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Corporations Exam Outline 2014 12 09v3 Outline

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This is an extract of our Corporations Exam Outline 2014 12 09v3 document, which we sell as part of our Long Corporations Outline collection written by the top tier of University Of Virginia School Of Law students.

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CORPORATIONS OUTLINE FALL 2014, CURTIS

Contents AGENCY........................................................................................................................ 3 PARTNERSHIP................................................................................................................. 5 ALTERNATIVE FORMS OF OWNERSHIP................................................................................. 8 NORMAL CORPORATE LIFE............................................................................................. 10 Registering a Corporation (Charter/Bylaws).......................................................................11 Creditor Protection...................................................................................................... 12 VOTING...................................................................................................................... 15 Proxy Contests........................................................................................................... 16 Proxy Rules............................................................................................................ 16 Proxy Access.......................................................................................................... 17 Vote Buying.............................................................................................................. 20 Class Voting.............................................................................................................. 20 DUTY OF CARE............................................................................................................. 21 Business Judgment Rule............................................................................................... 23 Indemnification & Insurance.......................................................................................... 24 102(b)(7) Waiver........................................................................................................ 25 Duty to Monitor (Part of Duty of Care).............................................................................25 CONFLICTS OF INTEREST................................................................................................ 27 Conflict Transactions................................................................................................... 28 Controlling Shareholder............................................................................................ 29 Closely Held Corporations......................................................................................... 30 DERIVATIVE SUITS......................................................................................................... 32 Board Control of Derivative Litigation............................................................................. 33 Multi-Forum Litigation & Fee Shifting Bylaws...................................................................34 CONTROL TRANSACTIONS - SELLING/PURCHASING CONTROL BLOCKS....................................35 Purchasing a Control Block........................................................................................... 35 Tender Offers............................................................................................................ 36 MERGERS AND ACQUISITIONS.......................................................................................... 38 The Law of Fundamental Transactions............................................................................. 39 Voting and Appraisal - the Drivers of Choosing a Deal Structure.........................................40

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Asset Acquisition..................................................................................................... 42 Arm's Length One-Step (Statutory) Merger.......................................................................43 Arm's Length Two-Step Merger (Tender Offer)..................................................................44 Controlled Mergers..................................................................................................... 44 Controlled One-Step Merger....................................................................................... 45 Controlled Two-Step Merger (Tender Offer)....................................................................45 Contracting the Merger Price......................................................................................... 46 HOSTILE TAKEOVERS.................................................................................................... 46 Takeover Defenses: The Poison Pill................................................................................. 47 Evaluating Takeover Defenses (Unocal)............................................................................48 Directors' Duties in Selling the Firm for Cash (Revlon)........................................................50 LOCKUPS..................................................................................................................... 52 Judicial Review of Lock-Ups......................................................................................... 52 STATE ANTI-TAKEOVER LAW........................................................................................... 53 INSIDER TRADING......................................................................................................... 55 Officers and Directors Trading in Their Own Stock..............................................................55 Broad Insider Trading Liability....................................................................................... 55 Rules for Fiduciary Duty Theory..................................................................................... 57 Rules for Misappropriation Theory.................................................................................. 58 Rules Specific to Tender Offers...................................................................................... 58 EXECUTIVE COMPENSATION............................................................................................ 59

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AGENCY Agency Defined: (SS 1.01 3d Rst): Agency is the fiduciary relationship that arises when one person (a "principal") manifests assent to another person (an "agent") that the agent shall act on the principal's behalf and subject to the principal's control, and the agent manifests assent or otherwise consents so to act.Neither party has to intend that an agency relationship exists, we still impose duties if the elements of agency are met to protect third parties when they deal with an agent
[Jenson Farms, source for grain].

?????Elements:

1. Principal manifests assent

2. Agent is working on the principal's behalf

3. Agent is subject to the principal's control

4. Agent manifests assent
?????Types of Principles (SS1.04): o Disclosed: A principal is disclosed if, when an agent and a third party interact, the third party has notice that the agent is acting for a principal AND has notice of the principal's identity [you know who the principal is]
o Undisclosed: A principal is undisclosed if, when an agent and a third party interact, the third party has NO NOTICE that the agent is acting for a principal.
[you believe that the agent is the principal]
o Unidentified: A principal is unidentified if, when an agent and a third party interact, the third party has notice that the agent is acting for a principal but does not have notice of the principal's identity [you know that there is a principal, but you do not know who]
?????Liability in Contract/Ways Agent Can Bind Principal o Actual Authority (SS2.02): The agent has the principal's permission OR the agent reasonably believes he has permission o Apparent Authority (SS2.03): The agent does NOT have permission, but the third party reasonably believes the agent does based on some manifestation of the principal
? Agent's own claims of authority, absent manifestations from the principal are NOT enough [White v. Thomas, buying land]
?????Thomas' who bought the land are not out of luck, can sue agent who purported to have authority, SS 6.10 "a person who purports to make a contract . . . to or with a third party on behalf of another person, lacking power to bind that person, gives an implied warranty of authority to the third party and is subject to liability to the third party for damages for loss caused by breach of warrant"

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?????Also, principal can sue agent, SS 8.09 comment b "If an agent takes action beyond the scope of the agent's actual authority, the agent is subject to liability to the principal for loss caused to the principal" o Estoppel (SS2.05): The agent does not have permission, but the third party reasonably believes the agent does by virtue of the principal's silence in the presence of the agent's manifestation
? Third party can infer power from statements of agent when principal has notice and is silent o Ratification (SS4): the principal could have declined to be bound, but accepts the contract through subsequent action.General Agents o General Agent Defined: Agent on an ongoing basis, as opposed to a SPECIAL agent: an agent for a particular purpose (do this one thing for me this one time) o Inherent Agency Power (Rst. 2d) [for general agents]: "the power of an agent which is derived not from authority, apparent authority, or estoppel, but solely from the agency relation and exists for the protection of persons harmed by or dealing with a servant or other agent" Usual Criteria:
? Must be a general agent
? Must be acting on behalf of the principal
? Must be an act usual or necessary to the authorized type of transaction
? No notice that agent does not actually have the authorityLiability in Tort (Respondeat Superior) o Respondeat Superior SS 2.04: An employer is subject to liability for torts committed by employees while acting within the scope of their employment
? Employee (cmt f): An agent is an employee only when the principal controls OR has the right to control the manner and means through which the agent performs work
? Key is citing facts that support exercising control over the employees [Humble Oil v. Sun Oil]
? Corporations do not want to exercise too much control over their franchises so that they are not on the hook for every tort committed there.

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Unclear whether Unocal/Revlon applies? Apply both!

PARTNERSHIP Partnership (UPA SS 6): An association of two or more persons to carry on as co-owners of a business for profit??

Like agency, partnership can be inferred from actions The receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the business (UPA SS 7 (4)) o Sharing of total revenue does not by itself create a partnership: the requirement of profits means you are internalizing some of the costs, which gets back to ownership - if you are internalizing the costs you have incentives more aligned with the corporation Business opportunities you come across during the course of the partnership belong to the partnership, violation of a partners duty of loyalty to the partnership to keep it for himself. o [Meinhard v. Salmon, NYC real estate], remedy is the opportunity is given to the partnership
? UNLESS disclosed to the other partners with all material information and allowed to bargain at arm's length
? Potentially contract around duty of loyalty, but this is going to be tough because courts are protective of it. Why not form a partnership?
o Unlimited personal liability for partners action within course of partnership business (but no personal rights over assets of partnership) o No indefinite life o Difficult to separate ownership from management

Partner Governance - Partner Agent of Partnership as to Part. Bus. SS 9?

(1) Every partner is an agent of the partnership for purposes of its business and the act of every partner, for apparently carrying on in the usual way the business of the partnership, binds the partnership, unless the partner so acting has NO authority and the person with whom he is dealing has knowledge of the lack of such authority [Partners have actual and apparent authority to bind the partnership in the usual course of business]
An act of the partner which is not apparently for the carrying on of the business of the partnership in the usual way does NOT bind the partnership UNLESS authorized by the other partners [Partners have neither actual nor apparent authority to bind the partnership outside of the usual course of business, unless authorized by the other partners]

Nature of Partner's Liability SS 15

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Unclear whether Unocal/Revlon applies? Apply both!?

Partners are jointly and severally liable for misappropriation of funds by the other partners (SS14) and the causing of any loss or injury to any third person by any of the partners (SS13) that happen in the ordinary course of business. Also jointly liable for all other debts and obligations of the partnership o Cannot rid yourself of any of these liabilities just by saying you do not agree to be liable for certain actions of the partnership [Nabisco v. Stroud]

Partnership Decision Making UPA SS 18 (e) & (h)?All partners have equal rights in the management and conduct of the partnership business Any difference arising as to the ordinary matters conducted with the partnership business may be decided by a majority of the partners (SS 18(h)) If there is a Partnership Agreement, the only way the partners can NOT act in accordance with it is by consent of ALL the partners (SS 18(h)) o In a two-person partnership, need to either:
? Come up with a sort of decision making mechanism (because obviously not majority), OR
? Dissolve the partnership (UPA SS 35)

Dissolution??

Dissolution Defined: Partnership is ceasing as a legal entity. Status that occurs when a partner, under the UPA, decides they want to leave the partnership. They have the capacity to unilaterally force a dissolution of the partnership Power of Partner to Bind Partnership to 3Ps after Dissolution SS 35: o A partner can bind the partnership by any act appropriate for winding up partnership affairs or completing transactions unfinished at dissolution o A partner can bind the partnership by action which would bind the partnership if dissolution had NOT taken place, provided the other party to the transaction
? Had extended credit to the partnership prior to dissolution and had no knowledge of the dissolution
? Knew of the partnership prior to dissolution and had no knowledge of the dissolution Dissolution creates the right to "wind up" (UPA SS 37) Dissolution does NOT discharge the EXISTING liabilities of any partner (UPA SS 36(a))

WindupWindup defined: The process of settling the obligations and accounts of the partnership, cannot just end partnership as soon as someone wants to leave. Need to dispose of the partnership property and distribute it to the other partners. Even if we are going to liquidate the business, someone needs to have legal authority to do that on behalf of the business, so it has to continue in some form (In this stage, partners continue to have capacity to act on behalf of the partnership and bind it in certain ways [ways listed in UPA SS 35])

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Unclear whether Unocal/Revlon applies? Apply both!

Termination: End of legal partnership altogether Rights of Partners to Application of Partnership Property- SS 38When dissolution is caused . . . each partner, unless otherwise agreed, may have the partnership property applied to discharge its liabilities, and the surplus applied to pay in cash the net amount owed to the respective partners (sell the assets, settle the debts, pay out the surplus based on the partnership shares) - leaving partner has right under UPA to realize his share in cash o Don't have to sell all of property individually, can sell the entire business as a whole. If remaining partners want to continue, they can bid on it

Partnership Agreements?

Completely legitimate to contract around the UPA provisions, these are just DEFAULT rules [Adams v. Jarvis, accounts receivable]
Will usually specify if a partnership is AT WILL or AT TERM (for a specific purpose - i.e. real estate venture) o Partnership for term can be inferred [Page v. Page]

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