Professional Documents
Culture Documents
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I.
I
ntro
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II.
C
reation of the Agency Relationship
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III.
T
ypes of Authority (How can an agent bind a principal)
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IV.
P
rinciples of Attribution
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V.
A
gents Fiduciary Duties to Principal
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VI.
T
ermination of the Agency Relationship R3d 3.06 and 3.11
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VII.
C
onclusions/ Liability to Contract with Third Parties
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2. PARTNERSHIP.................................................................................................................. 6
I.
I
ntro
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II.
F
ormation
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III.
R
elations of Partners Inter Se and to the Partnership
Intro
a. Agency relationships create both inward and outward-looking
consequences
i. Inward relates to the relationship between the principal
and the agent and is largely governed by the contracts
between the parties and the law of fiduciary duties
1. The agent is a fiduciary to the principal, the principal
is NOT a fiduciary to the agent
ii. Outward relates to the relationship between the principal,
the agent, and a third party and are governed by various
principles of attribution
b. University of Chicago View on Agency
i. Everything about agency law is in a sense default rules,
that are substituted when parties dont bargain for them
1. Agency law steps in and creates responsibilities and
duties, for people who dont negotiate them
c. Ex: Shareholders elect a board of directors, who appoint officers,
and the officers are agents of the corporation
II.
b.
c.
d.
e.
Intro
a. Positives
i. Partnership is informal and very flexible
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Formation
a. RUPA settled on the entity theory of partnerships the
partnership is an entity distinct from its partners
i. at common law/UPA, the partnership was made up of the
aggregate of the proprietors, and was not treated as a
separate business
ii. led to a lot of confusion
1. All partnership property was held by all the partners
as co-tenants, and the withdrawal of any partner
technically led to dissolution of the firm
b. Definition of Partnership 202
i. The association of two or more persons to carry on as coowners a business for profit, whether or not the intent was
to form a partnership
c. Examples where a partnership may or not be me created 202
(c)
i. Joint tenancy/ tenancy in common doesnt by itself even if
they share profits by use of the property
ii. Sharing of gross returns doesnt by itself even if they
have a joint or common right in the property
iii.A person who receives a share of the profits of a business
there is a prima facie assumption that this is a partnership
d. Partnership Property
i. Property acquired by a partnership is property of the
partnership and not of the partners individually
ii. When is property partnership property? 204
1. If it is acquired in the name of:
a. The partnership, or;
b. One or more partners with an indication in the
instrument transferring title to the property of
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I.
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e.
f.
g.
h.
i.
iii.Distribution of Profits/Surplus
1. Default rule: in accordance with capital contributions
2. Restrictions: assets must exceed liabilities
Limited Liability
i. Yes
Transfer of Ownership
i. Can transfer $ rights only
Duration
i. Big negative
1. If any member wants to resign, dies, bankrupt,
judicially expelled, they have no right to cash out,
and it does not trigger dissolution
2. LLC has perpetual existence therefore these rights
are very similar to a shareholder in a public
corporation
Tax
i. Pass thru unless check the box
ii. Single member LLC disregard the entity
Wrap Up
i. It is less expensive to incorporate than create an LLC
ii. The operating agreements are pretty complex, because LLC
statutes do not have default rules for everything
iii.Older attorneys dont know much about LLCs, new kids on
the block
iv.Case law is not developed, use corporate and partnership
law
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2. Voting
a. Usually made non-voting with contingent voting
rights
i. If dividend arrearages, or
ii. If class voting triggered in specified
circumstances
3. Dividends
a. Generally given a dividend preference
b. Are discretionary on part of the board, but no
dividend to common before dividend to
preferred
c. Generally phrased as $ amount or percentage
of par
d. Types
i. Cumulative must pay all dividends
owed before paying out common stock
holders any dividends they owe
ii. Non-cumulative they do not pay
dividends once they are in arrears
iii.Partially if company had earnings and
didnt pay a dividend then it accumulates
1. If no earnings, dividend does not
accumulate
4. Net Assets
a. Generally, given a liquidation reference
b. Usually phrased as dollar amount equal to par/
original purchase price, plus accumulated
dividend arrearages
5. Sweeteners for people who want some protection and
security and some of the growth the common
shareholders may experience
a. Conversion Privilege typically allowed to
convert to common stock from preferred
i. This is a common feature in venture
capital as an exit strategy
1. This dilutes the common stock
2. Ratio must be specified, X shares of
preferred stock will be Y shares of
common stock(anti-dilution clause)
b. Participation Feature
i. As to dividends, liquidation, or both
1. Is very hard to get
2. Preferred would get fixed
preference, then it collects again
with the common stock
c. Redemption Feature:
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vi.
vii.
viii.
III. Proxies
a. Intro
i. One mechanism to promote responsibility in managers of
public corporations is found in the federal securities laws
ii. Historically state law had very few provisions on proxies,
and there was no federal regulation on the sale of
securities
1. In response to 1928 stock market crash, Congress
passed the 1933 and 1934 Acts
a. 33 Securities Act
i. Transactional in nature
ii. When companies issue securities to the
public, they have to file a registration
statement, applies to IPO and any other
offerings
iii.Focus is on disclosure
1. Many exemptions for small
companies
b. 34 Act
i. Regulates the secondary resale market
(companies whose securities are traded
on exchanges, broker/dealer transactions,
the exchanges where the deals are taking
place
1. Interested in continuous disclosure
a. Demands a lot of information
2. Require annual 10 K, quarterly 10Q,
and in connection with every
meeting of the shareholders, when
management solicits proxies
information must be provided
c. Through these two acts, you are assured of
ongoing disclosure
iii.The purpose of federal proxy regulation is to provide
shareholders with the information necessary to make
informed decisions when voting
iv.MBCA 7.22 and DE 212
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I.
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ii. Term
1. Generally from annual meeting to annual meeting
a. Exceptions
i. Resignation
ii. Removal
iii.Vacancies
iii.Classifying the Board/ Stagger
1. If the board is classified you can stagger so only a
portion is up for reelection
a. This is commonly employed in public
corporations
i. Reasons:
1. Mgmt says continuity, but the real
reason is to make it harder on a
hostile tender offer
2. If a board is classified, the director can only be
removed for cause not without cause
iv.Place/ Notice of Meetings
1. Regular meeting (listed in bylaws) no notice
2. Special 2 day notice
v. Quorum/Vote
1. Base Rule
a. You need a majority (greater than 50%) of the
number of fixed, or number specified within the
prescribed range
i. MBCA 8 person board, you need 5 for a
quorum; if 9 person board, need 5
ii. DE basically same as MBCA
2. You may vary the base rule in the article or bylaws
a. Cant go lower than 1/3 though, unless its a
one person board
3. Note: you cant break quorum by leaving because
you dont like whats happening at the meeting
vi.
Vote
1. There is no concept of proxy for boards
2. Base Rule: Once a quorum is established, need
majority, may vary the base rule, but not go lower
vii.
Resignation
1. Term is a year unless you give written resignation to
the company
a. Can also resign ahead of time and give an
effective date
2. Note: there has been a shift toward asking directors
who do not receive a majority vote to resign
viii.
Removal By Shareholders
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c. Tax, Securities Law, and Anti-Trust Law all play a major role in this
process
i. Tax
1. If the acquiring company (A) pays cash, the receivers
(B), must pay tax
a. Must pay difference between what they initially
paid and the purchase price
2. If A uses stock or a mixture, with the stock
predominating, then it is possible to structure the
deal as tax-deferred
ii. Fed. Securities
1. If the corporations mechanics require a shareholder
vote, the proxy rules apply
a. In a merger and purchase of assets you need a
shareholder vote, but you do NOT is a tender
offer
i. Williams Act requires the acquiror to
transfer materials to the shareholder
comparable to the kind included in proxy
statements
2. If the company uses stock as consideration, 33 Act
requirements apply
a. Must register the stock, or show exemption
b. And many other requirements
d. Shareholders Sphere of Authority
i. Many statutes begin with the assumption that the
acquirors shareholders get to vote, but there are many
exceptions that take it away
1. Board runs the management of the company,
therefore buying a company is a subset of their
powers
ii. Focus is more on the shareholders of the company being
acquired
II. Statutory Merger/ Consolidation
a. Mechanics
i. A identifies B as a company they want to buy
1. They have to pay something for it, likely more than
what B is publicly trading for (premium)
a. This can be cash, securities, or property
(language is broad)
2. Mergers are cooperative deals, the target get
company need to open up all the books and records
3. Must file articles of merger with secretary of state
a. Must include key information: what did you pay,
amend the articles etc.
b. Once article of merger is filed, B disappears
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