LA 245 Final Exam

Importance of required formalities

1. Memorializing (particularly for LLC) -rights and obligations of members -Management rights (and the right to share in profits) -the right to dissolve -the transferability of interests 2. Losing limited liability -Piercing the company veil -Defaulting into general partnership

Patents

1. Most common type: Utility (94%) 2. Cover inventions, not ideas 3. Provide the right to exclude for 17 years from date of application 4. Requirements -Novel -Non-obvious -Useful -Patentable subject matter

Void contract

An agreement neither party can enforce, usually because its purpose is illegal or one side had no authority to enter the agreement in the first place

Preferred Stock

Higher rights to dividends and payments, no voting rights

Legal issues facing a sharing economy

1. Liability -Who should be responsible when bad things happen? 2. Applicability of Statutes and Regulations -Communications Decency Act -Public Accommodation Statute -Safety regulations -Short-term rental prohibitions 3. Obligation to assist in enforcement 4. Privacy -protection of information regarding platform users

Workplace Bullying

1. Many state bills, no statutes passed yet 2. Recognized as potential IIED claim in at least one State Supreme Court

Elements of Insider Trading

1. Material, non-public information 2. Breach of fiduciary duty to company or source of information to keep information a secret 3. By revealing or trading on information

The Agreement

1. Meeting of the minds required! -You need an offer and acceptance -Otherwise, no contract 2. Courts make an objective assessment. -They ask, "How would a "reasonable person" interpret the parties' words and conduct?" -Not, "What did a party intend in their own head?"

Intentional Infliction of Emotional Distress (protection - torts)

Employers who condone cruel treatment of workers may face liability for this tort

Environmental Protection Agency

1. Formed in 1970 by Congress based on proposal by President Nixon 2. Charge: to consolidate in one agency a variety of federal research, monitoring, standard-setting and enforcement activities 3. Key tool: Cost-benefit analysis (depends on statute) 4. Mission: to protect human health by safeguarding the air we breathe, water we drink and land on which we live.

Vertical mergers

1. Generally seen as less likely to lessen competition 2. Same types of things evaluated: -Market definition, concentration and shares -Entry conditions and acquiring firm's entry advantage -Threats to potential competition (such as the elimination of a potential competitor or maverick) -Efficiencies 3. Efficiencies given stronger consideration

Rule of thumb

1. 4-to-3? Fine with me 2. 3-to-2 ? Time to sue

Valid contract

1. A contract that meets all of the elements (the law's requirements) 2. If breached, a court will enforce it

Duty of Care

1. A duty to act in the best interests of the corporation, and 2. To use the same level of care that an ordinarily prudent person would use in a similar situation

Piercing the Corporate Veil

1. A situation in which courts put aside limited liability and hold a corporation's shareholders or directors personally liable for the corporation's actions or debts 2.

Elements of an Offer

1. A statement (including conduct) 2. That proposes definite terms and 3. Permits the other party to create a contract by accepting those terms

Consideration: What Counts as Value?

1. Act: -Doing something you are not legally required to do -Does not count if you are simply complying with the law or fulfilling an existing contractual obligation 2. Forbearance -Agreeing not to do something you are legally entitled to do -Example: a noncompete agreement 3. Promise to do either in the future -Example, promising to mow someone's lawn next week

Express contracts

1. All important terms of contract expressly stated 2. Most contracts fall in this category

Employment at will

1. An employee at will can be fired for a good reason, a bad reason, or no reason at all 2. Broad application -Traditional and default common law rule -Absent specific, legal exception, this is the rule that will be applied 3. Several important exceptions -Created by statute -Created by common law -Important for public policy

For the sale of goods and services

1. Ask, "What is its primary purpose?" (the predominant purpose test) 2. If its primary purpose is goods: the UCC governs 3. If its primary purpose is services: Common law governs

Bilateral contract

1. Both parties make a promise 2. A promise by one party in exchange for a return promise by another 3. Example -Me: "If you paint my house, I will pay you $500." -You: "It's a deal!"

Software and Business Methods

1. Can be patentable, but often not 2. E-commerce and financial services patents -Since 2014 S. Ct. Alice decision, patents issued dropped by more than 90% -"Infringers" can challenge validity under America Invents Act 3. Can be hard to show that they are more than a mental process or abstract idea

Vertical Market Allocation and Price Fixing

1. Can be procompetitive 2. Enables manufacturer to manage brand and distribution 3. Increases interbrand competition 4. Rule of reason, not per se 5. Only illegal if it harms competition

Right to information

1. Can inspect minute books, accounting records and shareholder lists 2. Conditions: must be acting in good faith

Stock

1. Capital raised by a corporation through the issue and subscription of shares. 2. A share = a fraction of ownership in the company 3. Possible included rights: -Dividend rights -Liquidation rights: order in which shareholders paid if the company is dissolved -Voting rights - right to vote on charter amendments and to elect directors

Clayton Act

1. Celler-Kefauver Act: prohibits anticompetitive mergers and acquisitions, tying arrangements and exclusive dealing agreements 2. Robinson Patman Act: bans price discrimination that reduces competition

Incorporation

1. Charter 2. Shareholders 3. Bylaws

Price Fixing

1. Competitors agree on the prices at which they will buy or sell OR to take actions that will lead to raising, lowering or stabilizing price (with no legit. business justification) 2. Can be proven with direct or circumstantial evidence (e.g., uniform pricing plus very specific price announcements or high level of communication among firms)

Market Allocation

1. Competitors divide the market by agreeing to geographical zones, sales quotas or customer assignments 2. Possible signs: when major firms maintain the same market shares relative to each other over a long period of time

Big Rigging

1. Competitors put scheme in place to allocate "wins" and depress prices 2. Can involve non-aggressive bidding, agreements on how individual players will bid, quid pro quos

Per Se

1. Conduct or agreement = automatic breach of antitrust laws. 2. Usually involve horizontal restraints Examples: price fixing, market allocation, bid rigging, merger of competitors

Duress

1. Consent is lacking when one party agrees under duress 2. Elements: -one party makes an improper threat -that causes the other party to enter into a contract; and -the victim had no reasonable alternative

Undue Influence

1. Consent may also be lacking where one party exercised undue influence over the other 2. Elements: -a relationship between the two parties of either trust or domination; -improper persuasion by the stronger party 3. Remedy: Rescission at the option of the injured party

Consent

1. Contracts may be voidable if there is a lack of valid consent 2. Voidable for Mistake -Unilateral (mistake by one side): -Non-mistaken party knew or should have known of the error; -The mistake is mathematical or mechanical, alone; and -Enforcing the contract would be unconscionable 3. Mutual Mistake : -Where both parties make the same, fundamental error about the essence of what they are bargaining for -Mistake of value and/or conscious uncertainty not enough 4. Remedy: Rescission by the injured party

Will merger enable surviving firm to raise prices or restrict output through....

1. Coordinated interaction -by tacitly colluding with remaining players? 2. Unilateral effects -by exercising market power all by itself?

Balancing of interests matter

1. Corporations -Instrumental in development of modern capitalism -One of most established business forms 2. Multiple interests at stake -Founder/promoter -Shareholders/investors -Employees -Stakeholders 3. Law establishes rights and obligations to balance these interests -Evolves when balance perceived to be out of whack -Offers predictability in face of disputes and bad outcomes -What feels like arbitrary results can still happen

Basic steps to evaluate mergers

1. Define product market (SSNIP) 2. Measure concentration in that market (Herfindahl-Hirschman Index) 3. Evaluate likelihood/ease of entry 4. Assess competitive effects 5. Consider any significant, merger-specific synergies

Battle of the forms

1. Difference in boilerplate terms (battle of forms), won't prevent a contract if course of conduct later establishes one 2. Adding a term does not prevent a contract, if offeror accepts via word or conduct

Close Corporation (C-Corp)

1. Double taxation 2. No personal liability 3. Difficult to form 4. 100+ shareholders 5. Perpetual existence 6. Protection of minority shareholders

Duty of Loyalty

1. Duty to avoid self dealing 2. Duty to share corporate opportunity (i.e., not to take it on the side for yourself)

Shareholders

1. Elect directors -At least one director required -Directors elect officers 2. Must hold annual meeting and keep minutes in minute book

Copyright

1. Elements -Original work of authorship -Human author -Degree of creativity -"Fixed" so that the work can be perceived, reproduced or communicated for more than a short time 2. Expression, not the idea itself, is protected 3. Copyright is automatic once work is in tangible form 4. Must be registered to sue for infringement 5. Term -Individual: 70 years after death -Corporation: 95 years after publication or 120 years after creation, whichever is shorter

Off-duty activities

1. Employees can be fired for these! 2. Lifestyle Laws: passed in some states and protect the rights of employees to engage in lawful activities outside of work

Whistleblower statutes - Statutory protection

1. Encourage employee reporting of illegal behavior by company 2. Type of protection varies by statute, but can include protecting whistleblower from retaliatory firing, allowing them to share in any damages award, entitling them to back pay (or some multiple of it), and/or attorneys' fees 3. Examples of statutes with whistleblower encouragement/protection -False Claims Act -Dodd-Frank -Sarbanes Oxley -Civil Service Reform Act and Whistleblower Protection Act (protect Federal Employees) 4. Independently, 1st Amendment of the Constitution may protect federal and state employee rights to speak on matters of public concern

Workers' Compensation

1. Ensures that employees get payment for workplace injuries 2. Fixed and certain recovery, no matter who is at fault 3. But, employees are not allowed to sue employers for negligence

Franchise

1. Established business 2. Name recognition 3. Management assistance 4. Loss of control 5. Fees may be high *All of these issues depends on the form of organization chosen by participants

Executive Pay

1. Executive compensation is soaring -CEOs earn more than 300 times the average worker -Stock options can incentivize reckless behavior 2. Supposed to be pay for performance -Justified via competitive market, benchmarking and stock prices -But, research finds little relationship (or even an inverse relationship) between performance and CEO pay -Increase in stock prices may result more from macro economic forces than CEO skill

Management Duties

1. Fiduciary duty 2. Duty of loyalty 3. Duty of care

Patent Application and Issuance

1. File application with USPTO -Must define claims so that invention can be reduced to practice and replicated -Must provide and distinguish "prior art" -Often takes 3-4 years for PTO decision (can pay more to get to fast tracked) -3rd parties may challenge patent 2. Priority between two inventors -Now: first to file -Before 2013: first to invent 3. Prior sale: must apply within 1 year of first commercial sale 4. Duration of Patent: 20 years from filing of application 5. Infringement

Free speech in the workplace

1. Fired for a tweet 2. Collective action under the NLRA 3. The First Amendment does not make offensive speech consequence-free!

Taxes

1. Flow-through entities -Company does not pay taxes itself -Members pay income taxes on what they receive from company -LLCs, LLPs, S-Corporation, Partnership 2. C Corporations -Pay taxes independent of shareholders (often referred to as double taxation) -May be entitled to additional deductions

Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) - Superfund

1. Goal: to clean up hazardous wastes that were illegally dumped in the past -"Shovels first, lawyers later" -Government fund pays for remediation and then pursues reimbursement 2. Philosophy: the producer pays -Anyone who has ever owned or operated land where hazardous wastes are found, transported wastes to that site, or arranged for disposal of wastes there -Liable for cost of cleanup, damage to natural resources and required health assessments -Strict and joint and several liability for current and former owners (it doesn't matter if they did anything illegal)

Clean Water Act

1. Governs navigable waters 2. Sets national water quality standards and pollution limits 3. Prohibits discharges without a permit -from point sources -of dredge or fill materials into wetlands 4. Requires states to -develop plans to meet EPA standards -regulate nonpoint sources of pollution, and -set total daily maximum loads for below-standard water bodies

Wrongful Discharge (common law)

1. Grounded in public policy 2. Prohibits employer from firing a worker for a reason that violates fundamental social rights, duties, or responsibilities 3. Examples -Being fired for refusing to violate the law -Being fired for performing a legal duty (like jury duty) -Being fired for exercising a legal right, if that right supports public policy (e.g., applying for workers' compensation) -Being fired for supporting societal values in the face of conflicting company policy or employer directions (e.g., saving someone's life in an emergency and leaving company truck unattended)

NLRA

1. Guarantees employees the right to organize 2. Prohibits the following employer actions as unfair labor practices: interference with union organizing, discrimination against a union member or refusal to bargain collectively 3. Makes a validly recognized union the exclusive representative of the employees 4. Mandates collective bargaining over wages, hours and other (but not all) terms and conditions of employment 5. Guarantees the right to strike and permits picketing in support of a strike Prohibits most lockouts 6. The National Labor Relations Board (NLRB) administers and interprets the statute and adjudicates labor cases

Pension Benefits

1. If employers set up a pension plan, they must follow federal rules set out in ERISA (the Employee Retirement and Income Security Act) 2. Protects retired workers when companies go bankrupt 3. Prohibits risky investment 4. Regulates the vesting of benefits

Business Judgment Rule (BJR)

1. If fiduciary duties met, courts will not -Second guess good faith business decisions, or -Hold managers personally liable for any harm that results 2. Main goals: -Allows managers to do their jobs -Keeps judges out of corporate management -Encourages directors to serve

Balancing potential harms against possible efficiencies

1. If threat to competition found, Agencies will ask: -Does merger offer any significant efficiencies (net reductions in cost, product enhancements, economies of scale, etc.)? -Are those efficiencies (also called synergies) specific to the merger (e.g., they cannot be achieved without the deal)? -Do the benefits of the synergies outweigh the costs of the competitive harm? 2. Clearing a problematic merger based on efficiencies is rare

Covenant of good faith and fair dealing (contract law)

1. Implied in contracts in about half of states 2. In employment context, generally applied to prohibit employers from firing workers to avoid paying promised income or benefits

Dissenter's rights

1. In private corporation, minority shareholders cannot simply sell stock 2. If fundamental corporate change, minority shareholders who object can require corporation to buy back their stock

Shareholder Rights

1. Institutional Investors -Size=power -Significant holdings may limit ability to walk -Increased activism 2. Rights -Inspection -Voting -Dissent -Protection

Exempt Offerings

1. Intrastate Offerings (Rule 147 - offered and sold only to residents within one state) 2. Private Offerings (Regulation D, rules 504, 505, 506) -Maximum value for securities sold, number and types of investors (accredited or not) and whether securities are restricted varies by rule -Types of disclosures required $ 1 million cap for public advertising 3. Small Public Offerings (under Regulation A) -Limits amounts that can be sold to $20 million -Permits advertising -May limit amount unaccredited investor can purchase -Requires certain disclosures

What is a security?

1. Investments such as notes, stocks, bonds, and investment contracts 2. 2 part "Howey" test: -Investment of money or assets in common enterprise? -Expect to earn profits primarily from the efforts of others?

Offer

1. Jargon: the offeror makes the offer, the offeree receives it 2. Statements that are usually not offers -Invitations to negotiate -Letters of intent (unless they indicate that they are binding) -Advertisements (unless their wording offers a unilateral contract) -Vague promises without definite terms 3. Once made, an offer can be terminated or accepted

Market Definition

1. Key concepts: -Product market -Geographic market -Cross-elasticity of demand 2. Example: Nestle/Perrier Merger -EU: bottled water in France -Nestle: all non-alcoholic refreshment beverages

DOJ Leniency Program

1. Launched in 1993 2. Grants immunity from criminal liability 3. Must be "first-in-the door" 4. Requires full confession, sharing of evidence, and restitution 5. Creates urgency to confess and generates significant evidence

Antitrust Law

1. Laws are the rules that govern competition 2. How these laws work depends on statutes, case law and politics. Statutes tell you what is prohibited. Common law interprets the statutes. Agencies (FTC and DOJ) enforce. Politics tells you whether and to what extent the laws will be enforced 3. Antitrust levels the playing field, it does not pick winners 4. Prohibits agreements or conduct that artificially raise prices, restrict output or increase barriers to entry 5. Big ≠ bad 6. High, volatile or very low prices ≠ problem 7. High prices ≈ better quality 8. Uniform prices ≈ competitive market equilibrium 9. Price volatility ≈ times of shortage or surplus 10. Very low prices ≠ problem unless they are predatory

Right to vote

1. Must extend to at least one class of shareholders 2. Shareholder approval required for: -Fundamental corporate changes (mergers, asset sales, dissolution, charter or bylaw amendments) -Election of directors -Shareholder proposals 3. Held at annual shareholders' meeting -Depending on state law, can be by unanimous written consent, in-person meeting, online. -Can be by proxy (where one shareholder appoints another to vote on their behalf)

Hart-Scott Rodino Act

1. Must notify FTC and DOJ of transactions that exceed $84.4 million before consummating 2. Lets agency review large deal for anticompetitive effects before they close

Charter

1. Name must indicate that form of business is a corporation 2. Company must have address and registered agent in the state

Consideration

1. No consideration, no contract 2. Elements -Value - both parties must receive something of measureable value and incur a legal detriment -Bargained-for-exchange - reciprocal promise and obligation -The parties must have bargained for whatever was exchanged -"If you do this, I will do that" 3. Examples: -Consideration: "If you buy me a latte, I will walk your dog." "Perfect!" -No consideration: "Hey, would you like a latte?" "I would love one. Thanks."

Sole Proprietorship

1. No formal steps necessary 2. No separate taxable entity 3. Personally liable 4. Easy to form 5. No transferable interests 6. No perpetual existence

Limited Liability Company

1. No separate taxable entity 2. No personal liability 3. Charter is easy, but should have thoughtful operating agreement 4. Transferable interests 5. General perpetual existence 6. Becomes taxable entity if it goes public

Limited Liability Partnership

1. No separate taxable entity 2. No personal liability 3. Difficult to form 4. No transferable interests 5. Perpetual existence depends on the partnership agreement

S Corporation

1. No separate taxable entity 2. No personal liability 3. Difficult to form 4. Perpetual existence 5. 100 or less shareholders

Joint Venture

1. No separate taxable entity 2. Personal liability 3. Easy to form 4. No transferable interests 5. No perpetual existence 6. Partnership for a limited purpose

General Partnership

1. No separate taxable entity 2. Personal liability 3. Easy to form 4. No transferable interests 5. Perpetual existence depends on the partnership agreement

Patentable Subject Matter

1. Not Patentable: -Laws of nature -Natural Phenomena -Abstract ideas -Mental process 2. Patentable: -Genetically engineered living organisms that are not found in nature -Synthetically created variants of genes

Clawback Policy

1. Now required for public companies 2. Establishes circumstances where company can require CEO and CFO to reimburse any profits or bonus received for selling company stock within a year of flawed company financials

The Line Between Work and Home

1. Off-duty activities 2. Vices 3. Free speech in the workplace

When does a contract exist?

1. Offer (some sort of proposal for a deal) 2. Acceptance 3. Consideration (something of value must be exchanged, but benefit can be small) 4. Legality (contract must be for a legal purpose) 5. Capacity (the parties to a contract must be adults of sound mind) 6. Consent (certain kinds of fraud, trickery or force will prevent formation of a contract) 7. Sometimes, but not always, a contract must be in writing to be valid 8. By entering into a contract, you accept a duty of performance

Unilateral contract

1. One party makes a promise that the other party can only accept by doing something 2. Example: -Carbolic smoke ball case -Advertisement promised $100 reward to anyone who used ball as directed but still got flu -Contract created "upon performance of the condition" (not a return promise)

Rule of Reason

1. Only illegal if anticompetitive impact 2. Usually involve vertical restraints 3. Courts consider business reason, industry structure, market position 4. Examples: resale price maintenance, distributor territories, reciprocal dealing, acquisition of supplier

Fiduciary Duty

1. Owed by officers and directors to the corporation and shareholders 2. Relationship is one of trust

Health Insurance

1. Patient Protection and Affordable Care Act: Employers with > 50 employees must offer basic, affordable health insurance, or pay penalty 2. COBRA (Consolidated Omnibus Budget Reconciliation Act): former employees must be allowed to continue their health insurance (at their expense) for 18 months after leaving their job

Social Security System

1. Pays benefits to workers who are retired, disabled or temporarily unemployed and to the spouses or children of disabled or deceased workers 2. Unemployment benefits set by states, not available for workers who quit voluntarily or were fired for just cause

Violations

1. Per Se 2. Rule of reason

Enforcement of Agreements That Are Not Contracts

1. Promissory Estoppel 2. Quasi-contract

Family and Medical Leave Act (FMLA) - Statutory protection

1. Protection for at will employee 2. Applies to companies with ≥ 50 employees, and employees working there for > 1 year 3. Guarantees up to 12 weeks of unpaid leave each year for childbirth, adoption, or serious health condition of employee or their spouse, child, or parent 4. Requires that employee that takes leave be allowed to return to the same job or an equivalent job with the same pay and benefits 5. An employee cannot be fired in retaliation for taking FMLA leave, but can be fired while on leave for other reasons

Trademarks

1. Protects distinctive words/symbols used by a business to identify and distinguish its products and services 2. Can't be generic, just descriptive, or scandalous 3. Registration not required, but notifies public that mark in use and entitles holder to higher damages 4. Four types -Trademarks -Service marks -Certification marks -Collective marks 5. Why register? -Valid nationally -Public notice -After 5 years, incontestable -Greater Damages -Internet use

Fair Labor Standards Act

1. Protects hourly workers and children 2. Requires that hourly workers be paid at least $7.25/ hour minimum wage and time and one-half for overtime 3. Prohibits oppressive child labor (children under 14 may only work in agriculture, entertainment, a family business, babysitting, or newspaper delivery)

Vertical Integration

1. Purchase of companies level of production 2. Among entities at different stages of production or distribution process

What is not a security?

1. Purchases that are not investments for profit 2. Forman test: "when a purchaser is motivated by a desire to use or consume

Horizontal Integration

1. Purchasing of competing companies in the same industry 2. Among competitors

1934 Securities Exchange Act

1. Registers companies 2. Focus: requiring ongoing disclosures for current and future investors 3. Application 4. Publicly traded companies 5. Private companies with > $10 million in assets and ≥ 500 record holders of equity security *SEC cares about the quality of the disclosure not the quality of the Investment

1933 Securities Act

1. Registers securities 2. Focus: requiring adequate disclosures, not guaranteeing returns

Required Disclosures

1. Registration statement -1933 Securities Act and 1934 Securities Exchange Act 2. Annual Reports -Form 10-K, 1934 Securities Exchange Act -Audited financial statements, detailed performance analysis, info about D&Os 3. Quarterly reports -Form 8-K, 1934 Securities Exchange Act -Unaudited financials, material updates 4. CEO and CFO Certifications -Information is true -Company has effective internal controls

Disclosure of executive pay

1. Relationship between financial performance and executive pay 2. Ratio between CEO total pay and median total compensation for all other company employees

Immaterial term changes

1. Requested changes in terms must be material to amount to a counteroffer. 2. Small change requests + acceptance = acceptance

Safe Drinking Water Act

1. Requires EPA to set national standards for contaminants found in drinking water that may be hazardous to human health 2. Assigns enforcement responsibility to states, but EPA can take over if they fall down on the job 3. Prohibits use of lead in any pipes through which drinking water flows 4. Requires community water systems to send customers annual disclosure of contaminants in drinking water (called "confidence report")

Occupational Safety and Health Act (OSHA)

1. Requires employers to comply with specific health and safety standards 2. Obligates employers to keep the workplace free from hazards that are causing or likely to cause death or serious physical harm to employees 3. Requires employers to keep records of workplace accidents and injuries 4. Authorizes OSHA to inspect workplaces and to assess fines for violations

4 Ways to terminate an offer

1. Revocation 2. Rejection 3. Expiration 4. Operation of law

Liability

1. Sale of Unregistered Securities 2. Material misstatements or omissions in connection with offer or sale of securities -SEC and/or purchaser can sue -Reaches both formal filings and informal statements -Anyone who signed filing or made statement can be sued -Justice Department may bring criminal charges 3. Different elements under different sections of 1933 and 1934 Acts

Sherman Act

1. Section 1: prohibits agreements "in restraint of trade" 2. Section 2: bans wrongful acquisition or maintenance of a monopoly

Professional Corporation

1. Separate taxable entity 2. No personal liability 3. Difficult to form 4. Shareholders must all have the same profession 5. Perpetual existence depends on if it has shareholders 6. Complex tax issues

Corporation

1. Separate taxable entity 2. No personal liability 3. Difficult to form 4. Transferable interests 5. Perpetual existence 6. Formal documents (articles of incorporation and bylaws) 7. Filing with secretary of state 8. Annual fees 9. Annual meetings, minutes

Bylaws

1. Set date of annual shareholders meeting, number of directors required, titles of officers, fiscal year, etc. 2. Define quorum

Clean Air Act

1. Sets National Ambient Air Quality Standards to provide an adequate margin of safety without regard to cost 2. Requires states to develop State Implementation Plans to meet NAAQs 3. Regulates stationary sources of pollution (e.g., power plants) 4. Requires states to prevent significant deterioration in air quality 5. Sets emissions standards for motor vehicles and 189 designated toxics 6. Permits Citizen Suits

Antitrust Enforcement

1. Shared by Department of Justice and Federal Trade Commission 2. Only DOJ can initiate criminal prosecutions 3. Private right of action (individuals and companies can also sue) under Sherman and Clayton Acts

Vices

1. Smoking: in roughly 60% of states, employers can't prohibit workers from smoking (but they can decide to hire only non-smokers) 2. Drugs and alcohol: Employers can test and fire workers for this, even if use off-duty

The Porter Hypothesis

1. Strict environmental regulations can focus investment and encourage innovation in ways that improve commercial competitiveness -Triggers discovery of new technologies and more efficient production -Costs savings achieved may outweigh compliance costs -Resulting IP may give innovators sustainable competitive advantage 2. Counter-veiling political economy view -Strict regulation increases costs but also protects against competition -Under certain conditions, may align interests of citizens and industry

Activist Investors

1. Tend to target underperforming companies -Supported by institutional investors -Proxy advisory firms advise 2. Make proposals for company action -Corporate governance issues (such as requiring proxy access or prohibiting the CEO from chairing the board, CEO pay) -Politics (how much company can spend on politics and lobbying -The environment 3. Limitations -Shareholders must have held stock for a year, own a certain % of the company, and can only make 1 proposal per year -Proposal cannot relate to ordinary business operations -Proposals may not be binding

Chartermongering

1. The active solicitation of corporation charters for the purpose of bolstering state revenues. 2. Intense competition among states for corporate charters between 1875-1929 3. NJ was the clear initial leader -Invented precursor to modern corporation -Balance of taxes, precedent and regulations 4. States competed by offering lower taxes, less regulation or both

Negative Externality

1. The welfare loss suffered when the social costs of using or producing a good or service are greater than its private costs. 2. Result: More of a good or service is produced and used than is socially optimal 3. Example: Smog 4. Solution: Regulation to require users and producers to internalize the full costs of their decisions

Foundations for Growth

1. Transferability of ownership 2. Access to capital -Debt -Equity 3. Ability to invest -By non-US citizens -In multiple classes of stock -Beyond small number of owners

Why does it matter?

1. Under Securities Act of 1933, securities must be registered with the SEC (unless exempt) 2. Disclosure of material facts about the investment is required 3. Prohibitions against selling unregistered securities and material misstatements 4. Steep criminal and civil penalties

Why is insider trading a crime?

1. Undermines integrity of stock markets 2. Unfair 3. Ends up increasing costs of trading

Sources of Contract Law

1. Uniform Commercial Code 2. Common Law

Truth in hiring and employee handbooks (contract law)

1. Verbal promises made during hiring process generally enforceable 2. Employee handbooks stating employees can only be fired for cause will generally be enforced as contracts (unless they expressly state: "This is not a contract")

Insider Trading by Misappropriation

1. When people without a direct relationship to the company trade on material, non-public information 2. Elements: (1) material, non-public info; (2) duty to or relationship with source of information; (3) trading

Voidable contract

1. When the law permits one party to terminate the agreement (called rescission) 2. E.g., where the other party has committed fraud, where an agreement was signed under duress, where the other side was a minor

Rejection

1. When the offeree rejects the offer 2. A counteroffer = a rejection

Unenforceable contract

1. Where the parties tried to form a valid bargain, but some rule of law prevents its enforcement 2. Example, an oral agreement for a deal that is required to be in writing

Quasi-contract

1. Where you must pay for benefit conferred 2. Elements -Plaintiff gave some benefit to the defendant -Plaintiff reasonably expected that he would be paid for it, and defendant knew this -Defendant would be unjustly enriched if he did not pay -Remedy: quantum meruit (as much as he deserves)

Implied contract

1. Words and conduct of the parties indicate that they intended an agreement 2. Example: -Every Friday for two months, John asks Larry to mow his lawn for $15. Larry does so -The next Friday, John does not ask, but -Larry just goes ahead and mows. -When he asks for his $15, John says, "No way! I did not ask you to mow." -Small claims court would probably rule that there was an implied contract and John has to pay

Promissory Estoppel

1. when you can't renege on promise 2. Elements -Defendant made a promise knowing that the plaintiff would likely rely -The plaintiff did rely on the promise -To his/her detriment -The only way to avoid injustice is to enforce the promise

Acceptance

An offeree accepts by saying or doing something a reasonable person would understand to mean he wants to take the offer -Does not need to be formal -But, offeree must say or do something

Common Law mirror image rule

Any request for a change in terms = a counteroffer and a rejection of the offer

Defamation (protection - torts)

But, qualified privilege for employers who give references (employers are liable only for statements they know to be false or are mainly motivated by ill will)

Commingling Assets

Commingling of assets also fundamental to piercing the corporate veil Elements: 1. The defendant controlled the debtor corporation 2. The defendant engaged in improper conduct (comingling assets, and a general disregard of TPO's LLC form and status as a separate legal entity, committing fraud, not adequately capitalized); and 3. As a result of that improper conduct plaintiff was unable to collect on a debt against the insolvent corporation.

The Statute of Frauds

Contracts that must be in writing and signed in order to be valid: 1. Transfers or sales of land (and leases ≥ 1 year) 2. Sale of goods over $500 3. Contracts that cannot be fully completed within one year of signing (according to the contract's terms) 4. Contracts in consideration of marriage (e.g., prenuptial agreements) 5. Promises to pay another person's debt ("surety contracts") 6. Contracts that will continue beyond the lifetime of a party performing the contract *If one of these types of contracts is not in writing, it is voidable at the option of either party

Common Law

Covers contracts for services, real estate, insurance, intangible assets (e.g., IP), and employment

Uniform Commercial Code (UCC)

Covers contracts for: 1. The sale of "goods" (anything movable, except for money, securities (think stock) and certain legal rights) 2. The sale of secured transactions (where the good is bought on credit, the buyer agrees to pay over time, and the seller retains a security interest in the property (e.g., collateral) to make sure the buyer pays).

Discharge

If a party fully performs what the contract requires, the duty will be discharged

Say on pay

Non-binding shareholder vote on compensation of top five executives

Exempt Securities

Ones considered to be very low risk 1. Government bonds (or any type of security guaranteed by the federal or state government) 2. Short term notes 3. Bank securities 4. Nonprofit securitites 5. Insurance contracts (covered by insurance regulation)

Participating preferred stock

Paid accrued dividends then share in rest as if common

Convertible preferred stock

Preferred stock with an option of converting into a fixed number of common shares, usually any time after a predetermined date

Extra protection for minority shareholders

Shareholders with controlling interest owe fiduciary duty to minority shareholders

LIBOR

The rate at which banks lend to each other in London

Insider Trading

Trading stock for profit based on confidential, non-public information

Common Stock

Voting rights, paid last

Classic Insider Trading

When a corporate insider trades on material, non-public information

Expiration

When an offer sets a time limit for acceptance, that time limit is binding

Breach

When the contractual obligations are performed poorly, or not at all, there is a breach of contract

Objection of Law

When the law ends the offer because the offeror dies or becomes mentally incapacitated or the subject matter of the offer is destroyed

Revocation

When the offeror "takes back" the offer before the offeree accepts it

FTC Act

•Section 5: Prohibits deceptive acts and practices and unfair methods of competition