Corporations

Factors Demonstrating a Pship

1. sharing profits 2. sharing loss 3. right to manage 4. intent of parties (express or implied) 5. contribution (capital, labor, expertise, property) -- Vohland v. Sweet = contribution of capital is not required and the contribution of labor suffices, also no evidence that Sweet was supervised as an employee

Caremark

- Caremark (D) provided healthcare services - bad Ks with physicians, but reporting systems in place Conditions Necessary for Liability: (1) Directors failed to implement any reporting o info control systems; OR (2) D's implemented such systems but consciously failed to monitor

Agency Termination

both A and P can terminate at any time if for a term -- then revocation by a party and subsequent breach can lead to a claim for damages

Board Member's Extraordinary Actions

cannot act with apparent authority in these cases because it is not in line with prior dealings where these dealings need: (1) a measure of similarity to the act for which the Principal is sought to be bound; and (2) a degree of repetitiveness Extraordinary actions place the TP's on notice to inquire re the officer or member's actual authority *dissolving a corp is an extraordinary act

Joint Venture

pship for a specific purpose

LLC

contractual in nature -- all partners enjoy limited liability even if they exercise control over the business Fiduciary duty rules are the default in LLC's and can contract out "Just because a party is frustrated with the demise of the LLC, doesn't justify the post hoc refashioning of the bargain they struck when forming the LLC agreement"

BJR

courts should not second guess good faith decisions made by independent and disinterested directors Three main factors: 1. decision made by financially disinterested directors or officers 2. who have become duly (minimally) informed before exercising judgment 3. who exercise judgment in a good faith effort to advance corporate interests if you don't like what the board is doing you can vote them out

Securities

debt securities -- a loan; investors receive periodic payments of interest; bonds - contracts between creditor and debtor with terms equity securities -- in the form of common stock

Board Election

default rule = by plurality vote

General Partners in LP

treated like partners of a normal pship

Controlled Corporations

where a single SH or a group of SHs exercise control through its power to appoint the board where there is no controlling SH the control is in the market

Assigning pship property or authorizing anything in contravention of pship agreement requires . . .

all partners to agree UNLESS partner authorized or Pship business abandoned

Failure to capitalize is . . .

per se illegal to have limited liability you have to put something in

A, B, and C are partners in ABC partnership. Their relationship breaks down. A wants out. She can accomplish this by -- A. selling her partnership interest to partner B, even without partner C's consent B. stating she is withdrawing, thus dissolving the partnership and forcing B and C to liquidate the business and pay her share to her in cash C. selling her partnership interest to stranger D, assuming partner C's consent (thus obtaining the approval of a majority of the partners) D. merging the partnership into ABC Corporation and then selling her shares on the open market

B. stating she is withdrawing, thus dissolving the partnership and forcing B and C to liquidate the business and pay her share to her in cash

Structure of Board

Default rule = all members of the board are elected annually for 1 year terms DGCL 141(d) = staggered boards -- directors may be divided into classes each of which is up for election at different times (increases the difficultly of takeovers)

Duty of Loyalty

Directors, officers, and controlling SHs must act in good faith to advance the interests of the company first and foremost -- this requires these individuals to fully disclose all material facts to the corp's disinterested parties

Agency Liability

P is liable to the third party, and A is not liable Rationale = this is less expensive for P

Disclosed Principal

TP is aware of who the P is behind the agent's acts

What happened after Smith v. Van Gorkom?

The case led Congress to enact the Sarbanes-Oxley Act, requiring that boards of public corporations include a majority of directors with financial expertise

Fiduciary duties in a pship

(1) duty of loyalty = agents cannot put their own interests before their principal (the pship) (2) duty of care = agents must act in the same manner that a reasonably prudent person in their position would *standard of evidence is subjective and the agent's intent does not matter

Board may reduce capital . . .

(1) retiring stock -- can retire stock that was issued but not outstanding (2) transferring to capital surplus any cash in excess of stated capital -- can only do this when assets left are sufficient to pay debts

Duty to Monitor

* Failure to supervise or detect fraud Rich Mom and Bad Sons -- must make a good faith attempt to do a proper job -- Held D was negligent in her duties by (1) not informing herself about the operations of the corp and not continuing to be informed of its activities, and (2) not taking action from sons from looting the company Duty to keep informed and to perform at least min duties -- how to act depends on the facts of the case Duty for corporations to have ordinary reporting system -- an adequate reporting system is a safe harbor for failure to monitor - if the reporting system does not catch the wrong then this is an absolute defense *not enough to just attend board meetings

When will courts pierce the corporate veil?

* when there has been some abuse of the corporate form, ignoring the separate legal identity of the corporation *there has to be some wrong beyond the creditor's inability to collect Two-Prong Test (Alter-Ego Plus Test): (1) interest -- aggressive disregard for corporate form that the corporation becomes an alter-ego Factors -- (a) failed to maintain meetings/bylaws, other things; (b) commingling of funds/assets (no separation of corporate funds); (c) undercapitalization (2) Adherence to fiction -- (a) without piercing wrong would not be remedied; (b) seedy stuff not just business judgment

Sale of all or substantially all of the corporation's property or assets requires . . .

*the charter may require higher than majority vote to approve board engaging in an extraordinary action majority of the outstanding voting stock -- but the board can veto the SH vote and cancel the sale

Board Meeting

- Directors act as a board only at a formal board meeting, just because board members meet up and discuss business does not make it a meeting - act by majority vote - formally recorded meeting minutes - proper notice given to members - quorum is present (set in bylaws, min is 1/3 members) - board may act without a meeting if the members give their unanimous written consent

Income Statements

- Profit and loss statement - financial performance over a specified period = revenue = items sold x item price expenses (note fixed expense like Hut divided out over time) Net income = revenue - expenses

Discount Rate

- estimate of expected returns - factors in risk premium which reflects that people don't value safe and risky investments the same - higher discount rate investors are risk averse

Close Corporations

- have only a few shareholders - usually incorporated for tax and liability purposes rather than capital raising purposes - SHs are also officers and directors - hard to sell shares

Charter

- incorporator drafts and files with sec. of state - must include name, address, etc. - DGCL 102(b) = can set out size of board, staggered or concurrent board, how to remove directors, provisions limiting or defining power - sets out the number of shares that the company can issue - shares issued or sold to the public are outstanding shares - DGCL 160(c) = only outstanding shares may vote in the board elections - can create different classes of shares = preferred shares -- often cannot vote but paid a fixed dividend; common shares -- can vote pro rata, but not guaranteed dividends - before stock is sold may amend; after sold need majority SH approval - SH vote to amend bylaws as well

Publicly Traded Corporations

- most common - incorporated as a means of raising capital - large number of SHs

Meinhard v. Salmon (passive vs. active partner)

- pship to renovate the Hotel B - lease on Hotel B ended and owner and S agreed to a new lease -- important here that the offer made in the lease term touched the same property of the original joint venture - S did not notify M of the opportunity for the new lease - M sued for breach of duty of loyalty = S took for himself a business opportunity of the pship - when the owner made the new lease offer S was still in a partnership with M -- so S had the duty to notify M of the opportunity, but did not have a duty to bring him into the opportunity

BJR Elements

1. P shows that fiduciary duty exists 2. P provides evidence that the directors in reaching their decision breached either duty of good faith, duty of care, and duty of loyalty 3. if P is successful then directors must prove the entire fairness of the transaction (fair dealing + fair price) 4. If duty is not breached then apply BJR

To establish a pship there must be . . .

1. a voluntary K of association for purposes of sharing profits and losses that may arise from contribution of capital or skill 2. an intention on the part of the principals to form a pship for that purpose = intent to do things that constitute a pship (express intent not required)

Undisclosed Principal

A principal whose identity is unknown by a third person, and the third person has no knowledge that the agent is acting for a principal at the time the agent and the third person form a contract.

L, M and N are the only (and equal) shareholders in closely-held LMN Corp. From the beginning of their business ten years ago, L and M were the company's only directors and officers, distributing the company's annual profits as dividends. Last year L and M decided to discontinue paying dividends. When N complains, L and M say they are retaining profits for expansion plans. N consults you and asks, "If I sue, would a claim seeking payment of dividends be successful?" A. Yes. Shareholders in a close corporation have a right to an equal share of profits, just like partner in a partnership (who can always seek an accounting) B. Yes. Shareholders in a close corporation can enforce their reasonable expectations, here to payment of dividends, by bringing a fiduciary claim C. No. Dividends need not be paid if the majority has legitimate business purposes for not paying them, here because of expansion plans D. No. Dividends need not be paid, even when funds are available and the majority is acting opportunistically to force the minority to sell his shares to them

C. No. Dividends need not be paid if the majority has legitimate business purposes for not paying them, here because of expansion plans

B owns 50 shares of XYZ Corp. (described in the previous question 11). On January 15, B sends the corporate secretary a written, signed proxy that states that his shares are to be voted against the charter amendment. But B then attends the meeting and, at the appropriate time, votes his shares for the amendment. The 50 shares should be counted as ... A. being voted against the amendment, because B was holder of the shares on the record date and properly executed a proxy for the amendment B. being voted against the amendment, because a written proxy is irrevocable since it was accompanied by an interest C. being voted for the amendment, because B properly rescinded his earlier by proxy by voting his shares in person at the meeting D. not being voted at the meeting, but treated as abstentions because of the inconsistency between the proxy and in-person votes

C. being voted for the amendment, because B properly rescinded his earlier by proxy by voting his shares in person at the meeting proxies are revocable

Time Value of Money

FV = PV x (1 + r)^n where r = interest rate PV = FV/(1 + r)^n where r = discount rate A dollar today is worth more than a dollar tomorrow the higher the discount rate the lower the PV

Franchisor Cases

Humble Oil = liable in tort because exercised substantial control over daily operations Sun Oil = not liable because no control over daily details and the franchiser retained the overall risk of profit or loss

P's right to select and control agent

Independent Contractor -- Ps rights are limited & A exercises considerable discretion Employee -- P has ability to control in detail how A acts

Lowendahl Test

Veil piercing requires that P show existence of (1) a SH who completely dominates corporate policy; and (2) uses her control to commit a fraud or "wrong" that (3) proximately cause P's injuries

Can partners limit the scope of a pship's business?

Yes, only by a majority of the partners expressly limiting the scope Nabisco v. Stroud = if a partner wants to limit the scope of the business but cannot get a majority then the partner would need to dissolve the pship + notify creditors + half of a two person pship is not a majority for purposes of making firm decisions

Knowing Violations of Law

acting in good faith Miller v. AT&T -- not making AT&T pay bill as campaign donation -- BJR cannot insulate the directors because they participated in a knowing violation of the law DGCL 102(b)(9) = decisions that are not made in good faith cannot be immunized

Apparent Authority

authority that a reasonable TP would infer from Ps actions or statements A cannot grant themselves apparent authority White v. Thomas = A's authority cannot be shown solely by A's declaration or action -- must be based on manifestation from P (buying land -- authority to buy not sell)

De facto control vs. De Jure Control

de facto = not mathematical majority but if 1 has 45% control and the 55% is in the market then basically has control de jure = mathematical majority of voting shares

Circular Control

if corp one owns the majority shares in corp 2, corp 2 cannot vote in corp one's meetings

A person who purports to act on behalf of a corporation (a promoter) and who enters into a contract with a third party when the corporation does not yet exist ...

is personally liable on the contract, provided the promoter knew the corporation did not yet exist

Actual Authority

what a reasonable person in the position of A would infer from the conduct of the P Express = based on speech and conduct implied = based on what is necessary or proper or what A reasonably interprets Ps manifestation

SH Pleading Requirement

(1) P must be a SH for the duration of the action (2) P must have been a SH at the time of the alleged wrongful act or omission (3) the complaint must specify what action the P has taken to obtain satisfaction from the company's board or state with particularity the P's reason for not doing so (demand requirement) -- SH must go to the board and ask if they can bring the suit

To lose BJR and be subjected to duty of care liability you need to have . . .

(1) acted grossly negligent, recklessly indifferent, conscious disregard (2) your decision amounts to waste = no business rationale to support the decision (3) failed to monitor the corp and that failure was a proxy cause of the corp's loss (NJ) -- you did not make a GF attempt to do your job

Unocal vs. Blasius

(1) burden on board to establish compliance w/ relative standard = U -- justification must be reasonable in light of threat (low standard); B -- justification must be compelling in light of the threat (high standard) (2) substantial coercion as a legit justification (ex. whether ignorance of SH can serve as justification) = U -- Time Warner where the board's belief in SH ignorance can serve as a justification for defensive measures; B -- No (3) where to apply the test = U -- when board acts to prevent SH from selling; B -- when board acts to prevent SH from voting (4) does good faith matter = U - yes; B - no

In most cases, the BJR protects you from a breach of duty of care so long as you are . . .

(1) disinterested financially in the trans (2) informed on the subject of the business judgment (3) your action is exercised in good faith that you rationally believe is in the best interest of the corp

Agents Fiduciary Duties

(1) duty of obedience = duty to obey the Ps demands (2) duty of care = duty to act in good faith, to act as one believes a reasonable person would act, to be informed when exercising any fiduciary power (3) duty of loyalty = duty to act in a way that best advances the interests of the P, not to exercise fiduciary power for solely personal benefit in all matters connected to the agency relationship Juke Box case = A violated duty of loyalty and must disgorge profits Trustee duty to the trust and cannot contract out of duties (not an agent of the trust's beneficiary) -- should not have individual interests which conflict with duties, even if it is in good faith (In re Gleeson = share cropped land when couldn't find other renter and trustee paid more than market price which does not matter)

Elements of 10b-5

(1) false or misleading statement in connection with a purchase or sale of stock (2) of material fact (3) made with intent to deceive, manipulate, or defraud (scienter) (4) upon which a buyer or seller of stock reasonably relies (5) and that reliance causes harm to a trader of stock Fiduciary Duty: - the individual who trades on the nonpublic material must be bound by some fiduciary ties to the company in whose stock they trade in order to run afoul of rule 10b-5

Corporation Characteristics

(1) legal personality with unlimited life (2) limited liability for investors (default rule which may be changed in charter) (3) free transferability of shares - encourages management to act effectively because the control in the corporation may shift (4) central management - BoD, passive investors (default rule is management must be elected)

Two Options for Takeovers -- because poison pills can be left indefinitely

(1) negotiate with incumbent board = friendly deals (2) run both a proxy contest + tender offer-- conditioning tender offer on: (a) electing acquirer's nominees to the board, and (b) new board redemption of the poison pill

Demand Futility: Aronson Test

(1) show that the underlying transaction was not a valid exercise of standard business judgment (BJR busters); OR (2) show that the current directors have a conflict of interest (not independent) = whether a majority of the directors are independent and disinterested - P must show that Board was dominated or influenced by the defendant

Three Forms of Acquisition

(1) the acquirer can buy the target company's assets (2) the acquirer can buy all of the target corps stock (3) the acquirer can merge itself or a sub corp with the target on terms to ensure its control of the surviving entity

Fiduciary Duties in SH Proxy Voting

(1) the duty not the unfairly manipulate the voting process for their own advantage - fiduciary's power may not be deployed in a way that is intended to treat the beneficiary unfairly (2) the duty to make truthful statements when addressing the SHs + when making public statements respecting the firm *just because it is legal does not mean it is equitable -- Schnell changed annual meeting last minute and to a hard location

Shareholders Do . . .

(1) vote on election of directors (2) vote on amendments to articles of incorporation + bylaws (3) vote on certain transactions (i.e. mergers)

Tooley Test: Direct vs. Derivative Suit

(1) who suffered the alleged harm? (the corp itself or the SHs) (2) who would receive the benefit of any recovery or other remedy?

Sinclair Oil

- Sinclair (D) owns 97% shares in Sinven + nominates all members of the board - P is a minority SH in Sinven alleging Sinclair forced Sinven to pay out high dividends disallowing Sinven to grow its business - Issue is that the dividends went to Sinclair as the majority SH - but not self-dealing because a proportionate amount of dividends went to the minority SHs - alleged it was usurping a business opportunity -- but have to show a viable business opportunity passed on, here it was just the money to maybe one day have an opportunity

Characteristics of a Partnership

- joint ownership alone does not establish - sharing of gross returns does not establish - sharing profits is prima facie evidence UNLESS the profits were received in (1) payment of a debt (2) as wages of an employee (3) rent to a landlord or (4) as interest on a loan - generally partners in a pship make a contribution

Duty of Good Faith

- mere negligence does not give rise to liability - gross negligence can rise to the level of liability; however SH ratification is a safe harbor Bad Faith = (1) intent to harm; and (2) failure to act when a director knows they have a duty to (imposed by charter or K)

SEC's 8 Criteria for a Tender Offer

1. Active and widespread solicitation of public SHs 2. The solicitation is made for a substantial % of the issuers stock 3. a premium over the prevailing market price 4. terms of the offer are firm rather than negotiable 5. whether the offer is contingent on the tender of a fixed min number of shares 6. whether the offer is open only for a limited period of time 7. whether the offers are subject to pressure to sell their stocks 8. whether public announcements of a purchasing program precede or accompany a rapid accumulation

Each partner binds pship when acting apparently carrying on the usual course of business unless . . .

1. Partner has no authority to act for the pship in a particular manner = outside the scope of business or contrary to an agreement; AND 2. TP knows that the partner has no authority or knows of the restriction animus on the TP to ask if the partner has the authority

Key Features of a Partnership

1. Unlimited (joint and several) liability = each partner individually liable for partnership obligations - pship bound by partner's wrongful act - partner can bind the ship by entering into K on behalf of the ship - loans to pship by partners are subordinated to loans by creditors - creditors may go after the assets of the pship, but if those are inadequate then they may go after personal assets 2. allocation of profits 3. allocation of losses 4. management = equal rights in management - all partners must consent to new partner - acting outside the scope of business requires majority vote 5. not a tax paying entity = partners pay on their own taxes 6. fiduciary duty = loyalty aka every partner must account to the pship for any benefit and hold as trustee any profits derived by him without the consent of the other partners 7. property = all pships must have property belonging to the pship not the partners individually 8. dissolvable = at will, but may be subject to damages (unless the pship K's out of the default at will rule) -- express or implied term not sufficiently proven by expected recoupment of investment

Where Directors DO NOT have duty to disclose information to SH

= anonymous buyer on a stock market -- seller in market does not have duty to tell the purchaser all the info they have *important if the SH is suing in a direct suit or a derivative suit = duty of full and fair disclosure only applies to face-to-face transactions

Standard for defensive measures against hostile . . .

= burden shifts to D (board) -- can either use safe harbor (Unocal Standard) or show entire fairness Unocal Standard = court will apply BJR if: (1) there is a reasonable threat to the corp. (inadequate price, nature/timing of offer, illegality, quality of securities) - board had uninterested directors assessing risk - relied on expert advice - shows prima facie good faith and reasonable investigation (2) the defensive measure is reasonable in relation to the threat *in Unocal self-tender + selective stock repurchase was reasonable *board my enact defensive measures even if the SHs want to accept the tender

Liability in Tort

= looking for control I order to impose respondent superior Employee = liability when acts within scope of employment -- assigned work or work subject to employers control; outside scope = employer not liable UNLESS -- (1) employer intended the conduct; (2) employer was negligent or reckless; (3) conduct violated non-delegable duty of the employer; or (4) reliance upon apparent authority - (a) TP reasonably believes employment relationship exists; (b) due to action or inaction of P; (c) and injury arose based on TPs reasonable belief that the relationship existed IC = no liability usually, unless tort occurs in an area where P exercises some control or activity falls into an exception -- inherently dangerous, non-delegable duty, or negligent hiring

Best Price BJR

= manager must get the best price w/ SH approval when selling assets

Usurping Business Opp

A corporate officer/director may not take a business opportunity for his own if: (1) the corporation is financially able to exploit the opportunity; (2) the opportunity is within the corporation's line of business; (3) the corporation has an interest in the opportunity for the corporation's future; and (4) by taking the opportunity for his own, the corporate fiduciary will thereby be placed in a position inimitable to his duties to the corporation Elements: 1. P has to show that D appropriated a business opportunity that belonged to the corp (or subsidiary if it's a controlling SH) 2. if D presented the opportunity then its a safe harbor -- then, P must defeat BJR 3. if in charter that officers and directors can take business opps then safe harbor

Partially Disclosed Principal

A principal whose identity is unknown by a third party, but the third party knows that the agent is or may be acting for a principal at the time the agent and the third party form a contract.

A, B and C are equal shareholders of RentEquip, Inc. C manages the business; A and B do not actively participate. There are no shareholder or board meetings, and A and B receive no information from C - though they receive sizable monthly "dividend" checks. C hires E, who rents to V a defective chainsaw. Ouch! When V sues RentEquip for her injuries, A and B discover the company's insurance policy has lapsed because C had not paid the premiums, despite C's assurances to them that the premiums had been paid. RentEquip has insufficient assets to pay V's judgment. Who is liable to V? A. A and B are not liable because they did not dominate the corporation or commit a wrong given their ignorance of the corporation's precarious financial situation B. C is liable because he is responsible for the business being under-insured, thus justifying piercing the corporate veil C. A, B and C are liable because the corporation failed corporate formalities, which by statute results in piercing the corporate veil D. C is not liable because the tort in this case was committed by E, who rented a defective item to V

A. A and B are not liable because they did not dominate the corporation or commit a wrong given their ignorance of the corporation's precarious financial situation

When a business owner sets up multiple corporations so that the assets of each are separated from the risks of the others, this use of limited liability ... A. is consistent with public policy, so long as the corporations comply with applicable insurance requirements and the owner doesn't siphon personal funds B. violates public policy, because all the risks of a business are part of the same enterprise and must be supported by enterprise assets C. violates public policy, because corporate law essentially creates an insurance mandate that business use its assets to insure against business risks D. is consistent with public policy, since the legislature created limited liability to encourage business formation regardless of social costs

A. is consistent with public policy, so long as the corporations comply with applicable insurance requirements and the owner doesn't siphon personal funds

Three friends D, E and F agree to go into business installing home insulation. They agree to share profits and properly register their partnership as HomeInsulate LLP. Despite opposition by D and E, F signs a contract to undertake an insulation project for a shopping center, a type of commercial project the business has never undertaken before. When the project falters and the shopping center sues, who is liable? A. only the partnership, because it is an LLP in which the partners have limited liability and F was acting with apparent authority B. only F, because he signed the contract and lacked authority to bind the partnership given that the partnership name limits the business to residential projects C. all three partners D, E and F, because the act of any one partner binds the partnership and all partners share jointly and severally in partnership liability D. nobody (neither the partnership nor the partners) because F acted without actual authority in signing a contract beyond the partnership's usual business

A. only the partnership, because it is an LLP in which the partners have limited liability and F was acting with apparent authority

A corporate executive does not usurp a corporate opportunity if ... A. the corporation has an expectancy in the opportunity and it is rejected by the corporation's informed, disinterested and independent decision makers B. the corporation has an expectancy in the opportunity and the fiduciary takes it without offering it to the corporation C. the opportunity is within the corporation's line of business and the corporation had the financial means to take the opportunity for itself D. the opportunity is one that the corporation sells to the corporate fiduciary at a fair price, based on independent market valuations

A. the corporation has an expectancy in the opportunity and it is rejected by the corporation's informed, disinterested and independent decision makers

GHI Corporation has a six-person board. At a regular board meeting, only two directors can attend. They then call directors Alice and Bob and put them on a conference call. The four talk about the corporation buying Blackacre and then agree to a resolution for GHI to buy Blackacre from Third Party. A. the purchase is authorized since four of six is a board majority B. the purchase is authorized, assuming the GHI bylaws permit conference calls C. the purchase is not authorized, since there was no quorum at the board meeting D. the purchase is not authorized, since real estate transactions require shareholder approval

A. the purchase is authorized since four of six is a board majority = quorum present and majority approved

Stock Acquisitions

Acquiring an incorporated business through the purchase of all or a majority of the company's stock *usually need a SH vote on both sides

Triangular Mergers

Acquiring company forms a wholly owned sub and merges it with the target Forward Triangular = where the sub is the surviving corp - need target board and SH vote and consent - no acquiring company SH vote because sub is the surviving corp & parent corp is not a constituent party Reverse Triangular = where target is the surviving corp - no target SH vote because surviving corp, unless surrendering shares or charter is amended - sub must vote but it is 100% owned by parent acquiring corp Liability Shield = parent is shielded from assuming target corp's liability which falls on sub

Brophy Insider Trading Analysis

Actual harm to corp is not required, equity requires disgorgement of profits obtained from confidential corporate information P Must Show: (1) corporate fiduciary possessed material, nonpublic corporate information & (2) corporate fiduciary used that info improperly by making trades because she was motivated in whole or in part, by the substance of that information

SLC Independence: Zapata Test

After demand has been excused, how should the court evaluate an SLC's decision to file an MTD? (1) the court should inquire into the (a) independence and (b) good faith of the SLC - SLC has burden of proving independence - if court determines not independent --> deny MTD - if court finds they are independent, then to prong 2 (2) the court should determine, applying its own independent business judgment whether the motion should be granted

L, M, and N are equal shareholders of LMN, Inc., a closely held corporation. All three are directors, but only L and M are corporate officers with salaries from the corporation. When N complains that the corporation has failed to pay dividends and "left him in the cold," L and M tell him to "take a hike - or sell your shares to us for $35/share." N is furious, convinced his shares are worth much more than $35. He asks for the corporation's full financial records and any documents related to indications by outside parties of an interest in buying in the business or its shares. A. N has a right to inspect these documents because he is a 10% shareholder B. N has a right to inspect these documents because he is a shareholder, and seeking to value the business and his shares is a proper purpose C. N does not have the right to inspect these documents because as a non-officer shareholder he may only request to see the articles, bylaws and board minutes D. N does not have a right to inspect these documents as a shareholder, but only as a director

B. N has a right to inspect these documents because he is a shareholder, and seeking to value the business and his shares is a proper purpose = right to request records and bookkeeping

Assume that Corporation XYZ has three shareholders, with X holding 20% of the voting shares, Y holding 25%, and Z holding 55%. The XYZ board is composed of 5 directors. Which statement is true: A. under straight voting, X and Y are each assured of electing one director to the five-person board B. under plurality voting, Z will be able to elect all the XYZ directors, and poor X and Y (even if they got together) can do nothing about it C. under cumulative voting, Z is assured of electing all four directors to the board D. under class voting, X will be able to name one director, Y will be able to name one director, and Z will name two directors

B. under plurality voting, Z will be able to elect all the XYZ directors, and poor X and Y (even if they got together) can do nothing about it

BJR Busters

BJR Buster -- Label -- Safe Harbor (1) inadequately informed -- duty of care -- DGCL immunization provision (DGCL 107(b)(7) = corporations can opt out of damages for breach of duty of care - in most charters) - whether informed turns on whether the board have informed themselves prior to making the decision of all material information reasonably available to them (2) Self-dealing (director/Controlling SH) -- duty of loyalty -- DGCL 144 only shields directors - need majority of directors to have conflict of interest (3) Usurping corporate opportunity -- duty of loyalty -- presentation to the board/charter renunciation (4) waste -- bad faith -- unanimous SH ratification (5) Knowing violation of law -- ?? -- none

Corporation Leadership

Board of Directors - not full time employees - default rule is they do not have to answer to the controlling SH Officers - full time employees hired by the board - usually make the management decisions instead of the board

Dissolution of Partnership

Can occur when all or one of the partners: - leaves or wants out (BUT pship agreement may have a rule that the pship does not dissolve when one partner leaves) - dies - terminates the pship agreement - pship bankruptcy On dissolution the pship is not terminated but continues until the winding up of pship affairs is completed the pship agreement controls the distribution of pship property caused by express will of partners when there is no term

Which of the following statements is not true? A. in a limited liability partnership, partners are not personally liable for the commercial obligations of the business B. in a limited partnership, limited partners cannot participate in the management of the partnership (ie, writing checks) without incurring personal liability C. in a close corporation, the shareholders lack a readily-available market into which they can sell their shares D. in a publicly-traded corporation, the shareholders can redeem their shares by selling them to the corporation on public stock markets

D. in a publicly-traded corporation, the shareholders can redeem their shares by selling them to the corporation on public stock markets have to sell to other shareholders

What is the value next year of $100 received today?

FV = $100 (1+0.05)^1 FV = 100(1.05) FV = $105

Timing of M&A

Fastest to Slowest = 1. all cash acquisition 2. merger 3. stock acquisition 4. asset acquisition

Attorney Fee Rule

Generally, parties pay their own attorney fees. Two Exceptions: (1) common fund doctrine = if money is recovered in a case that benefits many people and a common fund is created, a portion of the fund goes to pay attorneys' fees (2) substantial benefit doctrine = in a derivative suit, a successful P may be awarded attorney fees if the corporation received a substantial benefit from the litigation even if there were no money damages recovered or a common fund created (even if the company does not receive money it may receive other benefits)

Appraisal Remedy

Gives SHs the right to dissent from types of corporate transactions and to obtain payment for their shares from the corp **only applies to constituent corps *SH would get the pre-merger value of the stock - take into account future cash flows - Del. block method = earnings, assets, share price *only available if the SH did not vote for the merger DGCL 262 -- Appraisal Tree: SHs of target corp always have rights when: (1) consideration is in cash (2) short-form mergers (3) target is a privately held corp Long-Form Collapsing/Target Corp SHs do receive right UNLESS both conditions are true: (1) the collapsing/target corp is widely held (traded on stock exchange & 2000+ SHs); and (2) the only consideration these SHs receive in exchange for their shares are: - shares in the surviving corp - share in another widely held corp - cash - some combo *these SHs will always have rights in cash out mergers Long-Form Surviving Corp do not receive rights if they are not entitled to vote -- if they were entitled to vote then receive rights UNLESS both conditions are true: (1) the collapsing/target corp is widely held (traded on stock exchange & 2000+ SHs); and (2) the only consideration these SHs receive in exchange for their shares are: - shares in the surviving corp - share in another widely held corp - cash - some combo Short-Form Mergers = SHs of the sub corp always get rights, while SHs of the parent corp NEVER do Appraisal rights for mergers not the sale of assets Conditions = (1) actual merger (2) 262 satisfied (3) allowed by charter

Liability of P in tort and contract

IC = liability in contract, not tort Employee = liability in tort and K Just because P is liable does not mean that A is not also liable Analysis Tree: (1) Is there an agency relationship between P and A because of: (a) a manifestation of assent by P to A that A shall act on Ps behalf and be subject to Ps control; and (b) A consented to act? If Yes . . . (2) Is A P's servant or IC? If servant --> within scope of employment = liability not within scope = no liability If IC --> Generally no liability unless: (a) P retains control; and (b) P engages an incompetent IC; OR (c) the activity is nuisance per se

Short-Form Merger: DGCL 253

If an acquirer/parent obtains 90% or more of the target, it could then execute a short-form merger = can simply cash out the remaining 10% unilaterally No board or SH vote needed + no entire fairness standard

Dual Remedies for Controlled mergers

Includes parent-sub merger, cash-out/freeze out, and two tier mergers right to appraisal or breach of DoL under the entire fairness standard Safe-Harbors = (1) the merger negotiated & approved by a special committee, and (2) merger approved by majority SHs

Rule on Proxy Expenditure payment

Incumbents = in a contest over policy, as compared to a purely personal power contest, corporate directors have the right to make reasonable and proper expenditures, subject to the scrutiny of courts when challenged, from the corporation for the purpose of persuading stockholders in good faith in the best interest of the corporation -- if they win = yes reimbursed; if lose = yes (mostly, new board may only reimburse a portion) Challengers = may be reimbursed by the corporation for their expenditures in the proxy contest by affirmative vote of SHs AND if they win -- if they win = yes if approved; if they lose = no class voting = majority from each class of SHs required

Rule 10b-5 -- Employment of Maipulative & Deceptive Devices (anti-fraud provision)

It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce: (1) to empty any device scheme or artifice to defraud (2) to make any untrue statement of material fact or omit to state a material fact in order to not make the statements misleading; or (3) to engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security

Indemnification

Most corporate statutes prescribe mandatory indemnification rights for directors and officers and allow an even broader range of elective indemnification rights DGCL 145(a) - (b) = a corporation may, by charter or bylaws, indemnify Directors and Officers, but only if they acted in GF AND they reasonably believed that their actions were in the best interests of the corporation and not unlawful (even if they lose or settle) 145(a) does not cover derivative suits Indemnification reimburses = attorney fees, investigation fees, settlement amounts, other judgments 145(c) = mandatory indemnification -- corporation must indemnify D & Os for expenses incurred in related lawsuits in which they were successful on the merits or otherwise 145(f) = additional indemnification -- authorizes a corp to grant indemnification rights outside subsections (a) & (b) --> but can never indemnify bad faith actions Metal seller case = fined in CTFC suit so could not collect attorney fees from company because not successful on merits; seller argued that there was a provision in charter which didn't require success, BUT the court said for this provision to apply seller still had to satisfy 145(a) which he couldn't because he did not act with good faith + D&O insurance

Do individual directors have power to affect the corporation's legal relations with TP's?

No -- need to have a decision by the board, not an officer, for any extraordinary transaction extraordinary transactions put TP's on notice that the director or officer does not have authority

Poison Pill

Nuclear bomb = there so the corp doesn't have to use it defensive measure enacted by the board which dilutes the ownership stake of a person who acquires a large share block without the board's permission triggered if the raider acquires a certain threshold of a company (10-15%) without permission of board enacted in bylaw or charter *most common is flip-in pill giving SHs choice to buy one additional share at discounted price

What is the value today of $100 to be received one year from now with a discount rate of 5%?

PV = $100/(1+0.05)^1 PV = 100/1.05 PV = $95.24 *$100 next year is worth the same as $95.24 this year *waiting to receive money in the future is more costly when interest rates are higher because more interest could be earned

Discounted Cash Flow

PV = (sum of cash received in the future)/(1+r) which is the discount rate = time value of money + systematic risk

If the PV of $150 one year from now is $120 what is the discount rate?

PV = a/(1+r)^n $120 = $150/(1+r)^1 $120(1+r) = $150 (1+r) = 150/120 r = 25%

Strike Suits

Ps attorneys may initiate strike suits (suits without merit) simply to extract a settlement

Courts will first apply __________ to determine whether a company is putting itself up for sale -- if they are not, they will apply _________ to test defensive measures taken

Revlon, Unocal

Dirks

Rule = a tippee assumes a fiduciary duty to the SHs of a corporation not to trade on material nonpublic information only when the insider has breached his fiduciary duty to the SHs by disclosing the information to the tippee and the tippee knows or should know that there has been a breach whether disclosure is a breach is determined by if the insider will personally benefit, directly or indirectly from his disclosure Test: (1) determine whether tipper breached FD -- tipper must receive direct or indirect personal benefit from disclosure to tippee that was NOT also for the benefit of the corporation and SH (2) determine whether breach liability is inherited in chain of tippee -- tippee MUST know or SHOULD know that info came from a person who breached his FD and then tippee trades or tippee passes on info and becomes a tipper Chestman -- husband not liable under 10b-5 because he did not have a trust relationship of trust & confidence with wife, but liable under 14e-3 because information was about a tender offer

Self-Dealing

Rule = directors and officers may not benefit personally or financially at the expense of the corporation Disclosure requirement = valid authorization of a conflicted transaction between a director and the company requires the interested party to make full disclosure of all material facts which they are aware of (disclosure is required but not sufficient) -- even if the transaction is "fair" non-disclosure is inherently unfair and a violation Fairness Standard -- in a self-dealing transaction the court will look at: (1) are the prices and terms fair? (2) was the director/officer's relationship to the transaction disclosed? *actual harm does not matter

Chiarella (SEC did not like)

Rule: not every instance of financial unfairness constitutes 10b-5 fraud Rule: under 10b-5 you need to have a duty to disclose before prosecuting someone for trading on inside information This rejects the equal access theory -- states there must have a breach of confidence

14a-9 Anti-Fraud Provision

SEC's general proscription against false or misleading proxy solicitation Elements of Claims: 1. materiality = misrepresentation or omission in a proxy solicitation, substantial likelihood that a reasonable SH would consider it important 2. Culpability = some courts apply negligence standard, or sciences standard for extreme recklessness 3. Causation & Reliance = P need not show actual reliance on a misrepresentation, causation is presumed if the misrepresentation is material 4. Remedies = injunctive relief, recession, damages

NYSE SH Voting rule for mergers

SH approval NOT required if: (1) any public offering for cash (2) any bona fide private financing

Standing

SH at all relevant times + can fairly and adequately represent the other SHs

Demand Requirement

SH can either go to the board and demand a derivative suit (board can refuse or accept) OR SH can claim a demand on the board should be excused because it would be futile (majority of BoD is interested/not independent)

Double Derivative Suit

SH of a parent corporation seeks recovery for a cause of action belonging to a subsidiary corporation - court should not apply the Aronson test because the board considering the demand did not make the business decision - test = whether or not the particularized factual allegations of the derivative SH complaint creates reasonable doubt that the board could have properly exercised its independent and disinterested business judgment in responding to the demand + still must satisfy the Aronson Test

Close Corp Duties

SHs have duties like partners to the corporation not the other partners -- duty of upmost care and loyalty

Direct Suit

SHs suing in their own capacity to enforce their rights as SHs directly (often class actions)

Derivative Suits

SHs suing on behalf of the corp to enforce corp rights that affect them only indirectly

Burden Shifting Analysis in Self-dealing cases

Self-dealing transaction w/o approval = burden shifts to D to prove entire fairness (directors + controlling SH) Self-dealing transaction approved by informed, disinterested board = burden on P to defeat BJR (directors); burden on P to show the entire unfairness - look to whether the committee was actually independent (controlling SH) Self-dealing transaction ratified by SHs = burden shifts to P to defeat BJR (directors); burden on P to show the entire unfairness - look to whether there was ratification by informed majority of the minority (controlling SH) Self-dealing transaction approved by board and ratified by SHs = burden on P to defeat BJR (controlling SH)

Williams Act

Sought to provide SHs sufficient time and info to make informed decisions about tendering 13(d) = early warning system letting corp and public when someone acquires more than 5% of voting stock 14(d)(1) = mandates disclosure of the identity and future plans of the tender offeror 14(e) = antifraud disallows misrepresentations, nondisclosures, and any fraudulent or deceptive practices; (e)(3) prohibits trading on insider info 14(d)(4)-(7) = how long the tender offer must be left open (during this period tender offeror may raise or lower price but must match for SHs who already tendered)

Long Form Merger

Standard Merger where 2+ corps consolidate into one new corp or one merges into the other Default Rule 251(c) = Board fo both corps must agree + both SHs must approve. Exception - if 251(f) is met then no need for SH approval of the acquirer 251(f) = surviving corp's SHs normally get the right to vote but NO VOTE if all 3 fulfilled: (1) surviving corp's charter is not modified (2) securities held by surviving corp's SH are not exchanged/modified (this is satisfied if the acquirer pays in cash); and (3) surviving corp's outstanding stocks does not increase by 20% or more

Compulsory Share Exchange Transaction

Tender offer negotiated with the target board that, after approval by the requisite majority of SHs becomes compulsory for all SHs OR Two-Step Merger: where the board of the target and the acquirer negotiate two linked transactions in a single package (1) the first trans is a tender offer for most or all of the target's shares at an agreed upon price, which the target board promises to recommend to its SHs (2) the second trans is a merger between the target and a sub of the acquirer, which is to follow the tender and remove the minority SHs who failed to tender their shares -- requires 50% SH approval (cash-out merger) *tender offer must be for all shares + it must result in the acquirer having sufficient shares at the close to authorize the merger were a vote held + the merger price must be the same as the tender

The board of directors of XYZ Inc. approves a $50 million expenditure for the company to sponsor a PBS program on "Earth: The Next Century." A is the show's producer; he is also married to B, the CEO of XYZ. Identify the strongest theory for a shareholder of XYZ to challenge the expenditure.

The directors violated a duty of loyalty because A and B are married, raising into question the fairness of the expenditure

When the court will impose subordination . . .

Two requirements: (1) the creditor is an equity holder and typically an officer of the company; and (2) the insider-creditor must have, in some fashion, behaved unfairly or wrongly toward the corporation and its outside SHs - the corp in bankruptcy has not been adequately or honestly capitalized - must not have been managed to the prejudice of the creditors - to not subordinate the claims would be unfair to the creditors - if switched from a pship to a corp this is suspect because trying to get limited liability body parts test -- the transaction at issue will look like a deal between strangers

Revlon Triggers

Under Revlon the board becomes a neutral party in an auction -- if Revlon duties apply the board must prove that it made a GF effort to obtain the highest reasonably attainable value = (1) if it can, then BJR applied; (2) if it cannot, then board must prove entire fairness (1) bust-up = where a breakup or dissolution of a corp via a merger is inevitable, the Board cannot selectively deal to fend off a hostile offer --> board must obtain the highest price for benefit of the SHs - where 1 bidder + imminent break up, then board must conduct search for higher bidder before proceeding - where 2 bidders + imminent break up, then board must be neutral (can't enact defensive measure to thwart one bidder) (2) change in control = enter into a merger where the corp had a controlling SH (3) all cash offer = board cannot choose lower offer with good long-term vision over higher offer because the SHs won't be around for the long-term vision

Corporate Opportunity Doctrine

When is an opportunity corporate rather than personal and hence off limits to the corporation's managers Line of business test = anything that a corp could be reasonably expected to do is a corporate opportunity Fairness Test = look into factors such as how a manager learned of the disputed opportunity, whether they used corporate assets to exploit the opportunity Expectancy/Interest Test = hurt the companies interest in effecting the purpose of its creation DGCL 122(17) = allows waiver of the corporate opportunity doctrine in the charter while presenting the opp to the board seems like the safer practice it is not required under del. law

When will a court likely uphold a self-dealing transaction?

When the transaction is (1) fair and (2) approved by a board comprised of a majority of disinterested directors, after (3) full disclosure *not the type of self-dealing the court is concerned with

Are SHs allowed to request books, records, and a stock list?

Yes

Is the boar trying to interfere in a SH election a BJR buster?

Yes very high burden on directors -- if P can show that the directors interfered with the vote then they will win, even if the directors think it is what is best for the company **not a per se rule, but board bears the burden of proving justification Rule = board may not enlarge the size of the board for the purpose of preventing a majority of SHs voting to expand the board to change control

Does the default rule that an employee may not compete with his employer during the term of employment, but may compete following employment benefit both the employer and the employee?

Yes - employee will get paid more and the employer gets loyalty

May agency relationships be implied?

Yes may be implied when parties have not explicitly agreed to agency relationship A simply needs to reasonably understand from the action or speech of P that A has been authorized to act

Reverse Veil Piercing

a creditor of the SH is typically trying to hold the corporation liable for debts of the SH Forward veil piercing = creditor of the corporation is typically attempting to hold SH personally liable for debts of the corporation

DGCL 144 - Self Dealing Safe Harbor

a director's interested transaction is not viodable solely because it is interested, so long as it is adequately disclosed and approved by a majority of disinterested directors or SHs, or it is fair the approval of an interested party transaction by a fully informed board authorizes the transaction, but does not foreclose it from judicial review only applies to transactions which have taken place -- ex. Cookie v. Oolie where the transaction was only contemplated

Merger

a legal event unites two existing corps -- the acquirer subsequently owns all the assets and assumes all the liabilities of the target legally collapses one corp into another - the legal entity that survives is the surviving corp

Implied Partners

a written agreement is not necessary to determine the existence of a pship -- receipt of a share of net profits creates a presumption of pship, but the sharing of gross returns does not

In controller buyouts of the sub, the BJR will be applied if . . .

a. the controller conditions trans on approval of both special committee and majority of minority SH b. the special committee is independent c. the special committee is empowered to freely select its own advisors and to say no d. the special committee meets its duty of care in negotiating a fair price f. there is no coercion of the minority SHs

Asset Acquisition

acquisition of a business through the purchase of all or substantially all of its assets - high transaction costs - board of acquirer must authorize trans - SH of acquirer does not usually have to approve unless stock is being used to acquire the assets + publicly traded + # of shares outstanding will increase by 20% or more - board of target must consent - SH of target must consent if all or substantially all assets substantially all assets = more than half (Katz held 51% satisfied but this was an outlier)

General Agents

agent in line for a series of acts or transactions

Special Agents

agents limited to act in a single transaction

Equal Access Rule

all traders owe a duty to the market to disclose or refrain from trading on nonpublic corporate information -- inherent unfairness

Dominance is not . . .

alone a BJR buster - in del. controlling SHs are allowed to dominate

If one partner leaves the pship they are OR are not liable for what happens in the pship after?

are not

Rule 16(b) Insider Trading

authorized SH derivative action to recover on the corporation's behalf any short-swing gains resulting from the trading activity of covered persons does not require that the person trade on inside information -- strict liability rule must disgorge profits to the corporation short-swing gains = gains from buying and selling shares - or losses avoided by selling and buying shares - within any six month period transactions made before they were a covered person can never be a source of 16(b) liability look for sales that pair Rule: if a covered person resigns but there is a transaction that pairs still liable if the type of covered persons = only directors and officers

Delaware Non-Demand Rule

by making a demand the SH waives their right to later claim the board was interested In Del. SH does not always have to make demand -- in best interest not to make a demand In NY SH must always make a demand

Where Directors DO have duty to disclose information to SH

controlling SH has duty to disclose confidential information owed to the minority SHs

Rule 16(a) Insider Trading

covered persons or statutory insiders = directors, officers, and 10% SHs, of publicly traded companies MUST file reports within 10 days AFTER transacting in company shares

Limited Partners in LP

enjoy limited liability and risk no more wealth than what they contributed to the pship -- usually do not have control and only contribute financially *must be included in the firm's name to put the world on notice of the liability type

Inherent Authority

gives a general A the power to bind P, whether disclosed or undisclosed, to an unauthorized contract as long as a general A would in the ordinary course of business have the power to enter into such K and the TP does not know the situation is different burden of communication on P to disclose to TP that A lacks authority Gallant Insurance = insurance agents who sell insurance can bind P

DGCL 157(a)

gives corp the right to implement poison pill

control block vs. control bloc

group of shares that give you control over a corp vs. person or people who won the control block

Misappropriation Theory

holds that a person commits fraud in connection with a securities transaction and thereby violates 10(b) and rule 10b-5 when he misappropriates confidential information securities trading purposes, in breach of a duty owed to the source of the information in O'Hagan this theory was applied because the fiduciary theory could not be

Waste

holds that even a majority vote cannot protect wildly unbalanced transactions that, on their face, irrationally dissipate corporate assets (need unanimous consent) using corp funds for non-corp purposes

Expected Value

how much would you pay to play heads/tails if heads =$1 and tails = $0 probability = .5 & .5

Agency Estoppel

if P has knowledge and opportunity to act & TP reasonably and detrimentally relies OR if P intentionally/carelessly causes such a belief similar to inherent authority

Partner in estoppel

if an individual represents to a TP that they are a partner and the TP lends to that person in reliance that they extended credit to the partnership, the the person is personally liable for the debt owed to the TP

Piercing the Corporate Veil

most extreme form of SH liability -- equitable power of the court to set aside the entity status of the corporation to hold its SHs, directors, and officers personally liable directly on the K or tort

Staggered Board

must be in charter

DEF Corp. has a board of five directors. The company president learns of a chance to acquire a related business and wants the board to consider and approve the deal. The president sends a notice to the directors of a special meeting to happen in three days, but not to director D for whom the corporation has no address. The meeting is attended by three directors (but not D), two of them by Skype. The three at the meeting all approve the acquisition. Is their action valid?

no - notice must be sent to each director, and the failure to send a notice to D invalidates the meeting

Acquisition

non-merger techniques for combining companies under one management involve purchase of assets or the shares of one firm by another acquirer may or may not assume liabilities

Regulation Fair Disclosure

person who makes disclosure of non-public information must make it known the the public immediately if intentional and promptly if not intentional

Balance Sheet

represent the financial picture of a business organization as it stands on one particular day Assets = Liabilities + SH Equity Assets = fixed (capital assets; not intended for sale - property, equipment) & current (cash, accounts receivable, IP) - each asset listed at its acquisition cost - increase in assets = debit - decrease in assets = credit Liabilities = current (due within a year, accounts payable, accrued liability, current portion of long-term debt) & long term (bonds, loans, debentures) Equity = amount of equity or ownership stake that SHs have in the business - SH equity = assets - liabilities = capital + surplus - Stated capital = all or a portion of the value that the SH transferred to the company when buying stock - capital surplus = amount paid for stock in excess of its surplus - accumulated retained earnings = equity with capital surplus before dividends paid out

Profits/Income =

revenue - expenses *sales people often paid from revenue compared to partners paid through profits -- this helps see who is a partner

Default powers of SHs

right to vote, right to sell, right to sue right to vote for most fundamental transactions & board of directors *if directors bought or received shares they can vote them

Undiversifiable (Systematic) Risk

risk in the market; changes in the economy result in differing changes for all companies

Diversifiable unsystematic risk

risks related to an individual company *combine stocks of companies in opposite industries into one portfolio to mitigate

Trans in Control: Market Rule

sale of a control is simply a market trans that creates rights and duties between the parties, but does not confer rights on other SHs Rationale = if new controlling bloc paid a premium they are going to work hard to improve the stock value to rise to that level Perlman which held the minority SHs had right to sell back at premium is bad law

Limited Liability Partnership (LLP)

same as LP except does not have general partners *must be included in the firm's name to put the world on notice of the liability type

Removing Directors

shareholders may remove directors from office at any time and for any reason, except in the case of staggered boards in which case they do so only for cause unless the charter provides otherwise For cause = fraud and self dealing, but maybe not business judgment

Accounting

standardized methodology for describing a firm's past financial performance *use GAAP (Generally accepted accounting principles

Equitable Subordination

subordinating the debt claims of the creditor-SH (affiliated) to other creditors (unaffiliated) controlling SH is the last to get funds and often gets nothing

Special Litigation Committee: DGCL 141(c)

the board may appoint an independent special litigation committee to consider whether the corporation's best interest is to pursue or terminate a pending derivative suit the SLC is supposed to be disinterested *high bar to show independence, even social consequences can impact independence

XYZ Corporation has 1,000,000 authorized voting shares, of which 400,000 are outstanding. The XYZ board concludes the corporation needs more capital and wants to issue another 500,000 voting shares. The board adopts a resolution to this effect. What more is necessary?

the board resolution is sufficient; the board of directors has the authority to approve the issuance of authorized shares, without a shareholder vote

If the charter and bylaws conflict . . .

the charter wins *if you want to constrain the board's power must do so in the charter

Valuation of a business under modern valuation methods is based on ...

the company's expected future cash flows, discounted to reflect the risk of the company and the inherent time value of money

Transaction in Control

transaction in which one SH, who has a controlling interest in a corp's stock, sells that interest to another *premium paid for the controlling stock

Tender Offer

where an investor announces that he is willing to buy a certain amount of shares in the corporation at a specific price (and at a premium) contingent with amassing a certain percentage of shares *board's fiduciary duties still apply when recommending or not recommending a tender offer (even though in their interest in keeping their jobs to not recommend)

Can SHs or the Board enact a bylaw allowing reimbursement by the corp for proxy solicitation?

yes

Rule 14e-3

you can't trade when you have material non-public information about a tender offer, if you got that information directly or indirectly from someone involved in the tender offer prohibits any person who has reason to know non-public information originating from a bidder/target company/insider from trading without disclosing while in possession of this information