Edward Ellers – Corporations – Fall 2013
Business Organizations (3rd Ed) by Smith, Williams
· Shares to be Issued
o § 2.02(a)(2)
o § 102(a)(4) — (or shares not to be issued for non-stock corporations)
o § 6.40 and § 6.40(c) for calculation
o § 151(c) and § 154 for calculation
· Classes of Stock, Powers / Limitations / Rights
o § 6.01
o § 102(a)(4) & § 151
· Provisions for management of the business & conduct of the affairs of the corporation (creating, limiting, defining, regulating powers of the corp./directors/stockholders)
o § 2.02(b)(2)(ii) & (iii)
o § 102(b)(1) and § 151
· Preemptive Rights
o § 6.30
o § 102(b)(3)
· Exculpation Clause
o § 2.02(b)(4)
o § 102(b)(7)
· Ability for a class of shares to elect a director
o § 8.04
o § 141(d)
· Staggering the Terms of Directors
o § 8.06
· Director Removal — Clause limiting directors removal to “only for cause” (find statute under MBCA)
o § 8.08(a)
o § 141(k)(1)
· Board of Directors (powers and duties) — Any limitation on the board to manage the corporation
o § 8.01
o § 141(a)
· Confer the power to adopt, amend, or repeal bylaws upon the directors
o § 109(a)
· Take away the Board’s power to amend or repeal bylaws, or reserve amend/repeal power
o § 10.20(b)(1) — Generally
o § 10.21 — Supermajority voting restrictions
· Action without a shareholder meeting
o § 7.04
· Meeting notice requirements — § 7.05 (not amendable)
· Waiver of notice — § 7.06
o § 228
· Meeting notice requirements — § 222 (not amendable)
· Waiver of notice — § 229
· SHAREHOLDER – Voting (votes per share)
o § 7.21(a)
o § 212
· Cumulative Shareholder Voting For Directors
o § 7.28
o § 214
· SHAREHOLDER – Quorum & Voting
o § 7.27
GO THROUGH 10 Rules in MBCA and find similar rules in DGCL
Articles or Bylaws:
· Shareholder Agreements —– NEED TO FIND THE DEAL FOR SHAREHOLDER AGREEMENTS IN THE DGCL
o § 7.32
· Restrictions on Transfer of Stock
o § 6.27
o § 202(b)-(d) — Has a catchall in § 202(e)
· Director Qualifications (need to be stockholders?)
o § 8.02
o § 141(b)
· Number of Directors
o § 8.03
o § 141(b)
· Rules about BOARD Meetings & Committees (Actions w/o Meetings, Notice, Waiver of Notice, Compensation)
o §§ 8.11, 8.20-8.24
o §§ 141(f)-(i)
· Rules about SHAREHOLDER Meetings
o § 7.01 & § 7.02
o § 211
· BOARD – Quorum & Voting (supermajority)
o § 8.25
o § 141(b) — voting requirements can be put in the articles, restricting the bylaws’ ability to control (§ 102(b)(4))
· SHAREHOLDER – Quorum & Voting
o § 216
· Committee’s powers
o § 141(c)(1) — ** except one part, that seems to only be a bylaw amendment.
· Staggering the Terms of Directors
o § 141(d)
· Anything that can be put in the bylaws, can be put in the articles
o § 2.02(b)(3)
o § 102(b)(1)
Differences between MBCA & DGCL
· Powers of a Committee
o MBCA – Limited by § 8.25(e)
o DGCL – Limited by § 141(c) unless the articles or bylaws expressly provide
· Amending/Repealing Bylaws
o MBCA – § 10.20
o DGCL – § 109
· Exculpation Clauses:
o MBCA – 2.02(b)(4)
· May eliminate or limit the liability of a director to the corporation or its shareholders for money damages for any action taken, or any failure to take action in breach of the duty of care, including breaches that constitute an intentional violation of civil law.
· Articles may not exclupate directors for:
§ receiving financial benefits to which they are not entitled,
§ Approving improper dividends,
§ Intentionally harming the corporation,
§ For intentional violations of the criminal law.
o DGCL – 102(b)(7) — permits narrower exculpation than MBCA
· May not exculpate its directors for breaches of the duty of loyalty, or
· For acts or omission not in good fairth or which involve intentional misconduct or a knowing violation of the law (civil or criminal)
· Removal of Directors
o MBCA – With or without cause § 8.08
· Cumulative voting clause — director may not be removed if the number of votes sufficient to elect him under cumulative voting votes against his removal.
· No rule about removing all directors
o DGCL – With our without cause, unless staggered board, then only for cause, unless articles provide otherwise. § 141(k)
· Cumulative voting clause — director may not be removed WITHOUT CAUSE if the number of votes sufficient to elect him under cumulative voting votes against his removal.
· Unless ALL directors removed
· Duty of care
o MBCA has a statement about duties of care § 8.30
o DGCL still does not contain any general statement of directors’ duties. Such duties are strictly judge made.
· Minority Oppression
o MBCA – Donahue test
· have to show: small # of shareholders, substantial participation of managers, no ready market for shares
· Remedies for minority oppression
§ Variety of court made options
o DGCL – no cause of action for minority oppression. You have an ability to contract for whatever you want to contract for
· Voting Trusts (kind of goes along with the minority oppression reasoning)
o MBCA – 10 year maximum (§ 7.30(b))
o DGCL – No explicit maximum, just what is agreed upon. § 218
· Corporate Opportunity
o MBCA – Opportunity must be presented and rejected by the disinterested shareholders. § 8.70 sets out specific procedures.
o DGCL – Do not have an obligation in DE to present it first. § 122(17) allows the corporation to amend the articles to take it out of the duty of loyalty. Or allows the board to do that, leaving it to the courts.
· Quorum and Voting Requirements
o MBCA – must be in the articles of incorporation § 7.27 & § 7.28
o DGCL – can be amended in the articles or bylaws, if amended in the bylaws, and adopted by stockholders that specifies votes necessary for election of directors shall not be further amended or repealed by the board of directors. § 216
· Cleansing — Pretty much the same under both just pointing out the rules — MBCA is much more in depth and specific to the actions that an interested director has to take.
o § 144(a)(1-3)
o §§ 8.61-8.63
Duty of Care vs. Duty of Loyalty
What can you attack?
· The Decision — Normally bad decisions alone can’t be attacked because they are protected by the business judgment rule. Exception for egregious decisions. (Gagliardi)
o If it is the final decision, there is heightened scrutiny. (Van Gorkom)
o Failure to disclose all material information about the merger & failure to inform themselves of all information = Gross Negligence. Breach Duty of Care. (Van Gorkom)
o Since Van Gorkom, Exculpation Clause: No reason to attack duty of care, because exculpation protects directors. Must attack duty of loyalty.
from the principal manifestation that someone is allowed to act on their behalf
o The manifestation comes as a result of actions of the principal and agents
o Acceptance can be done explicitly or implicitly through actions
o Inward and outward looking
· Immutable – outward looking (how will it affect 3rd parties) — Can’t be changed
· Default rules – inward looking (how will it affect parties within the organization) — Can be changed
· Can’t disclaim agency. If you meet the definition, you are there.
· Consent has to reasonably match the statement to form an agency relationship. This is subjective. (If I say I want to get rid of someone, and you kill them. You are not reasonably interpreting my statement.)
Fiduciary duties – what fiduciary duties exist? Every agency relationship comes with fiduciary duties.
· Rules — There will be gaps
o Immutable – outward looking (how will it affect 3rd parties) — Can’t be changed
o Default rules – inward looking (how will it affect parties within the organization) — Can be changed
· The notion or doctrine of fiduciary duty fills the gaps between the rules or statute. Fiduciary duty falls into a couple general categories
o Loyalty (important to us) — compels a fiduciary to refrain from self interested behavior that constitutes a wrong for the principal.
o Care (important to us) — duty of an agent to perform work in a non negligent manner.
o Disclosure — affirmative duty not to disclose, to third parties, significant information without getting the principal’s permission.
o Good Faith (maybe)
· Degree and variance of the duties will change with context.
Principles of Attribution
· Principals can be held liable for the tortious actions of their agents, and can be required to fulfill contracts into which their agents have entered.
o Control – Qui facit per alium facit per se – (he who acts through another, acts himself)
· What level of control is necessary to prompt a finding of liability?
· Why is control, standing alone, usually insufficient for a finding of liability?
o Benefit – those who gain from the actions of another should sometimes be held to answer for costs inflicted by those actions
· In which circumstances does benefit play an important role?
· Whether benefit standing alone may be sufficient?
o Consent – central to the determination of when an agency relationship exists, and thus when it is fair to impose liability on the principal for actions of the agent.
· Separate the rationales for imposing liability in the tort context from the rationales for holding principles responsible for fulfilling contracts into which their agents have entered.
· Bases for holding the principal responsible for the actions of an agent:
o Doctrines of authority
· Actual authority
· Apparent authority
o Doctrines of vicarious liability (respondeat superior) — Not covered, from torts.