Business Associations/Corporations Outline

CORPORATIONS – Rodrigues – Fall ‘09
 
I.                    Introduction
 
a.       Corporations are statute based ie. mostly state law controlled.
 
b.       DE v. MCBA Jx
                                                               i.      DE = leading jx for public corporations
                                                             ii.      Model Act = most states adhere to
 
c.       “Business Organization” = a series of relationships (b/t individuals & groups) to form & manage the organization
                                                               i.      Eg. Sole proprietorship, P’ships (LLP), LLC, Corporations
 
d.       Qs when starting up: What kind of entity to form? Why important?
                                                               i.      Issues/considerations:
1.       Tax: varies b/t entities, often the driver b/t which form is chosen
2.       Liability (of individuals vs. partners vs. s’hers)
3.       Control/mgmt
4.       Liquidity (how to get money): share of profits
5.       Exit: how to get share out, how u get $
 
e.       “Transaction Cost” = costs incurred in making an economic exchange
                                                               i.      Ex:
1.       $ saved/time expensed when buying bulk wine
2.       Time used to search for which atty to use
a.       Can also be a cost engineer:steer client to cheaper alternative form
3.       Police/enforcement of other side
a.       Concern for “opportunism:” that the other will not to act in only their own interest
 
f.        Default v. Immutable Rules
                                                               i.      Default: statute (ptys can opt out of by contracting around)
                                                             ii.      Immutable: rules the ptys must follow, can’t bargain out of (ie. fiduciary duty rules)
 
g.       Norms apply even if ptys can’t go to ct but can change according to circumstances eg. law firm now rescinding summer offers
 
AGENCY
 
I.                    Agency law is the law for sole proprietorships.
 
II.                  Fiduciary Duty –the Agent owes the Principle a fiduciary duty. FD imposes a general obligation to act fairly.
 
a.       The P has a duty to 3rd parties so in hiring an agent P is taking a lot of risks ie. lost business, lost money in wages, liability for their actions. The fiduciary duty comforts the P.
b.       Principles may K for greater protection from postemployment competition instead of relying solely on FD.
 
III.               Fiduciary Limits on the Agent’s Right of Action
 
a.       GR: until termination of the relationship, an EE owes FD to prefer the ER’s interests to his own.
 
                                                               i.      CCS v. Reilly (pg 16): Reilly breached FD by entering into agmts for Ks to be fulfilled after leaving CCS while still employed by CCS. He can’t solicit future biz for himself when he was supposed to be soliciting for CCS.
 
1.       Reilly argues: (1) Ks were long term commitments which happened to start b4 he left, (2) No non compete clause in employment K.
 
2.       CCS argues: (1) Reilly entered into agmts while still employed w/CCS, (2)Reilly had fiduciary duty. Had duty to prefer employer’s interest to his own, (3)Didn’t file req’d reports ⇒ in order to cut out CCS, (4) Lied about reasons for leaving, not b/c wife ill/want to teach/work for gov.
 
3.       Result: Reilly had to turn over fees collected on accts.
 
b.       An EE is entitled to the general knowledge, experience, memory, & skill gained from employment. An EE is allowed to make logistical arrangements (eg. financing, location) for a new biz b4 leaving employment.
 
Hamburger v. Hamburger (pg 19): ∆ = nephew of π, built up biz, left to start own biz after uncle said will fire him after his dad (the other biz partner) dies, got supplier to finance new biz, called old customers from publicized lists.
                                                               i.      Ct: what ∆ did was ok b/c made mere logistical arrangements (financing, location), not illegal to do while employed
                                                             ii.      Info ∆ can take with him after leaving the employment:
1.       ∆ was able to use gen knowledge, experience, memory & skill
2.       ∆ entitled to lists b/c available publicly, published
 
                                                         iii.      Protections ER/EE can take:
1.       Non compete: changes what otherwise you may be entitled to from the employment
a.       Ex ante – protects on front end of relationship
b.       EE can try to limit (ie. in time, location)
2.       Ntc req b4 leaving
3.       K to protect trade secrets
 
c.       Exceptions- when the P (ie. owner) owes FD:
                                                               i.      public policy
                                                             ii.      good faith
                                                           iii.      fair dealing
 
IV.                Agency Law and Relations with Creditors (ie. 3rd ptys)
 
a.      The A’s actions will bind the P only if the P has manifested assent to such actions.
 
Actual: express or implied
 
                                                               i.      Express: direct authorization from P to A
1.       Eg. P instructs A in writing or orally as to scope of A’s authority
 
                                                             ii.      Implied: from conduct of P
1.       Eg. P doesn’t give express authori