lawsuit. The only way to overcome this requirement is to show that demand is futile because directors violated duty of care, duty of loyalty as required by business judgment rule.

Collective bargaining agreement

Contract between union and management which covers: Wages, hours, and other terms and conditions of employment. Both the union and the employer must bargain in good faith. Not obligated to reach an agreement but if no agreement is reached-must go to binding mediation/arbitration.

Incorporating in Delaware

Delaware Offers several advantages: Laws that favor management An efficient court system An established body of law Neutral ground

Section 13 of the 1934 Act

Disclosure requirements—Section 13 - Requires companies to file the following documents: An initial, detailed information statement when the company first registers: S-1 Annual reports on Form 10-K Quarterly reports on Form 10-Q, which are less detailed than 10-Ks Form 8-K to report any significant developments This statute requires a company's CEO and CFO to certify that: 1. The information in the quarterly and annual reports are true; 2. The company has effective internal controls; and 3. The officers have informed the company's audit committee and external auditors about concerns of internal controls.

Bona Fide Occupational Qualification (BFOQ)

Employer is permitted to establish discriminatory job requirements if they are essential to the position in question, but never based on race or color. Employers should only consider customer preference in such situations Safety Privacy Authenticity

Organizing: What an Employer May Do:

Employer may present anti-union views to its employees but may not use either threats or promises of benefits to defeat a union drive.

Employee Privacy/Off Duty Conduct

Employers have the right to not hire or fire workers for off-duty conduct such as: Smoking Engaging in domestic abuse or committing crimes Posting things on social media

Defamation and References

Employers may be liable for defamation if they act out of malice and provide false references about a former employee. Many states recognize a qualified privilege for employers who give references. Employers are generally not required to give any information about former employees, but: Sometimes can be held liable if potentially dangerous information is withheld

Hostile Work Environment

Employers violate Title VII if they permit a work environment that is so hostile toward people in a protected category that affects their ability to work. Hostility based on race, color, religion, sex or national origin.

Health Insurance: Affordable Care Act (ACA)

Employers with more than 50 employees must offer health insurance or pay a penalty. (Play or Pay) All individuals must have health insurance or face a penalty, with exceptions. (Individual Mandate) Individuals who do not otherwise have access can buy it through a health insurance exchange. Most individuals (80% ) are covered by their employer or by Medicare or Medicaid. If an employer offers health coverage, dependent children can stay on until the age of 26. ACA expands coverage of Medicaid to all Americans under 65 who have incomes below the poverty line. Insurers cannot deny coverage for pre-existing conditions and there are rate restrictions. All health insurance will have to provide a set of minimum benefits including preventive care and contraceptive services.—Hobby Lobby case

Shareholder Meetings

Every shareholder who owns stock on the record date must be sent notice of the annual or special meeting. There must be a quorum for any vote to count. Shareholder meetings can happen on line. Shareholders can appoint proxies-someone to vote for them in their absence. Companies must provide shareholders with a proxy statement and annual report-10-K.

Teresa Harris v. Forklift Systems, Inc.

Facts- Harris was a manager at Forklift and Hardy was a manager. Hardy made many crude remarks towards woman in the workplace. Harris sued Forklift claiming Hardy created an abusive work environment. The fed trial court ruled against harris on the grounds that Hardy's comments might offend the reasonable woman, but they were not severe enough to have a serious impact on Harris' psychological well being. The appeals court confirmed, SCOTUS granted cert. Issue- To be a violation of title VII, must sexual harassment seriously affect the employee's psychological well-being? Verdict- As long as the environment is perceived as hostile/abusive there is no need for it to be psychologically injurious

Peterson v. Exide Technologies

Facts- exide tech issued warning to Peterson for safety violation. Peterson got injured and subsequently was fired while on FMLA leave. Peterson sued, lower court granted summary judgement to Exide. Decision was affirmed in Supreme Court. Issues- Was he fired for taking FMLA? Verdict- violated the company's safety protocol. It was ruled that you can't be penalized for taking FMLA.

Azte v. Auto collection, inc.

Facts: Father and his family owned car dealership. He didn't separate his assets from the company assets, borrowing/lending money between them freely, his home address listed on government forms rather than the business address. Azte (a customer) sued Auto Collection, saying they owed him $500,000+, that Auto Collection had stopped giving cars to people that had already been paid for. Issue: Should the court be able to pierce the corporate veil? Decision: Dad was held liable for not upholding formalities, son was not

Re Hispanics United of Buffalo

Facts: Moore complained that she wanted to tell her director about poor service from her coworkers. Rivera agreed with her but she posted about Moore on fb and four co workers joined in on how upset they were. Moore was upset that Rivera backstabbed her because Rivera was also participating in this conversation. Director fired Rivera and coworkers due to zero tolerance bullying policy. • Issue: Were these Facebook postings protected speech under the NLRA? • Decision [We] reject this argument. First, the Facebook comments cannot reasonably be construed as a form of harassment or bullying within the meaning of the Agency's policy. Second, legitimate managerial concerns to prevent harassment do not justify policies that discourage the free exercise of [NLRA] rights by subjecting employees to discipline on the basis of the subjective reactions of others to their protected activity. Court said free speech rights under NLRA are more important and higher than zero tolerance policy

Raul v. Rynd

Facts:Hercules Offshore, Inc., provided drilling services to the oil and natural gas industry. In the prior year, its revenue was down 11% and it had a net operating loss of $1.17 per share. Its total assets decreased by $300 million while its net cash from operating activities was down almost 13% ($100 million). Its stock price had fallen almost 25%. In the face of this poor performance, the board of directors unanimously approved a compensation plan that raised executive pay by between 40% and 190%. In its proxy statement to shareholders, Hercules stated that: Our compensation committee will continue to design compensation arrangements with the objectives of emphasizing pay for performance and aligning the financial interests of our executives with the interests of long-term stockholders. As required by say-on-pay rules, the company presented this compensation plan to shareholders at the annual meeting. The board recommended that they vote in favor but 59% of Hercules' shares voted against it. The board ignored the shareholder vote and continued with the plan anyway. Issue: Did the Hercules board violate its fiduciary duty when it approved the compensation plan? Decision: Hercules board has prospective rights to compensate their management in the way they want. They boosted their packages because of the bad financial performance last year, which would have led to a lot of them leaving.

If I am pregnant and want to take time off of work to care for my newborn and then return to my job, what kind of leave would I ask for?

Family Medical Leave Act

Securities Exchange Act of 1934 "the 1934 Act"

General provisions for the 1934 Act Registration requirements - An issuer must register with the SEC if: It completes a public offering under the 1933 Act Its securities are traded on a national exchange like the NYSE and NASDAQ. The 1934 Act also mandates periodic disclosures. Disclosure requirements—Section 13 - Requires companies to file the following documents: An initial, detailed information statement when the company first registers: S-1 Annual reports on Form 10-K Quarterly reports on Form 10-Q, which are less detailed than 10-Ks Form 8-K to report any significant developments

Regulation D

Generally speaking, companies can raise money through Regulation D without a public offering subject to these limitations: 1. the offering must be to accredited, sophisticated investors—institutions or wealthy individuals who can assess the risks of the offering. 2. the securities must be purchased for investment purposes and cannot be sold for one year.

Exempt Securities

Government securities Bank securities Short-term notes (9 months and not sold to the public) Non-profit issues (religious, charitable organizations) Insurance policies and annuity contracts (governed by insurance laws)

Family and Medical Leave Act (FMLA)

Guarantees both men and women up to 12 weeks of unpaid leave each year for: -Childbirth/Adoption -A serious health condition or that of an immediate family member The FMLA only applies to companies that have 50 or more employees. An employee is only eligible for FMLA leave if he has worked for the employer continuously for 1 year.

National Labor Relations Act (NLRA)

Guarantees employees the right to: Organize and join unions Bargain collectively through representatives of their own choosing Engage in other concerted activities Hand out literature Ultimately join a union Prohibits employers from engaging in the following unfair labor practices (ULPs) Interfering with union organizing efforts Dominating or interfering with any union Discriminating against a union member Refusing to bargain with a union

Independent Directors

Independent directors -Congress, SEC and the major stock exchanges like NYSE and NASDAQ now require that all members of a board's audit, compensation and nominating committee must be independent-not employed by the company but only compensated for duties as a director. For the audit committee, at least 3 members must be financially literate. Independent directors must also meet regularly on their own without inside directors. Inside directors are those that are employees of the company.

The charter/Articles of Incorporation/Organization

It defines the corporation, including: Name of corporation-need Corporation, Incorporated, Company or Limited after the name. Address and registered agent Incorporator - Person who signs the charter and delivers it to the Secretary of State Directors and officers Purpose Stock

Lockouts

Management prohibits workers from entering the premises and earning their paychecks.

Corporate opportunity

Managers are in violation of the corporate opportunity doctrine if they compete against the corporation without its consent.

strike restrictions

Many states have outlawed strikes by public employees. Violent strikes are prohibited. Sit-down strikes are prohibited- Members stop working, but remain at posts. Partial strikes are prohibited- Occurs when employees stop working temporarily.

A corporation must seek shareholder approval before undergoing any of the following fundamental changes:

Mergers Sales of assets Dissolution Amendments to the Charter Amendments to Bylaws

Defenses to Discrimination

Merit Poor work performance Legitimate Business Decision Seniority Bona Fide Occupational Qualification (BFOQ)

Section 16 of the 1934 Act

Prevents corporate insiders who own more than 10% of the company from taking unfair advantage of privileged information to manipulate the market: Insiders must report their trades within 2 business days to the SEC and the company. Insiders have to return any profits from a purchase and sale that is in a 6-month period.