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118 Cards in this Set
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- Back
- 3rd side (hint)
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Determinations of interest
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possession of money and risk of default
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who gets what's left over after credirotrs are paid
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residual claimant
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use of borrowed money to purchase business assets
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leverage
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if you are the beneficiary of leverage, what do you get from the company and when
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when you get interest, not dividends, and are paid first, before creditors
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rate on invested capital<interest on bonds
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negative leverage
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100k in stock and 100k in bonds, each paying 8% in y1. if y2 earnings are 6%, what is the drop%? what do stockhodlers get
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drop 25%, bond=8%, stock=4%
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rate on invested income>bond interest
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positive leverage
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when should you leverage
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business return>interest rate
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corporate conundrum
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sep ownership from control
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Freeze out
what kinda businesses? what are steps? how to do you solve |
closely held companies
a b c earn salaries, dividends, a b stop divs to all, stop c salary BY FIRING, cant sell to 3d party solve ahead of time by buy out agreement |
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agency costs
author |
jenson and meckling
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agency costs theory
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agents are concerned with their own perks which is different from the owners and the differential is the agency cost. watching over them is also an agency cost.
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transaction costs
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relative lack of transferability of goods from a certain transaction to other uses
leads to vertical integration ie enron |
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Theory on Capital markets
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Malkiel
higher risk=higher reward modern portfolio theory- diversify capital asset pricing models- impossible to predict stock ptrices |
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modern portfolio theory
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diversify your portfolio using different indicators
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capital asset pricing model
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impossible to predict stock ptrices, since they all move in relation to each other
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economic justifications for PCV
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lowers costs of captial to corps by not making their shareholders individually liable for losses, thus increasing investment. also corps need to induce less, since risk is paid for with higher dividends .
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PCV justifications for externalizing risk of doing business
-hint- |
shareholders protected from risk of loss, and can capture benefits
creditors can account for risk in interest rates |
how are shareholders and creditors affected
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efficient market hypothesis
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stock markets reflect fully available info
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efficient market hypothesis- weak form
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incorp historical prices
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efficient market hypothesis- semi-strong form
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incorp historical prices and pub info
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efficient market hypothesis- strong form
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incorp historical prices, pub info, and priv info
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Easterbrook and Fischel on LL and Corp
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wealthy investors would not invest
creditors are compensated by charging higher interest rates, but tort are not |
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woodward theory of the the firm
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pcv would make selling stock difficult since rich would avoid and ppor are judment proof.
limiting liability limits transaction costsfor monitoring insurance apportioning |
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What is agency
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fiducairy relationship arising when P manifests to A that A shall act on Ps behalf and A consents
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how can agency be manifested
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thru words and acts
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what is the diffence betw agency and authority
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agency is relationship, authority is power to act
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dif betw servant and independant contractor
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IC not subj to physical control of P
not servant may or may not be an agent |
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when is an independent contractor a nonagent
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when he enters in to arms length transactions with P and is just requested to get job done.
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what is authority
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power of agent to affect legal relationship of principal
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respondiat superior
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employer vicariously liable for actions of employee
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public policy reasons for respondiat superior
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employer has power of supervision, can spread costs over all consumers, induces them to deter
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how do you determine whether agent or nonagent independent contractor? Cases?
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amount of control P has over A, esp physicial, detail oriented control over performance. also considerations like skill of actor, occupation, length of employment, etc.
humble oil (yes) sun oil (no) |
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Are franchises agents of franchisors? case?
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depends on amount of control. murphy v holiday inns
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is actual control or right of control required to determine whether servent or independent contractor?
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right to control
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apparant authority
cases? |
authority a 3d party reasonably believes an agent has based on dealings with principal
lind v schenley k 370 leasing k billops v magnus tort |
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inherent agency
cases |
P responsible to 3d parties for acts of A inherent in the job of A, regardless of actual authority
Watteau v Fenwick |
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agent enters in to k on behalf of undisclosed principal
3d party sues P |
p is liable even if undisclosed, under inherent agency, even if contrary to intent of p
(restat 195) |
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fiduciary duty contains two branchs
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duty of care
duty of loyalty |
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does fid duty end at termination of relationship?
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no
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duty of care cases
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town & country
bancroft-whitney |
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sole proprietership taxes
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individual
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sole proprietership raises money by
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borrowing only
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LLC stands for
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Limited Liability Company
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advantages and disadvantages of LLC
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limited liability
managed by members or directors (flex) favorable taxes dis- complicated operating agreeemnt |
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transferability of llc
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difficult because of closlely held nature worries ppl about freezeout
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mgmt of llc
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members or managers
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formation of llc
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operating agreement, state filing
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liability of LLC
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limited but common law agency doctrines apply
PCV same as corps |
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LLC taxes
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pass thru model like partnership
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financing LLC
1- stock 2- borrowing 3- 1 & 2 4- neither |
3. stock or borrowing
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definition of pship
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assoc of 2 or more persons or entities carrying on as co-owners of business for profit
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what is fid duty of partners
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each owns fid duty to other partner
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agency and pship
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each partner is agent to pship
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mgmt of pship
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equal unless k
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ownership of pship
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equal unless k
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dissolution of pship
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any partner can walk away and get what they put in less liability for debts, plus profits
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transferability of pships
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must be appoved by partners
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pship taxes
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pass through
file pship tax form each p is taxed on his shares of pship income income can be directed to different ps in dif ways |
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how are losses shared in pship
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in same proportion as profits
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liability of pship
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unlimited
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formation of gp
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nothing, just more than 1 persn splitting proffits
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mgmt of LP
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GP has unlimited mgmt
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what happens when a limited partner manages
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he loses limited status
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LP liability
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Lps have limited Gps have unilimited
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LLP mgmt
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each partner has right unless k
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how many partners in llp must determine to make ordinary decision? change pship agreement?
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majority for ordinary, all for pship change
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discuss limited liability in the LLP
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some states protect one p from other ps in k or tort, some just malpractce or tort.
pcv same in llc |
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distinguish partner and employee with profit sharing
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partner has management authority or co-ownership, and possible contribution
intention, profit, losses, ownership, control, POLIC |
POLIC
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duty of care standard for pship
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gross negligence
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duty of loyalty standard for pship
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punctilio of an honor most sensitive
Meinhard v Salmon |
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fiduciary duty to a partner after pship?
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none
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requirements for expulsion
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ok in pship, good faith
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what right do partners have to nix other partners actions in common law? if k?
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under common law, none, partners are agents of pship. if k, majority is required to oppose and half opposition is not a majority, so no authorty to nix
Natl Bisc Co. |
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what is the sharehodler relatioship with corp
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they are owners
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in corp, who owns property?
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the corp
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who owns stock in llp?
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no one, there isnt any
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transferability of ownership in corp?
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yes, stock is freely transferabile, tho ppl may not want to buy closely held corp bec of freezeout
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who appoints management in corp?
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board appts mgmt, shareholder appoint board
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who do board members owe a fid duty to ?
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corp
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if you are going to lose money, whats the best corporate form?
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LLP, LLC, NOT corp
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how does corp tax pass thru
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it doesnt
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how do corps file taxes
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file on behalf of co, taking deductions, and pay taxes as corp. then 2d tax on dividends if any
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what is the duty of a corp to pay dividends, what supports
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no duty to pay dividends, BJR supports this
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double tax on what form of corps
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c corps
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what forms have pass thru taxation
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s, pship, llc
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public policy (not econ) reasons to PCV
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equitable remedy to avoid injustice
to prevent fraud and achieve equity |
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resident of state A injured in state B by car bought in state C sold by company incorcp in state D. if resident sues to peirce, which state determines piercing
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D, state of incorp law
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What is liability of corp owners
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generally owners have no personal liability for corp debt
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what factors determine whether PCV should occur in tort? in k?
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Fraud (k)
Equity Capitalization (Tort) Formalities Alter Ego Commingling |
FEC FAC
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besides FEC FAC, when else would PCV occur in corp?
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respondiat superior
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besides FEC FAC, when else would PCV occur in corp?
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respondiat superior, express assumption of liability, tort claims
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PCV cases
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Walkovsky (enterprise pcv for tort when many cabs held out as one, but adequete capitalization so not to O), Pepper Source (owner, fraud pcv), kinney shoe (owner, no pcv for inad cap in k)
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what happened in walkovsky and what was pierced
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enterprise/horizontal piercing since fraud or consumer confusion since many cabs hedl out as one, but not to O since no inadequete cpitalization
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To PCV in tort, you need to show what one thing
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inadequete capitalization, sometimes fraud
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if you are biz owner, how do you determine adequte capitalization?
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historical risk exposure < assets + insurance
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to PCV in k, you must show what one othing
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deception/fraud
ie kiney shoe, |
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distinguish betw pcv in k and tort
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tort claimant did not choose to enter into relationship, k claimant could have investigated
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to D argument in PCV that k claimant chose to enter into transaction with D and could have reseearched him, what justifies PCV
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fraud or deception overcomes assumption of risk
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parent-subsidiary PCV cases
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in re silicone gel breast
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is fraud helpful in tort PCV? explain.
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generally no since P did not enter in to transaction voluntarily, unless that was not the case.
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A sets up A inc to protect himself from getting sued, is this a basis for PCV?
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without fraud, deception, inadequete capitalization, or more, no
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who can waive duty of loyalty
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no one, not even all shareholders
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can BJR be a defense for claims of self-dealing
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no, self-dealing is duty of loyalty claim and BJR is no defense to BJR claims.
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if overreaching (ultra vires), does BJR defense work?
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to the extent that you claim the overreaching was within the role of the corp, its okay
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what are BJR requirements
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good faith, rational purpose
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what rebuts presumption of BJR
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less than fraud, illegality, conflict of interest
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what rebuts presumption of BJR, cases?
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less than fraud, illegality, conflict of interest
-Kamin v Amex gross negligence -francis v UJB lack of ratl biz purpose -Dodge v Ford |
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what is duty of director to corp? can be sued for?
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fid duty to corp, must discharge duty, must fail to respond to obvious problems
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Director of corp gives lotsa corp $ to A charity, what are considerations
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rational business purpose or overreaching
gross negligence duty of loyalty? agency costs |
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what is duty of one shareholder to another
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nothing absent oppression
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how did SPEs work in enron?
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6 steps
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what amount of outside capital required for SPE?
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3%
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5 ppl in trouble
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skilling, fastow, leah fastow, kopper, glisan, causey, mordaunt
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what is PCABO
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oversees FASB,
Public co accounting oversight board |
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FASB
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financial accounting oversight board
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GAAP
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generally accepted accounting principals
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sarbanes oxley act
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resp of directors,
lawyers must report addresses duty of care and loyalty |
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