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Business Associations/Corporations
University of Pennsylvania School of Law
Bratton, William Wilson

Corporations Outline
Bratton Fall 2010
I. Background
A. Agency Relationships: Restatement (Second): Agent = A person who by mutual assent acts on behalf of another and subject to another’s control
1. Authority
i. Actual: principal’s words or deeds lead reasonable person in Agent’s position to believe action is authorized
a. Express: authorized transaction
(1) principal liable to 3rd party
(2) 3rd party liable to principal
(3) agent not liable to 3rd party (if principal disclosed)
b. Implied: zone of implication from express grant
ii. Apparent: words or conduct of principal leading a reasonable 3rd party to believe agent has authority
iii. Inherent: General Agent for disclosed or partially disclosed principal can bind principal for actions usually accompanying or incidental to transactions, even if forbidden, if 3rd party reasonably believes agent is authorized (rejected by Restatement 3rd)
· Ratification: principal can ratify contract ex post
· Termination is at will
2. Fiduciary Duty
i. Restatement 2nd 387: Agent has duty to act solely for benefit of principal
ii. 388: Agent must turn over a profit made in connection with agency
iii. 389: Agent may not act as “adverse party”
iv. 390: Agent who wants to act on his own must put principal back in independent position
· All these can be contracted out of
· Agent must disclose and be fair
II. Selection of the Form of Business Enterprise – Corporations and Alternative Forms of Business Organization
A. Martin v Peyton: co-ownership = (a) a financial stake including profit sharing; (b) right to participate in control
B. Partnerships: association of co-owners for profit
1. Organization/maintenance: handshake
2. Management/control
i. 18e: equal rights in mgmnt
ii. 18h: voting
a. unanimity to amend Partnership agreement
b. unanimity to admit new partner
c. majority rule: ordinary matters
iii. 9: every partner an agent—apparent authority
a. if w/in zone of apparent authority, contract upset only if 3rd party knows partner is acting w/out authority
b. can’t do “extraordinary actions”
iv. 12: notice to one partner is notice to all
3. Capital and proceeds
i. 18a: equal shares on profits and losses
4. Raising capital
i. debt: can borrow with partners liable
ii. new equity means new partners
5. Tax: check the box (flow through or entity)
6. Transferability
i. 18g: consent of all partners necessary
ii. 27: unconsented transferee gets cash rights only
7. Liability: 15: unlimited personal
i. joint and several for tort/joint for contracts
ii. deep pocket partner has right of indemnification against partnership (18b) and contribution against individual partners
8. Duration
i. at will
ii. at dissolution
a. no new contracts
b. but still exists for past obligations
iii. dissolution leads to winding up: performs past contracts, but no new ones
iv. termination: final payout
v. Dissolution in contravention of partnership agreement: 38(2)b,c—remaining Ps can pay value of interest or put up a bond to indemnify departing P—but you can put a lowball valuation measure in PA
vi. Partner expulsion: if PA says nothing, must be for good cause; wrongful expulsion is ground for judicial dissolution (32)
C. Limited Partnerships: partnership with general and limited partners (Ltd partner not bound by partnership debts)
1. Oranization/maintenance:
i. LP agreement
ii. File certificate with state (201a)
iii. Annual fee
1. Management/control
i. Gen partner is mngng partner and general agent
ii. limited partners share in profits and vote on fundamental matters, but are not agents
2. Capital/proceeds: on the basis of value
3. Raising capital
i. debt: borrow with Gen Partner liable
ii. New equity means new GP or LPs
4. Tax: check the box (flow through or entity)
5. Transferability:
i. GP same as in partnership
ii. 702: LP has right to assign profit share
6. Liability: LPs not liable beyond contribution (303a)
i. limited so long as not participating in control
ii. 303b: certain activities not considered to be participation in control
7. Duration
i. GP: same as in

The Value of a Share
1. Rule 1: value is cash in your pocket, not numbers on a page
2. Rule 2: money has a time value
3. Present Value = asset / discount rate
B. Shareholder Value and the Objectives of the Corporate Entity
1. high risk/high return > low risk/low return even though individual shareholders are risk averse because shareholders will diversify
2. Dodge v Ford: corporations should be run to maximize shareholder value
3. 122(9): corporations can make donations
4. Smith v. Barlow: gift valid if not indiscriminate, not to a pet charity, not in furtherance of personal rather than corporate ends
C. Constituency Interests
1. no duty to non-shareholder constituents
2. constituents can protect themselves with contracts
V. The Corporate Entity and Its Creditors – Disregard of the Corporate Entity
A. Atex: piercing veil requires (1) fraud or (2) alter ego
1. alter ego when (a) single economic entity and (b) overall injustice
B. Piercing veil for tort:
1. alter ego/instrumentality
2. inadequate capitalization—a factor in an alter ego case
C. Piercing veil for contract:
1. Fraud as misrepresentation—always works
2. alter ego/instrumentality—works but not as justified as in tort
3. inadequate capitalization—still a factor
VI. The Distribution of Corporate Powers
A. The Board of Directors
1. 141a: the business of corporation is managed by board
2. 141b: board action—meeting, quorum, majority vote
3. 141c: can delegate to a committee anything not requiring shareholder approval or by law amendments
4. 141f: informal action—if unanimous and in writing, as good as a meeting
B. Independent Directors