Corporate Law Fall 2013 Outline Professor Fishman 1 Contents I. Agency–Sole Proprietorship .............................................................................................................. 11 a. Introduction .................................................................................................................................... 11 i. Firm that is O wned by a single individual and is not cast in a legal form that can be utilized only by filing an organic document with the state under an authorizing statute ...................................... 11 b. Agency and Authority ..................................................................................................................... 11 i. Prcpl/Agnt Relationship .............................................................................................................. 11 ii. Prcpl Agency Problems ............................................................................................................... 11 iii. Morris Oil Co. v. Rainbow Oilfield Trucking Inc. (1987) –pg. 2 .................................................. 13 c. Agent’s Duty of Loyalty................................................................................................................... 13 i. Agency Costs ............................................................................................................................... 13 ii. Tarnowski v. Resop (1952) –pg. 18 ............................................................................................ 13 iii. Statutes, Rules, and Regulations ................................................................................................. 13 iv. Reading v. Attorney General (1951) –pg. 21 .............................................................................. 14 II. A Primer on Accounting and Finance .................................................................................................. 14 a. Introduction to Accounting and Financial Statements ................................................................... 14 i. Fundamental Equations .............................................................................................................. 14 III. Partnershi ps .................................................................................................................................... 14 a. What Constitutes a General Partnership ........................................................................................ 14 i. Definition .................................................................................................................................... 14 ii. Uniform Partnership Act (1914) pg. 30-31 of Statutory Supplement .................................... 14 iii. HILCO Property Services v. US (1996) –ph. 49 ........................................................................... 14 iv. Martin v. Peyton (1927) –pg. 49 ................................................................................................ 14 v. Lupien v. Malsbenden (1984) –pg. 53 ........................................................................................ 15 vi. Formation of Partnerships .......................................................................................................... 15 vii. Joint Ventures ......................................................................................................................... 15 b. Legal Nature of a Partnership [Pg. 58-60 of Textbook] .............................. .................................... 15 c. The Ongoing Operation of Partnerships ......................................................................................... 15 i. Uniform Partnership Act pg. 34-35 of Statutory Supplement ............................................... 15 ii. Summers v. Dooley (1971)–pg. 60 of Textbook ......................................................................... 15 iii. Sanchez v. Saylor (2000)–pg. 62 of Textbook ........................................................................... 15
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
I. Agency – Sole Proprietorship .............................................................................................................. 11
a. Introduction .................................................................................................................................... 11
i. Firm that is Owned by a single individual and is not cast in a legal form that can be utilized only
by filing an organic document with the state under an authorizing statute ...................................... 11
b. Agency and Authority ..................................................................................................................... 11
i. Prcpl/Agnt Relationship .............................................................................................................. 11
ii. Prcpl Agency Problems ............................................................................................................... 11
iii. Morris Oil Co. v. Rainbow Oilfield Trucking Inc. (1987) – pg. 2 .................................................. 13
c. Agent’s Duty of Loyalty ................................................................................................................... 13
i. Agency Costs ............................................................................................................................... 13ii. Tarnowski v. Resop (1952) – pg. 18 ............................................................................................ 13
iii. Statutes, Rules, and Regulations ................................................................................................. 13
iv. Reading v. Attorney General (1951) – pg. 21 .............................................................................. 14
II. A Primer on Accounting and Finance .................................................................................................. 14
a. Introduction to Accounting and Financial Statements ................................................................... 14
i. Fundamental Equations .............................................................................................................. 14
III. Partnerships .................................................................................................................................... 14
a. What Constitutes a General Partnership ........................................................................................ 14
i. Definition .................................................................................................................................... 14
ii. Uniform Partnership Act (1914) pg. 30-31 of Statutory Supplement .................................... 14
iii. HILCO Property Services v. US (1996) – ph. 49 ........................................................................... 14
iv. Martin v. Peyton (1927) – pg. 49 ................................................................................................ 14
v. Lupien v. Malsbenden (1984) – pg. 53 ........................................................................................ 15
vi. Formation of Partnerships .......................................................................................................... 15
vii. Joint Ventures ......................................................................................................................... 15b. Legal Nature of a Partnership [Pg. 58-60 of Textbook] .................................................................. 15
c. The Ongoing Operation of Partnerships ......................................................................................... 15
i. Uniform Partnership Act pg. 34-35 of Statutory Supplement ............................................... 15
ii. Summers v. Dooley (1971) –pg. 60 of Textbook ......................................................................... 15
iii. Sanchez v. Saylor (2000) – pg. 62 of Textbook ........................................................................... 15
iv. Management of Partnerships ..................................................................................................... 15
v. Indemnification and Contribution .............................................................................................. 15
d. The Authority of a Partner .............................................................................................................. 16
i. Uniform Partnership Act pg. 31-33 of Statutory Supplement ............................................... 16
ii. North Investment Company v. Milford Plaza Association (2001) – pg. 66 ................................. 16
iii. Actual vs. Apparent Authority ..................................................................................................... 16
e. Liability for Partnership Obligations (to Third Parties) ................................................................... 16
i. Uniform Partnership Act – pg. 31-34, 40 in statutory supplement ............................................ 16
ii. Partnership Liability – Agency principles applies ........................................................................ 16
f. Partnerships Interest and Partnership Property ............................................................................. 16
i. Partnership Property – partner’s right ........................................................................................ 16
g. The Partners Duty of Loyalty ........................................................................................................... 17
i. Meinhard v. Salmon (1928) – pg. 74 of textbook ....................................................................... 17
ii. Fiduciary Duties – partners are fiduciaries of each other & the partnership: ............................ 17
iii. General Partners are personally liable for debts of partnership ................................................ 17
iv. Nature of Liability ........................................................................................................................ 17
v. Extent of Liability ........................................................................................................................ 17
vi. Partnership Liability by Estoppel ................................................................................................. 17
h. Side Notes on partnerships ............................................................................................................. 17
i. Salary ........................................................................................................................................... 17
ii. Partner’s share of profits and Losses .......................................................................................... 18
i. Dissolution ...................................................................................................................................... 18
i. Dissolution (in general) ............................................................................................................... 18
ii. By Rightful Election ..................................................................................................................... 19
iii. By Judicial Decree and Wrongful Dissolution ............................................................................. 20
j. Limited Partnerships and Limited Liability Partnerships ................................................................ 20
i. Limited Partnerships ................................................................................................................... 20
ii. Limited Liability Partnerships ...................................................................................................... 20
IV. The Foundations of a Corporation .................................................................................................. 21
a. The Characteristics of the Corporation ........................................................................................... 21
i. Limited Liability ........................................................................................................................... 21
ii. Free Transferability of Ownership Interests ............................................................................... 21
i. WHITEBOOK – Business Corp. Law [BSC] .................................................................................... 24
ii. The Legal Distribution of Power Between the Board and the Shareholders .............................. 24
c. Requisites for Valid Action by the Board ........................................................................................ 24
i. WHITEBOOK – Business Corp. Law [BSC] .................................................................................... 24
ii. Fogel v. U.S. Energy Systems (2007) – SEE HANDOUT # 3 .......................................................... 25
iii. Rules are set at 2 levels. – first to set out formalities for board action and second are
concerning the consequences for noncompliance with the first level rules ...................................... 25
d. Normal Requisites for Valid Shareholder Action ............................................................................ 25
i. WHITEBOOK – Business Corp. Law [BSC] .................................................................................... 25
ii. Notice of Meeting: ...................................................................................................................... 25
iii. Quorum ....................................................................................................................................... 25
iv. Voting .......................................................................................................................................... 25
e. Corporate Governance and the Rise of Institutional Shareholders ................................................ 26
i. Shareholder Voting ..................................................................................................................... 26
ii. Financial Institutions and Their Advisors .................................................................................... 26
f. Election of Directors ........................................................................................................................ 26
i. WHITEBOOK – Business Corp. Law [BSC] .................................................................................... 26
ii. Staggered (or “classified”) Boards .............................................................................................. 26
iii. Straight and Cumulative Voting .................................................................................................. 26
iv. Plurality Voting ............................................................................................................................ 26
v. Short Slates ................................................................................................................................. 27
g. Removal of Directors – BCL § 705-706 ............................................................................................ 27
i. Removal by the Shareholders ..................................................................................................... 27
ii. Removal by the Board ................................................................................................................. 27
iii. Removal by a Court ..................................................................................................................... 27
h. Requisites for Valid Action by Corporate Officers – BCL § 715 & § 716 ......................................... 27
i. Corporate Officers ....................................................................................................................... 27
i. Equitable Limits on the Board’s Legal Powers ................................................................................ 28
i. WHITE BOOK – BCL § 707-708 .................................................................................................... 28
ii. Condec Corp. v. Lunkenheimer Co. (1967) –pg. 170................................................................... 28
iii. Schnell v. Chris-Craft Industries, Inc. (1971) – pg. 171 ............................................................... 28
iv. Blasius Industries, Inc. v. Atlas Corp. (1988) – pg. 173 ............................................................... 28
v. Business Judgment Rule .............................................................................................................. 28
j. The Role of the Bylaws in the Allocation of Power between the Board and the Shareholders ..... 28
i. WHITEBOOK BCL § 601 ............................................................................................................... 28
ii. CA, Inc. v. AFSCME Employees Pension Plan (2008) – pg. 184 ................................................... 28
k. Allocation of Power between the Board and the CEO .................................................................... 28
i. WHITEBOOK BCL § 715-716 ........................................................................................................ 28
ii. Managing Model of the Board .................................................................................................... 28
iii. Monitoring Model of the Board .................................................................................................. 28
VI. Shareholder Informational Rights and Proxy Voting ...................................................................... 28
a. Shareholder Information Rights Under State Law .......................................................................... 28
i. SEE HANDOUT # 4 ....................................................................................................................... 28
b. Inspection of Books and Records .................................................................................................... 28
i. WHITEBOOK BCL § 624 and § 1315 ............................................................................................ 28
ii. Saito v. McKesson HBCO, Inc. (2002) – pg. 224 .......................................................................... 28
iii. Shareholders’ Inspection Rights.................................................................................................. 28
c. Stockholder List in a Dematerialized World (textbook page 232-239) ........................................... 29
i. Concept Release on the US Proxy System .................................................................................. 29
d. Reporting under State Law ............................................................................................................. 29
i. WHITEBOOK – BCL §624(e) ......................................................................................................... 29
e. Overview of the SEC and the Securities Exchange Act ................................................................... 29
i. Textbook pages 240-242 ............................................................................................................. 29
ii. Statutory Supplement pg. 274-274 ............................................................................................. 29
f. Periodic Disclosure under the Securities Exchange Act (textbook page 243) ................................ 30
i. Addresses the information deficiencies in state law by imposing periodic reporting
requirements on corporations with a security registered under § 12. .............................................. 30
VII. The Proxy Rules ............................................................................................................................... 30
a. Securities Exchange Act .................................................................................................................. 30
i. §14(a) – pg. 279 of Statutory Supplement .................................................................................. 30
ii. §14(c) .......................................................................................................................................... 30
iii. §14(a)-1, §14(a)-2, §14(a)-6 --- pg. 293-300 & 303-308 of Statutory Supplement ..................... 30
b. Introduction .................................................................................................................................... 30
i. Definitions ................................................................................................................................... 30
v. Arnold v. Browne (1972) – pg. 296 ............................................................................................. 35
vi. Slottow Fidelity Federal Bank v. American Casualty Co. (1993) – pg. 297 .................................. 35
vii. Radaszewski v. Telecom Corp. (1992) – pg. 297 ..................................................................... 35
viii. Berkey v. Third Ave. Ry. Co. (1926) – pg. 298 ......................................................................... 36
ix. Note on Variations among States in applying the Piercing The Veil Doctrine ............................ 36
x. Note on Direct Liability ............................................................................................................... 36
e. Equitable Subordination of Shareholder Claims ............................................................................. 36
i. Equitable Subordination ............................................................................................................. 36
ii. Comparison with Piercing ........................................................................................................... 36
IX. The Special Problems of Shareholders in Close Corporations ........................................................ 36
a. Introduction .................................................................................................................................... 36
i. Uniform Limited Liability Company Act ...................................................................................... 36
ii. Corporations are divided into three classes ............................................................................... 36
b. Voting Arrangements at the Shareholder Level.............................................................................. 37
i. Shareholder Voting Agreements ................................................................................................. 37
ii. Voting Trusts ............................................................................................................................... 37
iii. Classified Stock ............................................................................................................................ 38
c. Agreements Controlling Decisions that are within the Board’s Discretion .................................... 38
i. WHITEBOOK BCL §620, 715(b) .................................................................................................... 38
ii. McQuade v. Stoneham (1934) – pg. 320 .................................................................................... 38
iii. Clark v. Dodge (1936) – pg. 323 .................................................................................................. 38
iv. Galler v. Galler (1964) – pg. 324 ................................................................................................. 38
v. Adler v. Svingos (1981) – pg. 331 ................................................................................................ 38
d. Supermajority Voting and Quorum Requirements at the Shareholder and Board Levels ............. 38
i. WHITEBOOK BCL §608, 616-617, 705, 708, 709 ......................................................................... 38
ii. Sutton v. Sutton (1994) – pg. 332 ............................................................................................... 38
e. Fiduciary Obligations and Shareholders in Close Corporations ...................................................... 38
i. Donahue v. Rodd Electrotype Co. (1975)—pg. 336 .................................................................... 38
ii. Rosenthal v. Rosenthal (1988) – pg. 343 .................................................................................... 39
iii. Wilkes v. Springside Nursing Home, Inc. (1976) – pg. 344.......................................................... 39
iv. Zimmerman v. Bogoff (1988) – pg. 350 ...................................................................................... 39
v. Smith v. Atlantic Properties (1981) – pg. 350 ............................................................................. 39
a. Introduction .................................................................................................................................... 39
i. Uniform Limited Liability Company Act §101, 103, 201-203, 301-303, 404, 405, 408-409
xi. Distributions ................................................................................................................................ 40
xii. Members’ Interests ................................................................................................................. 41
xiii. Liability .................................................................................................................................... 41
xiv. Dissociation ............................................................................................................................. 41
b. Piercing the LLC Veil ........................................................................................................................ 41
i. Kaycee Land and Livestock v. Flahive (2002) – pg. 400 .............................................................. 41
c. Fiduciary Duties ............................................................................................................................... 41
i. Salm v. Feldstein (2005) – pg. 405 .............................................................................................. 41
ii. Vgs, Inc. v. Castiel (2000) – pg. 406 ............................................................................................. 41
iii. Gatz Props. LLC v. Auriga Capital Corp. () -- TWEN ..................................................................... 41
d. Dissolution ...................................................................................................................................... 41
i. In the Matter of 1545 Ocean Avenue LLC () -- TWEN ................................................................. 41
XI. The Duty of Care and Duty to Act in Good Faith ............................................................................. 41
i. WHITEBOOK BCL §402(b), 717, 719, 720 .................................................................................... 41
b. The Duty of Care ............................................................................................................................. 41
i. The Basic Standard of Care ......................................................................................................... 41
ii. The Business Judgment Rule ....................................................................................................... 41
iii. The Duty to Monitor, Compliance Programs and Internal Controls ........................................... 42
iv. Liability Shields ............................................................................................................................ 42
c. Duty to Act in Good Faith ................................................................................................................ 43
i. In re the Walt Disney Company Derivative Litigation (2006) – pg. 479 ...................................... 43
ii. Stone v. Ritter (2006) – pg. 484 .................................................................................................. 43
XII. The Duty of Loyalty ......................................................................................................................... 43
a. Self Interest Transactions ................................................................................................................ 43
i. Gantler v. Stephen (2009) – pg. 486 ........................................................................................... 43
ii. Lewis v. SL & E, Inc. (1980) – pg. 496 .......................................................................................... 43
b. Statutory Approaches ..................................................................................................................... 43
i. WHITEBOOK BCL §713, 714 ........................................................................................................ 43
ii. Cookies Food Products v. Lakes Warehouse (1988) – pg. 513 ................................................... 43
c. Compensation and the Doctrine of Waste, and the Effect of Shareholder Ratification ................ 43
i. WHITEBOOK BCL §202(a)(10),(13), §712(a)(3), §714, §720 ....................................................... 43
ii. Compensation ............................................................................................................................. 43
iii. Ryan v. Gifford (2007) – pg. 527 ................................................................................................. 43
d. Corporate Opportunity Doctrine .................................................................................................... 43
i. Northeast Harbor Golf Club, Inc. v. Harris (1995) – pg. 537 ....................................................... 43
ii. In re Ebay, Inc. Shareholders Litigation (2004) – pg. 552 ........................................................... 43
e. Duties of Controlling Shareholders ................................................................................................. 43
i. WHITEBOOK BCL §903 ................................................................................................................ 43
ii. Zahn v. Transamerica Corporation (1947) – pg. 553 .................................................................. 43
iii. Sinclair Oil Corporation v. Levien (1971) – pg. 561 .................................................................... 43
iv. Kahn v. Lynch Communication Systems, Inc. (1994) – pg. 567 ................................................... 43
v. In re Trados Inc. Shareholders Litigation (2009) – pg. 579 ......................................................... 43
f. Sale of Control ................................................................................................................................. 43
i. Zetlin v. Hanson Holdings, Inc. (1979) – pg. 587 ......................................................................... 43
ii. Perlman v. Feldman (1955) – pg. 591 [Contrast with DeBaun v First Western Bank & Trust Co]
43
XIII. The Antifraud Provision: Section 10(b) and Rule 10(b)-5 ............................................................... 44
a. Introduction to Section 10(b) and Rule 10(b)-5 .............................................................................. 44
i. Securities Exchange Act – Statutory Supplement pg. 273 and 290 ............................................ 44
ii. The Wharf Limited v. United International Holdings, Inc. (2001) – pg. 609 ............................... 44
b. Elements of Standing and Scienter ................................................................................................. 44
i. The purchaser-seller requirement .............................................................................................. 44
ii. “in connection with” requirement .............................................................................................. 44
c. Duty to Speak .................................................................................................................................. 44
i. ........................................................................................................................................................... 44
d. Junction of Breaches of Fiduciary duty and Rule 10(b)-5 ............................................................... 44
i. Santa Fe Industries, Inc. v. Green (1977) – pg. 653 .................................................................... 44
XIV. Insider Trading ................................................................................................................................ 44
a. Common Law Background .............................................................................................................. 44
i. Majority Rule ............................................................................................................................... 44
ii. Special facts................................................................................................................................. 44
iii. Atrophy ....................................................................................................................................... 44
b. Federal Disclose or Abstain Requirement ....................................................................................... 44
i. Statutory Supplement ................................................................................................................. 44
ii. In the Matter of Cady, Roberts, & Co. (1961) – pg. 657 ............................................................. 44
iii. Securities and Exchange Commission v. Texas Gulf Sulphur Co. (1968) – pg. 658 ..................... 44
iv. Chiarelly v. United States (1980) – pg. 673 ................................................................................. 44
v. United States v. O’Hagan (1997) – pg. 680 ................................................................................. 44
vi. Dirks v. Securities and Exchange Commission (1983) – pg. 693 ................................................. 44
c. Liability for Short-Swing Trading Under Section 16(b) of the Securities Exchange Act .................. 44
i. Statutory Supplement ................................................................................................................. 44
language saying that no partnership is intended conclusive. The entire
agreement will be looked at in making this determination. Notwithstanding the
appearance of control over an organization, where all of the features of the
agreement between the parties are consistent with a loan agreement, no
partnership has been formed.
v. Lupien v. Malsbenden (1984) – pg. 53
1. Δ’s financial interest in a business, combined with his participation in its day-to-day business made him a partner even if the partners considered themselves
creditor and borrower. (Δ had invested $85,000 in the kit car segment of York’s
business. Δ characterized this investment as a no-interest loan. Much of the
loan took the form of day-to-day payments for kits and other parts, equipment,
and the salary of at least one employee. Repayments of principal were due on
the sale of kits rather than at fixed times. Δ opened the business daily, order
parts, and sold business assets.)
vi. Formation of Partnerships
1. No formalities required – no filing necessary
2. Sharing of Profits – parties continue money or services in return for share of
the profits, if any, is a prima facie evidence of a general partnership
3. Four Element test
a. Four Part test to determine whether or not there is a partnership
when there is no express agreement
i. An agreement to share profits,
ii. an agreement to share losses,
iii. a mutual right of control or management of the business, and
iv. Community of interest in the venture
b. UPC does not require the loss-sharing or the control elements
i. Mutual Right of Control and Loss-Sharing are evidence of a
partnership but NOT a requirement of one
vii. Joint Ventures
1. Note: Joint ventures and partnerships are very similar
a. JVs are sometimes subject to partnership rules in court proceedings
b. “special rules” are also sometimes invoked to enable certainprocedures in JVs that are not allowed in partnerships
b. Legal Nature of a Partnership [Pg. 58-60 of Textbook]
c. The Ongoing Operation of Partnerships
i. Uniform Partnership Act pg. 34-35 of Statutory Supplement
1. § 18 Rules Determining Rights and Duties of Partners
2. § 19 Partnership Books
3. § 20 Duty of Partners to render Information
ii. Summers v. Dooley (1971) –pg. 60 of Textbook
1. In a two person partnership, one partner cannot, over objection of the other
partner, take action that will bind the partnership. Where equal partners exist
(i.e., partners have equal rights in conduct of the affairs of the partnership),
then differences on business matters must be decided by a majority of the
partners.
iii. Sanchez v. Saylor (2000) – pg. 62 of Textbook
iv. Management of Partnerships
1. absent an agreement, the default rule is that each partner is entitled to EQUAL
control (doesn’t matter how much money they contributed)
v. Indemnification and Contribution
1. Each partner is only liable for his share of partnership obligations.
a. I.e. if one partner pays off a whole debt, he can collect the other
4. Conflict between specific partnership assets & personal property – depends on
whose money was used to buy the property; if partnership money was used,
it’s partnership property, & vice versa
g. The Partners Duty of Loyalty
i. Meinhard v. Salmon (1928) – pg. 74 of textbook
1. Δ's fiduciary obligation to his joint venture partner as a joint venture
"opportunity"? Joint venture partners have the highest obligation of loyalty totheir partners. This includes an obligation not to usurp opportunities that are
incidents of the joint venture. The duty is even higher of a managing co-
adventurer. There was a close nexus between the joint venture and the
opportunity that was brought to the manager of the joint venture, since the
opportunity was essentially an extension and enlargement of the subject
matter of the existing venture.
ii. Fiduciary Duties – partners are fiduciaries of each other & the partnership:
1. Duty of loyalty
a. Partners may never engage in self-dealing
b. No usurping partnership opportunities; and
c. No secret profits
2. Action for account (NY RULE) – the only form of action that can be filed by the
partnership against its own partners and between partners
a. Partnership may
i. Recover losses caused by a partner’s breach
ii. Disgorge profits made by the breaching partner & put those
profits into a constructive trust for the partnership’s benefit
b. Between partners – an equitable proceeding whereby liabilities
between each partner & the partnership are converted into liabilities
between the partners individuals (an action lies to recover the balance
due any partner)
iii. General Partners are personally liable for debts of partnership
1. Incoming partner’s liability – generally, an incoming partner is NOT liable for
prior, pre-existing debts/obligations; except for any contributions to the
partnership may be used for any purpose (including satisfying priordebts/obligations)
2. Outgoing Partner’s liability – retains liability on future debts/obligations UNTIL
notice of withdrawal has been given to all known, & potential creditors
a. But liability for future debt/obligations are terminated upon death of
the outgoing partner
iv. Nature of Liability
1. Joint & Several Liability (one or more partners may be sued) – for torts and
breaches of trust
2. Joint Liability (all partners must be sued) – for all other debts and obligations
v. Extent of Liability
1. Each partner is personally and individually liable for entire amount of
partnership debts & obligations, and for partnership
vi. Partnership Liability by Estoppel
1. One who represents to a 3rd
party that a partnership exists will be liable as if a
partnership exists
a. I.e. Fact Pattern Liability – formation issue – liability by estoppel
h. Side Notes on partnerships
i. Salary
1. Absent an agreement, partners get NO salary (doesn’t matter how many hours
i. In re the Walt Disney Company Derivative Litigation (2006) – pg. 479
ii. Stone v. Ritter (2006) – pg. 484
XII. The Duty of Loyalty
a. Self Interest Transactions
i. Gantler v. Stephen (2009) – pg. 486
ii. Lewis v. SL & E, Inc. (1980) – pg. 496b. Statutory Approaches
i. WHITEBOOK BCL §713, 714
ii. Cookies Food Products v. Lakes Warehouse (1988) – pg. 513
c. Compensation and the Doctrine of Waste, and the Effect of Shareholder Ratification
i. WHITEBOOK BCL §202(a)(10),(13), §712(a)(3), §714, §720
ii. Compensation
1. Structure of executive compensation
2. Short term components of compensation
3. Long term components of compensation
4. Restricted stock
5. Stock options
6. Long term incentive plans
iii. Ryan v. Gifford (2007) – pg. 527
d. Corporate Opportunity Doctrine
i. Northeast Harbor Golf Club, Inc. v. Harris (1995) – pg. 537
ii. In re Ebay, Inc. Shareholders Litigation (2004) – pg. 552
e. Duties of Controlling Shareholders
i. WHITEBOOK BCL §903
ii. Zahn v. Transamerica Corporation (1947) – pg. 553
iii. Sinclair Oil Corporation v. Levien (1971) – pg. 561
1. Where there is self-dealing, the intrinsic fairness test must be applied, which
puts the burden on the majority shareholder to show that the transaction with
the subsidiary was objectively fair.
2. On the dividend issue there was no self-dealing (since the parent did not
receive something from the subsidiary to the exclusion or detriment of theminority shareholders; they shared pro rata in the dividend distributions). On
the expansion issue, D did not usurp any opportunities that would normally
have gone to the subsidiary. Thus, the business judgment rule applies; the
court will not disturb a transaction under this rule unless there is a showing of
gross overreaching, which there was not.
3. Note. This case is confused. The court should have decided on one standard to
apply in situations of transactions where the majority controls the corporation.
If the standard is the intrinsic unfairness test, then one element is self-dealing.
Where it is absent, there is no violation.
iv. Kahn v. Lynch Communication Systems, Inc. (1994) – pg. 567
v. In re Trados Inc. Shareholders Litigation (2009) – pg. 579
f. Sale of Control
i. Zetlin v. Hanson Holdings, Inc. (1979) – pg. 587
ii. Perlman v. Feldman (1955) – pg. 591 [Contrast with DeBaun v First Western Bank &
Trust Co]
1. A majority shareholder owes a duty to the minority shareholders to investigate
an individual and not to sell to him if they reasonably should know he will loot
the corporation.
a. Δ knew of Mattison’s numerous financial failures and that Mattison
could not meet his obligations to pay for the corporation without