CORPORATIONS

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					                           Business Associations
                              Professor Pratt
                             Fall Semester 2006
                        Syllabus: Part I (Units 1-11)

Unit 1: Getting a Business Started.

     A.    Introduction and Choice of Organizational Form.

           BAUMAN, WEISS & PALMITER, CORPORATIONS LAW AND POLICY (Thompson
           West, Fifth Edition, 2003) [BWP]: pp. 1-2 (top of the page); 30-34; 148-168.

           BAUMAN, CORPORATIONS AND BUSINESS ASSOCIATIONS: STATUTES, RULES AND
           FORMS (Thompson West, 2006 Edition) [Statutes]:

                  Uniform Partnership Act (1914) §§ 9, 15, 17, 18, 24, 27, 29, 30, 31.

                  Uniform Partnership Act (1997) [RUPA] §§ 202(a); 306; 401(f); 503;
                  801(1); 802.

                  Uniform Limited Liability Company Act (1995) [ULLCA] §§ 202; 203;
                  303; 404; 411; 502; 503; 801; 802; 803.

                  Del. Limited Liability Company Act §§ 18-201; 18-303; 18-402; 18-702;
                  18-704; 18-801(a)(1) and (2); 18-803.

           Package of materials to be purchased from the Graphics Department [Graphics]:

                  Revised Uniform Limited Partnership Act (1976 with 1985 Amendments)
                  [RULPA] §§ 201; 303; 403; 702; 704; 801; 803.

                  Uniform Limited Partnership Act (2001) §§ 201(a); 303; 404; 406(a) and
                  (b); 601; 603; 605; 702; 102(22); 801; 803.

                  “Business Organizations” excerpt from Hamilton & Booth, Business
                  Basics for Law Students.

           Problem: Please be prepared to represent the parties in the problem on pp. 148-
           50, "Precision Tools — Part I."




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         B.        Setting up the Corporation.1

                   BWP: pp. 51-63 (middle of the page); 187-94.

                   Statutes:

                            Delaware General Corporation Law (DGCL):
                                  101(a).
                                  102(a),(b),(c).
                                  103(a)(1), (c)((1)-(3),(d),(h).
                                  106 [Commencement of Existence].
                                  107 [Incorporators' Power].
                                  108 [Organization Meeting].
                                  109 [Bylaws].
                                  131(a) [Registered Office].
                                  132(a) [Registered Agent].
                                  141 (a),(b),(c) [Directors].
                                  142 (a), (b) [Officers].
                                  211(a),(b),(d) [Stockholder Meeting].
                                  223(a)(1) [Filling Board Vacancies].
                                  242(b)(1) [Amending the Certif. of Incorp.].
                                  275(a),(b),(c) [Dissolution].

                                      (Also look at the table of contents of the DGCL.)

                            California General Corporation Law (CGCL):

                                      212 [Bylaws].
                                      303 [Removal of Directors].
                                      307 [Stockholder Meeting].
                                      1900 [Dissolution].

                   Graphics:

                            California Statutes Supplement.

                            Sample Incorporation Documents.



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    A Note on Terminology: What some states refer to as the "certificate of incorporation," is called the "articles of
incorporation" or the "charter" in other states; the terms are used interchangeably. Ditto for "shareholder" and
"stockholder."




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           Issues to think about in Unit 1:

                  Under what circumstances would you advise a client to do business as a
                  general partnership? As a limited partnership? As an LLC? As an S
                  corporation? As a C corporation?

                  What steps must you take to assist a client in starting business as a
                  corporation?

Unit 2: Corporations as Legal Entities.
     A.    Introduction to Corporations as Legal Entities.

           BWP: pp. 67-80 (skip the problem on pp. 69-70).

     B.    The Corporation and Society.

           BWP: pp. pp. 103-07 (middle of the page); 109 (bottom of the page)-118; 123
           (bottom of the page) -147 (skip the problem on p. 125).

           Statutes: DGCL §§101(b), 102(a)(3), 121, 122 esp.(9), 124.

           Issues to think about in Unit 2:

                  The primacy of the pursuit of shareholder wealth maximization.

                  Corporate social responsibility.

                  The significance of a corporation being treated as an entity apart from the
                  shareholders.




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Unit 3: Limited Liability.

      BWP pp. 318-321 (top of the page); 327-335 (middle of the page) (skip the problem on
      pp. 328-29); 339 (bottom of the page)-348 (top of the page); 360 (bottom of the page)-
      365.

      Graphics:

             Diagram of the Facts in Mangan v. TTS.

             Mangan v. Terminal Transportation System.

             In re Silicone Gel Breast Implants Products Liability Litigation.

             Fletcher v. Atex Inc.

      Issues to think about in Unit 3:

             What is the best argument for upholding the "limited liability" of corporate
             shareholders?

             Under what circumstances should courts apply equitable principles to depart from
             the norm of limited liability and "pierce the corporate veil"?

             Can we find coherently applied principles in the cases, or merely "result-oriented"
             jurisprudence?

             How do we reconcile the value of doctrinal consistency with fairness to
             individuals?

             What distinctions or factors are of assistance in these determinations (e.g., tort v.
             contract cases)?




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Unit 4: Corporate Securities.

     BWP pp. 239 (middle of the page)-49 (middle of the page); 251 (middle of the page)-257
     (top of the page).

     Statutes: DGCL §§ 151(a)-(e); 161; 221.

     Graphics:

            Effect of Leverage.

            Articles of Incorporation of Business Enterprises Inc.

            Example of the Dividend Equivalence of a Pro Rata Redemption.

            Example of a Notional Principal Contract.

            Metropolitan Life Insurance Company v. RJR Nabisco, Inc.

     Issues to think about in Unit 4:

            Corporate securities as instruments that define the allocation of financial risk and
            the opportunity for financial reward in the corporation, i.e. the money part.

            Corporate securities as instruments that do or do not allocate to their holders the
            right to take part in the management of the corporation, i.e. the control part.

            Competing interests among various holders of corporate securities.




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Unit 5: Accounting and Financial Statements.

     BWP pp. 195-218 (middle of the page).

     Graphics:

            "Accounting and Financial Reporting" excerpt from HAMILTON & BOOTH,
            BUSINESS BASICS FOR LAW STUDENTS.

            Some Formulae and Concepts to be Discussed in Class.

     Problem: Please prepare the Precision Tools problem on pp. 195-96.

     Issues to think about in Unit 5:

            How much can you learn about a business from reading its financial statements?
            What additional questions would you want to ask the participants?

            Why are the balance sheet and income statement organized as they are?

Unit 6: Valuation.

     BWP pp. 218-236

     Graphics:

            Present Value of $100 to Be Received in the Future.

            Neal v. Alabama By-Products.

     Problem: Please prepare to discuss "The Old Man and the Tree: A Parable of Valuation"
     on pp. 218-225.

     Issues to think about in Unit 6:

            In what way do concepts of present value bear on evaluating the value of a
            corporation?

            Why is a corporation’s value frequently an amount other than its liquidation value
            and book value?

            What are the strengths and weaknesses of the capitalization of earnings method
            and the discounted cash flow method?



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Unit 7. Legal capital, insolvency, fraudulent conveyance: Protection for
creditors from excessive distributions to shareholders.

      A.    Legal Capital.

            BWP pp. 261 (middle of the page)-270 (skip the problem on pp. 262-63).

            Statutes: DGCL §§ 152; 153(a) and (b); 154 (first two sentences); 156; 162(a).

      B.    Distributions to Shareholders.

            BWP pp. 271 (skip questions 2 and 3 of the problem on p. 271)-273 (middle of
            the page); 276 (middle of the page)-278 (top of the page).

            Statutes:

                   DGCL §§ 160(a)(1); 170(a); 174(a) and (c).
                   California General Corporation Law §§ 500-506.
                   Revised Model Bus. Corporation Law § 6.40.

            Graphics:

                   Handout on the Legal Capital Rules.

                   The Effect of Dividend and Share Repurchases.

                   Example of Application of CGCL § 500(b).

            Problem: Please prepare Question 1 of the problem on p. 271, both under
            Delaware law and California law.

      C.    Fraudulent Conveyance.

            Review BWP pp. 363-65.

            Issues to think about in Unit 7:

                   The function of the legal capital system in protecting creditors and fellow
                   shareholders.

                   The efficacy of fraudulent conveyance law as a means of protecting
                   creditors.



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Unit 8. Introduction to management and control in the corporation and
directors' and officers' authority.
     Reading:

            BWP pp. 366-369; 371 (middle of the page)-373; 381 (middle of the page)-385;
            576-590.

            Statutes: DGCL §§ 141, 142.

            Graphics:

                    Excerpt from HAMILTON & MACY, CASES AND MATERIALS ON
                    CORPORATIONS (8th ed.).

                    Cumulative voting handout.

     Issues to think about:

            The allocation of power within the corporation among directors, officers and
            shareholders, and the source of power.

            The significance of titles such as "president" or "secretary."

            Where should courts place the burden of loss where officers of a corporation
            exceed their authority?

            How does cumulative voting for directors differ from "straight" voting?

            What is a staggered board and what is a class-designated board?

            How do variations in director selection affect the shareholders' removal powers?




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Unit 9. Shareholders in the scheme of corporate governance: state regulation.

     Reading:

            BWP pp. 424 (bottom of the page)-428; 437 (bottom of the page)-443 (middle of
            the page); 447 (bottom of the page)-455.

            Statutes: DGCL §§
                    211(a),(b),(d) (Meetings of stockholders).
                    212(a),(b) (Voting rights).
                    213(a) (Record date).
                    214 (Cumulative voting).
                    216 (Stockholders' quorums).
                    218(a)(1st sentence) (Voting trusts).
                    218(c) (Voting agreements).
                    222(a)(b) (Notice of meetings).
                    228(a) (Consent in lieu of meeting).

     Issues to think about:

            Where do the shareholders fit within the traditional model of corporate
            governance?

            Is their thematic importance (corporation to be run in the best interests of the
            shareholders) undermined given the very limited authority they retain to take
            initiative or act directly in corporate matters?




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Unit 10. The Federal Proxy Rules.

     Reading:

            BWP pp. 480-483; 495-500 (middle of the page); 505 (bottom of the page)-512.

            Handouts: Introduction to the Federal Proxy Rules.

            Statute and Rules:

                    Securities Exchange Act of 1934 § 14(a).
                    Rules: 14a-1(l); skim 14a-2; skim 14a-3(a); 14a-8; 14a-9; 14a-11.

     Issues to think about:

            What sorts of procedural requirements do the federal proxy rules impose on
            management or shareholder solicitations for proxies?

            Under what circumstances are communications between shareholders subject to
            the federal proxy rules?

            Under what circumstances can a company exclude a shareholder proposal?

Unit 11. The Duty of Care and the Business Judgment Rule.

     Reading:

            BWP pp. 284-285; 607-618 (skip problem on pp. 612-613); 652 (bottom of the
            page)-674 (middle of the page); 685 (middle of the page)-687 (middle of the
            page); 1110 (middle of the page)-1117 (middle of the page).

            Statutes: DGCL §§ 102(b)(7), 251, 252, 253.

            Handouts:

                    Chronology of facts in Smith v Van Gorkom.

                    Case law developments after Smith v. Van Gorkom.




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Issues to think about:

       What is the rationale for the Business Judgment Rule and who benefits from this
       rule?

       What is the standard of diligence expected of corporate management under the
       duty of care? Should the standard be higher? What is the trade-off?




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