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224 Cards in this Set

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formation requirements
1) people- one or more incorporators to sign and file the articles, can be person or entity
2) paper- articles of incorporation
3) act- acceptance by secretary of state
formation requirements

2) articles of incorporation- information
1) names and addresses (corporate name)
2) statement of duration
3) statement of purpose
4) capital structure (authorized stock, number of shares per class, information on par value, voting rights and preferences of each class_
formation requirements

2) articles of incorporation- statement of purpose
1) general statement of purpose
2) specific statement of purpose and ultra vires rules (beyond the scope of the articles)
ultra vires
at CL- voided
now-
1) UVKs are valid
2) shareholders can seek an injunction
3) responsible individuals are liable to the corporation for ultra vires activity lawsuits
authorized stock
maximum number of shares the corporation can sell
issued stock
number of shares the corporation actually sells
outstanding stock
shares that have been issued and not reacquired by corporation
proof of valid formation- de jure corporation
acceptance by secretary of state or issuance of certificate of incorporation
internal affairs doctrine
internal affairs of corporation are governed by the law of the state of incorporation
separate legal person
can sue and be sued, hold property, be partner in partnership, make charitable contributions, must pay income taxes as an entity
limited liability
officers, directors not personally liable

shareholders not personally liable for debts

shareholders only liable for price of their stock
de facto corporation

abolished in many states
1) relevant incorporation statute
2) parties made good faith, colorable attempt to comply with it
3) some exercise of corporate privileges

treat as corp for all purposes except in an action by the state for exceeding its powers

persons asserting must be unaware of failure to form de jure corporation
corporation by estoppel

abolished in many states
persons asserting must be unaware of failure to form de jure corporation

one dealing with usiness as a corp, treating it as a corp may be estopped from denying the business's corp status (available in k usually not tort)
bylaws
1) for internal governance
2) adopted at organizational meeting
3) shareholders (in some states) and board can repeal/amend bylaws
if bylaws conflict with articles-
articles control
promoter
person acting on behalf of a corp not yet formed
liability on pre-incorporation k's
1) corp not liable until it adopts the contract (express or implied- accepting the benefit)
2) promoter remains liable until there has been a novation
secret profit rule
promoter cannot make a secret profit on her dealings with the corp
sales to corp of property acquired before becomming promoter
profit = price paid by corporation - FMV
sales to corp of property acquired after becoming promoter
profit = price paid by corp - price paid by promoter
for foreign corporations transacting business in tihs state to qualify
1) getting certificate of authority from secretary of state
2) apply by giving info from articles and certificat of good standing from home state, pay fees, appoint regstered agent
consequences of foreign corp transacting business without qualifying
civil fine, corp cannot sue in the state (but can be sued)
issuance of stock
when a corp sells/trades its own stock, way to raise capital for the corporation
subscriptions
written offers to buy stock from corporation
pre-incorporation subscriptions are-
revocable for 6 months unless it provides otherwise or all subscribers agree
post-incorporation subscriptions are-
revocable until acceptance
corp and subscriber become obligated under a subscription agreement when-
board accepts the offer (then subscriber is obligated to buy and corp obligated to sell)
traditional rule of consideration for stock permitted-
1) money
2) tangible or intangible property
3) services already performed for the corp
traditional rule of consideration for stock prohibited-
1) future survices
2) promisorry notes
modern trend for consideration for stock-
allow payment with any tangible or intangible property or benefit to the corporation (includes promissory notes and future services to corp)
par
minimum issue price
no par
no minimum issue price, board of directors sets a price
treasury stock
reacquired stock, stock that was previously issued and has been reacquired by the corporation

corp can then resell it
board's determination of value on the consideration received for an issuance is conclusive if-
made in good faith
consequences of issuing par stock for less than par value/watered stock
1) directors liable (for recovring the "water" amount) if knowingly authorized the issuance
2) person who bought watered stock is liable because charged with notice of the par value (and no defense to that)
3) if buyer transfers stock to BFP, BFP is not liable if she acts in good faith and did not know about water (but good faith status does not affect liability of 1 & 2)
preemptive right
right of existing shareholder to maintain her percentage of ownership by buying stock whenever there is a new issuance of common stock for money (cash or equivalent)

some states do not include sale of treasury stock as new issuance, some states do not inclue originally authorized but previously unissued shares

whatever your %, can buy the same % of new issue
traditional view of preemptive rights
exist unless articles provide otherwise
modern trend of preemptive rights
do not exist unless the articles provide for them
statutory requirements for directors
1) number- one or more natural persons
2) election (shareholders elect entire board or stagger the board)
3) board action
directors

shareholders can remove directors before their terms expire on what basis-
with or without cause, requires vote of majority of the shares entitled to vote
directors

in some states, court may remove a director for-
fraud or gross abuse of authority/discretion (most likely in a close corporation)
who selects the person who fills a vacancy on the board
board or shareholders
if shareholders created vacancy by removing a director or new directorship was created-
shareholders must select the replacement
if director was elected by a class of shares
that class should select the successor
ways the board can take a valid act
1) unanimous written consent to act without a meeting
2) a meeting that satisfies quorum and voting requirements

if neither are met act is void unless later ratified by a valid corporate act
notice requireements for directors' meetings can be set in-
bylaws
notice usually required for
special meetings
failure to give notice can be-
waived in writing or by attending without objection
proxies and voting agreeements for director voting-
not ok, they are void
quorum for meetings
must have majority of all directors to do business (unless different % in bylaws)
if quorum is present at a meeting
passing a resolution requires only majority of those PRESENT
if no quorum
any action taken is void unless ratified by a valid act
quorum can be lost if
people leave, once quorum is no longer present board cannot take an act at that meeting
board of directors role
manage business of the corporation
committee
board can delegate substantial management functions to a committee, but committee cannot amend bylaws, declar dividends, or recommend a fundamental corporate change to shareholders
duty of care standard(burden on p)
director owes corp duty of care, must act in good faith and do what a prudent person would do with regard to her own business
breach of duty of care by nonfeasance
diretor liable only if his breach caused a loss to the corporation

it is not enough for p to show breach of duty of care, p must show causation between breach and loss
breach of duty of care by misfeasance
director not liable if meets business judgment rule
business judgment rule
prudent people do appropriate homework

a court will not second-guess a business decision if it was made in good faith, was informed, and has a rational basis

only liable if negligent or irrational
duty of loyalty standard(burden on d because BJR doesnt apply in cases involving conflict of interest)
a director owes the corporation a duty of loyalty. she must act in good faith and with a reasonable belief that what she does is in the corporation's best interests
par
minimum issue price
no par
no minimum issue price, board of directors sets a price
treasury stock
reacquired stock, stock that was previously issued and has been reacquired by the corporation

corp can then resell it
board's determination of value on the consideration received for an issuance is conclusive if-
made in good faith
consequences of issuing par stock for less than par value/watered stock
1) directors liable (for recovring the "water" amount) if knowingly authorized the issuance
2) person who bought watered stock is liable because charged with notice of the par value (and no defense to that)
3) if buyer transfers stock to BFP, BFP is not liable if she acts in good faith and did not know about water (but good faith status does not affect liability of 1 & 2)
preemptive right
right of existing shareholder to maintain her percentage of ownership by buying stock whenever there is a new issuance of common stock for money (cash or equivalent)

some states do not include sale of treasury stock as new issuance, some states do not inclue originally authorized but previously unissued shares

whatever your %, can buy the same % of new issue
traditional view of preemptive rights
exist unless articles provide otherwise
modern trend of preemptive rights
do not exist unless the articles provide for them
statutory requirements for directors
1) number- one or more natural persons
2) election (shareholders elect entire board or stagger the board)
3) board action
directors

shareholders can remove directors before their terms expire on what basis-
with or without cause, requires vote of majority of the shares entitled to vote
directors

in some states, court may remove a director for-
fraud or gross abuse of authority/discretion (most likely in a close corporation)
who selects the person who fills a vacancy on the board
board or shareholders
if shareholders created vacancy by removing a director or new directorship was created-
shareholders must select the replacement
if director was elected by a class of shares
that class should select the successor
ways the board can take a valid act
1) unanimous written consent to act without a meeting
2) a meeting that satisfies quorum and voting requirements

if neither are met act is void unless later ratified by a valid corporate act
directors

notice requirements can be set by-
bylaws
directors

notice is required for-
special (not regular) meetings
directors

failure to give notice-
can be waived in writing or by attending without objection
directors

quorum for meetings
must have majority of all directors to do business

if quorum present, passing resolution requires majority vote of those present
directors

if no quorum
any action taken is void unless ratified by valid act
directors

quorum can be lost if-
people leave

once lost, board cannot take ana ct at that meeting
role of directors
manage business of corp
board can delegate substantial management functions to-
a committee, but committee cannot ammend bylaws, declare dividends or recommend a fundamental corporate change to shareholders
duty of care (burden on p)
a director owes the corp a duty of care. she must act in good faith and do what a prudent person would do with regard to her own business
breach of duty of care by nonfeasance
liable for breach of duty of care only if his breach caused a loss to the corp

it is not enough for p to show causation between breach and loss
breach of duty of care by misfeasance
director not liable if she meets the business judgment rule
business judgment rule
prudent people do appropriate homework

a court will not second-guess a business decision if it was made in good faith, was informed, and had a rational basis

only liable if grossly negligent or irrational
duty of loyalty (burden on d because bjr doesnt apply in cases involving conflict of interest)
a director owes the corp a duty of loyalty. she must act in good faith and with a reasonable belief that what she does is in the corp's best interest
duty of loyalty

interested director transaction
any deal between the corp and one of its directors or another business of the director's
duty of loyalty

interested director transaction will be set aside UNLESS-
director shows
1) deal was fair to the corp when entered
2) her interest and relevant facts were disclosed or known and the deal was approved by either of these a. majority of disinterested directors or b. majority of the disinterested shares

"in some states d has to show fairness even if the deal was approefd by one of these groups"
duty of loyalty

special quorum rules for interested director transaction
interested directors might count toward quorum, or quorum may be majority of disinterested directors or shares
duty of loyalty

directors and compensation
directors can set their own compensation but it must be reasonable

if excessive, waste of corp assets and breach of duty of loyalty
duty of loyalty

corporate opportunity/expectancy rule
director cannot usurp a corp opportunity

director cannot take it until 1) tells board and
2) waits for the board to reject the opportunity
duty of loyalty

what is a corporate opportunity
anything necessary to the corporation

anything something the company has an interest or expectency in

boils down to common sense and fairness
duty of loyalty

corporate opportunity/expectancy

company's fianancial inability to pay for the opportunity is probably-
not a good defense in most states
duty of loyalty

corporate opportunity/expectancy remedies
if sold at a profit, corp gets profit

if director still has it, must sell to corp at his cost
other bases of director liability

ultra vires acts
responsible officers/directors are liable for ultra vires losses
other bases of director liability

improper liability
in some states must be approved by majority of shares

in others such loans are ok if board finds out that it is reasonably expected to benefit the corp
other bases of director liability

improper distributions
directors are personally liable for unlawful distributions as are shareholders who knew the distribution was unlawful when they received it

in some states, director liability is strict

in some directors only liable if distribution is made in breach of duty

directors have possible defense of good faith reliance
other bases of director liability

securities liabilities
sale of controlling shareholders interest

controlling shareholder cannot subject minority shareholders to detriment

10b-5

16b
which directors are liable

general rule
a director is presumed to have concurred with board action unless her dissent/abstention is noted in writing in corporate records (minutes or in writing to corp secretary at meeting or registered letter to corp secretary immediately after meeting)

oral dissent is no good
which directors are liable

exceptions
1) absent directors are not liable

2) good faith reliance on a) book value of assets or b) opinion of competent EE, officer, professional, committee of which director relying was not a member, or c) financial statements by auditors

must have reasonable belief in competence of persons providing such info/good faith reliance
officers duties
owe same duties of care and loyalty as directors
officers status
agents of corp, can bind corp by acts for which they have authority to bind it
officers authority

actual
given in articles, bylaws, board act
officers authority

apparent
where copr holds the officer out as having authority to bind it, so third parties rely
officers authority

inherent/implied
by virtue of office held
holding multiple offices
no limitation
officers selection and removal
by directors who also set compensation
if fire officer-
officer can sue for money but does not get job back
shareholders hire and fire-
directors

NOT officers
directors fire and hire-
officers
corp barred from indemnification if-
person sued in capacity as officer or direct is held liable to the corporation or is held to have received an improper personal benefit
mandatory indmenification if-
person sued in capaacity as officer or director was wholly successful in defending the action or to the extent she was successful
permissive indemnification if-
1) anything not named in barred indemnification or mandatory indemnification
2) must show she acted in good faith with reasonable belief her actions were in company's best interests to be eligible
3) disinterested directors/shares or independent legal counsel determines eligibility
articles can provide for limitation or elimination of liability for damages, but not-
for breach of the duty of loyalty, intentional misconduct, or wrongful personal benefit
shareholder liability in general
not liable for acts or debts of corp
shareholders

courts will pierce the corporate veil and hold shareholders liable if-
1) they have abused th eprivilege of incorporating and
2) fairness requires it
shareholders

PCV standard
most courts will PCV to avoid fraud or unfairness
shareholders

PCV- alter ego/identity of interests
when shareholder treats corp as alter ego by treating the corp and personal assets as interchangeable

if that harmed creditors, then court may pcv
shareholders

PCV- undercapitalization
court might PCV when corp undercapitalized when formed because shareholders failed to invest enough to cover prospective liabilities

instead of PCV, court might subordinate shareholder debt to that of outsiders
shareholders

PCV- courts generally more willing to PCV for-
a tort victim then for a contract claimant
public policy says that board of directors, and not shareholders-
manages a corp
shareholders

agreements to vote their shares to elect each other to the board of directors
allowed
shareholders

agreement as to what they would do as directors
not allowed, would violate public policy that directors are to exercise independent judgment
shareholders can manage corp directly in-
a closed or closely held corp
close corp
few shareholders AND stock not publicly traded

usually must be unanimous shareholder agreement that provides for shareholder management

managing shareholders owe duties of care and loyalty to corp
shareholders in a close corp owe each other-
fiduciary duties

watch out for controlling shareholder who oppresses minority shareholders
shareholder derivative suits

shareholder as p
shareholder suing to enforce corp's claim, not own personal claim
shareholder derivative suits

consequences of successful suit
1) recovery goes to corp

2) shareholder receives costs and attorneys' fees from corp
shareholder derivative suits

court might allow shareholder to recover directly if-
recovery by corp would simply return money to the bad guys
shareholder derivative suits

consequences of unsuccessful suit
1) shareholder cannot recover costs and attorney's fees

2) shareholder liable to d if sued for costs and attorneys fees if sued without reasonable cause

3) shareholders cannot later sue same d on same transactions
shareholder derivative suits

requirements
1) stock ownership when claim arose (ownership or through operation of law- inheritance, divorce)

2) shareholder must adequately represent interest of corp

3) must also make written demand on directors that corp bring suit unless demand would be futile (if directors will be d's in the case)

4) must plead with particularity

5) required to post security (bond) for costs

6) corp can move to dismiss the deriviative suit if disinterested directors find it is not in corp's best interest (court can scrutinized recommendation for whether directors making it are truly disinterested, court can also make independent determination whether dismissal in best interest)
shareholder derivative suits

the corp must be joined-
initially as a d
shareholder derivative suits

no dismissal or settlement-
without court approval

court can give notice to those who would be affected and get their input on whether dismissal or settlement should be approved
shareholder voting

general voting rule
record shareholder as of record date has the right to vote
shareholder voting

exception- corp does not vote-
treasury stock even if it was the record owner on the record date
shareholder voting

death of shareholder
if shareholder dies after record date, shareholder's executor can vote the shares
shareholder voting

proxies
1) a writing
2) signed by a record shareholder
3) directed to secretary of corp
4) authorizing another to vote the shares

good for 11 months unless says otherwise
shareholder voting

irrevokable proxies
only way to make irrevokable is-
1) says its revokable and
2) coupled with an interest (proxyholder has some interest in the shares other than voting)
shareholder voting

voting trusts requirements
1) written trust agreement controlling how the shares will be voted
2) give a copy to corp
3) transfer legal title of shares to voting TE
4) original shareholders receive trust certificates and retain all shareholder rights except for voting

10 yr max on voting trusts
shareholder voting

voting/pooling agreement requirements
1)in writing and
2) signed

states split on whether specifically enforceable
shareholder voting

where voting takes place
1) unanimous written consent of holdrs of all voting shares
2)annual meeting to elect directors
3) board of directors, pres, holders of 10% of voting shares, anyone else provided in articles can call special meeting

meeting must be something shareholders can vote on
shareholder voting

notice requirement
must give written notice to every shareholder entitled to vote for every meeting
shareholder voting

contents of notice
1) when
2) where
3) purpose of meeting (state purpose is the only purpose that can be transacted at that meeting
shareholder voting

failure to give notice
action taken at meeting is void unless those not sent notice waive the notice defect in writing or attend meeting without objection
shareholder voting

determination of quorum
focuses on number of shares represented, not the number of shareholders

requires majority of outstanding shares
shareholder voting

shareholder quorum is not lost-
if people leave the meeting
shareholder voting

articles can move quorum requirement-
up or down except cannot be fewer than 1/3 of shares entitled to vote
shareholder voting

if quorum is met-
majority may act to bind the corp unless the articles or bylaws require higher vote

split on whether need majority of shares represented at meeting or majority of shares actually voting
shareholder voting

shares needed to vote for proposal for it to be accepted by shareholders- traditional view
need majority of shares present
shareholder voting

shares needed to vote for proposal for it to be accepted by shareholders-modern trend answer
only need majority of the shares that actually voted on the particular proposal
shareholder voting

cumulative voting
only available in voting for directors

multiply shares times number of directors to be elected
shareholder voting

cumulative voting exists only if-
articles provide
stock transfer restrictions
will be upheld provided they are reasonable under the circumstances (not an undue restraint on alienation)
stock transfer restrictions

right of first refusal
is ok, assuming corp offers a reasonable price
stock transfer restrictions

actions against transferee of stock
even if restriction is reasonable and valid, it cannot be invoked against the transferee unless either 1) it is conspicuously noted on the stock certificate or 2) the transferee had actual knowledge of the restriction
right of shareholder to inspect books and records of corp

standing
traditional view:
1) must have owned stock at least 6 months or
2) own at least 5% of outstanding shares

modern trend-
any shareholder
right of shareholder to inspect books and records of corp

procedure
written demand stating a proper purpose (related to her role as shareholder- can be hostile to board)
right of shareholder to inspect books and records of corp

consequences if corp doesnt allow inspection
shareholder moves for court order (can recover costs and atty's fees in making motion)
right of shareholder to inspect books and records of corp

directors
have unfettered access
distributions
payments to shareholders

dividends or repurchase shareholders stock or redeem stock
distributions

declared-
at board's discretion
distributions

actions to force distribution
tough to win, needs very strong showing of abuse of discretion
distributions

preferred stock
pay first
distributions

participating
pay again
distributions

cumulative
add them up, accrues year to year
distributions

which funds are used
1) earned surplus- generated by business activity (all earnings minus all losses)
2) stated capital- generated by issuing stock, cannot be used for distributions
3) capital surplus- generated by issuing stock
distributions

stated capital computation- par issuance
1) put par value of issuance into stated capital and
2) put excess over par value into capital surplus
distributions

stated capital computation- no-par issuance
board allocates between stated capital and capital surplus
distributions

capital surplus computation
payments in excess of par plus amounts allocated on a no-par issuance
distributions

capital surplus and distributions
can use for distributions if you inform shareholders
distributions

nimble dividend
paid out of current earnings when there is not sufficient surplus for a dividend (many states do not allow)
distributions

corp cannot make distribution if-
1) it is insolvent or
2)distribution would render it insovlent (unable to pay debts as they come due, if assets are less than liabilities)
distributions

directors are personally liable for-
unlawful distributions, as are shareholders who knew the distribution was unlawful when they received it

strict liability or liable if in breach of duty

possible defense of good faith reliance
fundamental corporate changes

require
board of director action and approval by majority of shares ENTITLED TO VOTE
fundamental corporate changes

dissenting shareholder right of appraisal
right of shareholder to force corp to buy her shares at fair value because opposes changes

may be shareholder's exclusive remedy regarding a fundamental change unless there was fraud
fundamental corporate changes

dissenting shareholder right of appraisal-actions to trigger right
1) merger or consolidation
2) transfer of substantially all assets not in the ordinary course of business
3) transfer of shares in a share exchange
fundamental corporate changes

dissenting shareholder right of appraisal- for shareholder to perfect right
1) before vote, file with corp written notice of objection and intent to demand payment
2) abstain or vote against the proposed change, and
3) after vote make written demand to be brought out
fundamental corporate changes

dissenting shareholder right of appraisal- if corp and shareholder cannot agree on fair value of shares-
court may appoint an appraiser
fundamental corporate changes

dissenting shareholder right of appraisal- will not be granted in some states if-
stock is listed on national exchange or has a large number of shareholders
amendment of the articles

requires
1) board of director action
2) notice to shareholders
3) shareholder approval
4) if approved, file amended articles with secretary of state
amendment of the articles

if amendment harms a class of stock
must be approved by the shares of that class itself as well as by the overall majority of all shares entitled to vote
mergers or consolidations

requirements
1) board of director action
2) notice to shareholders
3) shareholder approval (majority of entitled)
4) if approved, file articles with secretary of state
mergers or consolidations

no shareholder approval required in-
short-form merger

90% or more owned subsidiary is merged into a parent corp
mergers or consolidations

dissenting shareholder right of appraisal
available for shareholders of both companies in regular merger and consolidation and for shareholders of subsidiary in short-form merger
mergers or consolidations

effect
surviving company succeeds to all rights and liabilities of constituent companies

successor liability
transfer of all/substantially all of assets not in ordinary course of business or share exchange (one company acquires all the stock of another)

are fundamental corp changes for-
the transferring company ONLY not for buying corp
transfer of all/substantially all of assets not in ordinary course of business or share exchange

requires
1) board of director action
2) notice to selling corp's shareholders
3) approval by transferring corp's shareholders (majority of shares entitled)
4) file articles of exchange in share exchange (not in transfer of assets)
transfer of all/substantially all of assets not in ordinary course of business or share exchange

dissenting shareholder's rights of appraisal
available for transferring corp only
transfer of all/substantially all of assets not in ordinary course of business or share exchange

liability
corp acquiring assets not liable for debts of acquired company unless deal says otherwise

assume no successor liability
voluntary dissolution
1) board resolution and approval by majority of shares entitled to vote or
2) unanimous written shareholder agreement without board inovement (in some states)
3) file articles and give notice to creditors
involuntary dissolution

shareholders can position because of-
1) director abuse, waste of assets, misconduct
2) director deadlock that harms the company
3) shareholder deadlock and failure for at least 2 annual meetings to fill a vacant board position
involuntary dissolution

alternative
court may order buy-out of complaining shareholder (esp in close corp)
involuntary dissolution

creditors
can petition because corp is insolvent and creditor either has unsatisfied judgment against corp or copr admits debt in writing
dissolution

windup
corp stays in existenc to wind up after filing articles

1) gather all assets
2) convering them to caseh
3) paying off creditors
4) distributing any remainder to shareholders (shareholders recover pro-rata by share unless there is a dissolution or liquidation preference to pay first)
securities

debt
investor lends capital to corp to be repaid

debt holder is creditor, not owner

secured by corp assets: bond
unsecured: debenture
securities

equity
investor buys stock has ownership interest in corp

equity holder is owner not creditor
securities

debt and equity can be
redeemable (forced sale to corp) or convertible (into another security at the option of the holder)
securities

put option
option to sell securities at a set price
securities

call option
an option to buy securities at a set price
securities- CL liabilities

sale of controlling shareholder's interest- control premium
can sell controlling shares for extra value, called control premium

ok unless some other factor is involved
securities- CL liabilities

sale of controlling shareholder's interest- sale to looters
controlling shareholder liable if she sells to looters without making a reasonable investigation of the buyer

liable to damages caused to corp
securities- CL liabilities

sale of controlling shareholder's interest- disguised sale of corp asset
controlling shareholder has no right to sell a corporate asset, all shareholders should share in premium
securities- CL liabilities

sale of controlling shareholder's interest- sale of board position
fiduciary cannot get paid to relinquish position

ok for new controlling shareholder to elect new directors

not ok to relinquish her position (will disgorge seller's profit)
securities- CL liabilities

controlling shareholder cannot subject minority shareholders to detriment
1) courts may protect minority shareholders
2) fraud applies to misreps in sale of stock (covers overt lies but not half-truth, failure to disclose)
3) nondisclosure of special facts
securities- CL liabilities

controlling shareholder cannot subject minority shareholders to detriment- affirmative duty to disclose special facts in securities transaction with a shareholder
special facts- those a reasonable investor would consider important in making an investment decision (common law insider trading)
securities- CL liabilities

controlling shareholder cannot subject minority shareholders to detriment- affirmative duty to disclose special facts in securities transaction with a shareholder- who can sue
shareholder with whom insider deals

some say prospective shareholder may sue
securities- CL liabilities

controlling shareholder cannot subject minority shareholders to detriment- affirmative duty to disclose special facts in securities transaction with a shareholder- measure of damage
difference between price paid and value of stock a reasonable time after public disclosure
securities- CL liabilities

controlling shareholder cannot subject minority shareholders to detriment- affirmative duty to disclose special facts in securities transaction with a shareholder- corp may sue insider when-
to recover profits made in market trading on inside info
10b-5 aimed at deceit
illegal to use any fraudulent scheme in connection with the purchase or sale of any security
10b-5 elements
1) insrumentality of interstte commerce
2) any person (defendant)
3) plaintiff- SEC or private buyer/seller of securities
4) bad act by d
5) bad act in connection with purchase or sale of any security (including debt or equity securities)
6) materiality of misrepresentation (one a reasonable investor would consider important in making an investment decision)
7) scienter (intent to deceive, manipulate, or defraud- recklessness may suffice, negligence does not)
8)reliance (presumed in cases of nondisclosure and public misrepresentation)
10b-5 possible defendants
1) company that issues misleading press release
2) buyer/seller of securities that misrepresents material information
3) buyer/seller of securities who fails to disclose material inside information when tehre is a duty to abstain or disclose (usually comes from relationship of trust and confidence with shareholders of corp)
4) tipper and tippee
10b-5 possible bad acts by d
1) misrep of material info
2) nondisclosure of material information when duty to disclose exists (comes form relationship of trust and confidence with shareholders of the corp)
3) tipping
10b-5 damages
difference between price paid and price a reasonable tiem after news went public
10b-5 if there is no tipper-
there cannot be a tippee
16b aimed at speculation by directors, officers, and 10% shareholders- SL
recovery by corp of profits gained by certain insiders from b/s company's stock
16b applies to-
reporting corp that is
1)listed on national exchange or
2) at least 500 shareholders and $10 million in assets registered per section 12 of SEA
16b type of d-
1) director (either when she bought or sold)
2) officer (either when she bought or sold)
3) shareholder who owns more than 10% (BOTH when bought AND sold)
16b- determining 10%
take snapshop of what ownership level was immediately before the event
16b- type of transaction
b/s stock within a singl 6-month period
16b- d MUST have
b/s EQUITY securities (stock
16b effects
all profits from short-swing trading are recoverable by corp
16b profits
if within 6 months before or after any sale there was a pruchase at a lower price, there is a profit

so its a profit even if you buy after you sell, so long as you buy at lower price than that at which you sell