Enterprise Organizations. 2
I. Introduction to Organization in Firms. 2
A. Introduction. 2
B. Agency Principles. 2
C. Partnerships. 7
D. The Nature of the Corporation. 11
1. Incorporation. 11
2. Limited Liability. 12
3. Financing the Corporation. 15
4. Role and Purpose of the Corporation. 16
II. Fiduciary Duties and Shareholder Litigation. 19
Business Judgment Rule/Duty of Care/ Loyalty. 19
B. Duty of Care. 19
1. Kamin v. American Express (1976) p. 298. 19
2. Joy v. North (1982) p. 301. 20
3. Francis v. United Jersey Bank (1981) p. 310. 20
4. Normal Process for Merger or Transaction. 20
6. Smith v. Van Gorkom (1985) p. 316. 21
7. Cinerama v. Technicolor, 1983 p 338. 22
8. In re Caremark International Derivative Action. 22
C. Duty of Loyalty. 22
Burden Shifting. 22
2. Bayer v. Beran (1944) p. 351. 23
3. Lewis v. SL & E Inc.23
CORPORATE OPPORTUNITY.. 23
2. Energy Resources Corp. v. Porter (1982) p. 366. 24
3. Broz v. Cellular Information Systems Inc. (1996) p. 361. 24
4. Sinclair Oil Corp v. Lavien (1971) p. 372. 24
D. Relationships: The Shareholder Derivative Suit25
1. Shareholder derivative actions. 25
3. Grimes v. Donald (1996) p. 250. 25
4. Marx v. Akers (1996) p. 259. 26
E. Indemnification and Insurance. 26
III. Shareholder Issues. 27
A. Shareholder Voting. 27
B. Proxy Fights. 27
C. Shareholder Proposals. 28
D. Shareholder Inspection Rights. 30
IV. Mergers, Acquisitions, and Takeovers. 32
A. Mergers and Acquisitions. 32
B. Takeovers. 34
V. Regulation of Share Transactions. 44
A. Insider Trading. 44
B. Securities. 46
Enterprise Organizations
I. Introduction to Organization in Firms
A. Introduction
1. Rules of Corporations
a. Tradeoff between risk and controlà those with more control must take on more risk
b. FORM over substance
c. People make corporations
d. The cause of corporations is people and is therefore affected by markets ($, labor, time)
e. Corporations are affected by rules, made by courts and legislatures
a. Ask who benefits from each legal rule
b. Is the result optimal
c. Mostly this is a matter of state law (DE)
f. Planning by lawyers matters
a. Lawyers figure at what point could have a problem been avoided
2. To start a business, you need $ and an idea
a. Either raise capital or seek out profitable business plans
b. Get money in exchange for control
a. Can be in the form of a loan—debt
b. Stock—stockholders gain control, they each own a piece of the company
c. Often problems when there is a separation of ownership and control—i.e. director has control while stockholders have ownership
i. Sloth, greed stupidity
3. Duty of Care/ Loyalty
a. 2 problems: Sloth and greed
b. Business Judgment rule
4. Usually, shareholders are only liable up to their investment– have little control
5. The Director is an AGENT of the shareholders
B. Agency Principles
1. Agency cases are the heart of corporations
2. Agency examines the extent of control—how much does control matter and what degree of control matters
a. Employee Versus Independent Contractor
a. Cases examine how oil companies sell their product
i. Independent gas filling stations
ii. Stations are owned by the corp.
b. Method of organization/ ownership determine liability for negligent employees
c. Independent Contractor: A party undertaking a particular assignment for another over the manner in which it is executed
i. RST Agencies §2
d. Agent: An individual who has the authority to act on the behalf of others
e. Respondeat Superior
s of transactions
2. (2) Special—authorized for single transaction
iv. §4. Disclosed Principal; Partially Disclosed; Undisclosed principal
1. (1) disclosed principal: at time of transaction 3rd party has notice that the agent is acting for a principal and of the principals identity
2. Partially disclosed—3rd party has notice that agent is acting for principal but no notice of principals identity
3. Undisclosed principal—no notice that agent is acting for principal
v. § 5. Subagents and Subservants
1. Subagent—appointed by agent with agreement by principle that agent is responsible
2. Subservant—appointed by servant—conduct the servant is responsible
vi. § 6 Power: Power is ability to produce change in legal relation
vii. § 7. Authority: Power of agent to affect legal relations of the principal—manifestation of consent by principal
viii. § 8. Apparent Authority: the power to affect the legal relations of another person by transactions with 3rd persons, professedly as agent for the other, arising from and in accordance with the other’s manifestations to such third persons
