Business Associations
1) Introduction
a) Epstein-Freer View and Roberts-Shepard View
i) Most people who start businesses do it to make money.
(1) The defining characteristic of a business is that economic activity is organized for the purpose of earning a profit.
b) Roberts-Shepard View
i) A business is some form of activity that is organized to “create value” for its owners.
(1) A business must create a profit in some sense, but not necessarily in the conventional sense.
ii) Shepard’s View
(1) Believes that the goals of businesses can be broader than just earning profit.
(a) Businesses are not formed just to make money, but to help people.
c) Business Structures
i) Law makes careful distinctions between business structures
(1) Who the owners are (i.e. shareholders, partners, sole proprietor)
(2) What rights and obligations the owners have
(3) Whether the business itself is a legal entity separate from the owners.
d) Businesses are the forum for economic activity, the objective of which is often to earn an economic return, profit, or other increased value to the proprietor.
2) Views of Other Gonster Machers
a) Friedman’s View
i) In a free-enterprise, private-property system, a corporate executive is an employee of the owners of the business.
(1) His responsibility is to conduct business in accordance with the owners’ desires.
(a) Thus, the executive is the agent of the individuals who own the corporation.
(i) He is, however, a person in his own right and has duties or other social responsibilities that he assumes on his own.
1. In this capacity, he is acting as a principal, not an agent.
a. He is spending his own money or time or energy, not the money of his employers or the time or energy he has contracted to devote to their purposes.
(ii) Only one social responsibility of a business
1. To use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game.
a. Friedman says that any action taken should benefit the company in some manner. There must be a nexus between the action and the benefit.
ii) Agency: The fiduciary relation which results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other so to act. Restatement (Second) of Agency §1
iii) Principal: The one for whom action is to be taken. Id.
iv) Agent: The one who is to act. Id.
A.P. Smith MFG. Co. v. Barlow – (1953)
Facts
AP Smith manufactures valves, fire hydrants and special equipment for the water and gas industries. Its board of directors adopted
te.
(2) Further, state legislation adopted in the public interest and applied to pre-existing corporations under the reserved power has repeatedly been sustained the US Supreme Court.
ii) The donation is valid. There is no suggestion that it was made indiscriminately or to a pet charity of the corporate directors in furtherance of personal rather than corporate ends. It was a lawful exercise of the corporation’s implied and incidental powers under common-law principles and that it came within the express authority of the pertinent state legislation.
NOTES and Rules
e) The MBCA and other corporate codes now expressly authorize corporations to make charitable contributions.
i) However, there are scholars who still contend that corporate giving, if it is permitted at all, should be strictly limited to those situations where the benefit to the firm in the form of higher expected profits is clear and compelling.
Friedman: If managers to do anything with property other than what the shareholders want them to do would be to expropriate resources that do not belong to them.
