You are on page 1of 25

Fall 2005 Business Associations: Prof.

Cotton
Agency Theory Agency: the relationship that arises when one person, Principal, manifests an intention to another person, Agent, that the agent shall act on the principals behalf OR Agency: The fiduciary relationship that results from the mutual manifestation of consent(objective as to what the agent believed) that one person shall act on behalf of and subject to the control of another Principal: 1. Disclosed Principal: the 3rd party with whom agent is transacting knows that agent is acting for the principal AND knows the principals identity 2. Partially Disclosed Principal: the 3rd party agent deals with knows the agent is acting for a principal but does NOT know the principals identity 3. Undisclosed Principal: the 3rd party agent is dealing does not know that the agent is acting a principal Agent: 1. General Agent: an agent authorized to conduct a series of transactions involving continuity of service (ex: manager of a store) 2. Special Agent: an agent authorized to conduct only a single transaction or a series of transactions NOT involving continuity of service (ex: hiring a buyer to procure a specific item) *if an agent hires another but does not have such authority, the 1st agent will be liable but not the principal Employer-EmployeeMasterServant The principal employs the agent to perform services and retains control over the manner in which the employee performs the services Employee vs. Independent Contractor: principal does not retain a right of control over an Independent Contractor Requirements for Agency Relationship Agency is consensual but not necessarily contractual Consent usually by agreement BUT can occur via ratification and estoppel Agency by agreement: some indication by P to agent that P consents to have agent act on her behalf and agent consents to acting o Express by agreement o Implied by parties conduct Agency by Ratification: when P accepts benefits or affirms conduct of one purporting to act on Ps behalf o Principal knew of action and elected to be bound o May be indicated by P accepting benefits of transaction o P can only ratify the entirety, not a partial Apparent Agency: when the principal intentionally or negligently causes a 3rd person to believe another to be an agent, and the 3rd person relies on that belief, an agency relationship has been established o Based on the Principal actions o Must be a reasonable reliance

Agent Duties to Principal Agent has a duty to perform with reasonable care Fiduciary Duties: Agent owes principal the obligation of faithful service

o Notification: must notify P of all matters in agents knowledge affecting subject of his agency o Loyalty: agent must be loyal on all matters connected with the agency Ex: using information for personal benefit Agent gets personal benefit principal is unaware or Agent represents two principals who have adverse positions o Competition: agent owes duty not to compete with principal or to act for persons in competition with his principal unless consent of P is given An agent cannot disclose trade secretes or confidential information obtained from the agency post-termination (ex: customer list) o Conflicts of Interest: agent may not take a position adverse to that of his principal without the principals consent Secret profits: anything agent obtains by virtue of his employment belongs to the principal w/o principals consent Personal Purchases: authorized agent cannot purchase property for himself w/o principals consentcan be breached by agents self-dealing even if no damage to P (who got asking price) o Brokering: an agent cannot act for dual principals unless they are each aware of the position of the agent Principals have a right to indemnification against an agent for any loss sustained on account of the agents tortious acts (indemnification)

Principal Duties to Agent Duty to cooperate: A principal must cooperate with agent in performance of his duties Duty of Care: the principal must refrain from negligence

**Agents Power to bind the Principal to Contracts**


Actual Authority: all powers expressly granted by the principal to the agent and any powers that can be implied from the principals words or conduct (from the agents perspective) Usually expresslook for an agreement Implied Authority o May be incidental to the grant of express authority to act in any way that is a natural and general consequence of the express authority granted o Acts reasonably necessary to accomplish the given objectiveimplied from something o May be implied from the conduct of the principal Examples of Implied Authority o Making warranties o Receiving payments Apparent Authority: power the (i) principal manifests to 3rd parties that the agent has the principal will be (ii) bound if the 3rd party reasonably relies on agents authority Gives the agent the power to bind the principal but not the right (meaning the principal can hold the agent liable for breach of duty) Based on principals manifestations to 3rd party An agent cannot create apparent authority on their own Principal is bound only if the 3rd party reasonably relied on the Ps manifestation of authority If the principal negligently permits an imposter to be in position of apparent authority the P may be bound Agent who had actual authority may be able to bind agent to a party not notified of the termination of the agency based on apparent authority

In the situation if the position usually carries certain authority Notice of termination must be given to 3rd parties

Inherent Agency: allows the agent to bind the principal based on the nature of the position of the agent despite a lack of power For liability where an agent disobeys principal: o The act must usually accompany the transactions, and o The 3rd party reasonably believes the agent is authorized to do the act o Used when principal does nothing to make 3rd parties believe there is an agent having the authority Ratification 1. Only an act that could have been authorized at the time the act was done may be ratified 2. Only the principal may ratify, requires a manifestation of the principals intent to ratify 3. The principal must have full knowledge of material facts 4. Only the entire transaction may be ratified 5. Ratification must occur before the 3rd party revokes Ratification: the affirmance by a person of a prior act supposedly done on his behalf by another but which was not authorized Liability on Agents Contracts Agent acting without authority: Disclosed Principal Partially Disclosed Principal Undisclosed Principal Contractual Duty Agent is NOT liable Agent is liable Agent is liable

Disclosed Principal: the agent was not intended to be personally liable, purported to be acting on behalf of the principal, and will not be liable Agent acting with authority: Disclosed: the agent is not the party to the contract and is therefore not liable Agent must indicate they are signing K as agent for P or it is treated that the agent intended to be party to the K Partially Disclosed: if the agent signs and describes himself as agent of another but does not set for the name of the principal, the agent is personally liable on the K unless otherwise agreed Undisclosed: the agents name alone appears with not statement regarding an agency, the agent is personally liable as a party to the K since 3rd party was relying on agents credibility and reputation Tort Liability of Principal for acts of Agent Respondeat superior: the employer (master) will be held liable for the tortious acts of the employee (servant) if the act occurred within the scope of the employers business Establishes vicarious liability Injurious conduct must be within the scope of employment Master: employs the agent to perform services in principals affairs and has the right to control conduct of the services Servant: employed to render services of any type and who remains under the control of the employer in performing such services

*Key: at all times the employer controls or has the right to control the physical conduct of the employee in the performance of his duties of employment (no independent discretion) Independent Contractor: contracts with the employer for the results to be accomplished, not as to the means of how the work is to be performed o Employer has no right to control how the work is performed o Respondeat Superior does NOT apply to IC A person may serves as an employee AND independent contractor Employer-Employee Relationship Distinguish a simple agent and IC from the employer-employee relationship Test is the right to control partys conduct in performance of the work If the principal did not have control over the acts the agent is not an employee and the principal cannot be found liable for the acts under respondeat superior. Factors to review: o The agreed extent of control employer uses over details of work o Whether the person employed is in a distinct occupation or business o Whether the work is part of regular busies of employer o Whether work is usually done with employers direction o Whether the employer supplies tools and place of work o Length of time o Method of payment (hours or job) o Highly skilled (doctors or lawyers) usually viewed as IC unless used for benefit of the employer (ex: exam before hiring someone) Even if an IC, P will be liable for: 1. Highly dangerous activities: nature of the work the employer will be liable for injuries caused thereby a. Ultrahazardousstrict liability is imposed as a matter of law 2. Non-delegable duties: employer cannot delegate duty but does so he will be held liable for IC conduct Establishing Scope of Employment: 1. act was authorized by employer 2. time, place and purpose of act 3. act commonly performed by employees 4. extent to which employers interests are advanced 5. extent to which employees interests are advanced 6. if employer furnished means for act 7. if employer knew employee would act this way Partnerships Statute v Agreement: Most provisions of UPA are default provisionsthey control unless the partners have agreed otherwise Basic Nature of Partnership An association of two or more persons to carry on a business as co-owners for profit o Community interest in business and sharing of profits Partnerships consist of co-owners where as an agent is not an owner although may receive a share of profits Distinguish Joint Ventureresembles a partnership but ordinarily they engage for only a single transaction or a series of transactions Aggregate Theory vs. Entity Theory of Partnership

An aggregate of the individual partners o Partners are jointly or jointly and severally liable for partnership obligations regardless of whether the partnership itself can be sued o Liability for all actions occurring during your tenure as a partner regardless of when action is brought Entity, apart from its several members o Once disassociated from the partnership the partnership is liable and not the ex-partner Partnership Formation: This is a voluntary association of two or more personsan agreement either express or implied is essential to formation Writing is not necessarypship can be implied from conduct Person includes entities, thus a pship can be a partner in another partnership Unless otherwise stated, no person shall become a partner without the consent of all the partners Factors for determining a partnership: o Joint ownership of property o Contribution of propertydoes not establish nor is it a requirement o Sharing of gross income o Sharing of profits from businessthis is prima facie evidence, but can still be contradicted, that a partnership exists Partnership by Estoppel: Parties who are not express partners may be bound as if they were partners in their dealings with third persons If a person represents themselves to be a partner in a partnership and a 3rd party extends credit in good faith reliance on that representation, they will be liable o One who knowingly permits another to believe that he is a partner and to extend credit in reliance thereon cannot later be permitted to deny that he is a partner and escape liability When an actual partner represents a nonpartner to be a member of the partnership, he thereby constitutes that person as her agent with the power to bind him as though the person were in fact a partner o Resulting liability binds only those partners who made or consented to the representation Liability of Partners in a Partnership Partners are fiduciaries, must account to the partnership for any profits made from partnership-related activities. o May not compete with the partnership o Unless otherwise agreed, each has an equal right to participate in management and profits o Partners cannot sue for damages but CAN seek equitable accounting Partners are agents of one another and have apparent authority to bind the partnership whenever apparently carrying on the business of the partnership in the usual way Notice: pship deemed to have notice whenever it is given to any partner, the notice is imputed to the partnership o Partners are jointly liable for all K obligations to partnership creditors and jointly and severally liable for all obligations owed by the partnership to 3rd persons o A retiring partner is liable for all pship obligations incurred b/f giving notice of withdrawl o An incoming partner is liable for pship obligation incurred b/f joining to pship assets Relations b/t Partners Accounting: a partner must account to the pship of any profits derived personally from transactiosn connected with formation, conduct, or liquidation of the pship Partners have no right to engage in competitive business w/o consent of all partners

A partner who purchases assets for pship but holds in own name, holds for pship as trustee All partners have equal rights in the management and conduct of the pship business o For ordinary mattersmajority vote o For extraordinary mattersunanimous vote Partners must on demand present to any partner full and complete information on all things affecting the partnership In absence of agreement: all partners share in profits equally and losses according to her share in the profits Distributions from partnership: o Upon dissolution: partners have right to return of capital they contributed to the partnership o Partners have right to return of any capital beyond that of the partnership agreement Actions b/t the Partners: o Dissolution: principal remedy for partner against co-partner is suit in equity for dissolution and accounting o Generally no action at law for damages in regards to pship business

Relations to 3rd Persons Rules of agency apply in determining whether a pship is bound by the dealings of one of its partners with a 3rd person (must have apparent or actual authority) To avoid liability: o The partner so acting has in fact no authority to act for the pship in the particular manner AND o The person with whom she is dealing knows that she has no such authority An act unrelated to pship business is not within the partners apparent authoritytherefore not binding unless partner had actual authority Actual Authority can be granted in the pship agreement OR it can be granted by a vote of the partners A partner will be liable for co-partners purchases for pship activity even though the partner told the seller he would not be liable Partners are personally liable for all obligations of the partnership and contracts, BUT liability for obligations arising from torts is joint and several o If pship is named in an action, the pship assets are all that can be reached but if a partner is named he can be individually liable An individual partner being sued in his individual capacity cannot have his pship assets joined in the suit Incoming partner: if a debt is incurred before the partner entered the pship, the liability is limited to his pship contribution Partnership Property In determining if property is personal or pship the court will look to: o Who has title to the property (not conclusive) o Was the property purchased with pship funds o Did the phsip improve the property o Is the property closely related to pship funds (more closely related is more likely pship asset) o Is property used for pship business o Is prpeorty recorded as pship asset on the pship boods UPA Rules: o Intention of partners: all property originally brought into the pship stock or subsequently acquired by purchase or otherwise on account of the pship is pship property Real property: any estate in real property may be acquired and held in the pship name

Partners Property Rights General Pship rights: o Rights in specific pship property o An interest in the pship o Right to participate in the management of pship Right in specific pship property is NOT assignable Partners interest in specific property is not subject to attachment of her individual creditors Upon death, the rights of a partner vest in the surviving partnersor executor of the last surviving partner and is thus not part of a deceased partners estate when determining the value of the decedents interest in the pship

Interest in Pship: A partners interest in pship is his share of profits and surplus and it is treated as personal property Important for inheritance purposes A partners interest is assignable and will not itself dissolve the pship o Assignee is entitled receive profits and surplus BUT does not become a partner and cannot participate in management o The assigning partner remains liable on all pship debts Dissoluton and Winding up of Partnership Can be casued by: o Expiration of the pship term or accomplishment of pship undertaking o At will of any partner o Mutual assent of all partners o Expulsion of a partner o Illegality of the pship or death or bankruptcy of a partner o A court order b/c of incompetency or incapability of partner, unprofitabity Terminates the actual authority of the partners to act as agents for the pship outside winding up the business o Apparent authority continues until notice is given (actual notice to present and past creditors and constructive notice to all others) Winding up: partners may close out old business but may not enter into new business Distribution of assets (must be in this order) o Creditors who are not partners o Partner creditors o Partners to return their capital contributions o Partners in proportion to their share of the profits Dissolution Dissolution of a pship is the change in the relation of the partners caused by any partner ceasing to be associated in the carrying on as distinguished from winding up of business Dissolution does not terminate a pship, just changes the legal relationship b/t partners Causes of dissolution: By act of the partnersper pship agreement the expiration of a time period or happening of an event dissolves the phsip o Partners can continue phsip business and they become partners at will

By will of a partnera person cannot be forced to become or remain a partner so any partner can effect a dissolution of pship at any time merely by expressing will to do so o If pship is at will, expression to dissolve does not violate any agreement o Presumption of good faith, if partner dissolves to appropriate some special advantage or opportunity a wrongful dissolution has occurred o If pship for term or undertaking, dissolution b/f expiration or achievement would be in vilaton of the agreement and a party may be liable for any losses caused by the dissolution Mutual assentrightful even if in contravention of an written agreement for specific time or undertaking, partnership cannot be forced Expulsion of partnerif bona fide and pursuant to a power reserved in the PA, there will be no violation of the PA and expelling partners are not liable for losses caused thereby o If made in bad faith remaining partners will be liable for any losses Death or bankruptcy of partnerin the absence of an agreement to contrary, pship is dissolved upon the death or bankruptcy of any partner o On death, surviving partner is a fiduciary in liquidating the pship and must account to the estate for value of decedents interest in the pship o Surviving partner is entitled to compensation for his services in winding up the business of the phsip By court Decreea judicial declaration, on application of a partner a court shall decree dissolution of phsip for: o Incompetency of partner o Incapability of partner if permanent and materially affects the partners ability to discharge the duties assumed by him under the PA o Improper conduct of a partnerconduct prejudicing the carrying on of business or causing a breach of the PA (ex: partner acting to further his own interests or wrongfully excludes his co-partners from the business) o Pship loss is inevitable o Generally for dissolution and accounting

Where Dissolution violates PA: Where caused by an act in violation of the PA, the other partners have rights: o Right to damages: dissolving partner will be liable for any damages sustained by the innocent partners as a result of wrongful discharge (ex: loss of profits due to interruption of business) o Right to purchase business: innocent partners have right to continue pship business in pship name provided they pay partner causing the dissolution the value of her interest in the pship (less damages recoverable) o Right to Wind up Pship Affairs: innocent partners have right to wind up pship affairs and arrange for distribution of assets Effect of Dissolution: Dissolution terminates the actual authority of any partner to act as an agent for either the pship or other partners except for purpose of winding up the affairs of the pship (unless the PA or partners provide that the business shall be continued) Authority to bind pship terminated if and when partner acquires knowledge of the dissolution A partner still has apparent authority to all who knew of the pship prior to its dissolution and is only terminated upon proper notice: o Creditors: must be given actual notice to terminate apparent authority o Others: terminated by notice published in a newspaper of general circulation (constructive notice) Partners joint liability for pship debts remains until the debts are discharged

Winding Up The process of settling pship affairs after dissolution (and absent an agreement to contrary) Actual authority for carrying out necessary acts to wind up the business o Only transactions designed to terminagenot carry onare within the scope of actual authority o If new business is entered into, the partner carrying on the business is solely liable for her actions Old Business: assigning claims, selling pship assets, performing on Ks made b/f dissolution, collecting debts due, compromising claims, paying off creditors, distributing remainder of business New Business: extending time on debt, entering new Ks, increasing any financial obligation except as necessary Ks (ex: hiring an accountant to help winding up) A partner wrongfully dissolving a pship cannot wind up the affairs of the pship Distribution of Assets: Creditors, Partner creditors, capital contributions, profits/surplus (in this order) Losses: each partner must contribute his share of the loss, usually in the same proportion as his share in the profits (absent an agreement establishing distribution of profits and losses) A partnership is terminated when all of the pship affairs have been would up (including the liquidation and distribution of assets) Dissociation: terminated a partners right to participate in the business and the partners duty to refrain from competing with the business Limited Partnerships Limited Liability Partnership Treated as general pships and subject to UPA Liability of the partners is limitedthe partners are not personally liable for all pship debts and obligations Most states require LLP to register with the state and adopt a business name that indicates the LLP status Partners are not liable for debts arising from negligence, wrongful acts, or similar misconduct The limited liability partners is still liable for her own wrongful acts and for those committed by someone who she directly supervises Similar to partnerships but offers the limited partners limited liability similar to that of a corporation Provides the financial interest in a business but not the liability and responsibilities of partners Ability to avoid double taxation of corporate profits Have one general partner who is personally liable for all pship debts Limited partners are not allowed to participate in the management or control of the limited partnerhip Structure: Limited partnership formed by two or more persons having as its members one or more general partner and one or more limited partners General partner: one who assumes management responsibilities of the pship and full personal liability for the debts of the pship Limited partner: makes a contribution to the pship and obtains an interest in the pship returns but is not active in pships management and is not liable for pship debts beyond her contribution Formation: Certificate of Limited Partnershipmust be signed by all the general partners and filed with secretary of state; comes into existence upon filing and substantial compliance with statute Name and address of the limited partnership Name and address of an agent for service of process Name and address of each general partner (not limited partners) Latest date upon which the limited partnership is to dissolve

Any amendment must be singed by at least one general partner b/c rresponsibility rests with the general partner

Name of the Limited Partnership: Include the words limited partnership Not be the same or deceptively similar to another corporation Not include name of limited partner unless o Also the name of a general partner, or o Prior to LP being established, business was carried on under the name of a limited partner Changer in Membership: May be admitted in any manner provided in the PA or written consent of all partners absent an agreement (if general partner an amendment must be filed w/secretary of state to certificate of limited partnership) Death, Incompetency, or Withdrawal of a Partner: Limited Partnerdoes not dissolve the pship, their legal representative may exercise her rights for settling her estate and administering her property May withdraw on 6 months prior written notice given to EACH general partner General Partnerswill be viewed as an event of withdrawal that dissolves the pship unless (i) there is another general partner, (ii) within 90 days after the event of withdrawal, all partners consent in writing to continue the business and appoint a GP if necessary Rights and Liabilities of Partners Rights of General and Limited Partners: Right to share in profits and losses: can make agreement, if silent profits and losses are allocated on the basis of value of contributions made by each partner Right to distributions: no provision in PA, made according to contribution of capital Right to assign his interest Right to withdraw: upon withdrawal a partner is entitled to his right in share of distributions (but will not be paid if the pship is insolvent) Specific to GP: All rights of a general parthership unless agreement otherwise Right to compensation: a general partner is NOT entitled to compensation beyond his share of the profits for services rendered under the pship, unless otherwise agreed Specific to LP: Right to bring a derivative action to enforce the pships rights when the GP refuse to do so or when an effort to cause those partners to do so is not likely to succeed Right to information: o Right to inspect and copy recoreds o Obtain from GP upon reasonable demand full information regarding the state and financial conditions of the pship business, taxes, other information that is just and reasonable Right to vote: right on limited issues by deeming the LP is not participating in control of the issues (generally regarding fundamental changes in the pship) Liabilities of GP: All liabilities of a partner in a general partnershippersonally liable for the limited pship debts Liabilities of LP:

General rule is the LP is not liable for the debts of the pship beyond her contribution Exceptions: o LP signs the certificate of limited pship knowing a falsity is contained therein o LP permits her name to be used in the name o LP is also a general partner o LP participates in control of the business

Permissible LP activities w/o asserting control: Employee, agent, or independent contractor Consulting with and advising a general partner Acting as a surety for the pship Approving or disapproving an amendment to the certificate of limited partnership Requesting or attending a meeting of partners and/or voting on fundamental changes (ex: removing or adding a partner, dissolving the pship) Winding up the limited pship Dissolution of LP: Nonjudicail dissolution o the occruence of time for or events of dissolution specified in the certificate or PA o All partners consent in wirting o A GP withdraws and no provision is made for continuation AND the partners do not consent to continuation Judicial dissolution o Any partner can do so whenever it is not reasonably practicable to carry on business in conformity with the PA (ex: the GP is is guilty of misconduct or negligent self-dealing) Winding upany GP who did not wrongfully dissolve can wind up, if not available a LP can wind up Distribution of Assets: o To creditors, including general and limited partners that are creditors o To general and limited partners o To general and limited partners for return of contributions o To general and limited partners for profits and property in proportion to shares Limited Liability Company Taxed like a partnership o Profits and losses flow through entity and are treated as owners personal profits and lossesso not taxed on the corporate level and personal SH level Limited personal liability that SHs of a corporation would enjoy o Owners are not liable for obligations of entity

Members adopt and Operating Agreement Formation: Formed by filing the Articles of Organization with the secretary of state o Name of the LLCincluding LLC o Address of the LLCs registered office and name of registered agent o The specified term if it is a term company o Statement that management is vest in managers (if such) o Whether any member or members are laible for certain debts

Characteristics Distinct Legal Entitydisticnt from its members (may hold property or be sued) o Same power as a corporation to carry out business affairs (ex: may buy and sell property, make Ks, incur liablilities, borrow money) Profits and Lossesallocated to members on basis of value of the members contribution absent an agreement otherwise Managementcan be managed by the members, like a pship, or managed by centralized managers, like a corporation (indicated in the Operatiing Agreement) o If managers, the manages may bind the company o No centralized manages, each member is an agent for the corporation o With managerseach manager is entitled one vote and a majortity of managrs is required to approve decision affecting the LLC o Member managedall members have a right to participate in decisions and the voting strength is allocated on contribution Limited Liabitiymembers of an LLC are not personally liable for the obligations of the LLC o Members and managers are similar to SHs (members) and directors (managers) Transfer of Ownershipa member may assign in whole or part his interest in the LLC; only transfers the right to receive distributions; management right are not transferred; assignee can become a member only if ALL members consent Dissolution o Expiration of time period stated in articles o Consent of all members o Death, retirement, resignation, bankruptcy of a member unless the remaining members vote to continue the business o Judicial decree or administrative order dissolving the LLC for violation of law FormationStatutory Notice: When a 3rd party sues manages or members of LLC under agency theory the principles of agency law apply to LLC statutory notice rules. Notice provision protection only applies to LLC members when a 3rd party seeks to impose liability on an LLCs member or managers simply due to their status as members or managers of the LLC and there is some constructive notice to the 3rd party to investigate o Where a principal LLC is only partially disclosed it is inferred the agent is a party to the K Operating AgreementWhere there is a limited liability company established for a joint venture, similar to partnerships the LLC Agreement is free to K for whatever terms desiredwithin the mandatory requirements and a party cannot claim that the agreement is trumped by a statutory provision opposite the agreement Piercing the LLC VeilWhere members of an LLC have violated fiduciary duties or are committing fraud there is no bar to piercing the corporate veil in reference to liability for an individual. o Very factually determinative situation o LLC members will still enjoy personal immunity from LLC acts causing harm or damage Fiduciary ObligationWhere the parties establish an LLC and expressly agree that no fiduciary obligation is owed in reference to competition, such provision will control where a member does actually compete with the LLC. DissolutionWhere an LLC is dissolved, a member will only be liable for their proportionate share of claims or extent of assets distributed, whichever is less, in the absence of a showing of the LLC being a mere instrumentality of the members Corporations Close Corporationprivately owned corporation with relatively few shareholders. SHs can make a SH Agreement that sets up how to manage the corporation, but notice of the SHA must be given along with the stock certificate. Managed like an ordinary corporations.

What is a Corporation? A legal entity (real, but invisible) Represented only by Agents Only feelings are those manifested by agents o Important b/c agents change Sole and only purpose is to make profitwithout profit the corporation dies o The heart of the organizationunderlies every transaction Social conscience does not exist without profits. Profits are first, Conscience is second. Always. o Ex: business of insurance is to not pay a claim It is a culture which means it has a language, beliefs, behavior patterns o A merger may not work b/c cultures could not merge successfully A corporation can do anything a person can do except the corporation does not go to jail Fortune 500: largest industrial companies based on revenues Corporation is managed by BODstatutory managers who hire agents. BOD votes on officers starting with CEO Can all be 1 person or all separate persons: Chairman of Board Chief Executive Officer President Secretary of the corporation is usually the party selected for service of Process The Bubble Act: Response to speculation frenzy In effect from 1720 to 1825 o Slowed the development of English corporations o Accounts for the substantial difference b/t the development of English corporation law and American corporation law Purpose was to eliminate the unchartered joint stock companies by: o Stopping sale of stock subscriptions to the public o Stopped them form acting as if they were corporate o Made their shares non-transferable o Prohibited actions pursuant to obsolete chargers Had the effect of stimulating the growth of unchartered stock organizations that it was suppose to prevent People were distrustful of the incorporated companies and apparently preferred the uncahrtered or unincorporated Paul v. Virginia: A state has the power to regulate intrastate commerce; states are allowed to place reasonable restrictions from a company entering another state to do business but cannot exclude a foreign corporation from doing interstate business All states will require a foreign company to designate an agent for service of process Generally, Delaware is a more liberal statute as to procedures to follow in the state doing certain transactions. M and A are easier to exercise in Delaware A single person can be incorporatedlook at movie stars and such who incorporate and pay themselves as the employee thereby reaping the benefits of corporate tax shelter

Documents for Incorporation: 1. Certificate of Incorporation: SHs must agree to make any amendments 2. By-Laws of the Corporation: easier to amend b/c no need for SH meeting and approval therefore BODs can amend themselves Procedure for Incorporation: 1. Come up with a name, call Secretary of State to make sure the name is available 2. Draft Articles of Incorporation 3. Check the state of incorporation for specific provisions a. Signature of Incorporatorsthe person incorporating a corporation i. Not necessarily the same as a director but could be 4. File the AOI with the Secretary of State 5. Business not incorporated until in receipt of the certificateif in transit or lost in mail corporation is not in business 6. Set up the organizational meeting (with potential directors that will be elected by the incorporatorsafterward the incorporators fade away) 7. Now a corporation can Adopt the By-Laws while concurrently getting a Tax ID a. At this point By-Laws only delegate authority to agents (at this point officers) of the corporation b. Limit to 1 year, re-elected at annual meeting 8. Issue the shares a. Sets of Books and Records must be kept up to date b. Regular meetings of the BOD Personal liability will enter when requirements are not being followed for the corporation. If a corporation stops keeping records the individual stockholder and the corporation become 1 b/c there are no records to maintain the wall b/t them. The Corporate Entity and Limited Liability: Piercing the Corporate Veil Whenever anyone uses control of the corporation to further his own rather than the corporations business, he will be liable for the corporations acts upon the principle of respondeat superior. Agency Theoryif the SH was treating the corporation as an agent courts will allow piercing the corporate veil Enterprise Theory all the corporations are part of the same enterprise, so if 1 is liable all are liable. Searching for joint usage of assets by the separate corporations o A corporation is designed to protect an investor and will absent a showing of fraud, duress, or illegality Where (i) the unity of interest and ownership that separate entities no longer exist between corporate entities and (ii) circumstances dictate that holding the fictional corporate existence would result in a fraud or injustice, factors demonstrating the dummy corporations corporate veil should be pierced such as failure to maintain corporate records, commingling of funds, undercapitalization, and a corporation treating assets of another as its own will determine liability. *Inability to collect a judgment against one of the corporations will not suffice alone as an injustice. Where the subsidiary is dominated by the parent company in areas of finance, control, compensation, and the subsidiary is but a mere instrumentality of the parent company, the parent company will be liable for the actions of the subsidiary under the alter ego doctrine. Shareholders Actions

Derivative Actions: Derive from the SHs provision as an owner of the corporation via stock o Holding the corporations BODs liable o Basically forcing the corporation to sue the BOD Fraud: once the SH becomes aware of a fraud, the SH can bring an action against the BODs to force them to take action Originally financed by the SH, if successful in forcing action, the corporation takes over the suit and pays attorneys fees BOD/Corporation will require a Security Bond: person bringing the action posts the security bond for the corporation in case the SH loses the cause of action o Premiums on the bon are high so the purpose is to discourage people from bringing the actions Procedural Steps for SH Derivative Suit: 1. SH must go to BOD and make demand oral or in writing to bring the lawsuit against the named directors (Demand is a statutory requirement so Notice to directors for some action needed to be taken) a. Corp can agree to investigate and then bring suit, or b. Corp can recognize a problem but leave directors alone and simply ask them to stop actionusing a business judgment that bad publicity will affect profitability c. Corp can ask the named directors to leave d. No demand results in court barring the lawsuit 2. *Allege particular facts which justify not making demand (ex: it would be futile or excused) a. Futile if reasonable doubt exists that the board is capable of making an independent decision to assert a claim. Basis for reasonable doubt could be i. Majority of board has a material financial or family in the decision ii. Majority of bard is incapable of acting for some other reason such as domination or control of a board member iii. Underlying transaction is not the product of valid exercise of the Business Judgment Rule b. Board may wrongfully refuse Demand. Wrongful refusal is based on a violation of the Business Judgment Rule. There is reasonable doubt that the board acted: i. Independently or ii. With due care in responding to the demand 3. Good counsel almost never make demandso the issue is whether demand is excused Personal/Representative Action: Shareholder is suing the corporation for a harm caused directly to that particular shareholder and others similarly situated (representative) The action of the corporation is affecting a RIGHT of the particular shareholder (ex: affecting the right to vote) The SH is actually suing the corporation as opposed to the derivative action where the individual is actually suing the BOD to force action Mergers:

Role and Purpose of Corporations: In the beginning of corporation law, corp.s had to state a purpose in the certificate of incorporation Ultra Vires, the performing of business outside the stated purpose in the certificate of incorporation, is now obsolete b/c purpose is to conduct any lawful activity thereby leaving broad discretion in performance of business Donations of shareholder money is questionable so corp. must justify Corporations can be charitable in making donations, but the actual goodwill created in the community will be in the investing grade people and not in true charitable organizations -Where a corporations board of directors have adopted a resolution to contribute to an institution in belief of furthering (even indirectly) its own interest and the corporation is acting within limitations imposed by statutory enactments, the shareholders will not be able to stop the corporation because a state can impose its law over these stockholder rights. Where the board of directors withholds earnings distribution as dividends for reinvestment in the business, that decision will be affirmed based on the business judgment rule. o Where a BOD has changed its goal of increasing shareholder wealth to increasing any other persons wealth, that decision will not be allowed and the court can force distribution of dividends. Duties of Officers, Directors and Other Insiders Business Judgment Rule: Any decision made by the board of directors of a corporation will be protected so long as the board does not breach its (i) duty of care, or (ii) the fiduciary duty of loyalty Where a corporation makes a business decision to not follow the crowd, shareholders will not be able to force corporate action so long as there is no fraud, illegality, conflict of interest, or dereliction of duty owed to shareholders.

A director has the duty to investigate the facts of a situation and make a judgment based on what is uncovered during that investigation o A reasonable investigation is one that would be conducted by a person in same/similar circumstances if they had been working with their own money BJR provides immunity to directors and officers for making mistakes and they will not be personally liable o This is a rebuttable presumption that can be challenged BJR applies to close corporations, corporations, and LLC BJR is not complete immunity, it is immunity from making a bad decision Gross negligence will break the protection of the BJR Any hint of breach of duty of loyalty or care will break the protection of the BJR o Ex: Conflicts of interest [generally a small conflict of interest may be overlooked]

Obligation of Control: Duty of Care Although a business decision may not be the most acceptable or may only benefit some but not all SHs, the court will not step in and order an action without a showing of fraud, oppression, arbitrary action, or breach of trust based on BJR Where the circumstances indicate a directors duties encompass reasonable use of due care towards acts of conversion, caused by other members of the organization, that director will be held liable for their negligent exercise of due care to the extent that the negligence contributed to or provided a climate for corruption. o So long as the negligence can be proximately linked to the injury the director will be liable for failure to exercise due care o Especially true if the director had any type of notice [Husband tells Wife that son will abuse a company when Husband dies] o General Rule: a director is obligated to be informed about the way a business works and therefore cannot use lack of knowledge as a defense to violating the duty of care 1. A director must at least be familiar with the business 2. A director is to know, within reason, what their subordinates are doing 3. A director must be rudimentarily familiar with the financial statements 4. A director must have a system of monitoring or actually monitor activities of subordinates Duty of Loyalty: Directors and Managers An inside director is an employee of the corporation An outside director is from outside the corporation and sits on the board o Only outside directors can sit on Compensation and Auditing committees Directors can be on more than one directorate Directors can be in conflict of interest with the corporations so long as there is no corporate benefit Where the BODs have been accused of breach of the duty of loyalty because of a conflict of interest, the burden of proof is on the directors to prove the business decision was based on furthering the corporate interests and not self-dealing Corporate Opportunity: If a corporation cannot financially afford a business opportunity, best advice for your client o He has a fiduciary duty to tell the board on which he sits. A member of the board who sees and is aware of an opportunity has obligation to disclose to the corporation via the board his knowledge of the opportunity and the fact that fact he is interested. o If the board turns down the opportunity he can then pursue it in his individual opportunity o A formal presentation to the board is not a necessity but best course of action to create a record of the offering and a safe harbor

Dominant Shareholders:
Where a majority shareholder of a company has taken control of the board of directors, management, financial policies, and business affairs of the company and does not allow common stockholders to participate in asset liquidation of the company, the majority SH will be liable when not acting with good faith toward the minority SHs

Where there is a parent-subsidiary relationship, the parent owes the subsidiary a fiduciary obligation. The subsidiary is viewed as controlled by the parent company. When the fiduciary duty is accompanied by self-dealing, i.e. where the parent is on both sides of a transaction with its subsidiary, and by virtue of domination of the subsidiary causes it to act in a way that parent receives something from subsidiary to exclusion of and detriment to the minority SHs of the subsidiary, the parent will be liable Ratification: Where a member of a BOD takes action on a business opportunity after first offering and considering such to the company to which a fiduciary duty is owed, there will be no problem with a conflict of interest especially where development of corporate opportunity is undertaken in that members individual capacity Where full disclosure is provided by a member of the board in regards to a corporate opportunity and the board makes a good faith decision with knowledge of these facts, SH ratification of the transaction will relieve any conflict of interest concerns for the board member. Capital Structure of a Corporation The number and type of authorized shares the corporation may issue a. Authorized shares are not shares soldthe total number of shares that can be issued b. Sold shares are issued shares c. Treasury Shares: shares that have been sold but later repurchased by the corporation i. Treasury Shares can be retired, i.e. cancelled, and they fall back into the number of authorized shares d. Generally called Common Stockthere can be several classes of common stock i. A B Ceach class of shares can have different rights e. Preferred Stock: preferred in liquidation and is redeemed for value from assets of the corporation i. Pays potentially less money than common stock will but preferred are superior in bankruptcy proceeding f. Stocks can have a convertibility right, can be redeemable or callable Stocks, Bonds, and Notes are all considered securities Lawyering Jobs in Capital Structure: 1. Transactional Lawyersput together the transactions, negotiate the K terms and conditions Examples: a. Construction Contracts: skyscrapers requiring multiple Ks and vendors, securities lawyers will in turn raise the money for the building b. Commercial Lease Contract: covers many items, can be 60-150 pages, can be of value that the lease can be sold c. Car Dealerships 2. Fiduciary Lawyersdeal in obligations 3. Securities Lawyers: put together mechanisms to raise money

Disclosure Securities Act of 1933: (Act causing Disclosure) Required disclosure about any security sold in interstate commerce Must be registered with the SEC to sell the statements S-1 Registration statement is filed with the SEC giving an investor all information needed to make a determination to buy or sell o Required to tell the truth, not that the investment is a good deal o Corporation or entity files the registrations o Hires a securities lawyer to help in preparing the registration statement o Can take 6 months to 2 years to prepare the stateemtn o Not a fill in the blankex: description of business must be described as accurately as possible o Criminal offense to violate the statuteresults in jail time and fines o Describe: products, litigation strategy, management style Private companies do not have this information so Dunn & Bradstreet research if for you if you want the information for a price Initial Public Offeringhow shares are sold to the public A new S-form form must be filed for each issuance of corporate securities o EX: S-8: used to register and sell stock to employees Prospectus must be given with the S-1 After 90 days information is available via 10-Q quarterly reports Securities and Exchange Act of 1934 SEC supervises and regulates all transactions Anti-fraud statute via the use of 10b of the statute and Rule 10b-5 This is a reporting statute o Filing the registration statement, registrant must then file reports updating the financial statement originally filed o Every 90 day for 3 quarters a 10-q if filed o 10-k Annual Report must be filed at year end, by time annual report if filed the S-1 is way out of date * Blue Sky Laws: state securities laws; Every state requires every corporation in the state to prepare an annual report. 3 financial statements included therein: 1. Synonyms: Profit/Loss Statement, Earnings Statement 2. Balance Sheet: Assets must equal liabilities + SH liability 3. Cash Flow Statement Exemption from the Registration Acts of 33 and 34: (only way to avoid the process, otherwise go to jail) 1. Something that can be excluded from the investment contract definition will be exempted 2. Intra-state offering a. If 1 share is sold interstate the exemption disappears and the party is in violation of the criminal statute b. 311a safe harbor rules c. if exemption is lost there is an automatic failure to comply 3. 4(1): exemption for sales made by persons other than issuers, underwriters or dealers [they started the selling of shares] a. other than them is regular peopleif I acquire an unregistered security and I want to sell them, I can do this without an exemption b/c I am not an issuer, underwriiter, or dealer

b. Must be in the state for 2 years, after that point the resale 4. 4(2): private placement exemption a. Safe Harbor for private placementwhen security is only offered [not sell] to 30 people, no advertising; offering to 31 you are making a public offering and must register (if selling to 31 party is in violation of 5 b/c party didnt deliver the prospectus all the sales come under violation an a crime has occurred) b. Privatebanks, investment companies, financing companies, and individuals [accredited investors not needing statutory protection: persons with a net worth of $1 million, a salary in the last fiscal year of 200K, couples with a combined salary of 300K] c. Method: limited to 30, but accredited investors do NOT count against the 30 limit; frequent condition is that the company purchasing the private placement will force the company to register the security after two years so the purchaser can sell them to the public Disclosure and Fairness: Definition of a security Where a plaintiff purchases an LLC, and during the negotiations for purchase events occur that may affect business prospects, and a P claims failure to disclose on the part of sellers of the LLC the defendants will not be held liable under SEC regulations if the sale cannot be classified as a stockusing the attributes of dividends, negotiability, ability to pledge, voting trust rights, and appreciation abilityor investment contract an investment of money, in a common enterprise, with profits to come solely from efforts of others. Securities: any note, stock, treasure stock, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, investment K, voting trust certificate, any put, call, straddle, option, or privilege on any security, certificate of deposit, grout or index of securities, any interest or instrument commonly knows as a security or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase any of the foregoing 1) To establish an investment K: (Howey Test) a. An investment of money b. In a common enterprise c. With profits to come solely from the efforts of others 2) Characteristics of Stock: (United Housing Foundation) a. Right to receive dividends contingent upon an apportionment of profits b. Negotiability c. The ability to be pledged or hypothecated d. Voting rights in proportion to the number of shares owned e. The ability to appreciate in value Procedure for Issuing Securities: (find an exemption and dont do this shit) 1. Pre-filing Periodtime it takes to prepare a registration statement that can be 6 months to years a. Getting things ready so that when filed, everything is true, and best picture of organization is put forth b. Requirement of 2-3 Annual Reports audited financial statements to be included 2. File the Registration Statement with the SEC, along with a check for the number of securities to be issued 3. Waiting Period of 20 days20 days after filing, the registration statement becomes effective but a party can request an extension of the effective date so compliance with S-1 can be made; 20 days is not really practical a. If on the 20th day the corrections have not been made and no extension was requested, a stop order is issued by the SEC and $$$ is lost 4. Post Effective Periodup to 90 days the company need not provide a prospectus b/c a quarterly report is not available

8K report: provides more information about anything that is majorkeeps things up to date such a M & A 10Qquarterly10Q10Q10K [if an 8K(as required) is filed it updates information 11 of 1933 Act p. 431 Know statute: In case ANY part of the registration statement when such part became effective [on the day it becomes effective20 days w/o request for extension it MUST be correct not become effective] An untrue statement of a material fact [one that a reasonable or prudent person would consider before investing] Or omitted to state a material fact that required to be stated [must be completely true, if omission that illuminates what is said then it may be misleading to a reasonably prudent statement] thereinor necessay to make the statement stherein not misleading Any person acquiring such security (unless it is proved that at the time of such acquisition he knew of such inturth) may sue if any part is untrue o Every person who signed the registration statement o Every person who was a director or issuer o Every accountant, engineer,.profession gives authority to a statement made by him o Every underwriter These people then get the burden of proof Anyone who buys securities based on the registration statement can make the claim Materiality for Investor: Material: matters which an investor needs to know before he can make an intelligent, informed decision whether or not to buy the securityinformation suggesting the condition of the corporation a. Understatement of liabilities, overstatement of profit and future sales are materialif accuracy is drastically off b. A reasonable prudent investor would not care about the changes c. a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly alterd the total mix of information made available d. Where the statements of the selling party are of the nature that full disclosure would lead an investor to significantly alter their view on the total mix or information available, the selling party will be liable and may be entitled to an offset if he can prove the misstatement did not cause the decline in value. e. Standard is the reasonably prudent investor AND not the reasonably prudent man Affirmative defense of due diligence: the party asserting the defense has done a reasonable investigation, proving all that was should have been done was done and after this the duty id discharged *There is a higher standard for a reasonable investigation 11 must be complied, expertise part is specific to the preparer of that part, a director is responsible for describing the business. There are levels of requirements for the defense. As a board member, the due diligence req. may be greater than that of someone else depending on your individual background. Rationale for 10b-5 Fraud on the Market Theorythe introduction of the fraudulent information has affected the price of securities and therefore there is no accurate reflection in the marketplace Efficient Market Theorythe price of a security is a reflection of all the information available in the market at any one time AND is the information not available in the marker

ROL: If a party is a SH, not acting on companys behalf, and offers another person the sale of their stock, the company cannot be liable Insider Information: Information that is material, and if material will have an effect on if investor will buy or sell o Ex: Trade secrets are inside informationif disclosed it would affect the value of stock o Ex: financial reports b/f being released to the public Insider: everyone is an insider but some people dont have inside information, others are presumed to have inside information Where a company has made a substantial discovery and chooses to make a public statement about such, the corporation will not be held liable so long as the statement does not provide materially misleading or omit materially misleading information that would have influenced a reasonable investor to purchase or sell stock Employees and officers of a corporation acting on information not generally known to the public are not under a duty to disclose such information, however, if the employee or officer acts upon such inside information that a reasonable man would have attached importance the officer or employee will be held liable for a violation of Rule 10b-5. Disclose or Abstain Rule: a party must disclose information to the public or abstain from trading by buying or selling 10b-5 AND Insider Trading Rules: 1. A business is allowed to keep secret the fact of a purchase if a legitimate business secret; once information becomes reasonably public there is no more right to keep secret 2. Disclose or Abstain Rule: if a party has inside information and knows such they must disclose the information or abstain from taking 3. Reasonable Investor Standard: material that a reasonable investor would consider in selling or buying the security 4. Insiders MUST wait to trade until the information is disclosed a. Time for information to be disclosed is arguable (24 hours or 24 seconds) 5. The company issued a misleading press release first a. The nature of the efficient marketplace and press release, the release I sin connection with the sale of the information and therefore the statement is in the marketplace 6. The standard to be applied to a press relief is that of simple negligence a. Issuer will be liable if he is simply negligence and NOT a gross negligence standard b. The burden is on the issuer to make sure the information is accurate 7. To be liable under 10b-5there must be in a fiduciary relationship with the issuer of the security a. Someone with information derived from an employee with no fiduciary duty to the SH will avoid liability for inside information 8. Misappropriation theory: if information is used/misappropriated and is from someone you know is in an organization and that has a fiduciary obligation, using that information will be use of inside information used to make money and the party will be liable a. If you are on the outside of a business you can still be held liable for trading on insider information

16(b) Footnote p. 512 16b: thou shall not trade on inside information Section only applies to companies that are regulated by the 34 Act o Under 33, everyone must register o Under 34 Act those with 500 SH and a certain dollar amount must register Insiders consist of officers, directors, and 10% stockholders (no exceptions)more restrictive than 10b5 b/c these people are more likely to have inside information

Does NOT matter the reason you are selling stock Remedy of Disgorgement: the person returns all the profit that has been gained ONLY equitable securities are covered (no bonds or debentures unless they are convertible) A party must maximize the profit that can be found, lowest buying price and highest selling price Requires SEC Form 3initial reporting of stock owned by the officer/director and such Form 4 must also be filed containing the sells and purchases of directors and officers

Problems of Control in Corporations BOD controls BUT there are people or organizations that may seek to obtain control Corporations are required to have annual meetings to elect BODs Corporations can have special meetings usually for major corporate transactions such as merger or acquisition State law provides the notice requirementwill usually be 30 or 60 days 51% of shares of corporation must be represented at the meeting in order to have the meeting Record date sets the date at which a SH must have been a holder to voteregardless of it still having ownership or not Proxy: a proxy is when a SH authorizes an agent to vote his or her shares o Usually management puts out the proxy statement to solicit vote of SHs for the management committee to vote o Permission to vote for the SH Proxy Solicitation Requirements: set by the SEC with Rule 14(a) One share one vote Cumulative Voting: designed to give power to a minority o 1000 shares, 10 positions on board, cumulate 1000 share vote and give all to Joe Smith Proxy FightAnyone who is a SH can solicit proxy and vote the shares o Proxy solicitation: draft a proxy, send it out, ask SHs to return Tender Offercompany says to SHs they will purchase shares at a premium to take control of a corporation o Open for certain timeex: 90 days o Must sell at a premium (premium is decided by the offering firm) o If there is no premium it wont be a tender offer o Must arrange w/banks and financial institutions to fund the process Proxy Fights: Incumbent management vs. Insurgents (those seeking control) If the incumbent management, they are in drivers seat, the incumbents are free to use all resources ofn incorporation to repel attack so long as expenses are reasonable. Reasonable Proxy Fight Expenses: The insurgents must win AND get SH approval to get reimbursements of expenses BUT if incumbents win expenses are automatically paid Shareholder Proposals: Regulated by SEC 14(a)(8) Submit SH proposal to management Can only make recommendations, otherwise they would be interfering w/ BOD Ex: Anti-takeover provisions or not including anti-takeover provisions o Greenmail (where a SH buys a lot of shares with idea of taking over, gets a significant stock %, and they could possibly be elected to the boardthe board pays the SH for more than he paid for the stock)

o Poison Pill: something making it very expensive to take over the company such as the corporation issuing all SH additional 250 shares on acquisition of the company Procedure: o A SH proposal is limited to 500 words IF to be included in the companys proxy statement o Must be given to office 60 days prior the SH annual meeting (1 copy to management and 1 to SEC) o There are 11 reasons management can assert to not include the proposal in the proxy statement (ex: against state law) o Only a SH for 6 months prior to record date can submit the proposal OR own 5% of the stock OR 1500 shares o In order to make a proposal a second time, 1.5%, a third time 3%, an forth time 4 or 5 % of votes

Proposal can be included if there is a significant relation to the business BUT does not have to be such economically. Does not have to be an impact of 5%. SHs only need an issue that is otherwise related to the business (ex: a social issue) Inspection Rights: Every stockholder can request a time to inspect the books and records of the company for review Must have a proper reason for inspecting the books to get list of SHs Listed under state law Mergers and Acquisitions Golden Parachute: going down of incumbents with millions of dollars Merger: pooling of assets of two corporations o Usually one company disappears o SHs often participate Acquisition: the is a buyer and a seller, one person is buying from another o SHs often participate Why? One company is looking for another to make a worthy investment One company has grown large and is looking to expand business [ex: to another region] In a competitive environment, look for companies with patentsbuy the company and own the patents Complimentary products are frequently purchased by the main product Problems: Mergers can be contractual or statutory mergers o Delaware has most mergers via statute o SHs are entitled to appraised value of stock if the SHs request such, can be more or less than market price o If you fall w/I statute you have to get an appraisal, lawyers usually want to avoid the statute Types: o Stock for Stock o Stock for Assets o Cash for Assets o Cash for Stock Preferred way is stock Raising the authorized shares necessitates SH approval There cannot be less than 10 pt. type in the explanation to SHs

*These transaction types involve SHs, avoidance of the appraisal rights, and reasons for doing the transaction W/hostile takeover, not much help from incumbent management, a SH however can request to see the books