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age of

Contents
@e naLure and urposes of Le CorporaLlon 3
SeparaLe legal exlsLence 3
lndeflnlLe uuraLlon 3
SeparaLlon of Cwnerslp and ConLrol 6
LlmlLed LlablllLy 6
Sareolders powers 6
lerclng Le corporaLe vell 6
Walkovszky v CarlLon (1966) 7
LnLerprlse LlablllLy 7
SeaLand Servlces v epper Source (1991) 8everse vell lerclng 7
8everse lerclng SLandard lo te lbllllps 8
ln re Slllcone Cel 8reasL lmplanL roducLs LlablllLy LlLlgaLlon (1993) 8
SLro v 8lackawk Poldlng Corp (1971) p 243 of supplemenL 10
LnLlLy Colce 11
Ceneral parLnerslp 12
AdvanLages Lo general parLnerslps 12
ulsadvanLages of a general parLnerslp sLrucLure 12
8emember Lese facLors Lo conslder (from slldes llsLed ln leowlck and ln casebook pp 8890) 13
lenwlck v unemploymenL CompensaLlon Commlsslon (1943) p 33 13
MarLln v eyLon (1927) andouL 13
uA 13 14
uA 40 14
LlmlLed arLnerslp 14
LlmlLed LlablllLy arLnerslp 14
LlmlLed LlablllLy LlmlLed arLnerslp 14
LlmlLed LlablllLy Company 14
lormaLlon 13
ArLlcles of CrganlzaLlon V203 13
May nC@ vary Le nonwalvable rlgLs under V103(b) 13
Members' lnLeresL 16
lerclng Le LLC vell 17
CorporaLe lormaLlon 17
8ylaws 17
age 2 of

Calavlz v 8erg (nu Cal 2011) 17
5ootbetoColf Motloe co No 9 loc v comctoft loc 18
lnLernal Affalrs uocLrlne 18
Wy uelaware? 18
urpose of a CorporaLlon 20
uoJqe v lotJ (1919) 20
Al 5mltb Mfq co v 8otlow (1933) 20
8uslness !udgmenL 8ule 21
Slensky v Wrlgley (1968) 21
SLaLe Law llduclary uuLles 21
uuLy of Care 21
uCCL V 22
ltoocls v uolteJ Ietsey 8ook (1981) 22
Clnemark lnc v @ecnlcolor 22
uuLy of LoyalLy vs uuLy of Care 23
uuLy of LoyalLy Case Analysls 23
8oyet v 8etoo 23
uCCL V144 lnLeresLed ulrecLors 23
CorporaLe CpporLunlLy @esL 24
SLaLe Law llduclary uuLles CbllgaLlon of Cood lalL CompensaLlon and CverslgL 24
Zan v @ransAmerlca Corp (1947) 24
lo te wbeelobtotot 1ecbooloqles loc 5botebolJets lltlqotloo (1993) 23
Sareolder 8aLlflcaLlon 23
rlnclpalAgenL 8elaLlonslps 26
CorporaLe Cfflcers as AgenLs 26
AgenL AuLorlLy ln ConLracL 27
Mlll 5t cbotcb of cbtlst v noqoo (1990) 27
uweck v Nosset (2008) 27
J70 leosloq cotpototloo v Ampex cotpototloo (1976) 28
AgenL AuLorlLy ln @orL 28
Pumble Cll 8eflnlng Co v MarLln (1949) 28
noovet v 5oo Oll co (1963) 29
Motpby v nollJoy loos loc (1973) 29
CorporaLe Law uuLles and roLecLlons of Cfflcers 30
SanLa le lndusLrles lnc v Creen (1977) 33
age 3 of

lnslder @radlng 33
ulsLrlbuLlon of ower 8eLween Sareolders and Managers 33
loqlloq 8tos 8otoom 8olley combloeJ 5bows v loqlloq (1947) 34
McOooJe v 5tooebom (1934) 34
clotk v uoJqe (1936) 33
roxy voLlng and ConLesLs 33
@oplcs and Cases 8elaLlng Lo roxles 33
levlo v MCM (1967) 36
oseofelJ v loltcbllJ oqloe Altplooe cotp (1933) 36
Il cose co v 8otok (1964) 37
SecurlLles Lxcange AcL V 14(a) 37
SLC 8ules for roxy ConLesLs 38
8ases for Lxcludlng Sareolder roposals 38
Al5cM v AlC (2006) 39
cA loc v Al5cM (2008) 39
Sareolder Access 39
ctooe co v AoocooJo (1976) 40
LlmlLaLlon l8C 8ule 231 41
Sareolder LlLlgaLlon 41
ulrecL vs uerlvaLlve SulLs 41
8aLlonal lalnLlff and Le uemand 8equlremenL 42
uemand luLlllLy Wen ls demand excused? 42
SLandards for revlewlng sareolder llLlgaLlon 42
lndependenL CommlLLees lacLors consldered 42
lseobetq v llyloq 1lqet lloe loc (1971) 42
Ctlmes v uooolJ (1996) 43
Motx v Akets (1996) 43
Aoetbocb v 8eooett (1979) 44
2opoto v MolJoooJo (1981) 44
lo te Otocle cotp uetlvotlve lltlqotloo (2003) 44
Mergers AcqulslLlons and @akeovers 43
@ypes of AcqulslLlons 43
@ypes of Mergers 43
Cooslng 8eLween a Merger and an AsseL Sale 43
lottls v Cleo AlJeo cotp (1938) 46
age 4 of

notltoo v Atco lecttoolcs (1963) 46
Cas ouL Mergers 47
coqqlos v New oqlooJ lottlots lootboll clob (1986) 47
obklo v lblllp A noot cbemlcol cotp (1983) 48
ooscb v cA cotp (1988) 48
vC5 loc v costlel (2000) 48
cbeff v Motbes (1964) 49
uoocol cotp v Meso lettoleom (1983) 49
evloo loc v McAoJtews lotbes nolJloq loc (1983) 30
lotomooot commoolcotloos v 1lme (1989) 30
lotomooot commoolcotloos v Ovc Netwotk (1994) 30


age of

CuLllne
Monday AugusL 29 2011
1032 AM

l unlLed SLaLes CorporaLe Law CaracLerlsLlcs


a narrow ln Scope
l rlmary concerns
1 Sareolders / SLockolders
2 8oards of ulrecLors
3 ManagemenL of CorporaLlon
4 @e CorporaLlon lLself
b Compared wlL lnLernaLlonal corporaLe law wlc covers almosL all sLakeolders of a
corporaLlon
ll @resold CuesLlons Lo Answer on any ypo
a Are you ln a publlc or closely eld corporaLlon?
l @e publlcly eld corporaLlon ls the on|y form LaL wlll be Lraded on a secondary
markeL
b Wo owes wom waL?
l ls Lere a flduclary duLy?
ll ls one of Le parLles an agenL of anoLer?
Tbe Nature and Purposes of tbe Corporation
l 8aslc ALLrlbuLes of a CorporaLlon
a @ere are of these
l lormal CreaLlon
ll Legal personallLy / SeparaLe legal exlsLence
lll LlmlLed LlablllLy
lv SeparaLlon of ownerslp and conLrol
v LlquldlLy lreely allenable
vl lndeflnlLe duraLlon
Separate legal existence
l 8emember LaL Le corporaLlon ls a separate taxpayer
a lf you come across a quesLlon dlscusslng Le separaLe legal exlsLence
l MLn@lCn l@S @AxA?L8 S@A@uS
1 LvLn ll you don'L know Le answer Lo Le quesLlon profs advlce
Indefinite Duration
l Ways ln wlc a corporaLlon may LermlnaLe 4 ways
a volunLary dlssoluLlon
b Merger
c 8ankrupLcy
d ulssoluLlon by [udlclal decree
age of

Separation of Uwnersbip and Control
l 8erle Means arLlcle sLaLes
a @aL Le separaLlon of ownerslp and conLrol produces a condlLlon were Le lnLeresLs
of Le owner and ulLlmaLe manager of Le company may and ofLen do dlverge
Limited Liability
l A sareolder of a corporaLlon ls noL personally llable for Le acLs or debL of Le corporaLlon
a LxCL@ LaL e may become personally llable by reason of ls own acLs or conducL
ll CreaLesL slngle dlscovery of modern Llmes
a nlcolas Murray 8uLler resldenL of Columbla unlverslLy
Sbarebolders powers
l 8oards AC@ and sareolders 8LAC@
ll Sareolders are allowed Lo voLe on 4 th|ngs
a LlecLlon of dlrecLors
b Any amendmenLs Lo Le arLlcles of lncorporaLlon
l And bylaws generally speaklng
c lundamenLal LransacLlons
l Lxample Mergers
d Cdds and ends suc as Le approval of lndependenL audlLors
lll And LaLs abouL lL
a @e buslness affalrs of every corporaLlon organlzed under Lls capLer sall be managed
by or under Le dlrecLlon of a board of dlrecLors
l uCCL SecLlon 141(a)
Piercing tbe corporate veil
l 8equlremenLs @ere are 2 prongs
a SeparaLeness
b 8adness
ll SeparaLeness
a AlLer ego rule
l ls Le buslness Le alLer ego of Le person?
b 8elevanL facLors
l Commlngllng of funds
ll ulsregard for corporaLe formallLles
1 lallure Lo old sareolder meeLlngs
2 lallure Lo old board meeLlngs
3 lallure Lo keep mlnuLes of meeLlngs
4 lallure Lo keep separaLe books
3 lallure Lo lssue sLock
6 lallure Lo appolnL a board
7 lallure Lo adopL carLer or bylaws
lll 8adness
a @yplcally sown by purposeful undercaplLallzaLlon
l ls Lere enoug money on and for Le company Lo conducL lLs buslness?
age of

Walkovszky v. Carlton {9]
l @axl Cab ln[ury Case
a Cwner of cab company owned many oLer cab companles all wlL only one or Lwo cabs
ll 8ule
a A courL may dlsregard corporaLe form Lo prevenL fraud or acleve equlLy
l lL8ClnC @PL CC8C8A@L vLlL
b AbsenL an allegaLlon LaL Le defendanL was conducLlng buslness ln ls lndlvldual capaclLy a
complalnL carglng LaL Le an lndlvldual defendanL organlzed ls companles ln suc a
fragmenLed manner solely Lo llmlL ls llablllLy for personal ln[ury clalms ls lnsufflclenL Lo old
Le lndlvldual llable for Le clalm
Enterprise Liability
l Can you make all of Le companles ln an organlzaLlon llable for Le ln[urles done by one
company?
a lacLors 11 of Lese
b Common employees
c Common record keeplng
d CenLrallzed accounLlng
e aymenL of wages by one corporaLlon Lo anoLer corporaLlons employees
f Common buslness names
g Servlces rendered by Le employees of one corporaLlon on bealf of anoLer
corporaLlon
undocumenLed Lransfers beLween Le corporaLlons
l unclear allocaLlon of proflLs and losses beLween Le corporaLlons
[ @e same offlcers
k @e same sareolders
l @e same Lelepone number
Sea-Land Services v. Pepper Source {99] - Reverse Veil Piercing
l 8ule
l lnablllLy Lo saLlsfy a [udgmenL ls lnsufflclenL Lo plerce Le corporaLe vell
ll ln order Lo plerce Le corporaLe vell and lmpose lndlvldual llablllLy a credlLor musL sow
1 @aL Lere was suc a unlLy of lnLeresL beLween Le lndlvldual and Le corporaLe
enLlLy LaL separaLe ldenLlLles no longer exlsLed
2 - LaL a fallure Lo do so would promoLe ln[usLlce ln some way beyond leavlng a
credlLor unable Lo saLlsfy a [udgmenL
ll ueflned
1 Cnce you plerce Le vell upwards Lo a defendanLs personal lnLeresLs reverse
plerclng ls an aLLempL Lo Len plerce Le vell back down Lo oLer buslnesses LaL Le
defendanL owns
a SLraLegy
l revenLs a corporaLlon from movlng asseLs around Lo prevenL
paylng [udgmenLs agalnsL lL
lll LxAnSlCn of plerclng docLrlne
1 8LMLM8L8 LaL plerclng Le corporaLe vell only allows someone Lo recover up Lo
Le level of lnLeresL LaL Le defendanL eld ln a parLlcular company
a 8everse plerclng goes dlrecLly afLer Le accounLs ln oLer corporaLlons
age of

l @us lncreaslng Le amounL of Le [udgmenL recovered
Reverse Piercing Standard - In re Phllllpx
l A courL may reverse plerce Le corporaLe vell and obLaln Le asseLs of a corporaLlon for Le
obllgaLlons of a conLrolllng sareolder or oLer corporaLe lnslder on|y upon a c|ear|ng show|ng
of |ntent that
a @e conLrolllng lnslder and Le corporaLlon are alLer egos of eac oLer
b !usLlce requlres Le subsLance of Le relaLlonslp over Le form because Le corporaLlon
flcLlon ls uLlllzed Lo perpeLraLe a fraud or Le defeaL of a rlgLful clalm
c - an equlLable resulL ls acleved by plerclng
ll Wen lnnocenL sareolders or credlLors wlll be pre[udlced by reverse plerclng an equlLable
resulL ls noL acleved!
lll CeckllsL
a ls Lere a posslblllLy for an argumenL under espooJeot 5opetlot?
b A masLer ls sub[ecL Lo Le llablllLy for Le of ls servanLs commlLLed wlle acLlng ln
Le scope of Lelr employmenL
c 8esLaLemenL 2nd SecLlon 219(1) Agency?
l ls Lere a good argumenL for vell plerclng?
ll ls Lere a good argumenL for reverse vell plerclng?
lll ls Lere a good argumenL for enLerprlse llablllLy?

In re Silicone Cel Breast Implant Products Liability Litigation {99]
l 8ule
a A parenL corporaLlon ls llable for lLs subsldlarles LorLs lf Le parenL conLrolled Le
subsldlary as lLs alLer ego
ll ls a subsldlary an alLerego or mere lnsLrumenLallLy of a parenL corporaLlon?
a @esL SubsLanLlal uomlnaLlon by parenL
l lacLors consldered
1 arenL and subsldlary ave common dlrecLors or offlcers
2 arenL and subsldlary ave common buslness deparLmenLs
3 arenL and subsldlary flle consolldaLed flnanclal sLaLemenLs and Lax
reLurns
4 arenL flnances Le subsldlary
3 arenL causes Le lncorporaLlon of Le subsldlary
6 Subsldlary operaLes wlL grossly lnadequaLe caplLal
7 arenL pays Le subsldlary's salarles and expenses
8 Subsldlary recelves no buslness excepL
9 arenL uses subsldlary properLy as lLs own
10 ually operaLlons of Le Lwo corporaLlons are / are noL kepL separaLe
11 Subsldlary does / does noL observe baslc corporaLe formallLles
a Suc as
l keeplng separaLe books and records
ll Poldlng sareolder and board meeLlngs
lll 8LMLM8L8
a Wen ln doubL look Lo Le Lax lncldence felL by Le corporaLlons
l @ax ls ofLen a way Lo sow LaL one corporaLlon ls Le alLer ego of anoLer
lv lormaLlon of a CorporaLlon
age of

a PlsLorlcal perspecLlve
l CorporaLlons were formed under a granL from Le sLaLe
1 @radlLlonally Lls was a way Lo conLrol monopolles
a nC@ used for lncorporaLlng general companles
b AllocaLlon of ower
l An lnlLlal allocaLlon of power Lo Le board of dlrecLors may be deLermlned by
1 @e number of sares LaL are auLorlzed and dlsLrlbuLed
a no exLra sares auLorlzed beyond Lose of Le lnlLlal offerlng?
l lndlcaLes LaL Le sareolders ave noL glven a greaL
deal of dlscreLlon Lo Le board
b LxLra sares are auLorlzed Lo be dlsLrlbuLed?
l More dlscreLlon provlded Lo Le board
ll ar value
1 @e sLaLed value of Le securlLy
a lL ls Le mlnlmum conLrlbuLlon for lnvesLors Lo purcase a sare
of sLock wen lL ls lnlLlally lssued
v Cwnerslp of Company vla Sares
a May be broken down ln several ways
l Lxample
1 LqulLy SecurlLles
a Common SLock
l voLlng Sares
ll 8esldual Clalm
1 @yplcally Le lasL debL pald ln Le case of
bankrupLcy
lll Cwed flduclary duLles
1 @ls ls Le maln caLegory of sares LaL are
owed suc duLles
b referred sLock
l ulvldend rlgLs are superlor Lo Lose of common sLock
ll reference ln llquldaLlon over common sLock
1 8uL sLlll recover only afLer oLer credlLors
lll Cnly rarely ave voLlng rlgLs
lv Converslon rlgLs
1 May be converLed Lo common sLock
a SomeLlmes vlce versa
v ConLracL based
1 arLlcularly ln venLure caplLal
a @ere wlll be deLalled documenLaLlon
abouL waL Lrlggers some rlgLs under
preferred sLock
vl uebL covenanLs
a LlmlLaLlons on
l lndebLedness
ll Llens
lll lundamenLal canges
1 Mergers sales of asseLs eLc
lv 8esLrlcLed paymenLs
age of

v lnvesLmenLs
vl @ransacLlons wlL afflllaLes
vll Salelease backs
vlll CaplLal expendlLures
lx AmendmenLs Lo MaLerlal AgreemenLs
x Canges ln llscal erlods
xl Canges ln Llnes of 8uslness
xll negaLlve ledge Clauses
xlll aymenLs by Subsldlarles
xlv 8ecomlng a Ceneral arLner of AnoLer CrganlzaLlon
xv SpeculaLlve @ransacLlons
xvl Canges Lo Poldlng Company SLaLuLes
Strob v. Blackbawk Holding Corp. {9] - p. of supplement
l lssue
a May a company lssue sares LaL do noL ave any economlc beneflLs Lo Lelr owners?
l ln Lls case only provlded voLlng rlgLs
ll Answer
1 ?es
ll 8ules
a A corporaLlons sares of class 8 sLock wlc permlL voLlng rlgLs are valld sares of
sLock noLwlLsLandlng Le facL LaL Le sLock ls noL enLlLled Lo dlvldends
b Sares may represenL a proprleLary lnLeresL even lf Ley do noL enLlLle Le older Lo
dlvldends or oLer properLy


age of

Entity Cboice

***See 8uslness LnLlLles PandouL 1323 for CarL and Model LnLlLy Colce Memo***



l @resold CuesLlon Lo Ask for SeLLlng up a 8uslness LnLlLy
a WaL does Le owner wanL from a menu of colces?
l LlmlLed LlablllLy
1 roLecLlon of ersonal AsseLs
ll Lase of SLarLup
lll Lase of conLlnulLy
lv AblllLy Lo ralse caplLal
v ConLrol
vl LlmlLed governmenL reporLlng
vll roflLLaklng
vlll LlmlLed regulaLory 8equlremenLs
lx AllenablllLy
1 Lack of resLrlcLlons on
x 8esLrlcLlon on Le allenablllLy of oLers
age 2 of

xl Lase of exlL
xll @ax bennles
ll @ypes
a Sole proprleLerslp
l A buslness owned by an lndlvldual
1 MosL common buslness form
ll no legal formallLles
lll @oLal conLrol over Le managemenL
lv roprleLor ls enLlLled Lo all of Le proflLs buL musL bear all of Le losses of Le
company
Ceneral partnersbip
l An assoclaLlon of @WC C8 MC8L L8SCnS Lo carry on as coowners a buslness for proflL
a unlLed arLnerslp AcL (1914) SecLlon 6(l)
l @ls model acL as been adopLed ln some form by every sLaL
ll MA!C8 downslde
a @e defaulL seLLlng ls unllmlLed llablllLy for eac parLnerslp
l All parLners ln a parLnerslp are [olnLly and severally llable for all obllgaLlons and
llablllLles of Le parLnerslp
Advantages to general partnersbips
l Mlnlmal formallLles are requlred for organlzaLlon of a parLnerslp and ence organlzaLlonal
cosLs are llmlLed
ll Slnce a parLnerslp lnvolves more Lan one person Lls form of buslness enLlLy permlLs a
comblnaLlon of lndlvldual resources and LalenLs and auLorlLy Lo acL ls noL llmlLed Lo one
person
lll ueclslonmaklng and acLlon can be lnformal
lv @ere are no quallflcaLlon requlremenLs for dolng buslness ln oLer sLaLes
v Mlnlmal reporLlng Lo governmenLal enLlLles ls requlred
vl lf Le parLnerslp agreemenL so provldes a parLnerslp may conLlnue ln exlsLence afLer Le
deaL dlssoluLlon or wlLdrawal of a parLner
vll 8uslness proflLs are sub[ecL Lo only one Lax aL Le lndlvldual parLner level and are noL
sub[ecL Lo double Lax as would be Le case lf Le proflLs were earned by a C corporaLlon
vlll 8uslness losses are avallable on parLners' personal lncome Lax reLurns and can offseL oLer
lncome (sub[ecL Lo Le passlve loss rules)
lx Speclal allocaLlons may be made for lncome Lax purposes
x ulsproporLlonaLe dlsLrlbuLlons may made Lo parLners
xl A parLnerslp may be converLed Lo a llmlLed parLnerslp llmlLed llablllLy company C
corporaLlon or S corporaLlon ln waL ls ordlnarlly a Laxfree LransacLlon
Disadvantages of a general partnersbip structure
l Lac parLner as unllmlLed personal llablllLy for all obllgaLlons and llablllLles of Le buslness
ll @e general power of every parLner Lo acL on bealf of Le buslness requlres cauLlon ln Le
selecLlon of parLners and monlLorlng of parLners' acLlvlLles
lll All parLners may parLlclpaLe ln managemenL poLenLlally maklng declslonmaklng
cumbersome and dlfflculL
lv A parLnerslp ls dlssolved upon Le deaL dlssoluLlon lnsanlLy bankrupLcy or wlLdrawal
of any one parLner lf noL oLerwlse speclfled ln Le parLnerslp agreemenL
age 3 of

v 8uslness proflLs are Laxed as lncome Lo Le lndlvldual parLners and as a resulL may be
sub[ecL Lo selfemploymenL Lax as well as lncome

Remember tbese factors to consider {from slides, listed in Fenwlck, and in casebook pp. 88-
9]
l lnLenLlon of Le parLles
a See Mottlo
ll 8lgL Lo sare ln Le proflLs
a See leowlck
lll CbllgaLlon Lo sare ln loss
lv Cwnerslp and conLrol
v CommunlLy and power ln admlnlsLraLlon
vl Language ln agreemenL
vll ConducL Lowards @(?)
vlll 8lgLs on dlssoluLlon

Fenwick v. Unemployment Compensation Commission {9] - p.
l 8ule
a A parLnerslp ls noL formed slmply by agreelng Lo sare proflLs beLween Lwo or more
people
b A parLnerslp ls an assoclaLlon of Lwo or more persons Lo carry on os coowoets of a
buslness for proflL
ll 8eauLy sop case
lll LlemenLs consldered ln deLermlnlng weLer an agreemenL ls a parLnerslp
a 8lgL for parLles Lo sare ln proflLs
b Cwnerslp and conLrol of Le parLnerslp properLy and buslness
c CommunlLy of power ln admlnlsLraLlon
d Language of Le agreemenL
e 8lgLs of Le parLles on dlssoluLlon
Martin v. Peyton {9] - bandout
lll 8ule
a A loan agreemenL LaL allows for sarlng of proflLs as repaymenL does nC@ esLablls a
parLnerslp absenL Le lnLenL Lo do so
b A parLnerslp ls creaLed by an express or lmplled conLracL beLween Lwo persons wlL
Le lnLenLlon Lo form a parLnerslp
lv lssue
a uoes Le loan of money ln excange for securlLles owned by Le debLor and a
percenLage of Le debLors lncome creaLe a parLnerslp?
l nope
v lacLors
a AppolnLmenL of a manager by Le loanlng parLy does noL necessarlly sow lnLenL
l ln cases were Le appolnLmenL ls apparenLly Lo proLecL Le collaLeral
b ManagemenLllke funcLlons may or may noL sow lnLenL
c urcase opLlons Loug unusual do noL prove lnLenL Lo creaLe a parLnerslp
age 4 of

UPA
l Cenerally
a arLners are petsooolly llable for Le obllgaLlons of Le parLnerslp
ll #All parLners are llable
a !olnLly and severally for everyLlng cargeable Lo Le parLnerslp under VV 13
(arLnerslp 8ound by arLner's Wrongful AcL) and 14 (arLnerslp 8ound by arLner's
8reac of @rusL)
b !olnLly for all oLer debLs and obllgaLlons of Le parLnerslp buL any parLner may enLer
lnLo a separaLe obllgaLlon Lo perform a parLnerslp conLracL"
UPA
l Loans by parLners Lo Le parLnerslp are subordlnaLed Lo Le loans of credlLors oLer Lan
parLners
a lmporLanL ln Mottlo
l 8ecause Le buslness was lnsolvenL Len Le loans made by Le oLer parLles
would be subordlnaLed lf Ley were found Lo be parLners ln Le organlzaLlon
Limited Partnersbip
l A llmlLed parLner ls nC@ personally responslble for Le obllgaLlons and llablllLles of Le
parLnerslp
ll Ceneral parLners are personally llable for all obllgaLlons and llablllLles of Le llmlLed parLnerslp
ln Le same manner as parLners ln a general parLnerslp

Limited Liability Partnersbip
l A form of general parLnerslp creaLed under sLaLe general parLnerslp laws
ll arLners are stotototlly relleved of all or parL of Lelr personal llablllLy for parLnerslp llablllLles
debLs and oLer obllgaLlons

Limited Liability Limited Partnersbip
l A 8Cl lAvC8l@L
ll varles by sLaLe law
a Lg CA does noL allow buL recognlzes ouL of sLaLe enLlLles
l @exas Colorado and uL allow
b A llmlLed llablllLy llmlLed parLnerslp ls a llmlLed parLnerslp formed under Le
appllcable sLaLe llmlLed parLnerslp sLaLuLe wlc also speclflcally reglsLers and Lereby
provldes llablllLy proLecLlon Lo Le general parLners
Limited Liability Company
l ALLrlbuLes
a Cross beLween a parLnerslp and a corporaLlon
l @ax advanLages of parLnerslp
1 CorporaLlons are Laxed Lwlce
a neL proflLs
b Sareolder dlvldends
2 LLC
a neL proflL ls dlsLrlbuLed Lo lnvesLors
l @en Laxed as lncome
age of

ll LlmlLed llablllLy of corporaLlons
lll AcLlve parLlclpaLlon ln managemenL
b CannoL Lrade sLocks ln secondary markeLs
Formation
l llle ArLlcles of CrganlzaLlon
a unlform LlmlLed LlablllLy Company AcL V 202(a)
l CrganlzaLlon
1 Cne or more persons may organlze a llmlLed llablllLy company
conslsLlng of one or more members by dellverlng arLlcles of
organlzaLlon Lo Le offlce of Le SecreLary of SLaLe for flllng
2 @yplcally sLaLuLes requlre LaL Le name speclfy LLC or some oLer
deslgnaLlon wlc noLlfles lnLeresLed parLles of Le Lype of company
3 MusL deslgnaLe Le offlce and agenL for servlce of process
4 urafL operaLlng agreemenL
a @e baslc conLracL governlng Le affalrs of a llmlLed llablllLy
company and sLaLlng Le varlous rlgLs and duLles of Le
members
Articles of Urganization - V
l MusL conLaln
a @e name of Le company
b Address of Le lnlLlal deslgnaLed offlce
c @e name and sLreeL address of Le lnlLlal agenL for servlce of process
d @e name and address of eac organlzer
e WeLer Le company ls Lo be a Lerm company and lf so waL Lerm
f WeLer Le company ls managermanaged and lf so Le name and address of eac
lnlLlal manager
g WeLer one or more of Le members of Le company are Lo be llable for lLs debLs and
obllgaLlons under V303
ll May also conLaln
a rovlslons permlLLed Lo be seL forL ln an operaLlng agreemenL or
b MaLLers noL lnconslsLenL wlL law
May NUT vary tbe non-waivable rigbts under V{b]
l @e operaLlng agreemenL conLrols ln any lnsLance were
a ueclslons lnvolve managers members and members' Lransferees
b ersons oLer Lan Le managers members and members' Lransferees wo
reasonably rely on Le arLlcles Lo Lelr deLrlmenL
ll SecLlon 103(b) CperaLlng AgreemenLs May nC@
a unreasonably resLrlcL a rlgL Lo lnformaLlon or access Lo records under V408
b LllmlnaLe Le duLy of loyalLy
l @oug Le agreemenL may
1 lu speclflc Lypes of caLegorles of acLlvlLles LaL do nC@ vlolaLe Le duLy
of loyalLy lf noL maLerlally unreasonable Anu
2 Speclfy Le number and percenLage of members or dlslnLeresLed
managers LaL may auLorlze or raLlfy afLer full dlsclosure of all
maLerlal facLs a speclflc acL or LransacLlon LaL would oLerwlse vlolaLe
Le duLy of loyalLy
age of

c unreasonable reduce Le duLy of care under V409 (c ) or V601 (b)(3)
d LllmlnaLe Le obllgaLlon of good falL and falr deallng under V 409 (d)
l Powever Le agreemenL may deLermlne Le sLandards by wlc Lls obllgaLlon
ls Lo be measured so long as Lese sLandards are noL manlfesLly unreasonable
e vary Le rlgL Lo expel a member ln an evenL speclfled under V 601 (6)
f vary Le requlremenL Lo wlnd up Le LLC buslness
g 8esLrlcL Le rlgLs of a person oLer Lan a manager member or members' Lransferee
of a member's dlsLrlbuLlonal lnLeresL
Members' Interest
l llnanclal 8lgLs
a roflL and Loss Sarlng
l AbsenL and conLrary agreemenL
1 roflLs and losses are allocaLed accordlng Lo Le members' conLrlbuLlons
2 uefaulL parLnerslp rule
b WlLdrawal
l Member may wlLdraw and demand paymenL of ls/er lnLeresL upon glvlng
Le noLlce speclfled ln Le sLaLuLe or Le LLC operaLlng agreemenL
c AsslgnmenL of lnLeresLs
l unless oLerwlse provlded ln LLC agreemenL
ll ManagemenL rlgLs
a Lac member as equal rlgLs ln Le managemenL of LeLLC
l unless oLerwlse agreed
ll MosL maLLers are declded by a ma[orlLy voLe
1 uLLCA V404 (a)(2)
lll Some maLLers requlre a unanlmous voLe
1 uLLCA V 404(c )
a AmendmenL of Le operaLlng agreemenL
b AuLorlzaLlon or raLlflcaLlon of acLs or LransacLlons under 103
(b)(2)(ll)
l Wlc would oLerwlse vlolaLe Le duLy of loyalLy
c An amendmenL Lo Le ArLlcles of CrganlzaLlon
d Compromlse as among members of an obllgaLlon of a member
Lo make a conLrlbuLlon or reLurn money or oLer properLy pald
or dlsLrlbuLed ln vlolaLlon of Le uLLCA
e Compromlse of an obllgaLlon Lo make a conLrlbuLlon under V
402(8)
f lnLerlm dlsLrlbuLlons
g Admlsslon of new members
use of company properLy Lo redeem an lnLeresL
l ConsenL Lo dlssolve Le company
[ Walver of Le rlgL Lo ave Le company's buslness wound up
and LermlnaLed
k ConsenL of members Lo merge
l Sale lease excange or oLer dlsposal of all or subsLanLlally
all of Le company's properLy wlL or wlLouL goodwlll
age of

Piercing tbe LLC Veil
l MlnnesoLa sLandard
a May plerce Le vell wen
l An enLlLy lgnores Le corporaLe formalllLles and acLs as Le alLer ego or
lnsLrumenLallLy of Le sareolder Anu
ll @e llablllLy llmlLaLlons of Le corporaLe form resulLs ln ln[usLlce or ls
fundamenLally unfalr
ll uLLCA V 303(b)
a @e fallure of a LLC Lo observe Le usual company formallLles or requlremenLs relaLlng
Lo Le exerclse of lLs company powers or managemenL of lLs buslness ls nC@ ground for
lmposlng personal llablllLy on members or managers for llablllLles of Le company

Corporate Formation


l @resold Analysls
a 8emember Lo look Lo Le dlagram above and ask
l WaL are Le parLles aLLempLlng Lo geL ouL of Le rlgLs above
1 WaL ls Le cllenL aLLempLlng Lo accomplls ln formlng Lls company?
a LlmlLed LlablllLy ls ALWA?S an lssue
l LxcepL ln llorlda were a person's ome and asseLs are
proLecLed as a maLLer of law
Bylaws
l 8ylaws may conLaln any provlslon noL lnconslsLenL wlL Le law or Le cerLlflcaLe of
lncorporaLlon relaLlng Lo Le buslness of Le corporaLlon Le conducL of lLs affalrs and lLs
rlgLs or powers or Le rlgLs and powers of lLs sLockolders dlrecLors offlcers or employees
a uCCL V 109
ll 8emember Lls lmporLanL aLLrlbuLe of bylaws
a CuLllnes wo may adopL amend or repeal Le bylaws
l May be elLer expanslve or resLrlcLlve rules
Calaviz v. Berg {N.D. Cal. ]

l Cne of many sulLs lnvolvlng Cracle 8ylaws
ll Scenarlo
a Pere a bylaw was passed by Cracle wlc provlded a conLracLual forum clause LaL all
acLlons musL be eard ln uL
l Powever Lls was noL adopLed durlng Le orlglnal flllng
ll nor ln Le ArLlcles of lncorporaLlon
b lalnLlff brougL sulL board passed 8ylaw and moved Lo dlsmlss
l Clalmed LaL Le forum clause was accepLed because of Le plalnLlff's conLlnued
ownerslp ln Le company
c lorum clause musL be glven effecL unless Lere ls a sowlng LaL
l lLs lncorporaLlon lnLo Le conLracL was Le resulL of fraud undue lnfluence or
overweenlng bargalnlng power
age of

ll @e selecLed forum ls so gravely dlfflculL LaL Le complalnlng parLy wlll for all
pracLlcal purposes be deprlved of lLs day ln courL C8
lll LnforcemenL of Le clause would conLravene sLrong publlc pollcy of Le forum
ln wlc Le sulL ls brougL
lll Cracle losL
Southern-0ulf Murlne Co., No. 9, Inc. v. Cumcruft, Inc.
l 8lack LeLLer Law
a Lack of formal corporaLe sLaLus does nC@ excuse nonperformance
b A defendanL may noL lnLerpose as a defense Lo a breac of conLracL LaL a plalnLlff
corporaLlons lacked Le capaclLy Lo conLracL because lL was no lncorporaLed aL Le Llme
lL execuLed Le conLracL unless Le defendanL can sow LaL Le fallure Lo lncorporaLe
caused acLual arm Lo defendanL
ll Analysls
a 8ule proLecLs companles LaL are formed as ere for a slnglepurpose
l CorporaLe formaLlon ls ofLen one of Le lasL sLeps ln a slmllar LransacLlon
lll lacLs
a Company slgned an agreemenL Lo purcase a vessel buL dld noL lncorporaLe unLll afLer
Le agreemenL was sealed
b Company laLer lncorporaLed ln Le Cayman lslands due Lo flnanclal concerns
l 8uL Le owner advlsed CamcrafL LaL Le company ad raLlfled Le agreemenL
c Meanwlle Le boaL became muc more valuable and CamcrafL argued LaL Le
conLracL ad never been formed
lv lssue
a uoes a parLy's fallure Lo ave lncorporaLed before slgnlng a conLracL wlL Le defendanL
render a conLracL unenforceable?
l nope
Internal Affairs Doctrine
l @e law of Le sLaLe of lncorporaLlon conLrols corporaLe governance law lssues
a Lxample
l A @exas courL resolvlng a dlspuLe regardlng Le lnLernal affalrs of a corporaLlon
lncorporaLed ln uelaware would use uelaware Law Lo declde
b key scenarlo
l 8elaLlonslp among Le corporaLlon and lLs offlcers dlrecLors and sareolders
c lnLernal vs exLernal
l uebaLable
1 robably lnLernal
a 8lgL of sareolders Lo voLe
2 robably exLernal
a 8lgL of a sareolder Lo lnspecL Le books of a corporaLlon
Wby Delaware?
l 8elncorporaLlon lnLo uelaware ls easy
a Powever leavlng ls dlfflculL
l 8equlres an unanlmous declslon from Le sareolders Lo Lransfer ouL
ll Wy coose uL Accordlng Lo commenLaLors
age of

a ConLenLs of Le law
b LxperLlse and speclallzed Cancery CourLs
c ueveloped case law
l Lases predlcLlons on ouLcomes
d 8esources
e uL counsel encourage lncorporaLlon wlLln Le sLaLe
f aL dependency
l We do lL because we've always done lL
g Perd menLallLy
l Lverybody else ls dolng lL
lll 8ace Lo Le Lop or boLLom?
a 8ace Lo Le boLLom
l Wllllam L Cary leJetollsm ooJ cotpotote low (83 ?ale L! 663)
1 Argued LaL uL sLrucLured lLs corporaLe law Lo appeal Lo corporaLe
managemenL
a Wlc resulLed ln lax legal sLandards LaL favor managemenL
over sareolders
b 8ace Lo Le Lop
l 8alp WlnLer
1 Argued LaL markeL consLralnLs creaLe lncenLlves for managers Lo
coose Le corporaLe law LaL maxlmlzes flrm value
lv Cancery CourL
a Pas !ux for all clalms arlslng ln equlLy
l lncludes
1 CorporaLe maLLers
2 @rusLs and esLaLes
3 CLer flduclary maLLers
4 8eal esLaLe dlspuLes
3 Ceneral commerclal and conLracLual maLLers
v nevada AlLernaLlve rof fave
a Wy lncorporaLe Lere?
l nC @Ax
1 no corporaLe lncome Lax
2 no Laxes on CorporaLe Sares
3 no franclse Lax
4 no personal lncome Lax
3 no franclse Lax on lncome
6 no lnerlLance or glfL Lax no unlLary Lax no esLaLe Lax
7 Mlnlmal employer Lax
8 CompeLlLlve sales and properLy Lax raLes
ll LxLremely lg vell plerclng sLandard
1 MusL sow fraud or manlfesL ln[usLlce
a PlgesL sLandard ln Le counLry
2 8elnsLaLemenL of enLlLles as Le effecL of sowlng LaL a corporaLlon
was always ln good sLandlng
a @us proLecLlng Le corporaLe vell
b CorporaLe revlval procedures are slmple
lll LL al See Class 7 p 4
age 2 of

Purpose of a Corporation
l WaL ls Le purpose of a corporaLlon?
a #A corporaLlon ls organlzed prlmarlly for Le proflL of Le sLockolders @e powers of
dlrecLors are Lo be employed Lo LaL end"
l @e dlscreLlon of dlrecLors ls llmlLed Lo aclevlng Lls end and may noL be used
Lo reduce proflLs or provlde nondlsLrlbuLlon of Lose proflLs Lo Le sLockolders
ln order Lo dlverL Lem Lo oLer purposes
oJge v. ForJ {99]
l 8lack LeLLer Law
a A forproflL corporaLlon musL pay dlvldends absenL a [usLlflable buslness reason
b AlLoug a corporaLlon's dlrecLors ave dlscreLlon ln Le means Ley coose Lo make
producLs and earn a proflL Le dlrecLors may noL reduce proflLs or wlLold dlvldends
from Le corporaLlon's sareolders ln order Lo beneflL Le publlc
ll lssue
a May courLs lnLerfere wlL a corporaLlon's lnLernal operaLlons by revlewlng a board's
declslon orderlng Le paymenL of dlvldends Lo lLs sareolders?
l ?ep
lll lacLs
a lord MoLor Co wanLed Lo llmlL lLs dlvldends Lo sLockolders so LaL lL could bulld a new
planL and lncrease capaclLy
l Powever Lls expanslon was noL Lo lncrease proflLs buL unlLs of producLlon
1 Wlc would acLually lower overall proflLs
b SLockolder brougL sulL
l uodge bros were acLually compeLlLors even Loug Ley owned sares

.P. Smlth Mfg. Co. v. Burlow {9]
l 8lack LeLLer Law
a A corporaLlon need noL ave speclflc auLorlLy Lo make valld carlLable conLrlbuLlons
b A corporaLlon may make reasonable carlLable conLrlbuLlons even ln Le absence of
express auLorlLy Lo do so
ll lssue
a May a corporaLlon make carlLable conLrlbuLlons ln Le absence of any speclflc
auLorlzaLlon ln Le company's carLer or sLaLe sLaLuLes?
l ?ep
lll lacLs
a Mfg company regularly made conLrlbuLlons Lo Le local communlLy and Lo rlnceLon
unlverslLy
l Cwner argued LaL lL esLabllsed goodwlll
ll SLockolders argued LaL Ley ad no auLorlLy
lv Analysls
a ubllc pollcy supporLs Lese Lypes of donaLlons
b lalnLlff dld noL sow LaL Lese donaLlons forwarded personal lnLeresLs Lerefore Ley
were okay
v 8esulL
a Many aLLorneys now place a quallfler LaL a corporaLlon ls formed Lo carry on any lawful
purpose for wlc a corporaLlon may be organlzed
age 2 of

l ln Le company carLer
Business )udgment Rule
l A sareolder falls Lo sLaLe a cause of acLlon unless lL alleges LaL a corporaLlon's dlrecLors'
conducL was causlng a flnanclal loss Lo Le sareolder ooJ was based on
a lraud
b lllegallLy C8
c ConfllcL of lnLeresL
ll WaL may dlrecLors conslder?
a A SLaLuLe
l 8esL lnLeresLs of Le corporaLlon may lnclude
1 SorL and longLerm conslderaLlons may lnclude Le effecLs upon
a Sareolders
b Lmployees
c Suppllers
d CusLomers
e CredlLors
Sblensky v. Wrigley {98]
l 8lack LeLLer Law
a ueclslons by offlcers and dlrecLors are proLecLed by Le buslness [udgmenL rule
b @o sLaLe a cause of acLlon a sareolder musL allege Lo overall Llngs
l @e declslon was causlng a flnanclal loss Lo Le company
ll Anu
lll @e declslon was based on one of Lree foundaLlons
1 lraud
2 lllegallLy
3 ConfllcL of lnLeresL
c @ls was Le flrsL sLaLemenL of Le 8uslness !udgmenL 8ule
State Law Fiduciary Duties
Duty of Care
l omeo v Ametlcoo xptess (1976)
a @e quesLlon of weLer or noL a dlvldend ls Lo be declared ls excluslvely Le maLLer of
buslness [udgmenL for Le board of dlrecLors
l More Lan lmprudence or mlsLaken [udgmenL musL be sown
1 @e courL wlll noL lnLerfere unless a clear case ls made for fraud
arblLrarlness or breac of LrusL
b 8lack LeLLer Law
l A corporaLlon's dlrecLors are noL llable merely because a beLLer course of acLlon
exlsLed
ll A complalnL alleglng LaL some course of acLlon oLer Lan LaL Laken by Le
board would ave been beLLer does noL glve rlse Lo a cause of acLlon for
damages
ll 5mltb v voo Cotkom (1983)
a 8lack LeLLer Law
age 22 of

l @e buslness [udgmenL rule presumes all declslons made by a company's
dlrecLors are lnformed declslons
ll @e 8!8 presumes LaL wen maklng buslness declslons dlrecLors acL on an
lnformed basls ln good falL and ln Le company's besL lnLeresLs
b lssue
l ls a board negllgenL ln approvlng a proposed casouL merger lf Le merger
was noL Le producL of lnformed buslness [udgmenL Le board acLed ln a
grossly negllgenL manner ln approvlng amendmenLs Lo Le proposal and Le
board falled Lo dlsclose all maLerlal facLs LaL Ley knew or sould ave known
before obLalnlng Le sLockolders' approval?
1 ?ep
c Analysls
l @e 8!8 presumes Le good falL lnformed consenL and besL lnLeresLs prongs
ln Le dlrecLors favor
1 Powever a plalnLlff may overcome Lls presumpLlon
d 8equlremenLs for an lnformed declslon
l MusL conslder all lnformaLlon reasonably avallable Lo Lem before maklng Le
declslon
1 lf Le board does noL conslder
a @ey musL lmmedlaLely cure Le defecLs Lo Le declslonmaklng
process as soon as Ley learn of Le problem
DCCL V

l A cerLlflcaLe of lncorporaLlon may llmlL Le personal llablllLy of a person slLLlng on Le board
Lo Le company or lLs sLockolders for breaces of a flduclary duLy buL may nC@ ellmlnaLe
or reduce Le duLles of
a LoyalLy Lo Le organlzaLlon
b Cood falL
c lmproper personal beneflLs
Frunclx v. UnlteJ jerxey Bunk {98]
l 8lack LeLLer Law
a ulrecLors musL dlllgenLly dlscarge Lelr duLles
b ulrecLors ave Le duLy Lo acL onesLly and ln good falL wlL Le same degree of
dlllgence care and Le skllls LaL a reasonably prudenL person would use ln slmllar
clrcumsLances
ll lssue
a Can Le lnaLLenLlve and unlnLeresLed dlrecLor be eld personally llable for a
corporaLlon's acLlons?
l ?ep
Cinemark, Inc. v. Tecbnicolor
l Sareolder derlvaLlve sulL opposlng a merger were Le plalnLlff clalmed a vlolaLlon of Le
duLy of care
ll vlolaLlon of duLy of care requlres Lwo pronged analysls
a uld Le dlrecLor(s) vlolaLe Le duLy of care?
l lf yes conLlnue
age 23 of

ll lf no Len plalnLlff loses
b lf dlrecLor vlolaLed Le duLy of care
l @en Le defendanL musL sow #enLlre falrness" of LransacLlon
1 lacLors
a @lmlng negoLlaLlon and sLrucLure of LransacLlon
b ulsclosure and approval by dlrecLors
c ulsclosure and approval by sareolders
Duty of Loyalty vs. Duty of Care
l lf a case lnvolves Le duLy of care
a MusL sow
l Lack of care
ll Cross negllgence
ll lf a breac of Le duLy of loyalLy ls alleged
a MusL sow a confllcL of lnLeresL
l nC@ a gross confllcL
b lf confllcL ls found
l @en board musL sow enLlre falrness of LransacLlon
Duty of Loyalty Case Analysis
l lnLeresLed ulrecLor @ransacLlons
a 8oyet
b lewls
c 8eolbooo
ll CorporaLe CpporLunlLles
a 8toz
b 8oy
lll uomlnanL Sareolders
a 5loclolt
b 2obo
Buyer v. Berun
l 8lack LeLLer Law
a 8ule requlrlng dlrecLors' undlvlded loyalLy avolds posslblllLy of fraud and Le LempLaLlon
of selflnLeresL
b A dlrecLor does noL breac ls or er flduclary duLy by approvlng a radlo adverLlslng
program ln wlc Le wlfe of Le corporaLe presldenL wo was also a member of Le
board of dlrecLors was one of Le feaLured performers
DCCL V - Interested Directors
l A conLracL beLween a corporaLlon and one or more of lLs dlrecLors or offlcers ls noL vold
solely because for Lls reason
a MusL be dlsclosed Lo
l ulrecLors
ll Sareolders
b MusL be falr aL Le Llme LaL lL ls auLorlzed or raLlfled
ll no lnLeresLed dlrecLor LransacLlon sall be vold or voldable solely because of Le
lnvolvemenL of Le lnLeresLed dlrecLor so long as
age 24 of

a lL was dlsclosed and auLorlzed by Le dlslnLeresLed dlrecLors C8
b ulsclosed known and approved by sareolders C8
c ls a falr LransacLlon

Corporate Upportunity Test
l lour facLors
a ls Le corporaLlon flnanclally able Lo Lake Le opporLunlLy?
b ls Le opporLunlLy ln Le corporaLlon's llne of buslness?
c uoes Le corporaLlon ave an lnLeresL or expecLancy ln Le opporLunlLy?
d uoes an offlcer or dlrecLor creaLe a confllcL of lnLeresL by Laklng Le opporLunlLy?
ll MusL sow eac
lll Ma[or cases
a 8toz v cellolot lofo 5ystems
b lo te 8oy 5botebolJets lltlqotloo
State Law Fiduciary Duties, Ubligation of Cood Faitb, Compensation, and
Uversigbt
l Cwed by wom Lo wom?
a ulrecLors Lo sLockolders
l voo Cotkom
b SomeLlmes
l ulrecLors Lo credlLors
1 ltoocls
a very rare
ll uomlnanL sareolders Lo mlnorlLy sareolders
1 5loclolt
2 2obo
ll ConLenL of flduclary duLles
a uuLy of care
l Cross negllgence SLandard
1 voo Cotkom
b uuLy of loyalLy
l lnLeresLed dlrecLor LransacLlons
1 8oyet
2 8eolbooo
ll CorporaLe CpproLunlLles
1 8toz
2 lo te e8oy
lll uomlnanL sareolders
1 5loclolt
2 2obo
Zabn v. TransAmerica Corp. {9]
l 8lack LeLLer 8ule
a A sLockolder voLlng as a dlrecLor musL voLe ln all sareolders' besL lnLeresLs
age 2 of

b lf a sLockolder wo ls also a dlrecLor ls voLlng as a dlrecLor e or se represenLs all
sLockolders ln Le capaclLy of a LrusLee and cannoL use Le dlrecLor's poslLlon for ls or
er personal beneflL Lo Le deLrlmenL of oLer sLockolders
ll Analysls
a ulrecLors knew of Le posslblllLy of a ma[or sLockolder's rlgL Lo redeem a large
number of sares because lL was ln Le company carLer
l Powever Ley dld noL dlsclose Lls facL Lo oLer sareolders
b Also Ley declded Lo call Le class A sares ln order Lo beneflL olders of class 8 sares
ln a llquldaLlon of Le company
l ulrecLors possessed Le class 8 sares
In re Wheelubrutor 1echnologlex, Inc. ShureholJerx Iltlgutlon {99]
l 8lack LeLLer Law
a SLockolders musL be fully lnformed wen Ley raLlfy an lnLeresLed LransacLlon
b An lnLeresLed LransacLlon beLween a corporaLlon and lLs dlrecLors ls noL voldable lf lL ls
approved ln good falL by a ma[orlLy of fully lnformed dlslnLeresLed sLockolders
ll lacLs
a Sareolders sued Le company's dlrecLors for breac of flduclary duLy alleglng LaL Le
proxy sLaLemenL lssued ln connecLlon wlL lLs merger was mlsleadlng
lll Analysls
a @e sLandard of provlng LaL a declslon ls no fully lnformed ls falrly lg
l MusL be dlrecL evldence of lnformaLlon belng lnLenLlonally wlLeld from
sLockolders or belng so grossly dlsLorLed LaL no reasonable person could
deLermlne lL was noL Le LruL
b AllegaLlons of noL Laklng sufflclenL Llme Lo lnform oneself of Le lnformaLlon ls noL
sufflclenL Lo deem a declslon unlnformed
Sbarebolder Ratification
l ulfferenL effecLs dependlng on Le flduclary duLy vlolaLed
a vlolaLlon of a duLy of care
l voo Cotkom
1 lf Le LransacLlon meeLs wlL approval of a ma[orlLy of sareolders
afLer full dlsclosure
a Clalm ls exLlngulsed
l unless Le plalnLlff ls able Lo esLablls glfL or wasLe
1 AlmosL lmposslble
b vlolaLlon of a duLy of loyalLy by a dlrecLor
l wbeelobtotot
1 lf Le LransacLlon ls approved by a ma[orlLy of dlslnLeresLed
sareolders afLer full dlsclosure
a 8urden slfLs Lo Le plalnLlff
l SLandard of proof ls Le 8uslness !udgmenL 8ule
1 lalnLlff musL sow
a ClfL or wasLe
b Cross negllgence / confllcL
2 Cr Le clalm drops ouL
c vlolaLlon of duLy of loyalLy by a domlnaLlng sareolder
age 2 of

l AfLer Le approval by a ma[orlLy of dlslnLeresLed sareolders afLer full
dlsclosure
1 8urden slfLs Lo Le plalnLlff
a LnLlre falrness
l lalnLlff musL sow LaL Le LransacLlon was unfalr
Principal-Agent Relationsbips
l Legal SLandard for Agency 8elaLlonslp
a Agency ls a relaLlonslp LaL resulLs from
l @e manlfesLaLlon of consenL by rlnclpal () LaL an AgenL (A) sall acL
1 Cn 's bealf Anu
2 Sub[ecL Lo 's conLrol Anu
ll A's consenL Lo so acL
ll 8esLaLemenL 3
rd
V101 (Agency)
a Agency encompasses a wlde and dlverse range of relaLlonslps and clrcumsLances
l @e elemenLs of commonlaw agency are presenL ln Le relaLlonslps of
1 Lmployeremployee
2 CorporaLlon and offlcer
3 CllenL and lawyer
4 arLnerslp and general parLner
lll @ypes of auLorlLy
a AcLual auLorlLy
l Cccurs wen an agenL acLs ln suc a way LaL Le acLlons are
1 necessary or
2 lncldenLal Lo aclevlng Le prlnclpal's ob[ecLlves
a As Le agenL reasonably percelves Le prlnclpal's manlfesLaLlons
and ob[ecLlves wen Le agenL decldes Lo acL
ll 8esLaLemenL 3
rd

lll May be elLer
1 Lxpress
2 lmplled
b ApparenL
l @e power eld by an agenL or oLer acLor Lo affecL a prlnclpal's legal relaLlons
wlL Llrd parLles wen
1 A Llrd parLy reasonably belleves Le acLor as auLorlLy Lo acL on
bealf of Le prlnclpal and
a @aL bellef ls Lraceable Lo Le prlnclpal's manlfesLaLlons
l 8esLaLmenL 3
rd
V203
Corporate Ufficers as Agents
l Wen can an agenL blnd Le prlnclpal?
a ConLracLs
l uoes Le agenL ave auLorlLy Lo enLer lnLo Le conLracL?
1 A prlnclpal ls sub[ecL Lo llablllLy upon conLracLs made by an agenL acLlng
wlLln Le auLorlLy lf
a made ln proper form and
b wlL Le undersLandlng LaL Le prlnclpal ls a parLy
age 2 of

l 8esLaLemenL 2
nd
V144
ll Mlll 5t cbotcb
lll uweck
lv J70 leosloq
b @orLs
l nomble Oll
ll 5oo Oll
lll nollJoy loos
ll Wen are prlnclpals bound by LorLs commlLLed by Llrd parLles?
a @urns on
l ServanL / Lmployee relaLlonslp versus lndependenL ConLracLor
ll Also MusL be wlLln Le Scope of LmploymenL
1 uld Ley devlaLe?
a lrollc?
b ultto vltes?
b ServanL
l An agenL performlng servlces ln Le masLer's affalrs
1 Wose pyslcal conducL ls conLrolled or ls sub[ecL Lo Le rlgL of conLrol
by Le masLer
ll 8esLaLemenL 3
rd

1 rlnclpal conLrols or as Le rlgL Lo conLrol Le manner and means of
Le agenL's performance of work
c lndependenL ConLracLor
l A person wo agrees Lo carry ouL a some Lask
1 8uL ls noL sub[ecL Lo Le prlnclpal's conLrol ln dolng so
ll rlnclpal seLs forL Le deslred resulL
1 8uL does noL ave Le rlgL Lo Lell Le agenL ow Lo acleve LaL resulL
Agent Autbority in Contract
Mlll St. Church of Chrlxt v. Hogun {99]
l 8lack LeLLer Law
a ConLlnuous pasL auLorlzed acLs sufflclenLly confer lmplled auLorlLy on an agenL
b lmplled auLorlLy ls acLual auLorlLy LaL Le prlnclpal lnLended Le agenL possess and
lnclude suc powers as are pracLlcally necessary Lo carry ouL Le delegaLed duLles
ll lacLs
a lalnLlff was ln[ured afLer belng lred by a curc employee Lo palnL Le lnslde of Le
curc
lll Analysls
a lf acLual auLorlLy does noL exlsL buL a Llrd parLy reasonably belleves from Le
prlnclpal's acLlons LaL auLorlLy exlsLs oppoteot auLorlLy ls creaLed

weck v. Nuxxer {8]
l lacLs
a SeLLlemenL beLween an aLLorney and former offlcer of company
b Cwner of corporaLlon evenLually clalmed LaL Le aLLorney dld noL possess auLorlLy Lo
make Le agreemenL
age 2 of

ll lssue
a uld Le aLLorney ave a rlgL as an agenL Lo blnd Le owner of Le company (Le
prlnclpal) Lo Le agreemenL?
l ?ep
lll Conveyance of AuLorlLy
a rlnclpal lnformed agenL Lo #do waL you wanL or undersLand" and lnformed Llrd
parLles LaL #e can Lalk ln my name" and LaL e was #auLorlzed Lo seLLle Lls case"
lv ApparenL auLorlLy rule
a A prlnclpal ls bound by an agenL's apparenL auLorlLy wlc e knowlngly permlLs Le
agenL Lo assume of wlc e olds Le agenL ouL as possesslng
% Ieuxlng Corporutlon v. mpex Corporutlon {9]
l lacLs
a Sale of compuLer core memorles
b Salesman for Ampex (defendanL) senL over a quoLe wlL a slgnaLure block for 370
Leaslng
l @ere was also a slgnaLure block for Ampex wlc was unslgned
ll Salesman agreed Lo Le llsL prlce wlL 370
ll lssue
a uld Le salesman ave apparenL auLorlLy even Loug Le slgnaLure block was
unslgned?
l ?ep
lll 8lack LeLLer Law
a An agenL as apparenL auLorlLy Lo blnd Le prlnclpal wen Le prlnclpal acLs ln suc a
manner as would lead a reasonably prudenL person Lo suppose LaL Le agenL ad Le
auLorlLy e purporLs Lo exerclse
l lurLermore absenL knowledge on Le parL of Llrd parLles as Lo Le conLrary
an agenL as Le apparenL auLorlLy Lo do Lose Llngs wlc are usual and
proper Lo Le conducL of Le buslness wlc e ls employed Lo conducL
b lL ls reasonable for Llrd parLles Lo presume LaL one employed as a salesman as Le
auLorlLy Lo blnd ls employer Lo sell
l unless Le prlnclpal does someLlng afflrmaLlvely Lo dlspel suc a noLlon
Agent Autbority in Tort
Humble Uil & Refining Co. v. Martin {99]
l 8lack LeLLer Law
a Cwner ls llable for an operaLor's negllgence lf Le owner dlrecLs Le manner under
wlc Le sLaLlon ls operaLed
b Cne wo malnLalns conLrol over a buslness enLerprlse's operaLlon even lf lL enLrusLs Le
operaLlon Lo one acLlng wlLouL meanlngful dlscreLlon ls llable as a prlnclpal for Le
negllgence of Lose enLrusLed wlL ls buslness
ll lacLs
a Pumble owned Le servlce sLaLlon and Le producLs
l 8uL conLracLed wlL Scnelder for Le operaLlon of Le sLaLlon
b Car rolled ouL of Le sLaLlon and ran over some people
lll lssue
age 2 of

a ls Le oll co responslble for Le acLlons Laken by someone operaLlng lLs sLaLlon under
conLracL?
l ?ep
b Look Lo
l A quesLlon of facL relaLlng Lo Le amounL of conLrol Le company exerLs over
Le franclse operaLlon
1 no brlgL llne rule
2 Casebycase analysls
Hoover v. Sun Oll Co. {9]
l 8lack LeLLer Law
a no agency exlsLs lf an oll company does noL conLrol a servlce sLaLlon's operaLlons
b Agency arlses lf a prlnclpal reLalns Le rlgL Lo conLrol Le deLalls of Le dayLoday
operaLlon of Le agenL's buslness
ll lacLs
a lalnLlff caugL flre due Lo an employee's negllgence aL Le servlce sLaLlon owned by
Sun Cll company and operaLed by a Llrd parLy
b @lrd parLy pald a lease Lo operaLe Le sLaLlon wlc varled based on
l @e amounL of gasollne sold on a monLly basls
ll Also ad an agreemenL Lo purcase Sun Cll producLs for reLall sale provlded
LaL Sun Cll provlded Le adverLlslng maLerlals necessary
c Also sLaLlon employees wore Sunoco unlforms and were vlslLed regularly by Sun Cll
salesmen Lo Lake orders
lll ueclslon Lurned on
a @lrd parLy bore Le rlsk of proflL and loss
b @lrd parLy deLermlned lLs own buslness ours
c @lrd parLy acLually managed Le workforce
d @lrd parLy posLed ls name as proprleLor of Le esLabllsmenL
Murphy v. HollJuy Innx, Inc. {9]
l 8lack LeLLer Law
a A franclse agreemenL LaL provldes an operaLlon sysLem for a franclsee does noL
esLablls a prlnclpalagenL relaLlonslp
b lf a franclse conLracL so regulaLes Le acLlvlLles of Le franclsee as Lo vesL Le
franclser wlL conLrol wlLln Le deflnlLlon of agency Le agency relaLlonslp arlses
even lf Le parLles expressly deny lL
ll lacLs
a lalnLlff sllpped and fell ln a moLel
b Sued Le corporaLe eadquarLers
lll Analysls
a lf Le franclser does noL conLrol Le dally acLlvlLles Len no pa relaLlonslp exlsLs
age 3 of


Corporate Law Duties and Protections of Ufficers
l llduclary uuLles
a Cootlet v 5teveos
l Peld LaL offlcers of uL corporaLlons expllclLly owe Le flduclary duLles of
care and loyalLy Lo Lelr corporaLlon
ll Model 8uslness CorporaLlons AcL V842 SLandards for ConducL for Cfflcers
a An offlcer wen performlng ln suc a capaclLy sall acL
l ln good falL
ll WlL care LaL a person ln a llke poslLlon would reasonably exerclse under
slmllar clrcumsLances and
1 ln a manner Le offlcer reasonably belleves ls ln Le besL lnLeresLs of
Le corporaLlon
lll roLecLlons
a Callfornla CorporaLlons Code V204(a)(10)
l rovlslons may llmlL Le personal llablllLy for a dlrecLor for breac of ls
duLles wlL some caveaLs
1 May noL be an lnLenLlonal mlsconducL or culpable vlolaLlon of law
2 no llmlL Lo llablllLy for acLlons LaL a dlrecLor belleves Lo be conLrary
Lo Le besL lnLeresLs of Le corporaLlon or sareolders
a Cr LaL lnvolve an absence of good falL
b Cr lmproper personal beneflL
3 no llmlL for reckless dlsregard for dlrecLor's flduclary duLles
age 3 of

a Was acLually aware or sould ave been aware LaL Le
duLy exlsLed
4 CannoL excuse llablllLy due Lo an #unexcused paLLern of lnaLLenLlon"
b uelaware Code V 102(b)(7)
l LlmlLs are posslble on duLles so long as Ley do noL lnclude
1 8reac of loyalLy
2 lnLenLlonal mlsconducL
3 lmproper personal beneflL
c nevada
l A plalnLlff musL prove elLer
1 uefendanL's acL consLlLuLed a breac of flduclary duLles
2 @aL breac lnvolved elLer
a lnLenLlonal mlsconducL or
b A knowlng vlolaLlon of Le law
ll Lx@8LMLL? lg sLandard
lv 8esponslble CorporaLe Cfflcer uocLrlne
a LlmlLed docLrlne
l no consldered dormanL
1 LxCL@ lL may apply ln cerLaln beovlly teqoloteJ loJosttles
2 Congress musL be falrly expllclL ln a sLaLuLe LaL lL lnLends Lls
sLandard Lo apply
b lncreases corporaLe llablllLy
l Worrylng for boards and execuLlves
1 Allows for clvll and even crlmlnal llablllLy for a corporaLlon vlolaLes a
law
a AbsenL a dlrecLor or offlcer even knowlng abouL Le
vlolaLlon
v @e uuLy Lo ulsclose
a @wo sLaLuLes
l SecurlLles AcL of 1933
1 AkA
a 33 AcL
b SecurlLles AcL
2 ConLenL
a 8egulaLes Le offerlng or sale of new securlLles
3 Scope
a @ransacLlonal
l 8eglsLraLlon sLaLemenL musL be flled wlL Le SLC
ll rospecLus musL be dlsLrlbuLed Lo lnvesLors
b 8equlred ln connecLlon wlL any publlc sale of securlLles
l unless Lere ls an exempLlon
ll SecurlLles Lxcange AcL of 1934
1 AkA
a Lxcange AcL
b 34 AcL
2 8egulaLes Secondary MarkeL AcLlvlLy
a So wlll noL apply Lo closed corps?
b CreaLed Le SLC
age 32 of

3 V 10(b)
a unlawful for anyone Lo use dlrecLly or lndlrecLly any means
of lnLersLaLe commerce
l @o use or employ any manlpulaLlve or decepLlve
devlce or conLrlvance
ll ln conLravenLlon of any rules employed by Le SLC
1 nC@ selfexecuLlng
b MusL be ln connecLlon Lo any purcase or sale of a securlLy
vl 8oslc loc v levlosoo (1988)
a 8lack LeLLer Law
l Sareolders deLermlne wlc omlLLed facLs are maLerlal
ll An omlLLed facL ls maLerlal lf Lere ls a subsLanLlal llkellood LaL Le
average reasonable sareolder would ave consldered lL lmporLanL
knowledge Lo ave before decldlng ow Lo voLe
b lacLs
l Company lssued Lree sLaLemenLs dlsclalmlng LaL lL lnLended Lo merge
wlL anoLer company
ll Sareolders sold sLock
lll Company Len merged wlL anoLer company
1 Wlc lL ad acLually planned Lo do
vll @radlLlonal analysls of a V 10(b)(3) clalm
a SclenLer
l MusL lnLenLlonally wlLold or provlde false lnformaLlon
1 negllgence does noL sufflce
2 8ecklessness owever mlgL
b roxlmaLe cause
l lalnLlff musL sow LaL Le mlssLaLemenL caused Le arm
1 lf a company lssued an unduly opLlmlsLlc press release
a @en Le plalnLlff musL sow LaL lL unnecessarlly ralsed Le
prlce of Le securlLy
2 ln 8oslc Le mlssLaLemenLs caused Le sLocks Lo Lrade for a lower
value Lan Ley would ave oLerwlse
c MaLerlallLy
l Ceneral sLandard
1 SubsLanLlal llkellood LaL Le dlsclosure would ave been deemed
maLerlal by a reasonable lnvesLor
2 So LaL lL alLered Le LoLal mlx of lnformaLlon made avallable
a 8ased on Le probablllLy and magnlLude of lLs affecL
d 8ellance
l @radlLlonal elemenL of fraud
1 urcaser or seller musL rely on Le sLaLemenL wen enLerlng lnLo a
LransacLlon
ll lraud on Le MarkeL @eory
1 Coes Lo
a 8ellance
2 resumpLlon LaL Le lnvesLor relled on Le lnLegrlLy of Le markeL
prlce
a So Le lnvesLor need noL ave seen mlsrepresenLaLlon
age 33 of

3 8asls
a ln an open and developed securlLles markeL Le prlce of a
company's sLock ls based on avallable maLerlal lnformaLlon
regardlng Le company and lLs buslness
4 uefendanL may rebuL by
a Sowlng LaL professlonals were noL decelved
b lf Le Lrue lnformaLlon enLered Le markeL anyway desplLe
any mlssLaLemenLs
c Speclflc plalnLlffs would ave sold Le securlLy anyway
Santa Fe Industries, Inc. v. Creen {9]
l 8lack LeLLer Law
a A parenL may merge lLself wlL lLs subsldlary ln some cases
b under Le sorLform merger sLaLuLe a parenL company may merge lLself wlL lLs
subsldlary lf Le parenL owns aL leasL 90 of Le subsldlary's sLock and lf Le parenL
company's board approves Le acLlon
ll Analysls
a Congress dld noL lnLend Lo provlde for prlvaLe acLlons for a vlolaLlon for V10(b)(3)
l 8elaLes only Lo lnformaLlon released for publlc offerlng of securlLles
Insider Trading
l Ceneral 8ule
l Were an lnslder as maLerlal nonpubllc lnformaLlon an lnslder musL do one of
Lwo Llngs before Lradlng
1 ulsclose Le lnformaLlon
2 AbsLaln from Lradlng unLll Le lnformaLlon as been dlsclosed
ll ultks v 5c
a @lp Case
l A Llpee (recelver of a Llp) assumes a flduclary duLy Lo Le sareolders of a
corporaLlon noL Lo Lrade on maLerlal nonpubllc lnformaLlon only wen
1 @e lnslder as breaced ls flduclary obllgaLlon Lo Le sareolders by
dlscloslng Le lnformaLlon
2 Anu
a @e Llpee knows or sould ave known of Le breac
ll AbsenL some personal galn Lere as been no breac of duLy Lo sLockolders
lll u5 v Onoqoo
a ALLorney rlpplng off cllenL case
b MlsapproprlaLlon @eory
l A flduclary's ooJlscloseJ use of lnformaLlon belonglng Lo ls prlnclpal fot
petsoool qolo
1 ConsLlLuLes fraud ln connecLlon wlL Le purcase or sale of a securlLy
a And Lus vlolaLes 8ule 10b3
Distribution of Power Between Sbarebolders and Managers
l Closely Peld CorporaLlons
a CaracLerlsLlcs
l Small number of sLockolders
age 34 of

ll no ready markeL for corporaLe sLock Anu
lll SubsLanLlal ma[orlLy of sLockolder parLlclpaLlon ln managemenL dlrecLlon and
operaLlons of Le corporaLlon
ll Sareolder voLlng lmporLanL! MulLlple Slldes on Lls Loplc
a @ree rules
l 8ule 1 Approval by a ma[orlLy of all sares enLlLled Lo voLe
1 Means ln a case of 1000 sareolders
a @aL a voLe musL recelve 301+ voLes Lo pass
l nC MA@@L8 WPA@
ll 8ule 2 Approval lf voLes casL ln favor voLes casL agalnsL
1 Approval musL ave a larger number
a @o ass even lf noL all sareolders are presenL
lll 8ule 3 Approval by a ma[orlLy of sares presenL
1 MusL be alf Le presenL sares +1 Lo pass
lll Sareolder voLlng ArrangemenLs
a voLlng @rusLs
l Sareolders convey legal LlLle Lo Lelr sLock Lo a voLlng LrusLee
1 ursuanL Lo Le Lerms of a LrusL arrangemenL
a @rusLees may be glven full or llmlLed dlscreLlon Lo voLe Le
sares
b voLlng oollng AgreemenLs
l 8lnd some of Le sareolders Lo voLe LogeLer
1 See loqlloq 8tos
c lrrevocable roxles
l Clve proxy Lo voLe
ll lrrevocable
1 AlLoug someLlmes sub[ecL Lo conLlngency or some perlod of Llme
d lnvalld agreemenL example
l McOooJe
1 An agreemenL among some sareolders Lo elecL eac oLer as
dlrecLors and Lo appolnL eac oLer as offlcers wlL sLlpulaLed salarles
lngllng Brox. - Burnum & Bulley ComblneJ Showx v. lngllng {9]
l 8lack LeLLer Law
a SLockolders may make blndlng agreemenLs on ow Lo voLe Lelr sLock
b A sareolder may agree wlL anoLer sareolder Lo voLe ls or er sLock ln a
parLlcular way
ll Analysls
a @e agreemenL ln Lls case was noL lnvalld because lL was noL
l unlawful
ll AgalnsL ubllc ollcy
lll @ake advanLage of Le remalnlng sLockolder
McquuJe v. Stonehum {9]
l 8lack LeLLer Law
a Sareolder AgreemenLs may noL resLrlcL a board's auLorlLy
b A sareolder agreemenL may noL conLrol a board of dlrecLors' exerclse of [udgmenL
ll Analysls
age 3 of

a Wlle dlrecLors owe Lelr loyalLy Lo Le corporaLlon and Lo Le sareolders Le
sareolders need noL exlblL loyalLy Lo anyone
l Slnce close corporaLlons ofLen blend Lese Lwo caLegorles
1 Legal counsel musL ensure LaL Le parLles appreclaLe Le dlsLlncLlon
and LaL Ley follow Le formallLles dlcLaLed by Lese dlsLlncL roles
Clurk v. oJge {9]
l 8lack LeLLer Law
a Sareolder agreemenLs regardlng offlcers' employmenL may be enforceable
b A sareolder agreemenL regardlng employmenL of cerLaln lndlvlduals as offlcers ls
enforceable lf Le dlrecLors are tbe sole sbotebolJets
ll Analysls
a SLrlcL aderence Lo corporaLe formallLles ls noL demanded lf no one oLer Lan Le
parLles Lo Le agreemenL wlll feel any lmpacL from enforclng an agreemenL
Proxy Voting and Contests
Topics and Cases Relating to Proxies
l ConLesLs for CorporaLe ConLrol
a @resold Concern
l Wen can proxy sollclLaLlon expenses be pald ouL of corporaLe funds?
b Cases
l levlo v MCM
ll oseofelJ
ll Sareolder proposals
a @resold concern
l Wen can sareolder proposals be excluded from proxy maLerlals?
b Cases
l loveobelm v ltopools 8tooJs l1u
ll Al5cM v AlC loc
lll cA loc
lll Sareolder lnspecLlon rlgLs
a @resold concern
l Wo geLs sareolder llsL?
1 Access Lo Le ldenLlLy of Le ma[or sareolders?
b Cases
l ctooe co v AoocooJo
ll 5tote x el llllsboty v nooeywell
lll 5oJlet v Nc cotp
lv roxy ConLesL CaracLerlsLlcs
a A sareolder sollclLs voLes ln opposlLlon Lo Le lncumbenL board of dlrecLors
l @ls sareolder ls known as #Le lnsurgenL"
b @wo Lypes of Le mosL Lyplcal proxy conLesLs
l LlecLoral conLesLs
1 lnsurgenL runs a slaLe of dlrecLors ln an elecLlon ln opposlLlon Lo Le
slaLe of dlrecLors nomlnaLed by Le lncumbenL board
ll lssue conLesLs
age 3 of

1 Sareolder urges fellow sLockolders Lo voLe no on a merger for
example
c 8elmbursemenL for expenses
l levlo rule
1 lncumbenLs may be relmbursed from Le Lreasury of Le corporaLlon
a So long as Le amounL ls noL
l Lxcesslve
b And meLods were noL
l unfalr
ll lllegal
ll oseofelJ rule
1 CorporaLlon may pay for proxy sollclLaLlon wlL cerLaln conslderaLlons
a AmounL musL be reasonable
b ConLesL musL lnvolve pollcy quesLlons
c May nC@ be a #purely personal power sLruggle"
lll lnsurgenL relmbursemenL
1 Cnly ls approved by Le sareolders oseofelJ
2 8oard musL acL lnlLlally
3 8equlremenLs
a ollcy and noL personal
b 8easonable and proper expense
c MusL wln Le proxy conLesL Anu
d Wln sareolder raLlflcaLlon
4 uld Ley lose Le conLesL?
a no relmbursemenL Lo lnsurgenLs
Ievln v. M0M {9]
l 8lack LeLLer Law
a CorporaLe managemenL may use corporaLe asseLs Lo provlde sareolders wlL
lnformaLlon LaL ls relaLlve Lo Le voLe
b lncumbenL managemenL may make reasonable use of corporaLe asseLs Lo lnform
sareolders of lLs poslLlon ln a proxy conLesL lnvolvlng corporaLe pollcy lssues
ll lacLs
a Sareolder brougL sulL
l Clalm
1 ManagemenL was uslng lllegal and unfalr meLods of communlcaLlng
wlL sLockolders and forced Le corporaLlon Lo bear expenses of proxy
sollclLaLlon
lll key facLor
a Were Le expenses reasonable?
oxenfelJ v. FulrchllJ Fnglne & lrplune Corp. {9]
l 8lack LeLLer Law
a AbsenL a clalm LaL Le expenses were unwarranLed excesslve or oLerwlse lmproper
l @en a corporaLlon may relmburse facLlons for a pollcy conLesL
1 8uL nC@ one lnvolvlng a personal power conLesL
ll lacLs
a CorporaLlon used funds Lo relmburse boL sldes ln a proxy conLesL
age 3 of

l lncumbenL board losL Le proxy conLesL
1 8uL Le corporaLlon relmbursed Lem for Lelr expenses afLer new
board was lnsLalled
2 Company raLlfled Le paymenLs Lo Le old board
b Sareolder brougL sulL
lll key
a CnL? works wen Le lncumbenL board loses and lnsurgenL wlns
l lnsurgenL loses?
1 no oseofelJ relmbursemenL
j.I. Cuxe Co. v. Boruk {9]
l 8lack LeLLer Law
a roxy maLerlals conLalnlng false and mlsleadlng sLaLemenLs glve rlse Lo a prlvaLe rlgL of
acLlon
b lL ls unlawful Lo sollclL a proxy or consenL auLorlzaLlon uslng false and mlsleadlng
sLaLemenLs
l And a courL may enforce a prlvaLe rlgL of acLlon for resclsslon or damages
ll lacLs
a Sareolders found ouL LaL Le proxy maLerlals used by case used Lelr name wlLouL
permlsslon ln referrlng Lo a poLenLlal merger
l As parL of Le company's efforLs Lo obLaln approval for Le merger
1 Argued LaL suc a false sLaLemenL vlolaLed V14(a) of Le SecurlLy
Lxcange AcL
lll Analysls
a MusL conslder Le followlng four facLors ln deLermlnlng weLer a sLaLuLe glves rlse Lo a
prlvaLe cause of acLlon
l ls Le plalnLlff one of Le class for wose beneflL Le sLaLuLe was enacLed?
1 lf yes conLlnue
ll ls Lere any lndlcaLlon of leglslaLlve lnLenL Lo provlde a remedy or deny one?
1 May be
a LxpllclL
b lmpllclL
lll ls lL conslsLenL wlL Le underlylng purposes of Le leglslaLlve sceme?
lv ls Le cause of acLlon one LaL ls LradlLlonally relegaLed Lo sLaLe law?
Securities Excbange Act V {a]
l lL ls unlawful for a person Lo use Le mall or an lnsLrumenLallLy of lnLersLaLe commerce Lo sollclL
any proxy
a @aL ls ln conLravenLlon wlL Le rules and regulaLlons lald ouL by Le SLC
ll SollclL lncludes
a 8equesLs Lo furnls revoke or wlLold proxles
b CommunlcaLlons LaL lndlrecLly accomplls suc a resulL C8
c A sLep ln a caln of communlcaLlons deslgned Lo ulLlmaLely accomplls suc a resulL
lll LxempLlons
a ubllc sLaLemenLs of ow a sareolder lnLends Lo voLe and lLs reasons for dolng so
b ersons wo do noL seek #Le power Lo acL as proxy for a securlLy older"
l lor example
age 3 of

1 A newspaper edlLorlal advlslng Lo voLe for or agalnsL a measure or
lncumbenL managemenL ls exempLed
c SollclLaLlons of 10 or fewer persons
d lurnlslng of proxy advlce by someone wlL wom Le sareolder as a buslness
relaLlonslp
SEC Rules for Proxy Contests


Bases for Excluding Sbarebolder Proposals
l Sareolder proposals may be excluded for any of Le followlng reasons
a noL a proper sub[ecL of acLlon by sareolders
b lllegal
c vlolaLes proxy rules
d ersonal grlevance or beneflL
e MaLLer beyond power of flrm Lo effecLuaLe
f 8elaLes Lo flrm's ordlnary buslness operaLlons
g 8elaLes Lo board of dlrecLors elecLlon
SubmlLLed ln Le pasL wlLouL wlnnlng supporL
ll 8equlremenLs for geLLlng a proposal lnLo Le company's maLerlals
a MusL own elLer $2000 or 1 of Le ouLsLandlng sLock ln Le corporaLlon for longer
Lan one year
b roxy sLaLemenL musL be 300 words or less
c MusL send a represenLaLlve Lo Le meeLlng
lll SLeps
a lf Le corporaLlon's managemenL belleves LaL Le proposal may properly be excluded
l Sould flle a noLlce wlL Le SLC advlslng LaL lL lnLends Lo exclude Le lssue
age 3 of

b lf Le SLC agrees
l @en lL wlll lssue a #noacLlon" leLLer
1 SLaLes LaL Le sLaff wlll noL recommend LaL Le SLC Lake any acLlon
agalnsL Le lssuer lf Le proposal ls ellmlnaLed
c SLC lnLermedlaLe poslLlon
l Wlll send a leLLer Lo Le parLy ptoposloq Le lssue
1 And sLaLe LaL aL presenL lL may be excluded
a 8uL wlll also provlde suggesLlons for canges LaL may be made
Lo Le leLLer Lo prevenL lLs excluslon
d SLC dlsagrees wlL excluslon
l lL wlll noLlfy Le company LaL lL may Lake acLlon lf Le proposal ls excluded
FSCMF v. I0 {]
l 8lack LeLLer Law
a @e SLC as subsLanLlal dlscreLlon Lo adopL new lnLerpreLaLlons of lLs own regulaLlons
l ln llgL of canges ln Le caplLal markeLs or even a slfL ln Le Commlsslon's
regulaLory approac
1 Powever
a lL as a duLy Lo explaln lLs deparLure from prlor norms
ll Analysls
a An agency's lnLerpreLaLlon of a law made aL Le Llme Le regulaLlon was lmplemenLed
conLrols
l unless LaL agency ls able Lo provlde sufflclenL reason wy a new lnLerpreLaLlon
sould be allowed
C, Inc. v. FSCMF {8]
l 8lack LeLLer Law
a Sareolders' rlgLs Lo amend adopL or repeal bylaws ls legally sacrosancL
l And may noL be llmlLed nonconsensually by anyone oLer Lan Le leglslaLure
1 Powever Lls power does noL exLend Lo conLrolllng Le buslness affalrs
of Le corporaLlon
a Wlc ls lefL solely Lo Le board of dlrecLors
l unless oLerwlse speclfled ln Le arLlcles of
lncorporaLlon
b Sareolders may cange or add bylaws LaL provlde for fuLure procedures ln cerLaln
slLuaLlons
l Powever Ley may noL affecL Le process by wlc Le company accompllses
lLs dayLoday work
ll Analysls
a lf Le proposed bylaw ls one LaL wlll llmlL or prevenL dlrecLors from exerclslng Lelr full
managerlal power ln clrcumsLances were Lelr flduclary duLles may oLerwlse requlre
Lem Lo acL
l ls noL allowable
Sbarebolder Access
l SLC 8ule 14a7
a ManagemenL of Le corporaLlon musL elLer
l Mall lnsurgenL's maLerlals for lL C8
age 4 of

ll rovlde a sareolder llsL Lo Le lnsurgenL
ll uCCL V220(b)
a Any sLockolder
l Cr ls aLLorney
b May make a wrlLLen demand Lo a corporaLlon
l under oaL
1 SLaLemenL musL sow Le purpose for examlnlng Le records
c Company musL provlde access
l uurlng normal buslness ours
ll lor any proper purpose
lll And musL allow Le requesLlng parLy Lo
1 Make coples
2 LxLracLs
lv lrom
1 Company's sLock ledger
2 LlsL of lLs sLockolders
3 CLer books and records
d MusL be #reasonably relaLed" LaL person's lnLeresL as a sLockolder
lll uCCL V220 (c )
a lf sareolder only seeks access Lo Le sareolder llsL
l 8urden ls on Le corporaLlon Lo sow LaL Le reason ls lmproper
b lf sareolder seeks access Lo C@PL8 records besldes Le sareolder llsL
l @en Le burden ls on Le sareolder Lo prove Le requlslLe proper purpose
lv urposes
a roper
l lnvesLlgaLe alleged corporaLe mlsmanagemenL
ll CollecLlng lnformaLlon relevanL Lo sare value
lll CommunlcaLlng wlL fellow sLockolders ln connecLlon wlL a planned proxy
conLesL
b lmproper
l ALLempLlng Lo dlscover proprleLary buslness lnformaLlon for Le beneflL of a
compeLlLor
ll Secure prospecLs for personal buslness
lll lnsLlLuLe sLrlke sulLs
Crune Co. v. nuconJu {9]
l 8lack LeLLer Law
a A corporaLlon musL granL a requesL for access Lo a sareolder llsL Lo enable Lender
offer dlscusslons
b A corporaLlon musL granL a sareolder wo wanLs Lo dlscuss a Lender offer's Lerms
wlL Le corporaLlon's sareolders access Lo Le sareolder llsL
l unless Le corporaLlon can esLablls a wrongful purpose
ll lacLs
a Acqulrlng flrm wanLed access Lo LargeL's sareolder llsL Lo dlsLrlbuLe Le Lender offer Lo
Le LargeL's sareolders
l @argeL refused
lll Analysls
age 4 of

a @e SLC does allow Le corporaLlon Lo proLecL Le lnformaLlon on lLs sareolders ln
some cases
l lor lnsLance
1 A corporaLlon ls [usLlfled ln refuslng access Lo lLs sareolder llsL lf lL
belleves Le llsL wlll be sold
b Powever good falL and a proper purpose wlll overcome Lese proLecLlons
Limitation - FRCP Rule .
l A derlvaLlve acLlon may noL be malnLalned lf lL appears LaL Le plalnLlff does noL
a lalrly and adequaLely represenL Le lnLeresLs of sareolders or members wo are
slmllarly slLuaLed ln enforclng Le rlgL of Le corporaLlon
ll @e complalnL musL be verlfled and musL sLaLe wlL parLlcularlLy
a Any efforL by Le plalnLlff Lo obLaln Le deslred acLlon from Le dlrecLors and lf
necessary
l lrom Le sareolders or members
b @e reasons for noL obLalnlng Le acLlon
l @ls ls known as Le uemand 8equlremenL
Sbarebolder Litigation
Direct vs. Derivative Suits
l ulrecL
a lf Le ln[ury ls one Lo Le plalnLlff as a sLockolder and lm lndlvldually and noL Le
corporaLlon
l Lxamples
1 voLlng rlgLs
a lseobetq
2 AbdlcaLlon clalm for nonmoneLary rellef
a Ctlmes
ll uerlvaLlve
a lf Le ln[ury ls Lo Le corporaLlon
b 8rougL by Le sareolder and asserLs rlgLs belonglng Lo Le corporaLlon
l 8ecause Le board as falled Lo asserL Lose rlgLs
c CorporaLlon ls Le nomlnal defendanL ln Le acLlon
d AmounL recovered belongs Lo Le corporaLlon
e Lxamples
l Lxcesslve compensaLlon
1 Ctlmes
2 Motx
lll Analysls
a Look Lo wo suffered Le alleged arm
l @e corporaLlon?
ll @e sulng sLockolders?
b Anu
c Wo would recelve Le beneflL lf of any recovery or oLer remedy
l @e corporaLlon?
ll @e sLockolders?
age 42 of

Rational Plaintiff and tbe Demand Requirement
l A raLlonal plalnLlff wlll flle Le sulL prlor Lo maklng Le demand
a Consequences of noL maklng a demand are Lrlvlal
l SllgL delay wlle demand ls made
b reserves Le rlgL Lo llLlgaLe Le lssue
c Analysls of uL cases as noL found a slngle lnsLance were demand was made prlor Lo a
sulL belng flled
Demand Futility - Wben is demand excused?
l uL sLandard
a Ctlmes / Atoosoo
l uemand ls excused wen Lere ls reasonable doubL as Lo
1 Ma[orlLy of Le board as a maLerlal lnLeresL or
2 Ma[orlLy of Le board lacks lndependence C8
3 Callenged LransacLlon ls noL a producL of a valld exerclse of buslness
[udgmenL
ll n? sLandard
a Motx v Akets
l Ma[orlLy of dlrecLors are lnLeresLed parLles C8
ll ulrecLors falled Lo lnform Lemselves C8
lll Callenged LransacLlon could noL ave been Le producL of sound buslness
[udgmenL
Standards for reviewing sbarebolder litigation
l ZapaLa @wo SLep (uelaware)
a SLep 1
l lnqulry lnLo Le lndependence and good falL of Le commlLLee
ll lnqulry lnLo Le bases supporLlng Le commlLLee's recommendaLlon
b SLep 2
l CourL may apply lLs own buslness [udgmenL Lo see lf lL agrees wlL Le dlsmlssal
or noL of a sulL
ll Auerbac Analysls (n?)
a ulLlmaLe declslon ls covered by Le buslness [udgmenL rule
b !udlclal lnqulry ls sLlll allowed ln respecL Lo
l ulslnLeresLed lndependence of Le speclal commlLLee
ll Adequacy of lnvesLlgaLlon by commlLLee
Independent Committees - Factors considered
l uld any of Le commlLLee members recelve compensaLlon from Le corporaLlon?
ll Are Ley oLerwlse members of Le larger board?
lll Are commlLLee members wllllng Lo reLurn compensaLlon Lo corporaLlon Lo preserve
lndependence lf necessary?
lv Are Lere any oLer maLerlal Lles Lo conslder?
Flxenberg v. Flylng 1lger Ilne, Inc. {9]
l 8lack LeLLer Law
a An acLlon Lo reverse corporaLe acLlons LaL deprlved sareolders ln a volce ln Le
operaLlon of Le company ls noL derlvaLlve
age 43 of

b An acLlon seeklng Lo overLurn a reorganlzaLlon and merger LaL deprlved an acqulred
corporaLlon's sareolders from avlng a volce ln Le survlvlng buslness corporaLlon's
buslness operaLlon ls a personal acLlon
l 8aLer Lan a derlvaLlve acLlon under n? law
1 uerlvaLlve acLlons would ave requlred posLlng a securlLy for Le
corporaLlon's cosLs
ll lacLs
a Ma[or sareolder brougL an acLlon Lo en[oln a reorganlzaLlon and merger ln a
company on bealf of lmself and all sareolders ln Le dlssolvlng enLlLy
l 8ecause posL merger Le new company would noL allow Le sareolders Lo
ave any say ln Le buslness operaLlon
lll Analysls
a @e dlsLlncLlon beLween derlvaLlve and dlrecL acLlons ls prlmarlly only of use ln large
publlcly eld corporaLlons
l MosL closed corporaLlons wlll noL need Lese devlces
0rlmex v. onulJ {99]
l 8lack LeLLer Law
a A sLockolder musL demand Le board brlng an acLlon before e brlngs a derlvaLlve sulL
b A sareolder need noL make a demand LaL a company's board lnsLlLuLe a lawsulL
before brlnglng a derlvaLlve sulL on bealf of Le corporaLlon on Le sowlng LaL Le
demand would be fuLlle
l And lf demand ls made an re[ecLed Le sulL may proceed lf Le plalnLlff ls able
Lo sow LaL Le re[ecLlon was wrongful
ll lacLs
a lalnLlff learned of generous compensaLlon package of senlor execuLlve
l uemanded LaL Le corporaLlon cancel Le conLracL
b 8oard re[ecLed ls demand
lll Analysls
a A plalnLlff musL make a demand prlor Lo movlng forward wlL a sulL wen
l Pe does noL belleve LaL Le demand ls fuLlle
ll And e belleves LaL Le declslon of Le board ls noL of sound buslness
[udgmenL
b Cnce demand ls made and re[ecLed
l @e presumpLlon ls LaL Le board acLed properly
1 unless Le plalnLlff can sow LaL lL was wrongfully re[ecLed
Murx v. kerx {99]
l 8lack LeLLer Law
a @e plalnLlff musL provlde more Lan conclusory sLaLemenLs Lo esLablls LaL a demand
would be fuLlle
b A plalnLlff esLabllslng LaL a demand on Le company's board would be fuLlle musL
sow elLer
l @aL Le measure furLers Le board's selflnLeresL C8
ll @e callenged LransacLlon was so egreglous on lLs face LaL lL could noL ave
been Le producL of sound buslness [udgmenL
ll lacLs
age 44 of

a Sareolder brougL a derlvaLlve sulL based on Le lncreased compensaLlon of l8M
execuLlves wlle proflLs decllned
lll Analysls
a Slnce Le allegaLlons lnvolved paymenL of execuLlves made by Le same execuLlves
slLLlng on Le board of dlrecLors Le selflnLeresL prong was saLlsfled
b Powever plalnLlff losL because se falled Lo sLaLe ow se came Lo Le concluslon LaL
Le board ad compensaLed lLself excesslvely
uerbuch v. Bennett {99]
l 8lack LeLLer Law
a A board of dlrecLors may granL auLorlLy Lo a speclal commlLLee Lo make
recommendaLlons on a derlvaLlve clalm
b A speclal llLlgaLlon commlLLee's deLermlnaLlon forecloses furLer lnqulry lnLo a maLLer
provlded LaL Le commlLLee's lnvesLlgaLlon ls booo flJe
ll lacLs
a A corporaLlon appolnLed a speclal commlLLee Lo lnvesLlgaLe Le basls of a derlvaLlve sulL
carglng Le mlsmanagemenL of corporaLe funds
l Commlsslon deLermlned LaL Le sulL sould be LermlnaLed
uputu v. MulJonuJo {98]
l 8lack LeLLer Law
a lnLeresLed board members may appolnL a dlslnLeresLed commlLLee Lo lnvesLlgaLe
llLlgaLlon
b Wlle a ma[orlLy of a board may lack Le lndependence Lo evaluaLe a derlvaLlve clalm
Le LalnL of selflnLeresL ls noL necessarlly sufflclenL Lo prevenL Le board from
delegaLlng Le evaluaLlon Lo an lndependenL commlLLee provlded LaL
l @e commlLLee ls composed of dlslnLeresLed board members wo may
recommend dlsmlssal of a sareolder's acLlon
ll lacLs
a lalnLlff sareolder sued Le corporaLlon ln a derlvaLlve acLlon wlLouL maklng a prlor
demand of Le board
l under Le uemand luLlllLy Leory
b lalnLlff sued Le board and Le corporaLlon
l lour years laLer as Le sulL was sLlll developlng
1 Many of Le orlglnal board ad lefL and been replaced
ll @e new board creaLed a speclal llLlgaLlon commlLLee Lo lnvesLlgaLe
1 Wlc deLermlned LaL Le sulL sould be dlsmlssed
lll Analysls
a SomewaL crlLlclzed case
b rovldes a raLer low urdle for a board belng sued Lo [ump Lo geL Le sulL dlsmlssed
In re Orucle Corp. erlvutlve Iltlgutlon {]
l 8lack LeLLer Law
a ulrecLors wlL Lles Lo wrong doers are noL lndependenL
b A dlrecLor's lack of lndependence Lurns on weLer Le dlrecLor ls for any subsLanLlal
reason
l lncapable of maklng a declslon wlL only Le besL lnLeresLs of Le corporaLlon ln
mlnd
age 4 of

ll lacLs
a Sareolders brougL a derlvaLlve sulL alleglng mlsmanagemenL by Le board of
dlrecLors
b 8oard lnsLlLuLed a speclal llLlgaLlon commlLLee eaded by a promlnenL legal professor
c Cn dlscovery lL was deLermlned LaL some of Le board members ad some Lles wlL
Le legal professor
lll Analysls
a Lven Loug Le lnvesLlgaLlon was Loroug Le llLlgaLlon commlLLee could noL be
consldered lndependenL
l @erefore lLs recommendaLlon was noL proLecLed
Mergers, Acquisitions, and Takeovers
Types of Acquisitions
l Merger
ll Sales of asseLs
lll @ender offer
lv SLock purcase
v roxy conLesL
Types of Mergers
l ue focto
a lottls v Cleo AlJeo cotp
b notltoo v Atco lecttoolcs
c ooscb v cA
ll lreeze ouL mergers
a coqqlos v New oqlooJ lottlots lootboll clob
b obklo v noot
lll LLC Merger
a vC5 loc v costlel
Cboosing Between a Merger and an Asset Sale
l ConslderaLlons
a @ax consequences?
b Lase of Lransferrlng conLrol
l Merger
1 auLomaLlc end of consLlLuenL corporaLlons excepL Le survlvlng
organlzaLlon
ll AsseL Sale
1 @argeL company remalns ln exlsLence
a SeparaLe sLep Lo dlssolve
c Lase of Lransferrlng asseLs
l Merger
1 @lLle Lo all properLy Lransfers auLomaLlcally Lo Le survlvlng company
ll AsseL sale
1 uocumenLs musL be prepared and flled for eac asseL belng sold
d Lase of passlng conslderaLlon
age 4 of

l Merger
1 Survlvlng company passes dlrecLly Lo nondlssenLlng sareolders
ll AsseL sale
1 More compllcaLed
a ulvldend
b LlquldaLlon and dlvldend
e Successor llablllLy
l Merger
1 Survlvlng company succeeds Lo all llablllLles of consLlLuenL corporaLlons
ll AsseL sale
1 no assumpLlon of llablllLles unless parL of a wrlLLen agreemenL
a Some LorL excepLlons
f Sareolder voLlng
l Merger
1 Approval by boL company's sareolders ls requlred
ll AsseL sale
1 Approval by potcbosloq corporaLlon's sareolders ls generally nC@
requlred
g Appralsal rlgLs
l Merger
1 Sareolders of boL corporaLlons ave appralsal rlgLs
ll AsseL sale
1 ln mosL sLaLes
a Sareolders of Le selllng corporaLlon geL appralsal rlgLs
b Sareolders of purcaslng corporaLlon do noL
2 uelaware
a nelLer parLy geLs appralsal rlgLs
Furrlx v. 0len lJen Corp. {98]
l 8lack LeLLer Law
a Sareolders ave dlssenLers' rlgLs ln a ue focto merger LaL ls dlsgulsed as an asseL
sale
b lf a conLemplaLed LransacLlon's resulL ls Le same as a merger Le LransacLlon ls a Je
focto merger
l And Le LargeL corporaLlon's sareolders ave Le rlgL Lo dlssenL and recelve
falr value for Lelr sares
ll lacLs
a Mlnnow Swallows Le Wale LransacLlon
b uefendanL corporaLlon wanLed Lo acqulre anoLer company and Len ave Le smaller
LargeL company remaln ln exlsLence as Le operaLor
c Arranged for Le acqulslLlon as an asseL sale Lo Le smaller company
lll Analysls
a @e dlsLlngulslng facLor ln a merger ls ln addlLlon Lo Le sale of asseLs Le acqulrlng
company also Lakes responslblllLy for Le dlssolvlng company's llablllLles
b CLer sLaLes ave decllned Lo follow Lls case
Hurlton v. rco Flectronlcx {9]
l 8lack LeLLer Law
age 4 of

a CorporaLlons may legally effecL a merger uslng Le sLaLuLory provlslons appllcable Lo an
asseL sale
b A reorganlzaLlon plan LaL requlres one corporaLlon Lo sell lLs asseLs Lo a second
corporaLlon ln excange for sLock ln Le second corporaLlon and LaL calls for Le flrsL
corporaLlon Lo llquldaLe and dlsLrlbuLe Le second corporaLlon's sares Lo lLs
sLockolders consLlLuLes a permlsslble Je focto merger
ll lacLs
a @wo companles selllng Le same producLs declded Lo merge
b @e flrsL company agreed Lo merge for an allocaLlon of sLock
c Cnce Le merger was compleLe Le flrsL company was Lo dlssolve and dlsLrlbuLe Le
sares used ln Le purcase Lo lLs sLockolders
d @wo sareolders LaL were noL presenL aL Le meeLlng were Lls was approved sued
clalmlng Le process was lllegal
lll Analysls
a ConLrary Lo Cleo AlJeo Lls case allowed Le merger Lo go forward afLer applylng
l @e docLrlne of lndependenL legal slgnlflcance of corporaLe acLs
1 AcLs of Le corporaLlon Laken ln compllance wlL Le provlslons of one
secLlon of Le uCCL need noL be LesLed agalnsL Le requlremenLs of
anoLer
a @oug Le resulLs may be Le same
Casb out Mergers
l Merger Lo buy ouL sareolders
ll Sareolder approval of merger as requlred by sLaLe law
lll Sareolders may elLer
a @ake Le cas
b Cr enforce appralsal rlgLs
l lf any under sLaLe law
c C8 callenge Le merger as a #freeze ouL"
Cogglnx v. New FnglunJ Putrlotx Footbull Club {98]
l 8lack LeLLer Law
a lrozen CuL mlnorlLy sareolders are enLlLled Lo damages lf Lere ls no valld corporaLe
ob[ecLlve Lo a merger
b lf a company cannoL sow LaL a freezeouL merger served a valld corporaLe ob[ecLlve
beyond advanclng Le ma[orlLy sareolder's personal lnLeresLs
l @e mlnorlLy sareolders wo were #frozen ouL" by Le merger are enLlLled Lo
rellef
ll lacL
a Crlglnal owner of Le aLrloLs wanLed Lo reclalm full ownerslp of Le Leam
b SLrucLured a merger were oLer sareolders were forced Lo excange Lelr sLocks for
cas
lll Analysls
a Cnce sareolders prove LaL a merger was wrongfully accompllsed Ley may recelve
compensaLory and punlLlve damages and may llLlgaLe Le value of Le merged
corporaLlon's sLock
age 4 of

ubkln v. Phlllp . Hunt Chemlcul Corp. {98]
l 8lack LeLLer Law
a Ma[orlLy sareolders owe a flduclary duLy LaL goes beyond refralnlng from lllegal
acLlvlLy
b Ma[orlLy sareolders owe a flduclary duLy Lo mlnorlLy sareolders and may noL
unfalrly manlpulaLe Le Llmlng of a merger Lo avold paylng Le mlnorlLy sareolders
Le prlce agreed upon as parL of an earller LransacLlon
ll lacLs
a Larger company was merglng wlL a smaller company
b urcased a block of sLock wlL an agreemenL Lo purcase anoLer block of sLock aL a
seL prlce wlLln a year
c lL Len walLed unLll Le one year perlod passed
d A week laLer lL offered sareolders $3 less Lan Le agreed upon prlce
lll Analysls
a lf Le prlce of Le sLock ad skyrockeLed Len PunL would ave exerclsed Lelr purcase
opLlon
b Slnce Le prlce fell Ley unfalrly walLed unLll Le explraLlon of Le opLlon perlod Lo save
money
uuxch v. C Corp {988]
l 8lack LeLLer Law
a ConverLlng sares Lo cas Lo compleLe a merger does noL call a legally dlsLlncL process
lnLo quesLlon
b ursuanL Lo uCCL and Le lndependenL legal slgnlflcance docLrlne a sareolder ln a
corporaLlon underLaklng Lo converL sares lnLo cas as parL of a merger ls noL enLlLled
Lo rlgLs provlded sareolders under a dlsLlncL provlslon of Le corporaLe law
addresslng Le redempLlon
ll lacLs
a Sareolder brougL sulL clalmlng LaL Le cas ouL merger was acLually a llquldaLlon
l Wlc would Lrlgger a redempLlon clause ln Le arLlcles of lncorporaLlon and
enLlLle lm Lo $100 per sare
1 lnsLead of Le agreed upon $66 as parL of Le merger
lll Analysls
a @e rlse of notltoo agaln
b Seems Lo supporL Le docLrlne LaL was denled ln Cleo AlJeo
c Slnce sareolders are deemed Lo know Le law wen Ley purcase sares
l @e sareolder sould ave known LaL a merger ls noL Le same Llng (or ln
Le same secLlon of law) as Le rlgL of redempLlon of sares
1 @erefore Le merger was noL forced Lo follow Le redempLlon
guldellnes seL forL ln Le oLer secLlon
0S, Inc. v. Cuxtlel {]
l 8lack LeLLer Law
a 8oard members cannoL wlLold noLlce of a meeLlng from a dlrecLor ln order Lo assure a
resoluLlon's passage
b Managers LaL fall Lo provlde noLlce Lo all board members of Lelr lnLenL Lo old a
meeLlng or seek consenL Lo a wrlLLen resoluLlon vlolaLe Lelr flduclary obllgaLlons Lo one
anoLer
age 4 of

l Lven lf Ley belleve LaL keeplng an lndlvldual member from voLlng aL Le
meeLlng ls ln Le company's besL lnLeresLs
ll lacLs
a MlnorlLy owners ln an LLC dlsLrusLed Le ablllLy of Le ma[orlLy owner Lo conLlnue Lo
operaLe Le buslness
b SecreLly arranged Lo merge Le company ln suc a way as Lo suL ouL Le ma[orlLy
owner from conLrol
lll Analysls
a @e buslness Laken care of aL suc meeLlngs ls volJoble buL noL per se vold
Cheff v. Muthex {9]
l 8lack LeLLer Law
a A board may sLop sareolders efforLs Lo cange Le company's caracLer
b lf a company's board slncerely belleves LaL buylng ouL a dlssldenL sLockolder ls
necessary Lo malnLaln proper buslness pracLlces Len Le board ls noL llable for Le
declslon
l Lven lf ln lndslgL Le declslon may noL ave been Le besL one avallable
ll lssue
a May a board Lrade lLs own sLock Lo frusLraLe an ouLslde lnvesLor's efforLs Lo llquldaLe
Le company or cange lLs caracLer Lo Le deLrlmenL of Le company and lLs
sareolders?
l ?es so long as Le board acLed on Lelr bellef LaL Le ouLslde lnvesLor ad a
repuLaLlon for rulnlng oLer LargeL companles
lll Analysls
a @e courL requlres more Lan bare allegaLlons Lo supporL Le board's clalm LaL lL was
proLecLlng Le company from desLrucLlon
Unocul Corp. v. Mexu Petroleum {98]
l 8lack LeLLer Law
a A selfLender offer may dlsallow a Lakeover bldder's parLlclpaLlon
b A board may use corporaLe funds Lo purcase lLs own sares Lo remove a LreaL Lo
corporaLe pollcy and
l May deny Le dlssldenL sareolder Le rlgL Lo parLlclpaLe ln Le selfLender
offer provlded LaL
1 @e acLlons are moLlvaLed ouL of genulne concern for Le company and
lLs sareolders Anu
2 @aL Le proposed defenslve measures are noL ouL of balance wlL Le
LreaL's slgnlflcance
ll lacLs
a Mesa made a osLlle Lakeover bld Lo acqulre unocal
l @wo Llered bld
1 Cffered Lo buy 37 of Le ouLsLandlng sares for $34
2 AfLer lL acqulred 37 lL would pay for Le resL wlL [unk bonds wlc
may or may noL ave been worL less Lan LaL
b unocal made lLs own Lwo Llered offer
l lL would purcase Le sLocks for a lger prlce
ll And lf Mesa recelved Le 37 of Le sLock
age of

1 @en Ley would purcase Le remalnlng ouLsLandlng sares uslng debL
securlLles
lll Analysls
a @wo sLep process
l llrsL
1 Was Lere a LreaL?
a MusL be a danger Lo
l CorporaLe pollcy Anu
ll CorporaLe effecLlveness
2 Was Le defenslve maneuver reasonable ln llgL of Lls LreaL?
a Was lL proporLlonal?
ll Second
1 lf Le answers Lo Le quesLlon above are yes
a @en buslness [udgmenL rule applles
evlon, Inc. v. McnJrewx & Forbex HolJlng, Inc. {98]
l 8lack LeLLer Law
a @e board of dlrecLors of an acqulred company musL maxlmlze Le company's value for
Le beneflL of lLs sareolders
b uL law permlLs agreemenLs Lo foresLall osLlle forces from acqulrlng a company
l 8uL Le meLods may no breac Le dlrecLor's flduclary duLy
1 Cnce Le sale becomes lnevlLable lL ls lncumbenL on Le board Lo
ensure Le lgesL posslble prlce for Le sareolders
ll Analysls
a @ls case does nC@ creaLe any new flduclary duLles
l Cnly allows for closer scruLlny of Le defenslve measures a board underLakes ln
Le sale of a company
b Wellpleaded complalnL requlremenL of plalnLlffs ls sLlll ln place
Purumount Communlcutlonx v. 1lme {989]
l 8lack LeLLer Law
a lf a merger ls more Lan an asseL sale Len a board may decllne a compeLlng bld LaL
may yleld a beLLer prlce
b lf a board ls pursulng a merger for sLraLeglc reasons beyond merely Le sale of anoLer
company's asseLs lL may decllne Lo enLerLaln a compeLlng bld LaL may yleld a lger
sorLLerm galn for lLs sareolders ln favor of a merger LaL ensures greaLer longrange
galns
Purumount Communlcutlonx v. qC Network {99]
l 8lack LeLLer Law
a ln a corporaLe sale a board musL opLlmlze Le prlce for lLs sareolders and LreaL
compeLlng bldders equally
b A board selllng lLs corporaLlon as a duLy Lo obLaln Le besL value for lLs sareolders
and cannoL glve preference for one of Le compeLlng bldders
ll Analysls
a aramounL lnslsLed so sLrongly on Le LransacLlon lL agreed upon wlL vlacom LaL lL
refused Lo belleve LaL a beLLer deal may exlsL for Le company and lLs sareolders
b aramounL refused Lo conslder prlce and long Lerm debL