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224 Cards in this Set
- Front
- Back
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formation requirements
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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 |
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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_ |
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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) |
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ultra vires
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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 |
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authorized stock
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maximum number of shares the corporation can sell
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issued stock
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number of shares the corporation actually sells
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outstanding stock
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shares that have been issued and not reacquired by corporation
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proof of valid formation- de jure corporation
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acceptance by secretary of state or issuance of certificate of incorporation
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internal affairs doctrine
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internal affairs of corporation are governed by the law of the state of incorporation
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separate legal person
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can sue and be sued, hold property, be partner in partnership, make charitable contributions, must pay income taxes as an entity
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limited liability
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officers, directors not personally liable
shareholders not personally liable for debts shareholders only liable for price of their stock |
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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 |
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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) |
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bylaws
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1) for internal governance
2) adopted at organizational meeting 3) shareholders (in some states) and board can repeal/amend bylaws |
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if bylaws conflict with articles-
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articles control
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promoter
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person acting on behalf of a corp not yet formed
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liability on pre-incorporation k's
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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 |
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secret profit rule
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promoter cannot make a secret profit on her dealings with the corp
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sales to corp of property acquired before becomming promoter
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profit = price paid by corporation - FMV
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sales to corp of property acquired after becoming promoter
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profit = price paid by corp - price paid by promoter
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for foreign corporations transacting business in tihs state to qualify
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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 |
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consequences of foreign corp transacting business without qualifying
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civil fine, corp cannot sue in the state (but can be sued)
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issuance of stock
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when a corp sells/trades its own stock, way to raise capital for the corporation
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subscriptions
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written offers to buy stock from corporation
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pre-incorporation subscriptions are-
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revocable for 6 months unless it provides otherwise or all subscribers agree
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post-incorporation subscriptions are-
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revocable until acceptance
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corp and subscriber become obligated under a subscription agreement when-
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board accepts the offer (then subscriber is obligated to buy and corp obligated to sell)
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traditional rule of consideration for stock permitted-
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1) money
2) tangible or intangible property 3) services already performed for the corp |
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traditional rule of consideration for stock prohibited-
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1) future survices
2) promisorry notes |
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modern trend for consideration for stock-
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allow payment with any tangible or intangible property or benefit to the corporation (includes promissory notes and future services to corp)
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par
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minimum issue price
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no par
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no minimum issue price, board of directors sets a price
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treasury stock
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reacquired stock, stock that was previously issued and has been reacquired by the corporation
corp can then resell it |
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board's determination of value on the consideration received for an issuance is conclusive if-
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made in good faith
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consequences of issuing par stock for less than par value/watered stock
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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) |
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preemptive right
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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 |
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traditional view of preemptive rights
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exist unless articles provide otherwise
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modern trend of preemptive rights
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do not exist unless the articles provide for them
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statutory requirements for directors
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1) number- one or more natural persons
2) election (shareholders elect entire board or stagger the board) 3) board action |
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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
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directors
in some states, court may remove a director for- |
fraud or gross abuse of authority/discretion (most likely in a close corporation)
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who selects the person who fills a vacancy on the board
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board or shareholders
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if shareholders created vacancy by removing a director or new directorship was created-
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shareholders must select the replacement
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if director was elected by a class of shares
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that class should select the successor
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ways the board can take a valid act
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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 |
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notice requireements for directors' meetings can be set in-
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bylaws
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notice usually required for
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special meetings
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failure to give notice can be-
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waived in writing or by attending without objection
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proxies and voting agreeements for director voting-
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not ok, they are void
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quorum for meetings
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must have majority of all directors to do business (unless different % in bylaws)
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if quorum is present at a meeting
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passing a resolution requires only majority of those PRESENT
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if no quorum
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any action taken is void unless ratified by a valid act
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quorum can be lost if
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people leave, once quorum is no longer present board cannot take an act at that meeting
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board of directors role
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manage business of the corporation
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committee
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board can delegate substantial management functions to a committee, but committee cannot amend bylaws, declar dividends, or recommend a fundamental corporate change to shareholders
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duty of care standard(burden on p)
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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
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breach of duty of care by nonfeasance
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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 |
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breach of duty of care by misfeasance
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director not liable if meets business judgment rule
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business judgment rule
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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 |
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duty of loyalty standard(burden on d because BJR doesnt apply in cases involving conflict of interest)
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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
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par
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minimum issue price
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no par
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no minimum issue price, board of directors sets a price
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treasury stock
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reacquired stock, stock that was previously issued and has been reacquired by the corporation
corp can then resell it |
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board's determination of value on the consideration received for an issuance is conclusive if-
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made in good faith
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consequences of issuing par stock for less than par value/watered stock
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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) |
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preemptive right
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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 |
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traditional view of preemptive rights
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exist unless articles provide otherwise
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modern trend of preemptive rights
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do not exist unless the articles provide for them
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statutory requirements for directors
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1) number- one or more natural persons
2) election (shareholders elect entire board or stagger the board) 3) board action |
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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
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directors
in some states, court may remove a director for- |
fraud or gross abuse of authority/discretion (most likely in a close corporation)
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who selects the person who fills a vacancy on the board
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board or shareholders
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if shareholders created vacancy by removing a director or new directorship was created-
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shareholders must select the replacement
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if director was elected by a class of shares
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that class should select the successor
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ways the board can take a valid act
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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 |
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directors
notice requirements can be set by- |
bylaws
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directors
notice is required for- |
special (not regular) meetings
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directors
failure to give notice- |
can be waived in writing or by attending without objection
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directors
quorum for meetings |
must have majority of all directors to do business
if quorum present, passing resolution requires majority vote of those present |
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directors
if no quorum |
any action taken is void unless ratified by valid act
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directors
quorum can be lost if- |
people leave
once lost, board cannot take ana ct at that meeting |
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role of directors
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manage business of corp
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board can delegate substantial management functions to-
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a committee, but committee cannot ammend bylaws, declare dividends or recommend a fundamental corporate change to shareholders
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duty of care (burden on p)
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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
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breach of duty of care by nonfeasance
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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 |
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breach of duty of care by misfeasance
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director not liable if she meets the business judgment rule
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business judgment rule
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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 |
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duty of loyalty (burden on d because bjr doesnt apply in cases involving conflict of interest)
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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
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duty of loyalty
interested director transaction |
any deal between the corp and one of its directors or another business of the director's
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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" |
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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
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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 |
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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 |
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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 |
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duty of loyalty
corporate opportunity/expectancy company's fianancial inability to pay for the opportunity is probably- |
not a good defense in most states
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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 |
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other bases of director liability
ultra vires acts |
responsible officers/directors are liable for ultra vires losses
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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 |
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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 |
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other bases of director liability
securities liabilities |
sale of controlling shareholders interest
controlling shareholder cannot subject minority shareholders to detriment 10b-5 16b |
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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 |
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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 |
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officers duties
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owe same duties of care and loyalty as directors
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officers status
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agents of corp, can bind corp by acts for which they have authority to bind it
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officers authority
actual |
given in articles, bylaws, board act
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officers authority
apparent |
where copr holds the officer out as having authority to bind it, so third parties rely
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officers authority
inherent/implied |
by virtue of office held
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holding multiple offices
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no limitation
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officers selection and removal
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by directors who also set compensation
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if fire officer-
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officer can sue for money but does not get job back
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shareholders hire and fire-
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directors
NOT officers |
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directors fire and hire-
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officers
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corp barred from indemnification if-
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person sued in capacity as officer or direct is held liable to the corporation or is held to have received an improper personal benefit
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mandatory indmenification if-
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person sued in capaacity as officer or director was wholly successful in defending the action or to the extent she was successful
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permissive indemnification if-
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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 |
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articles can provide for limitation or elimination of liability for damages, but not-
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for breach of the duty of loyalty, intentional misconduct, or wrongful personal benefit
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shareholder liability in general
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not liable for acts or debts of corp
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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 |
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shareholders
PCV standard |
most courts will PCV to avoid fraud or unfairness
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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 |
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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 |
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shareholders
PCV- courts generally more willing to PCV for- |
a tort victim then for a contract claimant
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public policy says that board of directors, and not shareholders-
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manages a corp
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shareholders
agreements to vote their shares to elect each other to the board of directors |
allowed
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shareholders
agreement as to what they would do as directors |
not allowed, would violate public policy that directors are to exercise independent judgment
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shareholders can manage corp directly in-
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a closed or closely held corp
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close corp
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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 |
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shareholders in a close corp owe each other-
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fiduciary duties
watch out for controlling shareholder who oppresses minority shareholders |
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shareholder derivative suits
shareholder as p |
shareholder suing to enforce corp's claim, not own personal claim
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shareholder derivative suits
consequences of successful suit |
1) recovery goes to corp
2) shareholder receives costs and attorneys' fees from corp |
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shareholder derivative suits
court might allow shareholder to recover directly if- |
recovery by corp would simply return money to the bad guys
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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 |
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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) |
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shareholder derivative suits
the corp must be joined- |
initially as a d
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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 |
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shareholder voting
general voting rule |
record shareholder as of record date has the right to vote
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shareholder voting
exception- corp does not vote- |
treasury stock even if it was the record owner on the record date
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shareholder voting
death of shareholder |
if shareholder dies after record date, shareholder's executor can vote the shares
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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 |
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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) |
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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 |
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shareholder voting
voting/pooling agreement requirements |
1)in writing and
2) signed states split on whether specifically enforceable |
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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 |
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shareholder voting
notice requirement |
must give written notice to every shareholder entitled to vote for every meeting
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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 |
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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
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shareholder voting
determination of quorum |
focuses on number of shares represented, not the number of shareholders
requires majority of outstanding shares |
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shareholder voting
shareholder quorum is not lost- |
if people leave the meeting
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shareholder voting
articles can move quorum requirement- |
up or down except cannot be fewer than 1/3 of shares entitled to vote
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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 |
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shareholder voting
shares needed to vote for proposal for it to be accepted by shareholders- traditional view |
need majority of shares present
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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
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shareholder voting
cumulative voting |
only available in voting for directors
multiply shares times number of directors to be elected |
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shareholder voting
cumulative voting exists only if- |
articles provide
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stock transfer restrictions
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will be upheld provided they are reasonable under the circumstances (not an undue restraint on alienation)
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stock transfer restrictions
right of first refusal |
is ok, assuming corp offers a reasonable price
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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
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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 |
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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)
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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)
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right of shareholder to inspect books and records of corp
directors |
have unfettered access
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distributions
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payments to shareholders
dividends or repurchase shareholders stock or redeem stock |
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distributions
declared- |
at board's discretion
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distributions
actions to force distribution |
tough to win, needs very strong showing of abuse of discretion
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distributions
preferred stock |
pay first
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distributions
participating |
pay again
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distributions
cumulative |
add them up, accrues year to year
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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 |
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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 |
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distributions
stated capital computation- no-par issuance |
board allocates between stated capital and capital surplus
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distributions
capital surplus computation |
payments in excess of par plus amounts allocated on a no-par issuance
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distributions
capital surplus and distributions |
can use for distributions if you inform shareholders
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distributions
nimble dividend |
paid out of current earnings when there is not sufficient surplus for a dividend (many states do not allow)
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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) |
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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 |
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fundamental corporate changes
require |
board of director action and approval by majority of shares ENTITLED TO VOTE
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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 |
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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 |
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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 |
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fundamental corporate changes
dissenting shareholder right of appraisal- if corp and shareholder cannot agree on fair value of shares- |
court may appoint an appraiser
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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
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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 |
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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
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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 |
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mergers or consolidations
no shareholder approval required in- |
short-form merger
90% or more owned subsidiary is merged into a parent corp |
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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
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mergers or consolidations
effect |
surviving company succeeds to all rights and liabilities of constituent companies
successor liability |
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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
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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) |
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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
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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 |
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voluntary dissolution
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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 |
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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 |
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involuntary dissolution
alternative |
court may order buy-out of complaining shareholder (esp in close corp)
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involuntary dissolution
creditors |
can petition because corp is insolvent and creditor either has unsatisfied judgment against corp or copr admits debt in writing
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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) |
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securities
debt |
investor lends capital to corp to be repaid
debt holder is creditor, not owner secured by corp assets: bond unsecured: debenture |
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securities
equity |
investor buys stock has ownership interest in corp
equity holder is owner not creditor |
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securities
debt and equity can be |
redeemable (forced sale to corp) or convertible (into another security at the option of the holder)
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securities
put option |
option to sell securities at a set price
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securities
call option |
an option to buy securities at a set price
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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 |
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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 |
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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
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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) |
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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 |
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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)
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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 |
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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
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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
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10b-5 aimed at deceit
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illegal to use any fraudulent scheme in connection with the purchase or sale of any security
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10b-5 elements
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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) |
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10b-5 possible defendants
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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 |
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10b-5 possible bad acts by d
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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 |
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10b-5 damages
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difference between price paid and price a reasonable tiem after news went public
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10b-5 if there is no tipper-
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there cannot be a tippee
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16b aimed at speculation by directors, officers, and 10% shareholders- SL
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recovery by corp of profits gained by certain insiders from b/s company's stock
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16b applies to-
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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 |
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16b type of d-
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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) |
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16b- determining 10%
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take snapshop of what ownership level was immediately before the event
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16b- type of transaction
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b/s stock within a singl 6-month period
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16b- d MUST have
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b/s EQUITY securities (stock
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16b effects
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all profits from short-swing trading are recoverable by corp
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16b profits
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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 |
