comClass 8/25: A clear state/fed tension in corp law that we will be examining. 2 perspectives to think about: 1) as a planner, drafting a K- you want it to mean what you thought it meant. Most of the cases in this book could have been avoided with good drafting. Ask yourself how it could have been done differently to reach the results the parties wanted. Planners should take a conservative view of law; you want to draft the K that never gets into court. 2) as a litigator- a litigator does want to push the law to its limits because the litigator wants to win.
I. Business Associations: Background and History
A. A Bit of History – Introduction to Business Enterprises
Class 8/25: In 18th century, trend toward limited liability began. If you invested $100, you could lose that investment but only that investment of $100. The modern corporation was brought about to give corporations a way to reduce liability. Encourages capital creation, but not as positive if you’re a partner of Arthur Anderson and lost your pension after 40 years in the business.
a. Corporate law is basically state law. State competition for corporate business- over 60% of businesses incorporated in Dela.
b. Agency law is crucial to corporate law
2. Trustees of Dartmouth College v. Woodward
3. Louis K. Liggett Co. v. Lee
a. Class 8/25: Corporate managers have a power over other people’s money, which can lead to, as Brandeis points out, abuse. That is why fiduciary principles become an important part of the course; these managers are fiduciaries.
4. Corporations (J Cox, TL Hazen and FH O’Neal)
Class 8/25: Whether there should be a laissez-faire approach (Dela) or restrictive, regulatory law. In wake of Enron, etc. there are increased calls for corp regulation.
B. Partnerships and Limited Liability Associations – A First Look
1. Class 8/25: A partnership is the default form of doing business (you have a bus, more than one owner, if it’s not something else it’s a partnership). A body of law applies to you by default. There are a number of different types: limited partnership, limited liability partnership, limited liability company.
a. Joint stock companies: Few examples left, but they are also a partnership
b. Business trust: Massachusetts. Most other states, like NC, have rejected it (there’s no statute, so you can do it but you don’t have limited liability). A way to do business without a statute and with limited liability. People invest money in the business, like a trust, and are beneficiaries, and beneficiaries are never liable for the obligations of a trust.
C. Advantages and Disadvantages of Particular Enterprises
Individually owned bus’es that have no separate legal status apart from owner (mom and pop). Adv: no separation of control and ownership, so proprietor can exercise direct control over business. It’s simpler (no need to call SH meetings, or even to register with the state). Not taxed separately (income and expense
Have 2 types of partners: one or more ‘general’ partners who are each liable for all the debts of the LP, and one or more ‘limited’ partners, who are not liable for the debts of the LP beyond the amt they have contributed. One adv: limited partners can invest capital without becoming involved in mgmt. One disadv: limited partner cannot readily sell ownership interest unless it is registered under fed securities laws. Also, the LP is dissolved by the withdrawal or death of a gen partner, but not a limited partner. A historical quirk from 1916.
Limited Liability Companies (LLCs)
An incorporated P; members can actively participate in mgemt or be passive if they wish. Liability of members is limited to the amt of their investment. Disadv: sale of ownership interest is subject to securities laws. H says the law of P will apply