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29 Cards in this Set
- Front
- Back
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What is agency?
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agency is the relationship which results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other so to act.
- principle is liable for all acts of the agent done within the agents authority |
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Kinds of agency
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-Actual Authority: Principal tells agent you have authority to do this.
-Implied authority to do whatever he must do in a commercially reasonable way. Implied authority is actual authority circumstantially proven which the principal actually intended the agent to possess and includes such powers as are practically necessary to carry out the duties actually delegated. (important to look at the agents understanding of his authority to see if implied authority exists) -Apparent Authority: is the authority of the agent held out by the principal as possessing. (the authority that 3rd parties can reasonably assume that you have the ability and authority to do) |
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Partnerships
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- partnership is a fiduciary relationship between 2 more people to run a business for profit.
oDuty of loyalty, care and good faith oRequires intention to operate a business as 2 or more people, for profit oUnlike most other business groupings, does not require docs to be filed. -In a general partnership every partner in a partnership is personally liable for all the debts accrues in a partnership -Limited partnership one person is generally liable, with the others are liable only for what they invested. -Must be at least two partners. Each partner is both a principle and an agent with respect to all the other partners as long as it is within the scope of the business. - partnership can be dissolved by the expressed will of any partner *dangerous because of that* |
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Piercing the corp veil
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-Piercing the vale of limited liability: 4 factors to consider
o1. the failure to maintain adequate corporate records or to comply with corporate formalities o2. the commingling of funds or assets o3.Under capitalization o4.One corporation treating the assets of another as its own |
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Business judgment rule
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o “ in making a business decision the directors , acted on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the company, *rebuttable presumption*
o Plaintiff who fails to rebut the business judgment rule presumption is not entitled to any remedy unless the transaction constutes waste |
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Derivative action:
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share holder is trying to make the corp. use some right of action
- Share holder has a right to bring this kind of action depending on share owned and applicable statute. Is it a harm to the corporation? Then its derivative, its it’s a harm to the share holder it’s a direct action -Shareholder must put up security for reasonable fees in case the lose |
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duty of care:
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act in the best interests of the company and shareholders
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duty of loyalty:
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officers as agents to manage the company, obligated to use assets only in the best interests of the company and its shareholders.
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Corporate opportunity test
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- line of business: is it within the line of business of the company
- interest: would the corporation have an interest or a reasonable expectancy and by embracing the opportunity, would the officer or director be acting in self interest - If yes then the officer would be prohibited by law from seizing the opportunity for himself |
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Corp code California 310
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-Corp code California 310, concerns ratification
oPart A: if it is a self dealing transaction (material financial interest) Can be approved in one of three ways (all require full disclosure) •Approved by majority of shareholders that are not interested •Approved by board of directors without interested members voting •Person who has self dealing transaction proves that it is fair to the company using entire fairness standard. Interested director •Same tests, but no shareholder vote option |
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rule 10b-5
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if a company is going to be issuing securities they will not engage in any deceptive device concerning the issue of the securities. IE disclosure, no lying etc
o ****ELEMENTS Material misrepresentation or omission Scienter: did they do make the misrep or omission with knowledge and on purpose • In connection w/ buy or sell of securities Reliance Economic loss Loss causation |
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Material
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Material = those matters as to which an average prudent investor ought reasonably to be informed before purchasing the security registered.
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Insider trading
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- Material nonpublic information (same material definition)
- Like in principle agent relationship duty not to use the information outside of the scope of their relationship - If an employee gets the material nonpublic information (regardless of employee level) they are holding it in trust for the company, either disclosure must be public, or is prevented from public disclosure then the person must abstain from trading. *disclose or abstain rule* failure to follow rule, results in personal liability. |
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Section 16B
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-Section 16B certain designated people if they buy and sell within a 6 month period will have all profits go to the company, as insider trading is assumed.
o ***“officers directors and 10 percent shareholders(beneficial owner) must pay to the corp any profits they make, within a six month period, from buying and selling the firms stock.” There is no real defense to this.** o Must have a purchase and sale within the same 6 month period. o Applies only to public companies no version of this for private companies. o Applies stock class by stock class IE own 10 percent of class A does not make buying and selling class B under section 16b o Grant of a stock option to a section 16 employee counts as a purchase. o Unconventional transaction doctrine: can bring other transactions within the scope of section 16b “like working for free for a period of time to buy stock at the price of 6 months ago” page 506. (not on the exam) Was the transaction volitional Hard to prove would need to be like ill pay you now and you issue the stock in 6 months etc |
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Section 317 of the corporations code
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- indemnification statute under California.
- Corporation may indemnify the officer if they are sued by a third party in relation to their work, as long as the officer was acting in good faith. o Requirement of good faith cannot be overruled, if you win or settle in the case its consistent with good faith - For corperations indemnification rights may be broader then those set out in statute, but they cannot be inconsistent with the scope of the corps power to indemnify. - Settlement = success, success not based on moral exoneration for reimbursement |
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Proxy statement
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o provides notice, info and what will be voted on
o can assign proxy to another o record date: date picked that states shareholders on this date will get to vote (even if they sell etc) |
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Proxy Contest
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- used for shareholders to have a voice in management.
- Can also be used by outside forces - Corp can pay the costs of having it, directors do not breach duties for reasonable costs - I contests over policy, as compared to purely personal power contests corp directors have the right to make reasonable and proper expenditures, subject to the scrutiny of the court when duly challenged from the corp treasure for the purpose of persuading the stockholders of the correctness of their position and soliciting their support …. Pg 527 - Solicitation over 10 shares triggers securities rules and laws |
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Cumulative voting
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: for general matters it is the majority of the share holders present, requires a quarum. Merger meeting would require the majority of the outstanding stock. Electing directors: requires plurality (who ever gets the highest votes)
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Closed Corp
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generally 5- 50 shareholders not open to public trading. In closed corps you must personally go out an find a buyer to buy your stock if you want to sell. In public corp you can walk down to the local broker and sell
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Merger
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- A merges into B and only b survives, all sharehlders of A become shareholders of B. relevance from legal standpoint is value Did A stockhlders get the same value in B as their shares of A were worth. IE A is small company B is apple, A would get small % of a share for each share in A because B shares are more valuable.
- Must file a doc with secretary of state to accomplish this. A’s stock holders, would have a limited right to cash out. |
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Sale of assets
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A can continue as a corp but would sell all assets to B, generally A still does not survive because it liquidates to shareholders. More complicated then reg merger
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Stock exchange –
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transaction between B and the shareholders of A. B comes along and says ill give you cash or shares in B for your shares in a. A becomes 100% owned subsidiary of B. no dissenters rights because you can just choose not to trade stock.
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Entire fairness
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Entire Fairness : if you have an interested party transaction, then it must be a fair price, and fair dealing
- directors have burden of saying they engaged in fair dealings, IE price, negotiation experts etc - in determining fair value you use the economic formula practical to the business |
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Business purpose
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-majority shareholder removing minority
- business purpose not dispositive, but it helps for it to be positive when applying entire fairness. -applying total fairness, burden on directors to show that they engaged in fair dealing (process) and that the price was fair. determine why the transaction took place |
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Raider
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3rd party that may disrupt the business plan of the company
- raiders will seek to get on the board in many instances - board has affirmative duty to evaluate whenever another party makes an offer o must look at: is price fair? o Must look at: what is impact on business plan of the company? Is there going to be a major change ? o Basic goal of management is to make it difficult enough on the raider that the shareholder gets fair value o Inherent conflict between raiders and raiders: Triggers enhanced scrutiny standard. Balance between defending against raider and management working only for shareholders and not themselves |
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Enhanced scrutiny
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-used for interested party transactions. Takovers.
- plaintiff must show there was a conflict, then burden shifts to directors to show that they appropriately evaluated, IE evaluated offer, evaluated interest for the company, actions taken reasonable` |
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Entire fairness
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oGenerally on self dealing.
oBoard has duty of coming forward and showing transaction had fair price, fair transactions. Generally requires independence from interested directors o Plaintiff makes the transaction, don’t have to show bad faith burden shifts to board to show fairness |
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Unocal Duties
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basic standard that will apply any time a company puts in defensive measures to thwart a proposal from a raider. IE staggered board, poison pill
-Requirements are 1+2 -1.appropriately evaluate threat -2.was response reasonable -defensive measures delay the raider, or delaying shareholders from acting upon or deciding on the proposed transaction. Breach of duty if defensive measure is coercive, or preclusive -It is permissible for corp to use corp funds to repurchase corp stock as long as a business purpose is shown. -Board has the right to adopt defensive measures |
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Revlon Duties
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– triggered whenever the company is in play (change of control transaction) pg 755
-example of things that would trigger: golden parachute for directors etc -applies when long term business strategy is abandoned and instead focus is break up of company: duty is to get max price -judged w enhanced scrutiny, with addition of duty to get max price Both duties can be triggered in a single transaction. |
