lecture 1(Notes)

Question 1

Us consists of

Answer 1

government (federal/state)
courts(federal/states)

Question 2

Where can businesses incorporate

Answer 2

companies are free to incorporate in any state regardless of whether they are doing business there or have any contact with this state

Question 3

Europe (three main sources of european laws)

Answer 3

regulations

Directives

Recommendations

Question 4

There is less regulatory competition in europe due to

Answer 4

regulatory aspects

Two conflicting doctrines (incorporation/real set)

Question 5

Incorporation

Answer 5

An incorporation is the formation of the company. its procedures are usually similar; however, some differnces exist:

1) stringent vs more flexible

2) Liability for pre-incorporation company and

3) Minimum capital amount

Question 6

For a company, different documents need to eb filled, one of them being the articles of association. Tis includes

Answer 6

Mandatory rules (cant be modified by contract)

Defualt rules (applicable in case articles of association or another contract doesnt state otherwise)

Question 7

Characteristics of companies (legal personality)

Answer 7

Firm serves as a contracting party

Shareholders are owners of the shares not assets (entity shielding: liquidation protection and priority rule)

corporate form is a set of features that enable a company to have an autonomous life independent of its investors: Separate patrimony

Question 8

Characteristics of companies (limited liability)

Answer 8

shareholders are only liable up to their committed investment: owner shielding

Liited liability is a right that belongs to the sharholders rather than the company itself

Question 9

Characteristics of companies(transferability of shares)

Answer 9

Transferable =/ freely tradeable

Differences between private and public corporations (especially listed firms)

Question 10

Characteristics of companies (delagated managemetn under a board structure)

Answer 10

In large corporations tehres numerous and constantly changing “owners”

Representations

Question 11

Investor ownership

Answer 11

shareholders invest money in a companys shares

Shares are a bundle of rights including:
Capital rights (dividends, sale)
Control rights including decision-making rights

Question 12

Asset partitioning includes

Answer 12

entity shielding (liquidation protections) (A and B) owner shielding, and entity shielding (priority rule)

Question 13

Tort victims are

Answer 13

“involuntary creditors” such as former employees suffering from asbestos

Tort victims cant negotiate ex ante about the terms for their claims, and thus risk cant be translated into better protection. Moreover, when shareholders limited liability is established iwthin the law, this also extends to obligations that have risen from wrongful actions or torts

Question 14

Goal of corporate law

Answer 14

Corporate law performs two general functions

Provides the structure of the corporate form and housekeeping rules to support this structure

Control conflicts between corporate insider and outsiders

Question 15

There are three main agency problems

Answer 15

1) shareholder manager agency problem
shareholder information and coordination costs: Actually making decisions, suboptimal decisions
large block holders: neutralize this problem

2) Minority controlling shareholder agency problem

3) Firm contracted stakeholders agency problem

Question 16

Legal strategies mitigate the vulnerability of principals to the opportunism of their agents. There are two types of strategies

Answer 16

regulatory strategies (agent constraining) (focus on us)

Governance strategies (principal empowering) (focus on EU)