Slides Flashcards
What do in-house counsel do? (7 things)
- Negotiate deals
- Corporate functions (secretary to shareholders’ meeting, drafting minutes and power-of-attorney)
- Litigation
- Regulatory work (compliance)
- Advisory functions
- IP/Patent
- Legal update and training
Conditions for in-house counsel to work for a company? (3 conditions)
- Report to the CEO
- Authority & Independence
- Budget
What is Corporate Law for? (3 things)
- Providing a legal form to an organization/ pursuing and liquidating a business
- Reducing the cost of doing business (facilitates coordination, reduces the 3 types of conflicts)
- Pursuit of overall social efficiency
Besides the company form, 2 other main ways of conducting a business
- Sole tradership
2. Partnership
The Five Core Structural Characteristics of business corporations
- Legal personality
- Limited liability
- Transferable shares
- Separate management under a board structure
- Shared ownership by capital investors
What is a nexus of contract?
The firm
How do civil lawyers call the fact that the firm’s assets are unavailable for attachment by the owners’ personal creditors?
Separate patrimony
4 consequences of legal personality?
- Priority rule
- Liquidation protection
- Specification of the persons acting on behalf of the firm
- Procedural rules on lawsuits
The US general partnership is a ___ form of ___ shielding
weak, entity
The business corporation is a ___ form of ____ shielding
strong, entity
The UK partnership and the pre-1978 US general partnership are ___ form of ___ shielding
weak, owner
The limited liability company is ___ form of ___ shielding
complete, owner
Legal personality allows firms to: (3 things)
- Enter contacts and own property (entity shielding)
- Delegate authority (rules of authority)
- Be sued or sue (rules of procedures)
Limited Liability + Entity Shielding =
Asset partitioning
6 pros of asset partitioning
- Risk allocation
- Lower creditor monitoring costs
- Easier debt financing
- Simplifies administration and bankruptcy
- Facilitates tradability of shares
- Facilitates delegated management
8 differences between corporations and LLCs
- shares vs. membership
- shareholders/stakeholders vs members
- high transferability of ownership vs low
- dividend vs distribution
- corporate tax vs pass-though
- strict corporate formalities vs more fluid + customizable
- one share, one vote vs. customizable
- structured governance vs flexible
Full transferability of shares do which 3 things?
- Distinguishes corporations from partnerships
- Enhances the liquidity of shareholder’s interests
- Allows shareholders to maintain a diversified portfolio.
Who has principal authority over the firm?
BoD
The 2 share ownership rights?
- Rights to dividends
2. Ownership rights
What is regulated by a charter, has no default rules and a strong form of legal personality and limited liability?
A business trust
What are the 3 types of agency problems?
- Conflict between managers and shareholders
- Conflict between controlling and minority shareholders
- Conflict between shareholders and non-shareholders constituencies.
What model is based of Adolf A. Berle and Gardiner Means’s The Modern Corporation and Private Property (1932)?
Shareholder primacy model
What model is based on the fact that directors should not be considered as trustees of shareholders only (Dodd, 1932)?
Stakeholder Primacy model
What is derivative action?
A shareholder derivative suit is a lawsuit brought by a shareholder on behalf of a corporation against a third party. Often, the third party is an insider of the corporation, such as an executive officer or director. Damages paid to the corporation.
Name the 3 shareholder rights
- Appointment and removal rights
- Decision rights
- Ratification
What is the doctrine saying the decision power is in the hands of the shareholders?
Business Judgement Rule
2 residual decision rights granted to shareholders
- When directors have a conflict of interest
2. Decisions call for basic changes or transactions
Yearly approval of distributions and financial statements is an example of what?
Shareholders’ ratification right
What is a one-tier board?
one Board exercises the legal power to
supervise and manage the corporation; Board is composed of executive and non
executive (outside) directors
Name 3 countries with one-tier boards
US, UK, Japan
What is a two-tier board?
monitoring powers are allocated to an
elected supervisory board of non-executive
directors which appoint and supervise management
board that include executive officers
Name 3 countries with two-tier boards
Germany, France, Brazil, Netherlands
What is a Latin/Three-tier model?
an audit board is added (China)
What is co-determination?
mandatory representation of employees in the
board of supervisors of larger corporations:
•All corporations with more than 2.000 employees must have a supervisory
board in which half of the members are appointed by the shareholders
and half by the employees.
•all corporations with more than 500 employees must have a supervisory
board in which one-third of board members are appointed by the
employees.
3 pros and 3 cons of independent directors
Potential benefits:
– Represent the interests of all shareholders
– Provide third-party advice and oversight
– In a position to act without undue influence
from management.
• Potential drawbacks
– Information gap compared to insiders
– Risk of being coopted by management
– Not always adequately qualified or engaged
Rank from softer to harder regulation on gender equality: UK, Germany, France
France (40%), Germany, UK (25%)
Where is the comply-or-explain rule from?
The EU
What are the 4 key rules of good governance?
- Small is better
- Committees
- Independence
- Separate CEO and chairman
The 2 responsibilities of the board
- Advisory: consult with management regarding strategic and operational direction of the company
- Oversight: monitor company performance
and reduce agency costs /Approve the corporate strategy
What does the board do?
Identify key performance measures ▪ Identify risk areas ▪ Plan for and select new executives ▪ Design executive compensation packages ▪ Ensuite integrity of published financial statements ▪ Represent the interest of shareholders ▪ Ensure the company complies with laws
What is a fiduciary duty?
A fiduciary is a person who is required to act for the benefit
of another person on all matters within the scope of their
relationship
3 fiduciary duties?
– Disclosure and candor
– Care (good faith)
– Loyalty
Decision where the board is found liable even after applying the business judgement rule
Smith v Van Gorkom, called also the « TransUnion case » (gross negligence for violation of
duties since the decision of directors was uninformed.
After the TransUnion decision, what was amended in order to permit Delaware companies (with shareholders approval) to adopt charter saying that directors are exempted from personal liability for reach of duty of care (but not loyalty) or good faith?
Section 102 (b) of Delaware General Corporation law
Why did the he Delaware Supreme Court
decide that the Disney board of directors did not violate its fiduciary duties?
- They took an informed decision so they did not violate their duty of care by
committing a gross negligence - They did not violate their duty of loyalty and good faith since they “did not
intentionally shirk or ignore their duty, but acted in good faith, believing they
were acting in the best interests of the Company” - then, the decision to hire M. Ovitz, the conditions under which his termination
package has been decided upon advise of the Compensation Committee and
the decision to fire him without claiming cause (no-fault termination) are
protected by the presumption of the BJR.
Was the board guilty in the Mannesmann case?
Yes, because it had committed waste of the corporate assets by awarding a bonus (USD 17 M) to the CEO
whereas there was « no advantage for the company » since the conditions of the takeover had been
already finalized at the time the bonus had been proposed
Which case affirmed the principle of “shareholder primacy” in corporate America?
Dodge v. Ford Motor Co.
Why did Ford, the company’s president and majority stockholder, sought to end special dividends for shareholders?
To do massive investments in new plants that would have enabled him to dramatically increase production, and the number of people employed at his plants, while continuing to cut the costs and prices of his cars.
(My ambition is to employ still more men, to spread the benefits of this industrial system to the greatest possible number, to help them build up their lives and their homes. To do this we are putting the greatest share of our profits back in the business.)
But Dodge v. Ford Motor Co. also uphold the BJR rule. why?
The judge said: The discretion of directors is to be exercised in the choice of means to attain profit for shareholders, and does not extend to a change in the end itself, to the reduction of profits, or to the non-distribution of profits among stockholders in order to devote them to other purposes.
Which case is about the conditions under which Courts may pierce the corporate veil?
Walkovszky v. Carlton
Was Carleton held personality liable?
held that Carlton was not personally liable. If the corporation was run purely for personal ends and not for the benefit of the corporation then there would be a basis for making the shareholder liable, however, this is not the case here. A corporation with a minimum amount of assets is a valid one and cannot be ignored.
When did the term CSR start to be used?
1960s
Where could you be jailed for not complying with Csr laws?
India
