Corporations Flashcards
1
Q
Forming a Corporation
A
People
Paper
Act
2
Q
Forming a Corporation: people
A
One or more incorporators
3
Q
Forming a Corporation: Paper
A
File articles of incorporation
Articles of incorporation:
Corporate name
—Must include corporation, company, incorporated, or limited etc
—Public needs to know they’re dealing with a corporation
Name/address of incorporators
Name/address of each initial director
Name/address of registered agent
Statement of purpose
Stock Voting rights and preferences
4
Q
Ultra vires activity
A
If corp goes beyond action stated in articles
How to deal:
Valid as to third parties
Shareholders can seek injunction for ultra vires act
Managers can be sued for losses from ultra vires activity
5
Q
Forming a Corporation: Act
A
Deliver notarized articles to the secretary of state
6
Q
Internal Affairs Doctrine
A
Under the internal affairs doctrine, the internal affairs (for example, the roles and duties of directors, officers, and shareholders) of a corporation are governed by the law of the state of incorporation.
7
Q
S-Corporation and C-Corporation
A
Corporation with pass through taxation
Must:
They must have no more than 100 shareholders, all of whom are human U.S. citizens or residents;
They must have one class of stock; and
The stock must not be publicly traded.
C-corp: No pass through taxation
8
Q
Limited Liability
A
Owners (shareholders) are not liable for the debts of the corporation
Corporation itself is liable
9
Q
Corporation Improperly Formed?
A
One important characteristic of both of these doctrines is that anyone asserting them must be unaware of the failure to form a de jure corporation.
De Facto Corporation
Corporation by Estoppel
Abolished in many states though
Say this on exam
If not, how they work
10
Q
Bylaws
A
Document that contains most of the governing rules for a corporation
Private, not filed with state
Shareholders can amend or appeal
Some states: board of directors too
Articles control over bylaws because they are a contract with the state
11
Q
De Facto Corporation
A
anyone asserting them must be unaware of the failure to form a de jure corporation.
Three requirements:
Relevant incorporation statute
Good faith attempt to comply
Act like a corporation
12
Q
Corporation by Estoppel
A
Not a de jure corp, but treated that way for people who treated the business like a corporation
Ie. you assumed you were dealing with corp, estopped from going after shareholders
Exam tip: Will not work for torts cases, only contracts cases
Abolished in many states though
Say this on exam
If not, how they work
13
Q
Pre-Incorporation Contracts
A
Contracts entered into on behalf of the corp before formation
Promoter Liability
Liability of people acting on behalf of corp for pre-incorporation contracts
Corporation is not liable on pre-incorporation contracts
The corporation may become liable only if it expressly or impliedly adopts the promoter’s contract.
14
Q
Corporation Liability for Pre-Incorporation Contracts
A
The corporation may become liable only if it expressly or impliedly adopts the promoter’s contract.
Express
Board takes action adopting the contract
Implied
Corporation accepts the benefits of the contract
15
Q
Promoter Liability for Pre-Incorporation Contracts
A
Promoter is liable on pre-incorporation contracts
Unless it says otherwise in the contract, novation
Novation: Agreement between promoter, corp, other contracting party that corp will replace promoter on contract
Must have evidence of novation not just adoption, adoption doesn’t relieve promoter of liability
16
Q
Novation
A
Agreement between promoter, corp, other contracting party that corp will replace promoter on contract
17
Q
Foreign Corporations Rules
A
Corp incorporated in another state
Foreign corporations transacting business in a state must register and pay prescribed fees.
Failure to Register:
Civil fine
Unable to sue in the state
—But can be sued and defend
18
Q
Issuance of Stock
A
When corp sells its own stock
Way to raise capital
Borrow (debt)
Sell ownership interest (equity)
Rules apply here only when corp selling its own stock
19
Q
Subscription
A
Written offer to buy stock from a corp
Irrevocable for 6 months unless otherwise stated
Post-incorporation subscription revocable until accepted
20
Q
Consideration for stock
A
Money, tangible property, past services
There’s a split of authority over two additional forms:
promissory notes to the corporation and future services to the corporation.
In some states, these work as consideration; in others, they’re prohibited (so using them results in “unpaid stock,” meaning it’s treated as watered stock
21
Q
Par
A
Minimum stock issuance price
22
Q
Treasury Stock
A
Stock the corp issued and then reacquired
23
Q
Watered Stock
A
When par value stock is issued for less than its par value.
Liability to those who authorized transfer
3P not liable if they didn’t know about the water, liable if they did know
24
Q
Pre-emptive Right for Stockholders
A
Right of existing shareholder to maintain % of ownership by buying stock when there is a new issuance of stock for money
Split in states, some states consider treasury stock and some don’t
Anti-dilution right, maintain same ownership interest
Don’t have to buy it, but right to
ISSUANCE FOR MONEY ONLY
Must opt into them in articles, but easy to get around
25
Directors
Director must be an adult natural person
Shareholders elect directors at annual meeting
Directors removable with or without cause
Board or shareholders select replacement
Shareholders create vacancy then must elect
26
Methods of Board Action
At a meeting
Without a meeting with unanimous written consent
27
Meeting Requirements
Notice required for special meetings
Failure to give notice will void whatever happened at meeting
But can be ratified later
Proxies and voting agreements for board of director meetings are invalid
Must be a quorum:
Minimum number of directors that must attend for meeting to be valid
Majority of directors present vote to pass resolution
28
Board May Create Committees
Unless the articles or bylaws provide otherwise, the board may create one or more committees, with one or more members, and appoint members of the board of directors to serve on them. The committees may act for the board, but the board remains responsible for supervision of the committees. The board may also delegate authority to officers.
29
Committees Cannot Take Certain Actions
While the board can delegate actions to a committee, a committee may not take the following actions:
Declare a distribution
Fill a board vacancy
Recommend a fundamental change to shareholders
Note, however, that a committee can recommend such actions to the full board for its action.
30
Director's Duty of Care
To the corporation
Burden on Plaintiff
Standard:
In good faith AND
With the care that a person in a like position would exercise under similar circumstances
Only liable if breach caused a loss. NEED damages.
Nonfeasance:
Director does nothing
Misfeasance:
Misfeasance occurs when the board makes a decision that hurts the corporation
31
Business Judgment Rule
Directors who meet the standard will not be liable for corporate decisions that in hindsight turn out to be erroneous.
Under the business judgment rule, a court will not second-guess a business decision if it
(1) was informed;
(2) was made in good faith;
(3) was made without conflicts of interest; and
(4) had a rational basis.
32
Duty of Loyalty
Burden on defendant
They must act in good faith and with a reasonable belief that what they do is in the corporation’s best interest.
BJR does not apply here
About conflicts of interest
33
Interested Director Transaction
Corp does business with a director or relative of a director
Void unless:
Fair to corp, or
Relevant facts disclosed and transaction approved by majority of disinterested directors or
approved by a majority of votes entitled to be cast by disinterested shareholders
Some jdx always require a showing of fairness though
34
Factors to Be Considered in Determining Fairness in Interested Director Transaction
Courts look to factors such as adequacy of the consideration, corporate need to enter into the transaction, financial position of the corporation, and available alternatives.
35
Director starting a competing venture
Breach of the duty of loyalty
Remedy is constructive trust on the profits (relinquish profits to corporation)
36
Corporate Opportunity
Director taking a corporate opportunity for themself is a breach of duty of loyalty
Must:
Tell company about opportunity first
If they don’t want it, then can take it
37
Corporate Opportunity What is
Something in the line of business
Something the company has an interest or expectancy in
Interest: Contract or property right
Expectancy: Tentative claim in something
Or director found on company time or with company resources
The corporation’s lack of financial ability to take advantage of the opportunity probably is probably not a defense.
38
Remedies for Corporate Opportunity Breach
If a director usurps a corporate opportunity, the corporation can sue to recover under a constructive trust theory.
If they still own the property, they can be compelled to transfer it to the corporation at the price they paid.
If they’ve sold the property at a profit, the corporation may recover that profit.
39
Determining Director Liability
Directors may be liable to the corporation for:
Ultra vires acts (that is, making the company do things it has no power to do, in which case responsible officers and directors are liable for ultra vires losses)
Improper distributions AND
Improper loans
Sarbanes-Oxley Act generally forbids loans to executives in large, publicly traded (“registered”) corporations. It requires the board of such large corporations to establish an audit committee and to oversee the work of a registered public accounting firm.
40
Which Directors Are Liable?
A director is presumed to concur with board action unless their dissent or abstention is noted in writing in the corporate records.
In writing means
(1) in the minutes,
(2) delivered in writing to the presiding officer at the meeting, or
(3) written dissent to the corporation immediately after the meeting.
So an oral dissent, by itself, is not effective.
Note also that a director cannot dissent if they voted for the resolution at the meeting.
41
Exceptions to Director Liability
A director is not liable under the rule above if:
They were absent from the board meeting (for example, they were sick that day, in which case they’re not liable for stuff that happened at the meeting they missed).
They relied in good faith on information (including financial information) presented by an officer, employee, or committee (of which the relying director was not a member), or professional they reasonably believed was competent.
Remember, the reliance must be in good faith; this exception doesn’t work if the director knew the person giving the information wasn’t reliable
42
Directors and Officers Defined
Inside director: Director who is also employed by corp
Outside director: Director not employed by corp
Officers: Day-to-day management of corp
43
Officers
Owe same duties of care and loyalty to the corporation as directors
Also agents of the corporation, entity is principle
Same person can do multiple jobs
Common to have officers but don’t need them
Shareholders appoint directors, directors appoint officers
Termination of Officers:
Corp can terminate authority, may need damages with employment contract
44
Indemnification
Director or officer gets sued as a part of their role in corp and seeks reimbursement from corp
45
No indemnification when
Breach of fiduciary duty
46
Mandatory indemnification for directors when
Successful defense on merits or otherwise
47
Permissive Indemnification
Other situations, ie settles
Director unsuccessfully defended a suit against them.
The director must show:
(1) they acted in good faith; and
(2) believed that their conduct was:
(a) in the best interests of the corporation (when the conduct at issue was within the director’s official capacity);
(b) not opposed to the best interests of the corporation (when the conduct at issue was not within the director’s official capacity); or
(c) not unlawful (in criminal proceedings).
Who Makes Determination
Disinterested directors, disinterested committee members, disinterested legal counsel
48
Court Order of Indemnification
Court may order indemnification when justified in view of all circumstances
49
Limitations of Liability in Articles for Director
The articles can eliminate director (and, in some states, officer) liability to the corporation for damages, but not for intentional misconduct, usurping corporate opportunities, unlawful distributions, or improper personal benefit
States are split as to whether these exculpatory provisions in the articles apply to officers, too.
50
Shareholders Management of Company
Generally, the shareholders have no direct control in management of the corporation’s business. They may act in their own personal interests and generally have no fiduciary duty to the corporation or their fellow shareholders. Shareholder liability is thus generally limited to liabilities for unpaid stock, a pierced corporate veil, or the absence of a de facto corporation.
51
Close Corporations
Shareholders can run the corporation directly in a close corporation.
The characteristics of a close corporation are that there are:
few shareholders, and
the stock is not publicly traded
Articles and bylaws or unanimous written shareholder agreements
Fiduciary duties would then apply to shareholders
52
Duty to not oppress
Majority treating minority unfairly
If there is oppression of minority shareholders, they can sue the controlling shareholders who oppress them for breach of this fiduciary duty
53
Professional Corporations
Corp where directors, officers and shareholders must be licensed professionals
Articles state this goal
Must be licensed in this profession
Can employ non-professionals
The professionals are personally liable for their malpractice (remember, a person is always liable for their own torts).
However, shareholders are generally not liable for corporate obligations or for other professionals’ malpractice
54
Piercing the corporate veil
Doctrine allows shareholders to be sued for the debts of corporation
Test:
Shareholders must have abused the privilege of incorporating such that fairness requires holding them liable
Ie. commingling funds, treating separate entity as personal
55
Undercapitalization
The corporate veil may be pierced where the corporation is inadequately capitalized, so that at the time of formation there is not enough unencumbered capital to reasonably cover prospective liabilities.
56
Fraud, Avoidance of Existing Obligations, or Evasion of Statutory Provisions
The corporate veil may be pierced where necessary to prevent fraud or to prevent an individual shareholder from using the entity to avoid his existing personal obligations. But the mere fact that an individual chooses to adopt the corporate form of business to avoid future personal liability is not itself a reason to pierce the corporate veil.
57
Derivative Suit
Shareholder sues director or officer to enforce the corp’s claim
Could the corporation have brought this suit? If so, it’s probably a derivative suit
Recovery goes to corporation
Shareholder can get costs and attorneys fees if they win
Could be liable for opponents fees if they lose
Compare to direct suit, lawsuit shareholder brings on own behalf
Claim precluded after lawsuit
58
Derivative Suit Requirements
Own stock when claim arose and throughout suit
Adequately represent corporations interest
Must make a written demand on corp (unless futile)
Some states: must make demand and wait 90 days
Some states: No need to make demand if futile
Ie. multiple directors will be defendants
Join corp as defendant
Can settle With court approval
59
Corp can move to dismiss a derivative suit when
Dismissed If Found Not in Corporation’s Best Interests
---Dismissal must be based upon an independent investigation that concluded that the suit is not in the corporation’s best interest
Investigation By Independent Directors or Panel
---The investigation must be made by independent directors or a court-appointed panel of one or more independent persons
Court Approval
---In some states, the court will also make an independent assessment of whether dismissal is in the corporation’s best interest
60
Voting shareholder
Must be a record shareholder on record date
61
Record date
is a voter eligibility cut-off date.
It’s fixed by the board of directors but may not be more than 70 days before the meeting.
If directors don’t set a record date, the record date is deemed to be the day the notice of the meeting is mailed to the shareholders.
Unless the articles provide otherwise, each outstanding share is entitled to one vote.
62
Exceptions to General Shareholder Voting Rule: Treasury Stock
No one votes the stock, because it was outstanding on the record date
Essentially disappears the stock
63
Exceptions to General Shareholder Voting Rule: Death of Shareholder
Executor can vote
64
Exceptions to General Shareholder Voting Rule: Voting By Proxy
A shareholder may vote their shares in person or by proxy executed in writing.
Proxies are good for 11 months
65
Proxy for Shareholder Voting
A proxy is
(1) a writing (fax and email are fine),
(2) signed by the record shareholder (email is fine if the sender can be identified),
(3) directed to the secretary of the corporation
(4) authorizing another to vote the shares.
66
Revocation of Proxy
A proxy is generally revocable by the shareholder and may be revoked by the shareholder attending the meeting to vote themselves, in writing to the corporate secretary,
or by subsequent appointment of another proxy.
67
Irrevocable Proxy
A proxy will be irrevocable only if it states that it is irrevocable and is coupled with an interest or given as security.
This requires
(1) the proxy says it’s irrevocable and
(2) the proxy holder has some interest in the shares other than voting.
68
Shareholder Voting Trust
Voting as a block to combine power
Requirements for Voting Trust:
10 year max
Written agreement
Copy of agreement filed with corp
Transfer legal title of shares to trustee
Original shareholders retain rights except voting
69
Voting Agreement/Pooling Agreement
Shareholder voting agreement without a trust – just needs to be written and signed
Enforceable:
Some states yes some no
70
Shareholder Voting When
At a meeting, or
By unanimous written consent
Annual meeting is required, any other meeting is a special meeting
71
Special meeting
Special meetings may be called by
(1) the board of directors,
(2) the president,
(3) the holders of at least 10 percent of the outstanding shares, or
(4) anyone else authorized to do so in the articles or bylaws
72
Shareholder Meeting Notice
Must be in writing and delivered 10-60 days before the meeting
Must say time and place of meeting
Must say purpose of meeting
Can only do what is listed in the notice
If not followed:
Anything that happens is void at meeting
73
Requirement for Shareholder Meeting
Must be a quorum
Focuses on number of shares, not shareholders
Majority of voting shares
Quorum only required at start (people can leave)
Votes needed:
Just need votes in favor to exceed votes against
74
Cumulative Shareholder voting
Method to give small shareholders better chance of electing someone to the board
Number of shares x Number of directors to be elected
Generally none unless articles provide for it
75
Stock Transfer Restrictions
Default rule: can unilaterally sell stock with no permission
Restrictions Are Fine If Reasonable
Restrictions are valid if they are not an undue restraint on alienation.
The right of first refusal is valid.
It does not restrict the ability to transfer, but only requires the shareholder to offer the stock first to the corporation.
76
Enforcing Stock Transfer Restriction Against Transferee
If a restriction is reasonable and thus valid, it cannot be enforced against the transferee, a third party purchaser, unless
(1) the restriction is conspicuously noted on the stock certificate (or is contained in the information statement required for uncertificated shares) or
(2) the transferee had actual knowledge of the restriction at the time of the purchase
77
Shareholders Inspection Rights
Right to Inspect:
Shareholders right to review corps books and records on written demand
Some states need certain percentage
Need a proper purpose: purpose reasonably related to role as a shareholder
Note: directors have unfettered access to the books and records
78
Distributions
Corp giving money to shareholders.
No right to distribution, within the board’s discretion
Must show a very strong showing of abuse of discretion to get distribution forced onto directors
79
Dividends
Common stock
Dividend amount is split evenly among common stock owners
Preferred Stock
Divident amount first split among preferred, and then remainder split among common stockholders
Preferred Participating
Pay again
Get preferred pay and the common stock pay
Preferred that is Cumulative
Add them up
A cumulative dividend accrues year-to-year. So, the corporation owes the cumulative holders for the 3 prior years, plus this year (when the dividend was declared)
80
Which Funds Can Be Used For Dividends: Traditional
Traditional View—Three Funds
Earned Surplus: Earnings - losses - distributions previously paid.
Stated Capital: Money generated by issuing stock. Stated capital can never be used for distributions
Capital Surplus: Money received from issuing stock in excess of par value. Can be used if you tell shareholders
81
Which Funds Can Be Used For Dividends: Modern
Insolvency
Under the modern view, a corporation cannot make a distribution if it’s insolvent or if the distribution would render it insolvent
82
Liability for Improper Distributions
Directors liable
Shareholders are liable only if they knew the distribution was improper when they received it
83
Fundamental Corporate Changes
Important change that requires board vote and shareholder vote
Requirements:
Board action
Written notice to shareholders
Shareholder approval
Ordinary voting rule:
Votes for must exceed votes against
84
Dissenting shareholders right of appraisal
Right to force corporation to buy back shares for fair value
Triggered by:
Merging or consolidating
Transfer of substantially all assets not in the ordinary course of business, or
Transfer of shares in a share exchange
Converting to another form of business
Only available in close corporations
Don’t need it for public stock
Fair value:
If disagreement over what is fair value, then judicial proceeding will decide
85
Amending Articles
Need shareholder approval
Generally do not have dissenting rights of appraisal for an amendment.
86
Merger
involves the blending of one or more corporations into another corporation, and the latter corporation survives while the merging corporations cease to exist following the merger
Need shareholders to vote
There is a right of appraisal
87
Consolidation
Involves two corporations combining to form a new entity
Need shareholders to vote
There is a right of appraisal
88
Short Form Merger of Subsidiary
No shareholder approval is required for a short form merger.
With short form mergers, a parent corporation owning at least 90% of the outstanding shares of each class of a subsidiary corporation may merge the subsidiary into itself without the approval of the shareholders or directors of the subsidiary.
The parent must mail a copy of the plan of merger to each shareholder of the subsidiary
89
Effect of Merger or Consolidation
The surviving corporation succeeds to all rights and liabilities of the constituents. This makes sense because the constituent corporation disappeared. So a creditor of that corporation can sue the survivor.
This is known as successor liability.
90
Transfer of All or Substantial Amount of Assets
A good rule of thumb is that it requires the transfer of at least 75 percent of the corporation’s assets.
For the Seller only, not the Buyer
Ordinary voting rule
Shareholder approval
Rights of appraisal available
No successor liability
91
Voluntary Dissolution
Dissolution by Incorporators or Initial Directors
If shares have not yet been issued or business has not yet been commenced, a majority of the incorporators or initial directors may dissolve the corporation by delivering articles of dissolution to the state.
All corporate debts must be paid before dissolution, and if shares have been issued, any assets remaining after winding up must be distributed to the shareholders.
92
Involuntary Dissolution
Court ordered dissolution
Grounds:
Director abuse
Waste of assets
Misconduct
Deadlock
Failure to fill vacant board position
93
Election to Purchase in Lieu of Dissolution
As an alternative to ordering involuntary dissolution, a court might order a buy-out of the objecting shareholder.
This might be especially likely in a close corporation
94
Involuntary Dissolution: Action by Creditors
Creditors may seek judicial dissolution if the corporation is insolvent and
(1) the creditor’s claim has been reduced to judgment, execution of which has been returned unsatisfied; or
(2) the corporation has admitted in writing that the creditor’s claim is due and owing.
Liquidation preference:
Right to get paid before others
Has to be in articles
95
Debt Security
Investor lends money to corporation
Creditor, not an owner
Debt secured by corporate assets is called a bond.
Debt unsecured by corporate assets is called a debenture.
96
Equity Security
Investor buys stock from corporation which generates money
Owner, not creditor
97
Rule 10b-5 Defined
SEC rule that prohibits fraud, misrepresentation, or non-disclosure related to sale of securities
98
A private plaintiff must show the following elements to recover damages under rule 10b-5:
In Interstate Commerce
Transaction Types
--Misrepresentation of Material Information
--Insider Trading
--Misappropriation
--Tippers and Tippees
99
Rule 10b-5: In Interstate Commerce
At some point, the deal (meaning, the fraudulent conduct) must involve the use of some means of interstate commerce. This could be a trade on a national exchange; something as simple as use of the telephone or the mail will also suffice.
100
Rule 10b-5: Misrepresentation of Material Information
The plaintiff must show that the defendant engaged in some fraudulent conduct. This can take a number of forms, for example, making a material misstatement or making an omission of material fact.
101
Rule 10b-5: Insider Trading
Rule 10b-5 also prohibits most instances of trading securities on the basis of material inside information (meaning, information not disclosed to the public that an investor would think is important when deciding whether or not to invest in a security).
It’s those who have a relationship of trust and confidence with the issuer, shareholders of the issuer, or, in the case of misappropriators
another person who is the source of the material nonpublic information. So generally, this will be directors, officers, controlling shareholders, and employees of the issuer with confidential information
102
Rule 10b-5: Misappropriation
Under the misappropriation doctrine, a person who owes a duty of trust and confidence to the source of the information has a duty to abstain or disclose
103
Rule 10b-5: Tippers and Tippees
When an insider gives a tip of inside information to someone else who trades on the basis of the inside information, the tipper can be liable under rule 10b-5 if the tip was made for any improper purpose
The tippee can be held liable only if the tipper breached a duty and the tippee knew or should have known that the tipper was breaching the duty
104
Rule 10b-5: Possible Plaintiffs
SEC
A buyer or seller of securities (in a private action for damages)
105
Rule 10b-5: Possible Defendants
Possible defendants can be “any person” (including entities).
Possibly:
A company that issues a misleading press release
A buyer or seller of securities who misrepresents material information
A buyer or seller of securities who trades on material inside information (when there is a duty to disclose; again, this comes from a relationship of trust and confidence with shareholders of the corporation) OR
Tippers or tippees
--Personal benefit required,
-----Or even if just to relative or friend
-----Reputation increase counts too
-----Broad
106
Rule 10b-5: Requires Scienter
To be actionable under rule 10b-5, the conduct complained of must have been undertaken by the defendant with an intent to deceive, manipulate, or defraud. Recklessness as to truth also appears to be sufficient culpability
107
Rule 10b-5: Remedies
Reliance and Damages
108
Rule 16b Claim
SEC claim based on speculation by directors, officers, and 10% shareholders
No scienter needed, strict liability
Section 16(b) provides for recovery by a corporation of “profits” gained by certain insiders from buying and selling the company’s stock
section 16(b) requires surrender to the corporation of any profit realized by any director, officer, or shareholder owning more than 10% of a class of the corporation’s stock from the purchase and sale, or sale and purchase, of any equity security within a six-month period.
109
Rule 16b Claim: When does it apply
“Reporting” corporations
Publicly held corporations
(1) listed on a national exchange or
(2) with at least 2,000 shareholders (or 500 non-accredited shareholders ) and
(3) more than $10 million in assets.
“Accredited investor” means, in general, an investor who can handle risk, such as an institutional investor, officers or directors of the issuers, or high income or net worth individuals.
110
Rule 16b Claim: Types of Defendants
A director (when they either bought or sold)
An officer (when they either bought or sold)
A shareholder who owns more than 10 percent (when they both bought and sold)
111
Rule 16b Claim: Types of Transactions
As noted, this section applies to buying and selling stock within a single 6-month period (also known as short-swing trading). No fraud or inside information is needed
112
What Happens When Section 16(b) Applies?
All “profits” from such “short-swing trading” are recoverable by the corporation. The recoverable profit under section 16(b) is determined by matching the highest sales price against the lowest purchase price for any 6-month period.
So, the “profit” can be either a gain or an avoided loss
The order of buy and sell does not matter. It is irrelevant. Under section 16(b), if we sell at $10 today and buy at $1 later, that counts as a profit.
Strict Liability
Strict liability for this rule
