lecture 1 part 2

Question 2

Tort victims

Answer 2

when shareholders limited liability is established within the law it covers not just contractual obligations linked to the legal entity but also extends to all obligations, including those arising from wrongful actions or torts

Question 3

Parent companies and corporate groups

Answer 3

Limited liability poses risks on creditors and therefore, for corporate groups, he proposes to treat a corporate group as a single economic enterprise

Parents have control, but can use limited liability to limited the possibility for claims

Question 4

transferable shares

Answer 4

transferable =! freely tradable

Big difference between private (closed) and public (open) corporations and especially listed firms

Question 5

Authorised capital

Answer 5

this capital is authorised in the AoA and shareholder approval needed to increase this amount

Question 6

issued capital

Answer 6

is part of the authorised capital that is issued to investors

Question 7

subscribed capital

Answer 7

is often equal to the issued capital but can be lower if the public applies for less shares (or higher in case of oversubscription)

Question 8

Outstanding capital & treasury shares

Answer 8

issued capital that is outstanding by the investors or bought back by the company and held in treasury

Question 9

Paid up capital

Answer 9

The amount of money received from shareholders for the shares is called the paid up capital

Question 10

delegated management under a board structure

Answer 10

1) especiall in large corporations; numerous and constant changing “owners”

One tier vs two tier board

Two tier board with supervisory and manageent board (supervisory monitors the management board members) (management board takes care of the corporate management)

Question 11

investor ownership

Answer 11

shareholder give money
Company give share

Share = bundle of rights
Capital rights (dividend, sale)
Control rights (including decision making rights

Question 12

The goal of corporate law

Answer 12

corporate law performs two general functions

1) privides the structures of the corporate form and housekeeping rules to support this structure

2) Control conflicts between corporate insiders and outsiders

Question 13

delagated management

Answer 13

shareholder-manager agency costs

Question 14

agency problems (II)

Answer 14

shareholder-manager agency problem (first agency problem)

large block holders: neutralize the shareholder-manager agency problem

But: minority-controlling shareholder agency problem = the second agency problem

And many more agency problems including for instance creditors (incl. shareholder-creditor agency problems) and other stakeholders

Question 15

legal strategies

Answer 15

mitigate hte vulnerability of principals to the opportunism of their agents

1) regulatory strategies (agent contraining)

2) governance strategies (principal empowering)

we will see various legal strategies next lectures

Question 16

rules and standards

Answer 16

Corporate laws contain ex ante rules and open standards (like good faith; see board duties) that require judical evaluation

Question 17

Entry and exit

Answer 17

including the disclosure of information (prospectus), appraisal rights and transfer rights

Question 18

Trusteeship and reward

Answer 18

incentive alignment strategies (including independent directors, executive pay structures and SoP, etc)

Question 19

selection and removal/initiation and veto

Answer 19

shareholder appointment rights and decisionmaking rights (shareholder and management proposals, lecture 3)