CORPORATIONS
INTRO TO LAW OF ENTERPRISE ORGANIZATION
1) INTRO
a) Laws of agency, partnership, and corporations
i) Agency – simplest form of business organization
ii) Partnership – simplest form of jointly owned business firm
iii) Corporate form – most stable, complex, and socially important form of business organization
b) EFFICIENY AND THE SOCIAL SIGNIFICANCE OF ENTERPRISE ORGANIZATION
i) Corporate law
(1)Addresses the creation of economic wealth through the facilitation of voluntary, ongoing collective action
(2)Deals with the creation and governance of the private legal entities that are the principal economic actors in the modern world
(a) Control over vast aggregations of wealth and power
(b)How created and capitalized
(c) How power distributed
(d)How performance is monitored
(e) What mechanisms exist to improve performance
ii) Economic efficiency is the principal standard by which this law should be evaluated…
(1)If we accept liberal perspective that – corporate law succeeds to the extent it enables individuals to increase their utility
iii) Pareto Efficiency
(1)Distribution of resources efficient when and only when resources distributed in such a way that no reallocation of resources can make at least one person better off without making at least one other person worse off
iv) Kaldor-Hicks Efficiency
(1)Act or rule is efficient (leads to an overall improvement in social welfare) if at least one party would gain from it after all those who suffered a loss as a result of the transaction or policy were fully compensated
(a) Wealth maximization – efficient if aggregate monetary gains to the winners exceed the aggregate monetary losses to losers
(b)This efficiency is what book refers to when they speak of efficiency
v) Interior and exterior perspectives on law
vi) Fairness and efficiency
(1)Generally fairness to shareholders consistent with efficient state
(2)Coase 1937 Insight
(a) Hypothesized costs associated with transactions between market participants were substantial
(b)Firms innovations that permit transactions to be accomplished more cheaply than they could be effected on markets
(3)Transactions cost theory
(a) Firm = set of transaction cost-reducing relationships
(4)Agency cost theory
(a) Addresses how actions of one actor (A) affect the interest of another (P) with whom she is tied by contract or otherwise
(i) Theorize economic actors rational, informed, utility maximizers
(b)To extent agent’s incentive different than principle’s à agency cost arises
(c) Principle aim of corporate law is the reduction of agency costs of all sorts
2) SNEIRSON
a) THEMES
i) Efficiency and fairness
(1)Efficiency
(a) Amassing wealth is one of purposes and a measurement of corp law
(i) Hicks efficiency
(ii)Paredo efficiency
(iii) Coase theorem
(2)Fairness
(a) Loyalty, reliance, good faith, fair faith
(b)Counterbalance of the efficiency aim
ii) Doctrine and policy
(1)Tension between – sometimes policy will come into play as against doctrine, drives doctrine
(2)Minor category
(3)Inside outside view
iii) Agency costs
(1)Major theme of course
(2)Agents are people who are entrusted with others’ business dealings
(a) Manage other people’s investments
(3)To extent that agent in all scenarios that the have interests that divulge from principle à agency cost
(a) Monitoring costs
(i) What it costs companies to make sure agents are performing
(b)Bonding costs
(i) What it costs to ensure agent reliable
(c) Residual costs
(i) Accounts for all other costs
1. Agent giving something free to friend
(ii)Anything agent does that doesn’t b
t
(2)Types
(a) Agents – Special or general
(b)Principals – Disclosed, undisclosed, or partially disclosed; servant/employee or independent contractor
ii) Termination
(1)Either P or A can terminate agency at any time
(a) K has set term? à breach of K
iii) Principal’s liability
(1)Agency relations may be implied even when parties have not explicitly agreed to an agency relationship
(a) EX – creditors assume too much control in relationships that ostensibly contain debtor-creditor relationships
(i) JENSON FARMS V CARGILL 1981
1. COURT – sufficient evidence from which jury could find Cargill was the principal of Warren within the definition of agency in R
(2)Liability in K
(a) Necessary for agency relationship:
(i) Agent must reasonably understand from the action or speech of the principal that she has been authorized to act on principal’s behalf
(b)Actual authority
(i) That which a reasonable person in position of A would infer from conduct of P
(ii)Included incidental authority – authority to do those implementary steps that are ordinarily done in connection with facilitating the authorized act
(c) Apparent authority
(i) Authority that a reasonable third party would infer from the actions or statements of P
(ii)True even if P explicitly limited authority of A without T’s knowledge
(iii) WHITE V THOMAS
1. COURT – S did not exhibit apparent authority to sell property in exercising authority to buy it
