B-law chapter 34 exam 3

There are three ways to acquire control of a company:

Buy the company's assets. Merge with the company. Buy stock from the shareholders.

Personal Self-Dealing

- decisions that benefit the manager directly.

Analysis of business judgment rule is divided into two parts:

Duty of loyalty Duty of care

Takeovers and tender offers are regulated:

Federal Regulation of Tender Offers: The Williams Act State Regulation of Takeovers Common Law of Takeovers

company TAKEOVER

If the company must ultimately be sold, it must go to the highest bidder; it cannot give preferential treatment to a lower bidder.

The business judgment rule accomplishes three goals:

It permits directors to do their job. It keeps judges out of corporate management. It encourages directors to serve.

Corporate Opportunity (duty of loyalty)

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

TAKEOVERS: STATE STATUTES

Most states have passed statutes to deter hostile takeovers: Statutes that automatically impede hostile takeovers. Statutes that authorize companies to fight off hostile takeovers.

Business Self-Dealing

decisions that benefit another company associated with the manager.

Managers of corporations have a fiduciary duty to shareholders and are charged with running the organization for their benefit. The law, whether federal or state, common or statutory, grants managers great freedom in deciding how to promote the shareholders' interest.

T

Self-dealing transactions may be acceptable if:

The disinterested members of the board of directors approve the transaction. The disinterested shareholders approve it. The transaction was fair to the corporation.

Companies may try to prevent takeovers in many ways:

Transferring assets, re-distributing stock, re-structuring the board of directors, etc. When establishing takeover defenses, shareholder welfare must be the board's primary concern.

The duty of loyalty prohibits managers from

making a decision that benefits them at the expense of the corporation. Self-Dealing is a violation of the duty of loyalty.

The duty of care requires

officers and directors to act in the best interests of the corporation and to use the same care that an ordinarily prudent person would in the management of her own needs. Decisions must have a rational business purpose. Decisions and actions are legal. Managers must make informed decisions.

The law provides two sets of corporate rules:

one to govern a manager's relationship with stakeholders another for the relationship among managers, the corporation, and its shareholders.

Stakeholders

want the business to grow and continue to use the stakeholders' services. With hostile takeovers in the 1980s, communities began to realize when a company was acquired, they were hurt too.

Shareholders

want the price of stock to increase. The officers and directors of a corporation owe a fiduciary duty to both the corporation and its shareholders. the business judgment rule provides that managers are not liable for decisions they make in good faith. If a manager has acted in good faith, a court will not hold her personally liable for any harm her decision has caused the company, nor will the court rescind her decision.

Managers

want, first to keep their jobs and second, to build a strong company. Managers have a fiduciary duty to act in the best interests of the shareholders.