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

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

Agency

Agency Defined: (§ 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 (§1.04):

  • 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]

  • 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]

  • 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

  • Actual Authority (§2.02): The agent has the principal’s permission OR the agent reasonably believes he has permission

  • Apparent Authority (§2.03): 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, § 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”

      • Also, principal can sue agent, § 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”

  • Estoppel (§2.05): 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

  • Ratification (§4): the principal could have declined to be bound, but accepts the contract through subsequent action.

• General Agents

  • 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)

  • 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 authority

• Liability in Tort (Respondeat Superior)

  • Respondeat Superior § 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.

Partnership

Partnership (UPA § 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...

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