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PRES has inh auth to Authority

bind C for K

Actual Apparent Inherent Ratification Estoppel

RTA s.2.01 RTA s.2.03 RTA 4.01 RTA s2.05
(RTA Strikes)

P to A P to TP P gen. Undiscl. P ratifies A NO AGENT

P liable for A if A’s Affirmance of prior No act or app – P

Express Implied Power held by
acts are within auth act done by A may be liable to TP
A to affect P
when TP rbly usually confided in based on A if:
believes A has an agent who
authority to act normally has that Manifest
Agent acts based on Ps auth (can K out) assent P acts to
reasonably on manifestation that act justify rnbl P is P is on
Ps to TP will affect assumptn intention notice of
manifestations R3rd s.6.03 legal of consent or TP belief
that P wants A relations careless and does
so to act. Duty is on A to disclose P
App Imp of TP not try to
Authority: put belief stop
A must be
agent in place RSA 161
Conduct, acting ON P’s
words, or for TP to rbly BEHALF!
implied by believe A has
conduct auth. Undisclosed
Principal IMPLIED
Or affirmance = P
Based on A’s “Rogue” A conduct, P
Sub Agent
reasonable RTA 1.04(8) must have
perception A of A to reason to
Agent & TP are know
conduct P’s
business in
parties to
scope of A agree.
Look to past
conduct P must have
Look for choice, cannot
undisclosed P be AFTER act
“Such powers
are as
RTA expands RSA
reasonably capture “Rogues”
necessary to
carry out the
Liability of P on
duties” TP on Tort
Look to K to Not on Agency, on KIND of Ag POLICY – Control, esp ownership
clarify A’s and profits tends to infer agency
authority Day-to-day control, distinct operation, custom, skill, tools, time,
compensation, party belief, business or not (7.07) Labels don’t matter

RSA 1.01 – P must have control

Nonemplee Nonagent Ind.
Agent Contractor Control over actual instrument
Liability of Respondeat superior as limit
P liable if P NOT liable
Agent on K within scope of unless:
NOT Liable
7.07 – SCOPE:
Undisclosed Unidentified Disclosed
P assert control Engaging in conduct subject
Principal Principal Principal RTA 7.03(1) “Nuisance per to P’s control
Direct se”
P negligent Liability = if harm is
RTA 7.07 foreseeable from conduct of
A & TP ARE A IS party A is NOT party Incompt EEs
Employee Non-delegable Contractor OR
agree agree agree Financ. Incom.
otherwise otherwise otherwise RTA 7.08
Apparent A P volunteers to
take duty 7.07 – Intentional
Nondelegable Look at type of tort
Apparent duty
Agent’s Duties

If Breach:
P’s consent
Fiduciary P MAY consent to Disclose
A must act in must be Disgorge
Conflict of Interest MATERIAL Deal fairly
Duties good faith specific to act profits to P
8.01 information
or transaction
Worse than K
case b/c not
W/in Scope &
Duty of Care Reasonable Comply w/
Care 8.08 Instructions
RTA 8.08, .09 8.09

Good Conduct
“catch-all” 8.10

Personal Grabbing &
Personal Adverse Proprietary Usurping
Competing Profits from Leaving
Benefit Dealings Inform Business
8.04 Position Town &
8.02 8.03 8.05 Singer
Reading Contry
Waiver Waiver Waiver Waiver

When in Trade secured

May take steps Not use
connection to through years
in preparation property of P
agency of bus. and
to compete for own or TP
relationship advertise, $$

Cannot communicate confidential information for A

or TPs benefit

Interested party RUPA

RUPA 103b3:
RUPA 404(b): Elim duty of loyalty cannot vote in 404(d):
“Punctilio of an Cannot elim loyalty,
Partnership duty of loyalty,
inc “approp of
honor most
but can id certain
when poss, limit notice,
time period limit,
ratification of self-
PS must
discharge w/
sensative” categories, if not
Duty partnership
change “PS opportunity obligation of
opportunity” opportunity” meaning Perreta v. good faith &
Prometh fair dealing

101(6); assc of 101(10): Duty of Loyalty,

201(a): PS is
2 or more as almost any RUPA is basis
Partnership co-owners, for entity can be
distinct from
default rules
Non-Waivable Care, Good Faith,
partners Inspection
profit partner

Unlimited liability, limit

transferability, single taxation, (4) Share in (8) Mgmt equal
(3) Co- (5) Share in (6) Partners (7) Look at
limited access to capital, (1) Agreement (2) Written, not profits, rights for all Ps
property not management may be who’s at risk at
informal, less regulation w/in b/t parties needed presumed, unless PS Ag
determinative 401(f) creditors dissolution
PS agreement, life limited to UNLESS says otherwise
debt 401(j): Diff in mgmt, majority wins, if not
ordinary, must have consent of all Ps
301(1): Each partner is agent 306(a): all Ps j/ wages
of all UNLESS (1) P does not 305(a): PS is s/l for all 103(a) – PS Ag may alter relations B/T Ps &
have authority, AND (2) TP liable for act of 103(b) lists non-alter in PS Ag
knows or should know P Ps if act in Late-Coming rent
doesn’t have author ordinary Partners NOT
course of liable for Annuity/retire
Allows APPARENT AGENCY business previous Partnership By Estoppel
(ordinary) incurred oblg
Debt service

Sale goodwill P must show

Represent Reason.
or property express or
Partnership was made by Reliance by
implied TP is harmed
Partnership Windup D or person TP in good
Disassociation holding out of
alleged PS faith
PS by D
Partnership Transfer
807(a): 308(e): if
306(a): All RUPA 602b1:
after not PSs w/ RUPA 601(3)
Ps j/s Wrongful
creditors, each P may be
liable for expel ONLY Effect of PS by Estoppel
surplus to other, not expelled as 502 & 503: 501:
all IF breach
PS by PSs to 3rd terms of PS 401(i): PS has P is not co-
liabilities express term
rights to parties Agr All Ps must personal owner of PS
distribution consent to sell interest in prof property, If PS liability,
PS interest & losses & cannot If D purports PUBLIC
then that
distributions transfer to be PS and MANNER, D
PS FREEZEOUTS! – P v. TP PSbE is liable
504(a)-(b): Creditor MAY get TP relies, D is as PSbE is
as if P were
judgment against P interest liable to TP liable even if
305(c) & 401(c): PS is liable for doesn’t know
ordinary bus of P tort, must
indemnify P if in ordinary course
Value based BUYOUT:
Value at on sale of bus “Some objective
Disassociation Continuation of Business Liquidation
RUPA 701 windup is as going determination of value”
603(a) Article 7 value, OR
greater of: concern w/o needed
disass P Fair Market Value

(ii) one P
(iii) no longer
engag in
Dissolution & Wind Up (i) economic reasonably
RUPA 801(5) conduct that Wind Up
purpose practicable to
Article 8 makes PS not Process
frustrated contin PS
under PS Ag

P may be creditor and P, 807a-b: Creditors paid, then Ps

602(a) and may pursue own EXPULSION: if not Wrongful
P may disass interests - 404(d) permitted in PS Ag, cannot 807b: profits & losses from liquidation charged
disass = P
any time, right expel, can seek dissolve but liable for to Ps accounts
or wrong, by (1) Voluntary Association 404d damages to
express will (2) Primacy of K PS Ag PS for disass 803c: person WU may dispose of and transfer
the assets
Owen v Cohen: if P provides loan to PS,
Kovacik Rule: Ps share in profits and losses
presumed “for term” if pay of loan is out of
profits UNLESS one P is only skill & labor

(i) P withdraws by (ii) P expelled by Conflict w/ 401(b) – proportionate shares

express will judicial determ.
601(1): notice 602(b)(2): if in Amount = Capital Account (book) + avg prior 3
by P to withdr term: (iii) P becomes (iv) P expelled or
years profits/gains paid to GP
debtor in bankrupt. disass b/c dissolv
or termination 802(a) – PS continues after dissol and
terminates when WU done – fees split as in PS

Evaluate the HARM, who is

harmed? Derivative
Shareholder Suits Direct
SH C (recovery goes to Corp)
Who would recover?
(1) SH files on behalf of injury to
(1) personal action by SH for injury
of SH
(2) COA belongs to corp
(2) SH as individual
(3) recovery to corp
(3) recovery to P-SH
(4) special pleading required 23.1

MBCA 7.41
Blasius Standard: Revlon Duty: P was SH at time of act or
(1) P must show Bd acts with Duty of Bd Standing became through transfer of
effort to deny SH vote right changes on MBCA 7.42 SH who was at time
Demand Requirement
liquidation – Demand Requirement
(2) Bd must provide “compelling duty to max SH fairly & adequately
justification” value for SHs When Ds are
FRCP 23.1 – Must Written, specific demand def in case
represents interests of corp
state desired result made upon C to take in enforcing corp
in demand suitable action (wrongdoers)
Demand Futility - Show by reason. Doubt
90 days have expired from (1 of 3) that BD cannot decide
Demand Sent demand, OR demand demand w/ part. facts
refused, OR 90 too long
Majority BoD conflicted int
NY Rule: part facts –
BD Accepts BD Denies Del: Majority BoD not indp by (2) fail to inform
domination or control (NY: not (3) trans = BJR not
informed themselves) possible
BD takes over the lawsuit
If demand Charged transaction not subject Del Rule: reas doubt -
Denial is
made, to BJR – BD no BJR (2) bd lacks indp
subject to
cannot (3) trans not valid
claim futility exercise of BJR
Special Litigation Committee
(SLC) – small comm of non-interest
BD members to review demand
P-SH must
If SH loses BJR to Auerbach standard NY Del Zapata standard
derivative suit pass denial
– SH may BUSINESS JUDGMENT (1) SLC (2) proced (3) Substan (1) Bd Indp & (2) Ct applies
have to pick RULE member selc used by SLC outcome good faith own “indp BJ”
up tab for D/O process to reach sub NOT (2) Bases whether to
and must pay review review reviewed supp decision dismiss
Presume BD acts with good
own fees
faith and promoting best int
of corp
Bd member experience with contested trans, More substantive review into
prior affilitations, completeness of inquiry, good decision & eliminates potential
Overturned w/ part. facts faith, no pro-forma/shallow investig, “eminent structural bias – subject to Summ
showing bad faith, conf int, special counsel” - but TAINTED BD can appoint Judgment Standard Rule 56 – look
AND breach of fid duty SLC members at personal ties (Stanford Conspir)
Corporation Agency Costs Effect of Public v
Basics Corporation Private

Cost of Contracting MBCA 8.01 – C power in Bd,

MB 3.01a & DG 101(a) – Public Private
Purpose = lawful business
Cost of Monitoring
MANAGER v. Shareholders: Closely held
SHAREHOLDER v. Publicly held Smaller
DIRECTOR v. BUSINESS Bonding Big enterprise Shares illiquid
FUTURE 8.03-04: Election of Directors More captz Sm # of SHs
Traded shares Like PSs
Residual Loss 10.03, 10.20: Amend bylaw or Art of Mostly LLC now

11.04: Fundamental trans (merg) Separation of Ownership & Control

Corporate Name
Corporation Flexible capital structure
# shares authorized
Creation Incorp Equity v. Debt
Office & registered agent
Contracts Authorized Shares Outstanding Shares
Name & address of incoporator
Terms 2.04 – Promoter is j/s/l for Ks Auth but Unissued Treasury Stock
MBCA 2.02 pre-inc if knew Arts not filed
Director names
Book Value Market Cap
Bylaw provisions 2.04 – Promoter liable if Art not
Limited liability of directors to SH
De Facto Estoppel Short-Form
Indemnification & other Merger DGLC
Third Party:

Act Draft Articles of Incorp (1) good faith (1) No SH approv needed
(1) thought other (2) Bd of parent approves
2.01 tried to incp
File with the Sec of State party was Corp (3) Parent must own 90% of
(2) had legal right each class of stock of sub
(2) would suffer
MBCA 2.06 – adopt bylaws, incl to do so
detriment if not a
(4) minor SH entitled to jud
Cum/ value
Line After Incorp management terms corp
(3) acted as Corp
Voting 2.05 – Elect directors, adopt by, app
officers, carry on business
Single Enterprise Theory
MBCA 6.22: SH NOT personally liable,
unless own act or conduct
Single enterprise liability v. PCV = only corp Risks = regulatory, legal, operational,
Limited MBCA 6.22(b): SH NOT personally for entity would be financially respons while in reputational, interest rate, market, political,
Liability debts of corp SEL single SH personally liab tech, governance, fortuitous

Piercing Corp Veil: 6.22 – SH liable Illinois Piercing Law Unity of interest in
No maint C Under-
for corporate action form or records capitalization
ownership – no diff
b/t Corp and SH Commingling of Mix use of
funds assets
Generally same,
Parent liable for Adhering to fiction of
Alter Ego unity in ownership, Must be more than liability – more “wrong”
action of subsidiary sep leads to (1)
commingling, (i.e. tax fraud or personal expenses)
but subs not resp for FRAUD or (2)
holding as one,
Mere Instrumentality other subs
same office, EEs

Rest T s.324a: P Common Ds and Os, common business depts, consol financial statements/
may be liable if TP returns, parent finances sub, P incor S, grossly inadequate capital, P pays
Direct Liability
relies on salaries, S business only serves P, operations comb, business prac

Proxy Issues MBCA 7.25 & DG 216: Require majority of OS SHs: Election of Ds – plurality of
MBCA 7.01 Annual SH Mtg
RECORD SH Majority approval of SHs Mergers, Amend Charter, etc votes cast
(DG requires present)
MBCA 7.02 Special SH Mtg (MBCA – more for than ag)
(1) Must be policy issue quest
(2) C reimb only reasonable & proper expenses
Insurgents must win to be Intris fairness
Proxy Contest Electoral & Issue (3) C can reimb incumb W/L
reimbursed (not personal) not aff def when
(4) C reimb Inc if win & SH ratify
material fact
omitted – if in
No fraud permitted in proxy Section 27 allows Direct & Generally direct (loss vote) proxy, & proxy
Proxy Fraud Rule 14a-9 was essen link
statement (material) Deriv private COA but C can sue derivatively

Prove Prove Split wheth reliance Negligence Injunc – Attorney fees

material Essen link needed – OM-no, Mis-yes is standard damages - reciss allowed

Nonbinding Not nor bus Intrude on Revolves around

Excluding Proxy If SH fails to Mgmt Mgmt must phrasing operations mgmt role elections
Includes Subject to
Rule 14a-8 satisfy elig excludes w/ notify SH w/ SEC
legal BJR if Insignificant/irrel proposals - >5% total Pertains to partic
SH $2000 or 1% or violates burden filing option to determ. Personal
rationale excluded assets, net earn, and not sig to business Board seat or
14a-8i to SEC remedy grievance
operations procedure

SH Record
For other, burden on SH,
Inspection SH must make proper If SH wants SH list, burden Proper: (1) Subj intent to pursue Improper: info for non-C purpose,
unless req from foreign C
DGCL 220 demand w/ prop. purpose on mgmt to say why not proper inter, (2) Obj std if prop pur. trolling for bus, harassment
(for NY statute)
Efficient Capital Market
Corporate Overturning Hypothesis (ECMH)
Fiduciary Duties Standard of BJR Weak: mrkt incorporates PAST
Duty of Care BJR
Liability information
BJR is informed if directors
have informed themselves Semi-Strong: mrkt
A Ds have obl using Stand of Conduct Rebut presump that D Exculpation of DIR incorporates PAST &
prior to making decision of
BJR to maximize (aspirational) perform honestly & well- (not officers) CURRENT information
material reas avail to them
income for benefit of all MBCA 8.30: meaning, decisions
Van Gorkam
persons having a stake Good Faith rationally undertaken Strong: Mrkts incorporate all
DGCL 102b7 – Art of Incp may
in welfare of corporate Reasonable Belief eliminate or limit DIR (not O) information (even not public)
entity v. Dodge Reasonable Care Care = Not in Good Faith:
Effect pers liabl for breach of fiduciary
duty (1) Fraud – (2) Con of Interest
– (3) Illegality MBCA 6.40 –
(1) Shield Ds from PR MBCA 2.02(b)(4): Art of In may Stock Author Distributions to
(2) Insul Bd decisions limit liability of dir or SHs for Waste: SHs
money damages for any action Lack of rational purpose MBCA 6.01 &
Money or other
Lack of GF (3), Waste, taken [not interest, intl harm, DGCL 151: must
Overcoming unlawful distrib, criminal act] property to SHs –
Gross Negligence Gross Negligence: say how much &
subject to BJR
Lack of reason effort to inform voting rights

Board Reliance Right to Fire Off

DGCL 141(e): DIR may rely on compensation experts & may trust MBCA 8.30(e)-(f): Directors can rely on reps DGCL 141(a) –
decisions of mgmt, employees, legal counsel, bd committee, etc. made by mgmt, experts, counsel, comm, etc Bd has right of
oversee mgmt
Duty of Care:
Owed to Corp Duty of Loyalty: Duty owed to the Corp to act with Good Faith & Reasonable Belief of acting in
Best Int of Corp – ALL Ds liable UNLESS dissent in writing (or absent)

Evaluate PROCESS Particularized Showing Overturns BJR

Action: Inaction:
Loss b/c of ill Unconsid failure of Flagrant Interested Executive Usurpation of Disclosure to Insider Entrechment
advised or Bd to act when act Diversion Transactions Compensation Corp Activity Shareholders Information
negligence would prevent loss

Essentially D or O cause C D or O takes for Providing SHs Mgmt uses

Process P Must Show: When Os
stealing C to enter deal personal gain a false or governing
Inatt to Mis-mgmt OR Mgmt abuse salary > fair See next page
assets – allows with personal deal from C in deceptive info structure to
mrkt value
C to sue for brh inter for D or O which prop int to detriment divert power

Ds knew/ Bd took
Inaction To Defend
should no steps Close Corp (35 or < SHs)
was prox (1 of 3): Corporate Opportunity
know of in good
cause of
wrongful faith to
the loss CONTROL SHs owe fid
conduct remedy No Trans Del Standard:
“Entire duties to minority SHs
loyalty app’d by
prob in dis-int
“Deliberate indifference & inaction in was Embr opp Del Standard
fact Ds or C is C has Majority must Ct must
face of duty to act is conduct clearly fair would
existed SHs finan. int. or have legitimate balance
disloyal to Corp.” (not exclusive) create
able to expectc business pur legit bus
conf b/t D IFT:
take y in BJR: pur agst
Must show CAUSE & LOSS & Corp Maj get
Ratification Review “Entire Transaction” oppt oppor Burden practi of
interest ben + If yes, minor
on P to must show other prop alt
exc min
Examine who proposes the rebut means poss.
+ at exp
Shareholder deal terms, look at who Bds act
Disclosure: removes of min
DGCL 144 promotes (deception?), control
Care/Action Interested transaction not of votes, dominate discussion?
judicial oversight
voidable b/c of interest if Min Veto Close Freeze-Out
SHs owe NO disclosed & appr by maj. of:
fiduciary (1) Disinterested Directors Spectrum of Bad Faith – Loy to Care
duties to other (2) SHs entitled to vote MA Rule: Maj frustrates Min’s
SHs (3) K or transaction is fair to C Derelict of Min w/ veto has fid duty to maj
Subj – Gross reason expectation of ben of own
Interested Duty –
intent to Negl – w/o
Conduct cons
harm intent
disregard Remedy: reason expect of min req
(1) Interested factual determination
trans b/t Idemnification Model Code
CORP and (2) Interested
DIRECTORS trans b/t Del Code MB 8.51(a) – Permissible indem if (1) good faith OR Close Corp Ag
= ratif by CORP & (2) conduct which may/must be indem by C to Prevent
disinterested CONTR SH DG 145(a) – May indem D or O for suit expenses
SHs then brought by SH or TP (jud, fines, and setlm) MB 8.51(c) – termination of suit is not determinative
subject to BJR that D did not meet standard (settlements allowed)
DG 145(b) – suits brought by C, only indem att’y fees
MB 8.51(d)(1) – C cannot indem if suit brought by C MB 7.30:
UNLESS reas expens if D/O met standard Voting Trust
DG 145(c) – MUST indem if succ on MERITS
If no rat by MB 8.51(d)(2) – C cannot indem if D/O liable for harm
If rat by
disint SHs, DG 145(c) – if lose, C MAY if 145a/b applies in which D/O received financial benefit
major of
control SH MB 8.56 – ADVANCE – D/O yes, Off no if C brings or MB 7.31: Voting
minor SH, P DG 145(e) – may ADVANCE, must return if not indem
must prove bad faith, disloyalty, intentional crim conduct Agreements
must show
“entire SH Ag CANNOT
unfairness DG 145(f) – D & O may K for more coverage
fairness” MB 8.52 – REQUIRED IND – if D/O wholly successful bind Directors as D
Only if D/O acted in good faith my C MB 8.53 – D must provide (1) written aff of GF, (2) (1) Close Corp
indemnify promise to repay if not ent to mandatory indem (2) Min nonpart no
object, AND (3)
Remedy as specific perform. OR terms = reasonab
Advance payments subject to
recission OR strike votes (Ringling)
reasonable expenses
Securities Act & Offer but no sale
Basics 1933 Process Cannot sell sec. register SEC Review: adq of
SEC Regulation SA 2(a)(1) – defines security disclosure, not merits

Will generally include if “Profit soley on efforts of

Any contract where investment in
control rights are not promoter or TP”
common enterprise purposed on Sales allowed &
possible and capital is Registration Statement
expectation of profit by work of TP prospectus must be
basis for invest Look to passivity & control = Effective
Attrib of Stock Atrib of LLC

(1) right to divid & (1) contracted Number of

profit allocation of prof, not Private Number Size Manner Total # offered,
offerees &
(2) negotiability share Placement of units of of sophistication,
relation to
(3) ab to pledge/ (2) membership not Test offered offering offering access to info
hypothecate freely alienable
(4) voting rights (3) Mems cld pledge
(5) capacity to econ int but not
appreciate in value control rights

Fraud in regis statement
Info an “avg prudent investor ought reason. Have before purchasing

1933 Act s. 11 No req of reliance or cause

No liab if (1) reason investigation, (2) reason to believe, (3) did

Due diligence defense Cannot claim ignorance
believe that when regis became effective statements were true

Strt liab for ill offers/sales

1933 Act Basic – trans cause West – loss cause Dura – prove loss
Recission remedy
Wash sale
options included
Matched sale
1933 Act Fraud in prospectus or oral Employ device, scheme, or artiface to Silence not
s.12(a)(2) sales communication defraud actionable

Unlawful for person to Use or employ deception in Make untrue statement of material fact
Min recklessness
1934 s. 10(b), Rule 10b-5 use instru thru mail or sale of publicly traded secur or omit material fact to justify
Private Rights of required
commerce to to bypass SEC rules misleading statements
Rule 14a & proxy rules
Engage in any act or business which
Only purchasers or
operates as fraud or deceit upon another
buyers have standing
Material Scienter in connection to sale of security
Connection to Economic Loss
Misrepresent (recklessness or Reliance
sale of security Loss Causation
(fraud/deceit) wrongful mind) Fraud on the Market
Causation & Reliance required element Theory:
Price of stock in
Private placements & trans done by other public depends on
1934 Act s. 4 Trans Loss
Exemptions from than person, issuer, or dealer material information
Causation: Causation:
Registration Fraud caused Fraud causes available
Rule 14a & proxy rules
Small, limited offerings the investment the LOSS
Horizontal D
Prove with expert
S. 304 – CEO/CFO comp S. 306 – no exec trades S. 404 – no loans to analysis
Sarbanes Oxley:
deduct when finan misst when EE cant trade company executives
Transactions – S. 301 – audit comm req w/
Procedures - Sturct specified composition
S. 404 – annual internal S. 406 –code of ethics for S. 407 – financial expertise
control reports senior officers of audit comm members

Derivative: Tipee assumes

Os, Ds, and 10% SH – Only if Material – balance b/t
Must be in CONNECTION Emphasis on FID Duty of SH if (1) tipper
Insider Trading if possess material prob that event will occur and
with sale & must be insider equal access to Tipee breached fid duty to share
1934 s.16(b) inside info, must magnitude of event in light of
(actual or temp fiduciary) information info & (2) tipee knows/
disclose or not trade totality of company activity
should know of breach

Misapp confid info for secur

Misappropriate Theory
trade in breach owed
Match lowest pur
$ w/ highest sales
Directly or indirectly owner GR $ w/in 6 mo.
Only stock &
THAN 10% any class of any Any profit realized from any
1934 Section 16(a) convertible debt – SHs can sue
equity (t cross 10% no count) purchase or sale w/in any period Strict Liab Options = strike
Short-Swing Profits not all securities derivatively
of less than 6 months = disgorge + premium
Director or officer of issuer – like 10b-5
either purchase or sale