OFFICERS are AGENTS OF CORPORATIONS PRES has inh auth to bind C for K

Authority

Actual
RTA s.2.01

Apparent
RTA s.2.03

Inherent
RSA 8A (RTA Strikes) P gen. Undiscl.

Ratification
RTA 4.01

Estoppel
RTA s2.05

P to A

P to TP

P ratifies A

NO AGENT

Express

Implied

Agent acts reasonably on Ps manifestations that P wants A so to act.

Power held by A to affect P when TP rbly believes A has authority to act based on Ps manifestation to TP

P liable for A if As acts are within auth usually confided in an agent who normally has that auth (can K out)

Affirmance of prior act done by A

No act or app P may be liable to TP based on A if:

R3rd s.6.03 Duty is on A to disclose P

Manifest assent that act will affect legal relations

P acts to justify rnbl assumptn of consent

Conduct, words, or implied by conduct

App Imp Authority: put agent in place for TP to rbly believe A has auth.

P is intention or careless of TP belief

P is on notice of TP belief and does not try to stop

RSA 161
Undisclosed Principal Or Rogue A

A must be acting ON Ps BEHALF!

Based on As reasonable perception

Look to past conduct Such powers are as reasonably necessary to carry out the duties

Sub Agent RTA 1.04(8) A of A to conduct Ps business in scope of A authority

Agent & TP are parties to agree.

Look for undisclosed P

IMPLIED affirmance = P conduct, P must have reason to know

P must have choice, cannot be AFTER act

RTA expands RSA capture Rogues

Liability of P on TP on Tort
Not on Agency, on KIND of Ag
Day-to-day control, distinct operation, custom, skill, tools, time, compensation, party belief, business or not (7.07) Nonemplee Agent Nonagent Ind. Contractor POLICY Control, esp ownership and profits tends to infer agency Labels dont matter RSA 1.01 P must have control Employee Control over actual instrument Respondeat superior as limit P NOT liable unless: NOT Liable NO CONTROL UNLESS:

Look to K to clarify As authority

Liability of Agent on K
Undisclosed Principal Unidentified Principal Disclosed Principal

P liable if within scope of employment CONTROL

P assert control RTA 7.03(1) Direct RTA 7.07 Employee RTA 7.08 Apparent A P negligent Non-delegable P volunteers to take duty Apparent Authority Nondelegable duty Nuisance per se Incompt Contractor OR Financ. Incom.

7.07 SCOPE: Engaging in conduct subject to Ps control Liability = if harm is foreseeable from conduct of EEs

A & TP ARE party UNLESS agree otherwise

A IS party UNLESS agree otherwise

A is NOT party UNLESS agree otherwise

7.07 Intentional Look at type of tort

Agents Duties
If Breach:

Fiduciary Duties
Waiver

P MAY consent to Conflict of Interest 8.01

A must act in good faith

Disclose MATERIAL information

Deal fairly

Ps consent must be specific to act or transaction

Disgorge profits to P Worse than K case b/c not damages, disgorge

Duty of Care RTA 8.08, .09 Good Conduct catch-all 8.10 Loyalty

Reasonable Care 8.08

W/in Scope & Comply w/ Instructions 8.09

Personal Benefit 8.02

Waiver

Adverse Dealings 8.03

Waiver

Competing 8.04
Waiver

Proprietary Inform 8.05

Waiver

Personal Profits from Position Reading

Usurping Business Singer

Grabbing & Leaving Town & Contry

When in connection to agency relationship

May take steps in preparation to compete

Not use property of P for own or TP

Trade secured through years of bus. and advertise, $$

Cannot communicate confidential information for A or TPs benefit RUPA 103b3: Cannot elim loyalty, but can id certain categories, if not manifestly unreasonable Interested party cannot vote in ratification of selfinterested opportunity Perreta v. Prometh RUPA 404(d): PS must discharge w/ obligation of good faith & fair dealing

Partnership Duty

RUPA 404(b): duty of loyalty, inc approp of partnership opportunity

Punctilio of an honor most sensative Meinhard

Notice + Opportunity

Elim duty of loyalty when poss, limit notice, time period limit, change PS opportunity meaning

Partnership
Unlimited liability, limit transferability, single taxation, limited access to capital, informal, less regulation w/in PS agreement, life limited to partner

101(6); assc of 2 or more as co-owners, for profit

101(10): almost any entity can be partner

201(a): PS is distinct from partners

RUPA is basis default rules

Non-Waivable

Duty of Loyalty, Care, Good Faith, Inspection

(1) Agreement b/t parties

(2) Written, not needed

(3) Coproperty not determinative

(4) Share in profits, presumed, UNLESS

(5) Share in management 401(f)

(6) Partners may be creditors

(7) Look at whos at risk at dissolution

(8) Mgmt equal rights for all Ps unless PS Ag says otherwise

debt 301(1): Each partner is agent of all UNLESS (1) P does not have authority, AND (2) TP knows or should know P doesnt have author Allows APPARENT AGENCY (ordinary) 306(a): all Ps j/ s/l for all Late-Coming Partners NOT liable for previous incurred oblg wages rent Annuity/retire Debt service Sale goodwill or property P must show express or implied holding out of PS by D

401(j): Diff in mgmt, majority wins, if not ordinary, must have consent of all Ps 103(a) PS Ag may alter relations B/T Ps & 103(b) lists non-alter in PS Ag

305(a): PS is liable for act of Ps if act in ordinary course of business

Partnership By Estoppel

Partnership Windup

Partnership Disassociation

Represent was made by D or person alleged PS

Reason. Reliance by TP in good faith

TP is harmed

306(a): All Ps j/s liable for all liabilities

807(a): after creditors, surplus to PS by rights to distribution

308(e): if not PSs w/ each other, not PSs to 3rd parties

Partnership Transfer
RUPA 601(3) P may be expelled as terms of PS Agr RUPA 602b1: Wrongful expel ONLY IF breach express term of PS Ag

401(i): All Ps must consent to sell PS interest

504(a)-(b): Creditor MAY get judgment against P interest

PS FREEZEOUTS! P v. TP 305(c) & 401(c): PS is liable for ordinary bus of P tort, must indemnify P if in ordinary course

502 & 503: PS has personal interest in prof & losses & distributions

501: P is not coowner of PS property, cannot transfer

Effect of PS by Estoppel

If D purports to be PS and TP relies, D is liable to TP

IF MADE IN PUBLIC MANNER, D as PSbE is liable even if doesnt know

If PS liability, then that PSbE is liable as if P were partner

Partnership Disassociation 603(a)

Continuation of Business Article 7

RUPA 701

Value at windup is greater of:

Value based on sale of bus as going concern w/o disass P

BUYOUT: Liquidation value, OR Some objective determination of value needed Fair Market Value

Dissolution & Wind Up Article 8

RUPA 801(5)

(i) economic purpose frustrated

(ii) one P engag in conduct that makes PS not reasonably conduct

(iii) no longer reasonably practicable to contin PS under PS Ag

Wind Up Process

602(a) P may disass any time, right or wrong, by express will

P may be creditor and P, and may pursue own interests - 404(d) (1) Voluntary Association (2) Primacy of K PS Ag

EXPULSION: if not permitted in PS Ag, cannot expel, can seek dissolve but 404d

602(c) Wrongful disass = P liable for damages to PS for disass

807a-b: Creditors paid, then Ps 807b: profits & losses from liquidation charged to Ps accounts 803c: person WU may dispose of and transfer the assets Kovacik Rule: Ps share in profits and losses UNLESS one P is only skill & labor

Owen v Cohen: if P provides loan to PS, presumed for term if pay of loan is out of profits

(i) P withdraws by express will

AT WILL 601(1): notice by P to withdr FOR TERM 602(b)(2): if in term:

(ii) P expelled by judicial determ. (iv) P expelled or disass b/c dissolv or termination

Conflict w/ 401(b) proportionate shares Amount = Capital Account (book) + avg prior 3 years profits/gains paid to GP 802(a) PS continues after dissol and terminates when WU done fees split as in PS

(iii) P becomes debtor in bankrupt.

Shareholder Suits

Direct
(1) personal action by SH for injury of SH (2) SH as individual (3) recovery to P-SH

Evaluate the HARM, who is harmed? SH Who would recover? C

Derivative (recovery goes to Corp)

(1) SH files on behalf of injury to corporation (2) COA belongs to corp (3) recovery to corp (4) special pleading required 23.1

MBCA 7.41
Blasius Standard: (1) P must show Bd acts with effort to deny SH vote right (2) Bd must provide compelling justification Revlon Duty: Duty of Bd changes on liquidation duty to max value for SHs
Standing

MBCA 7.42 Demand Requirement

FRCP 23.1 Must state desired result in demand Written, specific demand made upon C to take suitable action (wrongdoers) 90 days have expired from demand, OR demand refused, OR 90 too long

Demand Requirement When Ds are def in case

P was SH at time of act or became through transfer of SH who was at time SH fairly & adequately represents interests of corp in enforcing corp Show by reason. Doubt that BD cannot decide demand w/ part. facts NY Rule: part facts (2) fail to inform (3) trans = BJR not possible Del Rule: reas doubt (2) bd lacks indp (3) trans not valid exercise of BJR

Demand Futility (1 of 3)

Demand Sent BD Accepts

BD takes over the lawsuit Denial is subject to BJR If demand made, cannot claim futility

Majority BoD conflicted int Del: Majority BoD not indp by domination or control (NY: not informed themselves) Charged transaction not subject to BJR BD no BJR
Special Litigation Committee (SLC) small comm of non-interest BD members to review demand

BD Denies

If SH loses derivative suit SH may have to pick up tab for D/O and must pay own fees

P-SH must overturn BJR to pass denial

Auerbach standard

NY
(3) Substan outcome NOT reviewed

Del

Zapata standard (1) Bd Indp & good faith (2) Bases supp decision (2) Ct applies own indp BJ whether to dismiss

BUSINESS JUDGMENT RULE

Presume BD acts with good faith and promoting best int of corp Overturned w/ part. facts showing bad faith, conf int, AND breach of fid duty

(1) SLC member selc process review

(2) proced used by SLC to reach sub review

Bd member experience with contested trans, prior affilitations, completeness of inquiry, good faith, no pro-forma/shallow investig, eminent special counsel - but TAINTED BD can appoint SLC members

More substantive review into decision & eliminates potential structural bias subject to Summ Judgment Standard Rule 56 look at personal ties (Stanford Conspir)

Corporation Basics
MB 3.01a & DG 101(a) Purpose = lawful business MANAGER v. SHAREHOLDER v. DIRECTOR v. BUSINESS FUTURE

Agency Costs
Cost of Contracting Cost of Monitoring Bonding Residual Loss

Effect of Corporation
MBCA 8.01 C power in Bd, supervises Shareholders: 8.03-04: Election of Directors 10.03, 10.20: Amend bylaw or Art of Incorporation 11.04: Fundamental trans (merg) Public

Public v Private
Private
Closely held Smaller Shares illiquid Sm # of SHs Like PSs Mostly LLC now

Publicly held Big enterprise More captz Traded shares

Corporate Name

Separation of Ownership & Control Flexible capital structure

Corporation Creation
Terms MBCA 2.02

# shares authorized Office & registered agent Name & address of incoporator Director names Bylaw provisions Limited liability of directors to SH Indemnification & other
Organizers: Act 2.01 Third Party: (1) thought other party was Corp (2) would suffer detriment if not a corp

Incorp Contracts
2.04 Promoter is j/s/l for Ks pre-inc if knew Arts not filed 2.04 Promoter liable if Art not filed

Equity v. Debt Authorized Shares Auth but Unissued Book Value Outstanding Shares Treasury Stock Market Cap

De Facto

Estoppel

Short-Form Merger DGLC 253 (1) No SH approv needed (2) Bd of parent approves (3) Parent must own 90% of each class of stock of sub (4) minor SH entitled to jud value

Draft Articles of Incorp File with the Sec of State MBCA 2.06 adopt bylaws, incl management terms 2.05 Elect directors, adopt by, app officers, carry on business MBCA 6.22: SH NOT personally liable, unless own act or conduct

(1) good faith tried to incp (2) had legal right to do so (3) acted as Corp

Cum/ Line Voting

After Incorp

Single Enterprise Theory

Single enterprise liability v. PCV = only corp entity would be financially respons while in SEL single SH personally liab Risks = regulatory, legal, operational, reputational, interest rate, market, political, tech, governance, fortuitous No maint C form or records Commingling of funds Undercapitalization Mix use of assets

Limited Liability

MBCA 6.22(b): SH NOT personally for debts of corp Piercing Corp Veil: 6.22 SH liable for corporate action

Illinois Piercing Law

Unity of interest in ownership no diff b/t Corp and SH Adhering to fiction of sep leads to (1) FRAUD or (2) injustice

Alter Ego Mere Instrumentality

Parent liable for action of subsidiary but subs not resp for other subs Rest T s.324a: P may be liable if TP relies on

Generally same, unity in ownership, commingling, holding as one, same office, EEs

Must be more than liability more wrong (i.e. tax fraud or personal expenses)

Direct Liability

Common Ds and Os, common business depts, consol financial statements/ returns, parent finances sub, P incor S, grossly inadequate capital, P pays salaries, S business only serves P, operations comb, business prac Election of Ds plurality of votes cast

Proxy Issues RECORD SH

MBCA 7.01 Annual SH Mtg MBCA 7.02 Special SH Mtg

MBCA 7.25 & DG 216: Majority approval of SHs (DG requires present) (MBCA more for than ag)

Require majority of OS SHs: Mergers, Amend Charter, etc

Proxy Contest

Electoral & Issue

Insurgents must win to be reimbursed (not personal)

(1) Must be policy issue quest (2) C reimb only reasonable & proper expenses (3) C can reimb incumb W/L (4) C reimb Inc if win & SH ratify

Proxy Fraud

Rule 14a-9

No fraud permitted in proxy statement (material)

Section 27 allows Direct & Deriv private COA Injunc damages - reciss Not nor bus operations

Generally direct (loss vote) but C can sue derivatively Attorney fees allowed Intrude on mgmt role

Intris fairness not aff def when material fact omitted if in proxy, & proxy was essen link

Prove material

Prove Essen link

Split wheth reliance needed OM-no, Mis-yes

Negligence is standard

Excluding Proxy Rule 14a-8 SH $2000 or 1%

If SH fails to satisfy elig or violates 14a-8i

Mgmt excludes w/ burden filing to SEC

Includes legal rationale

Mgmt must notify SH w/ option to remedy

SEC determ.

Subject to BJR if excluded

Nonbinding phrasing

Revolves around elections Pertains to partic Board seat or procedure

Insignificant/irrel proposals - >5% total assets, net earn, and not sig to business operations Proper: (1) Subj intent to pursue proper inter, (2) Obj std if prop pur.

Personal grievance

SH Record Inspection DGCL 220

SH must make proper demand w/ prop. purpose

If SH wants SH list, burden on mgmt to say why not

For other, burden on SH, unless req from foreign C (for NY statute)

Improper: info for non-C purpose, trolling for bus, harassment

Corporate Fiduciary Duties

Duty of Care
Stand of Conduct (aspirational) MBCA 8.30: Good Faith Reasonable Belief Reasonable Care

BJR
Rebut presump that D perform honestly & wellmeaning, decisions rationally undertaken Effect (1) Shield Ds from PR (2) Insul Bd decisions

Standard of Liability
Exculpation of DIR (not officers)
DGCL 102b7 Art of Incp may eliminate or limit DIR (not O) pers liabl for breach of fiduciary duty MBCA 2.02(b)(4): Art of In may limit liability of dir or SHs for money damages for any action taken [not interest, intl harm, unlawful distrib, criminal act]

Overturning BJR
BJR is informed if directors have informed themselves prior to making decision of material reas avail to them Van Gorkam Care = Not in Good Faith: (1) Fraud (2) Con of Interest (3) Illegality Waste: Lack of rational purpose Gross Negligence: Lack of reason effort to inform

Efficient Capital Market Hypothesis (ECMH) Weak: mrkt incorporates PAST information Semi-Strong: mrkt incorporates PAST & CURRENT information Strong: Mrkts incorporate all information (even not public)
MBCA 6.40 Distributions to SHs Money or other property to SHs subject to BJR Right to Fire Off

A Ds have obl using BJR to maximize income for benefit of all persons having a stake in welfare of corporate entity v. Dodge

Stock Author MBCA 6.01 & DGCL 151: must say how much & voting rights

Lack of GF (3), Waste, Gross Negligence

Overcoming

Board Reliance DGCL 141(e): DIR may rely on compensation experts & may trust decisions of mgmt, employees, legal counsel, bd committee, etc. MBCA 8.30(e)-(f): Directors can rely on reps made by mgmt, experts, counsel, comm, etc

Duty of Care: Owed to Corp

DGCL 141(a) Bd has right of oversee mgmt

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) Particularized Showing Overturns BJR

Evaluate PROCESS Action: Loss b/c of ill advised or negligence Inaction: Unconsid failure of Bd to act when act would prevent loss

Flagrant Diversion

Interested Transactions

Executive Compensation

Usurpation of Corp Activity

Disclosure to Shareholders

Insider Information

Entrechment

Process P Must Show: Inatt to Mis-mgmt OR Mgmt abuse

Essentially stealing C assets allows C to sue for brh

D or O cause C to enter deal with personal inter for D or O To Defend (1 of 3):

When Os salary > fair mrkt value

D or O takes for personal gain a deal from C in which prop int

Providing SHs false or deceptive info to detriment

See next page

Mgmt uses governing structure to divert power

Ds knew/ should know of wrongful conduct

Bd took no steps in good faith to remedy

Inaction was prox cause of the loss No loyalty prob in fact existed

Corporate Opportunity Del Standard: Embr opp would create conf b/t D & Corp interest Del Standard

Close Corp (35 or < SHs) CONTROL SHs owe fid duties to minority SHs Majority must have legitimate business pur If yes, minor must show other means poss. Ct must balance legit bus pur agst practi of prop alt

Deliberate indifference & inaction in face of duty to act is conduct clearly disloyal to Corp. (not exclusive) Must show CAUSE & LOSS Ratification

Trans appd by dis-int Ds or SHs

Entire Trans was fair

Review Entire Transaction Examine who proposes the deal terms, look at who promotes (deception?), control of votes, dominate discussion?

C is finan. able to take oppt

C has int. or expectc y in oppor

Shareholder Care/Action
SHs owe NO fiduciary duties to other SHs

DGCL 144 Interested transaction not voidable b/c of interest if disclosed & appr by maj. of: (1) Disinterested Directors (2) SHs entitled to vote (3) K or transaction is fair to C

Disclosure: removes judicial oversight

BJR: Burden on P to rebut Bds act

IFT: Maj get ben + exc min + at exp of min

Min Veto

Close Freeze-Out

Spectrum of Bad Faith Loy to Care Subj intent to harm Gross Negl w/o intent Derelict of Duty cons disregard Min w/ veto has fid duty to maj MA Rule: Maj frustrates Mins reason expectation of ben of own Remedy: reason expect of min req factual determination Model Code MB 8.51(a) Permissible indem if (1) good faith OR (2) conduct which may/must be indem by C MB 8.51(c) termination of suit is not determinative that D did not meet standard (settlements allowed) MB 8.51(d)(1) C cannot indem if suit brought by C UNLESS reas expens if D/O met standard MB 8.51(d)(2) C cannot indem if D/O liable for harm in which D/O received financial benefit MB 8.56 ADVANCE D/O yes, Off no if C brings or bad faith, disloyalty, intentional crim conduct MB 8.52 REQUIRED IND if D/O wholly successful MB 8.53 D must provide (1) written aff of GF, (2) promise to repay if not ent to mandatory indem Remedy as specific perform. OR recission OR strike votes (Ringling) MB 7.31: Voting Agreements SH Ag CANNOT bind Directors as D UNLESS (1) Close Corp (2) Min nonpart no object, AND (3) terms = reasonab MB 7.30: Voting Trust Close Corp Ag to Prevent

Interested Conduct (1) Interested trans b/t CORP and DIRECTORS = ratif by disinterested SHs then subject to BJR

(2) Interested trans b/t CORP & CONTR SH

Idemnification
Del Code

DG 145(a) May indem D or O for suit expenses brought by SH or TP (jud, fines, and setlm) DG 145(b) suits brought by C, only indem atty fees DG 145(c) MUST indem if succ on MERITS

If no rat by disint SHs, control SH must prove entire fairness

If rat by major of minor SH, P must show unfairness

DG 145(c) if lose, C MAY if 145a/b applies DG 145(e) may ADVANCE, must return if not indem DG 145(f) D & O may K for more coverage Only if D/O acted in good faith my C indemnify Advance payments subject to reasonable expenses

Securities Act & SEC Regulation

Basics SA 2(a)(1) defines security Will generally include if control rights are not possible and capital is basis for invest

1933 Process

Cannot sell sec.

register

Offer but no sale SEC Review: adq of disclosure, not merits

Any contract where investment in common enterprise purposed on expectation of profit by work of TP Attrib of Stock (1) right to divid & profit (2) negotiability (3) ab to pledge/ hypothecate (4) voting rights (5) capacity to appreciate in value Atrib of LLC

Profit soley on efforts of promoter or TP Look to passivity & control

Sales allowed & prospectus must be delivered

Registration Statement = Effective

(1) contracted allocation of prof, not share (2) membership not freely alienable (3) Mems cld pledge econ int but not control rights

Private Placement Test

Number of offerees & relation to issuer

Number of units offered

Size of offering

Manner of offering

Total # offered, sophistication, access to info

Liabilities Materiality: Info an avg prudent investor ought reason. Have before purchasing

Fraud in regis statement 1933 Act s. 11 No req of reliance or cause Due diligence defense

No liab if (1) reason investigation, (2) reason to believe, (3) did believe that when regis became effective statements were true

Cannot claim ignorance

Strt liab for ill offers/sales 1933 Act s.12(a)(1) Recission remedy Manipulations
Wash sale

Basic trans cause

West loss cause

Dura prove loss

options included
Matched sale

1933 Act s.12(a)(2)

Fraud in prospectus or oral sales communication Unlawful for person to use instru thru mail or commerce to Use or employ deception in sale of publicly traded secur to bypass SEC rules

Employ device, scheme, or artiface to defraud

Silence not actionable

1934 s. 10(b), Rule 10b-5 Private Rights of Action Rule 14a & proxy rules

Make untrue statement of material fact or omit material fact to justify misleading statements Engage in any act or business which operates as fraud or deceit upon another in connection to sale of security Causation & Reliance required element

Min recklessness required

Material Misrepresent (fraud/deceit)

Scienter (recklessness or wrongful mind)

Only purchasers or buyers have standing Fraud on the Market Theory: Price of stock in public depends on material information available

Connection to sale of security

Reliance

Economic Loss

Loss Causation

Exemptions from Registration

1934 Act s. 4 Rule 14a & proxy rules

Private placements & trans done by other than person, issuer, or dealer Small, limited offerings

Trans Causation: Fraud caused the investment

Loss Causation: Fraud causes the LOSS Horizontal D

Sarbanes Oxley: Transactions Procedures - Sturct

S. 304 CEO/CFO comp deduct when finan misst S. 404 annual internal control reports Os, Ds, and 10% SH if possess material inside info, must disclose or not trade

S. 306 no exec trades when EE cant trade S. 406 code of ethics for senior officers Only if Material balance b/t prob that event will occur and magnitude of event in light of totality of company activity

S. 404 no loans to company executives S. 407 financial expertise of audit comm members

Prove with expert analysis S. 301 audit comm req w/ specified composition

Insider Trading 1934 s.16(b)

Must be in CONNECTION with sale & must be insider (actual or temp fiduciary)

Emphasis on equal access to information

Tipee

Derivative: Tipee assumes FID Duty of SH if (1) tipper breached fid duty to share info & (2) tipee knows/ should know of breach

Misappropriate Theory

Misapp confid info for secur trade in breach owed Match lowest pur $ w/ highest sales $ w/in 6 mo. SHs can sue derivatively Options = strike + premium

1934 Section 16(a) Short-Swing Profits

Directly or indirectly owner GR THAN 10% any class of any equity (t cross 10% no count) Director or officer of issuer either purchase or sale

Any profit realized from any purchase or sale w/in any period of less than 6 months = disgorge

Strict Liab

Only stock & convertible debt not all securities like 10b-5