Term
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Definition
| Corp. that has compiled strictly with all of the mandatory provisions for incorporation. |
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Term
| "de facto" corporation (and reqs) |
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Definition
Corp. that has not complied with all mandatory requirements to obtain de jure status, but with enough to be given corporate status vis-a-vis third parties (though not against the state)
a) Incorporators acted in good faith; and
b) Incorporators had the legal right to incorporate; and
c) Entity acted like a corporation. |
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Term
| corporation by estoppel (and reqs) |
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Definition
doctrine that when one has benefitted from dealing with what he thought was a corp. and none of his substantial rights were affected, one cannot use the fact that it turns out they weren't a corp. to escape obligations to it. (Southern Gulf Marine)
If third-party:
a) thought it was a corporation, or
b) would earn a windfall if allowed to argue the entity is not a corporation (e.g., Camcraft in Southern Gulf Marine).
Reliance and windfall
Applies to contract but not tort |
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Term
| 4 main characteristics that distinguish corps. from other organizational entities |
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Definition
| free transferability of shares, perpetual life, limited liability, and centralized management |
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Term
| situations where corporate veil may be pierced (3) |
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Definition
1. fraud or unjustice (to outside parties, such as creditors)
2. disregard of corporate requirements (where the shareholders do not maintain the corporation as a separate entity but use it for personal purposes)
3. undercapitalization (where the corp. is undercapitalized given the liabilities, desk, and risk it reasonably could be expected to incur |
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Term
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Definition
| In the context of a bankrupt entity, someone who is both a creditor and an equity holder will have his credit claims subordinated to those who are only debt holders. |
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Term
| 4 main distinguishing characteristics of debt as opposed to equity |
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Definition
1) fixed claim
2) no control over corp (subject to restrictions imposed by particular covenants)
3) insolvency right (may force a firm into bankruptcy and demand payment if firm doesn't pay in time)
4) priority in claim (in case of bankruptcy or liquidation) |
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Term
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Definition
| debt not secured by property (cf. mortgage bonds) |
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Term
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Definition
| captures the reaction of individual stocks in relation to general market movements |
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Term
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Definition
| essentially a numerical description of systematic risk. comparison between the movements of an individual stock or portfolio and the movements of the market as a whole |
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Term
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Definition
| is the variability in stock prices that results from factors peculiar to the particular firm. These are the types of risks that we can diversify away by owning stock in several different companies |
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Term
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Definition
| Capital Asset Pricing Model. Hypothesis that the only sort of risk that should command a premium on the stock market is systematic risk, since it cannot be diversified away. |
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Term
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Definition
| one in which stock prices fully reflect available information |
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Term
| efficient market hypothesis |
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Definition
| predicts that the new value should be reflected in the share price immediately |
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Term
| weak form of capital market efficiency |
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Definition
| A capital market is said to be weakly efficient if it fully incorporates information on past stock prices. We expect all markets to be weak form efficient because this information is readily available and easy to process. |
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Term
| semistrong form of capital market efficiency |
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Definition
| A market is semistrong when the price reflects all of the publically available information out there. This type of efficiency implies more market sophistication. |
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Term
| strong form of capital market efficiency |
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Definition
| A market is strong form efficient if its prices include all information on the firm, both public and private—essentially, any and all information that is pertinent to the value of the firm that is known by at least one investor. A believer in strong form efficiency would say that insider trading couldn’t lead to any special gains. |
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Term
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Definition
| Occurs when buying and selling the same security simultaneously may produce a profit. |
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Term
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Definition
| stocks with high book-value-to-price and/or earnings-to-price ratios |
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Term
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Definition
| stocks with low book-value-to-price and/or earnings-to-price ratios |
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Term
| venture capital (VC) firms |
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Definition
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Term
| private equity (PE) firms |
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Definition
| (AKA LBO - leveraged buyout firm) buys out public companies and take them private (with the goal of trying to improve the business) |
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Term
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Definition
| companies that are funded at a later stage. They’ve been operating for some time but need capital to grow and expand |
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Term
| distressed fund investors |
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Definition
| subset of PE firm that focuses on growth equity funds |
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Term
| General structure of VC fund |
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Definition
| limited partnership where the general partners are the venture capitalists and the limited partners are investors (typically an LLC) |
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Term
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Definition
| the rate of return that will be earned by a lender if the full amount of interest and principal that the borrower has agreed to pay are paid on schedule. So for a $1,000 loan where the borrower has to pay $100 interest per year and $1,000 back at the end of 10 years, the yield is 10% |
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Term
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Definition
| AKA variance. degree of dispersion or variation of possible outcomes |
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Term
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Definition
1. volatility risk (variance)
2. default risk |
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Term
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Definition
| fixed date at which the firm must pay the principal sum of a bond debenture, or note |
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Term
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Definition
bond = long-term obligation secured by a mortgage on some property of the issuer
debenture = long-term unsecured obligation
"bond" often used to mean both types though |
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Term
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Definition
| AKA par value. the amount that must be paid on maturity of the bond. |
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Term
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Definition
| plaintiff who wishes to commence a derivative action must either first make a demand on the board of directors to bring the action or demonstrate that demand was excused |
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Term
| what most plaintiffs do wrt to the demand requirement (and why) |
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Definition
| usually argue was excused b/c, for instance, in Del. the making of demand concedes that a BJR test applies to the board's decision to reject the demand. Also plaintiff is not allowed discovery. |
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Term
| How plaintiff gets demand excused |
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Definition
| Alleges that a majority of the board personally benefited from the challenged transaction or was otherwise subject to a legally disabling conflict of interest. Or else that the decision was corrupt or reckless. |
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Term
| How Del.'s demand rule compares to others |
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Definition
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Term
| special litigation committees |
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Definition
| can be appointed if a majority of the board is implicated in a suit (and thus demand is excused) to thoroughly investigate the claims and decide whether to continue or dismiss. Made up of remaining disinterested directors and/or newly appointed (by an expansion of the board) disinterested directors, who team up with outside counsel. Invariably decide to dismiss the suit. |
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Term
| Standard of review of SLC's decision to dismiss a suit |
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Definition
| Differs b/w courts. NY applies BJR and doesn't review substance, while NC reviews the merits of the substance. Del. leaves it in the discretion of the trial court whether or not to engage in substantive review of the special committee's justifications for dismissal. |
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Term
| popular justification SLC might give for dismissal |
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Definition
| expenses of the action would equal or exceed recovery |
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Term
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Definition
| Under '34 Act, a corp. that has at least 500 shareholders in the U.S. and a minimal level of assets. Has to file periodic reports on both an annual (10-K) and quarterly (10-Q) basis. |
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Term
| '33 act disclosure requirements |
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Definition
| corp. must file a registration statement with the SEC and have it declared effective before it can make a public offering to investors. statement must contain prospectus, which must be delivered to each investor who purchases shares. |
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Term
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Definition
| SEC rule that authorizes a defrauded buyer or seller to sue in a federal court if a material misstatement or non-disclosure is made "in connection with" a purchase or sale of a security. (case law has given "in connection with" an expansive definition) |
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Term
| 2 main ways in which compliance with fed. security laws benefits investors |
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Definition
1) by requiring substantial transparency
2) by protecting investors from dishonest management |
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Term
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Definition
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Term
| traditional statutory merger |
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Definition
| Company S merges into Company L. L's shareholders are in control, and S's shareholders are compensated with cash or L's securities (or both) for their S shares. Requires approval by vote of S's shareholders (and sometimes also L's). L absorbs all of S's assets and liabilities and S basically disappears. S's shareholders who opposed the merger get appraisal right. |
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Term
| triangular merger and its advantages |
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Definition
L creates subsidiary B. B merges into S, or vice-versa (with L being shareholder or B). S shareholders given cash or L securities.
Advantages:
- insulation from liabilities of S
- avoidance of vote by, and appraisal rights for, S shareholders (because L, as B's shareholder, could approve merger of B into S?) |
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Term
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Definition
| "informal" or "practical" merger. L acquires (for cash or for its shares or some of each, though if for cash, not technically a B-type for tax purposes) enough S shares to give it control of S. S thus becomes an L subsidiary. Thus, just between shareholders of S and L, with no involvement of of S as a corp. May be followed by a dissolution of S or by a "short-form" A-type merger of S into L. |
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Term
| "short-form" A-type merger |
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Definition
| merger according to statutes which authorize a corp that owns some specified percentage of stock of another corp (usually 90 or 95%) to merge that company into itself without a shareholder vote, or any action at all from other company, or shareholders of parent company (all done by the board of parent) |
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Term
| three basic merger techniques |
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Definition
1) statutory merger
2) purchase of stock
3) purchase of assets |
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Term
| C-type acquisition (and advantages) |
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Definition
L acquires assets of S for cash or its stock or some of each (but if cash not C for purposes of tax). Most often, S then liquidates and distributes the case and/or stock it got to shareholders. No formal transaction to L and the S shareholders, although some states (inc. Del.) require vote by S shareholders for the sale of substantially all its assets)
Advantages:
- L may be able to avoid succeeding to the liabilities of S
- Depending on state law, S shareholders may not have an appraisal remedy. |
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Term
| A-type short-form merger in D.G.C.L. |
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Definition
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Term
| A-type long-form merger in D.G.C.L. |
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Definition
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Term
| appraisal rights in 251 merger under D.C.G.L. |
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Definition
doesn't apply to 251(g) mergers (of wholly-owned subsidiaries).
section 262(b)(1).
shareholders only get rights if:
- they had the right to vote on the merger
- they voted against the merger
- there are fewer than 2,000 total shareholders and
- the stock is not traded on a public stock exchange
OR
- if shareholders were required to accept anything other than shares of stock of surviving corp, shares of stocks of any other publicly tradeable corp, |
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Term
| appraisal rights in 253 merger under D.C.G.L. |
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Definition
section 262(b)(3).
minority shareholders always get them. |
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Term
| exceptions to shareholder vote requirement of §253 |
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Definition
§ 251(f): No shareholder vote is necessary for the surviving company if the incidents of ownership remain essentially unchanged (same charter, same shares of stock, etc.).
§ 251(g): No shareholder vote is necessary for merger with a wholly-owned subsidiary |
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Term
| approval reqs of 251 merger |
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Definition
| requires both boards to approve the merger, for the shareholders to vote, requires a majority (50%) of the outstanding |
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Term
| 3 main advantages of sole proprietorship |
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Definition
1. no allocation concerns (all profits and losses to SP)
2. simplest and cheapest forms
3. tax advantage (only get taxed once) |
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Term
| 3 main disadvantages to sole proprietorship |
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Definition
- unlimited liability
- limited capital
- lack of business continuity (like if owner dies) |
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Term
| two-tier tax of corporation |
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Definition
1. corporation taxed on its earnings
2. shareholders taxed on any dividends they receive, which dividends are not deductible from the corp's earnings |
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Term
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Definition
| an individual who has agreed to work on behalf of another but is not subject to that person's/company's "physical control." no vicarious liability for IC's torts, but maybe liability under other theories, like if there are ultrahazardous conditions. |
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Term
| 3 ways of creating agency relationship |
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Definition
1. by agreement
2. by ratification
3. agency by estoppel |
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Term
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Definition
| a principle may act in such a way that a third person reasonably believes that someone is the principal's agent, and relies on this in good faith to their detriment |
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Term
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Definition
| occurs when the principal accepts the benefits or otherwise affirms the conduct of someone purporting to act for the principal, even though no actual agency agreement exists. can be expressed or implied. all or nothing. |
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Term
| master-servant relationship |
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Definition
| the fiduciary relationship that results from the manifestation of consent that one person (the servant) shall act on behalf of and subject to the control of another person (the master), where "manifestation of consent" is objective (only matters what the principal says and does, and thus what the agent believed, not how the principal actually felt about it). |
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Term
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Definition
| if the principal is held liable when the servant is not at fault (strict liability). Cf. vicarious liability |
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Term
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Definition
| the fiduciary relationship that results from the manifestation of consent that one person (the agent) shall act on behalf of another person (the principal), where "manifestation of consent" is objective (only matters what the principal says and does, and thus what the agent believed, not how the principal actually felt about it). |
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Term
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Definition
| one who agrees to act on behalf of the principal but is not subject to the principal's control over how the task is performed. E.g. independent contractor. |
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Term
| take home from Humble and Hoover cases |
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Definition
| risk is seen as a proxy for control in assessing whether someone was a servant or an independent contract |
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Term
| vicarious liability: fault requirement? |
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Definition
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Term
| types of authority (in agency law) |
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Definition
1. actual (express or implied) authority
2. apparent authority
3. inherent authority |
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Term
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Definition
| A can do the usual things necessary to carry out X, which is what she has express authority to do, even though these things are not specified by the P. |
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Term
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Definition
| There is no actual authority for the agent to do X, but there’s a manifestation by the principal to the third party that the agent has authority to do X. |
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Term
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Definition
| a general agent binds an undisclosed principal to contract that are within the usual scope of authority of agents of the same type, even where the agent had neither actual or apparent authority |
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Term
| type of authority in Lind |
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Definition
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Term
| type of authority in Watteau v. Fenwick |
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Definition
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Term
| type of authority in Kidd |
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Definition
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Term
| diff b/w apparent authority and estoppel |
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Definition
| apparent authority makes the principal a contracting party with the third party, with rights and liabilities on both side, while estoppel only compensates the third party for losses arising from reliance (creates no enforcement rights) |
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Term
| significant of Town & Country House & Home |
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Definition
| Even after fiduciary relationship ends, agent has a duty not to use principal’s private information to compete with principal. |
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Term
| diminishing marginal utility |
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Definition
| the more you get the less utility you get from it |
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Term
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Definition
| the sum of the monitoring expenditures by the principal, the bonding expenditures by the agent, and the residual loss. |
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Term
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Definition
| The principal’s expenditures to limit divergencies from his interest by establishing appropriate incentives for the agent. |
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Term
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Definition
| The agent’s expenditures to guarantee that she will not harm the principal’s interest. |
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Term
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Definition
| the dollar equivalent of the reduction of welfare experienced by the principal due to the divergence between the agent's decisions and those decisions that would maximize his welfare |
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Term
| decisions in partnerships (UPA) |
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Definition
| Each partner has an equal vote, and decision altering the partnership must be made by a majority vote. |
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Term
| Power of Partner to Bind Partnership to Third Persons After Dissolution (UPA) |
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Definition
| Clients must be notified to avoid apparent authority. There can be no reliance after dissolution of partnership if client was unaware that partnership existed in the first place. |
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Term
| joint and several liability |
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Definition
| where a claimant may pursue an obligation against any one party as if they were jointly liable (liable for the entire amount( and it becomes the responsibility of the defendants to sort out their respective proportions of liability and payment. |
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Term
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Definition
| if no term is specified, partnership is terminable at the will of any partner |
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Term
| bottom line of Fenwick v. Unemployment Compensation Commission |
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Definition
| No partnership exists where there is no shared control. |
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Term
| bottom line of Martin v. Peyton |
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Definition
| No partnership exists where lender has only passive control of business. A creditor may exercise some limited measure of control without becoming a partner. |
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Term
| Bottom line of National Biscuit Co. v. Stroud |
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Definition
| In the absence of other contractual arrangements, partners have an equal right to conduct transactions in the normal course of business on behalf of the partnership. Absent agreement to the contrary, the acts of every partner bind the partnership. |
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Term
| Bottom line of Meinhard v. Salmon |
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Definition
| A managing partner’s fidicuary duty is breached when he seizes a partnership opportunity for himself |
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Term
| bottom line of Page v. Page |
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Definition
| A partnership may be dissolved at will by any partner in the absence of an agreement specifying a definite term for the partnership |
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Term
| Bottom Line of G&S Investments v. Belman |
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Definition
| A partnership may be dissolved when a partner becomes incapable of performing under the partnership agreement, when a partner’s conduct tends to affect the business prejudicially, or when a partnership willfully breaches the partnership agreement’s terms, and the innocent/remaining partners get the right to continue the business |
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Term
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Definition
| approval by board of directors OR shareholders (or both) |
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Term
| amending corp charter in Del. |
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Definition
| approved by board, then voted on by all voting shareholders, AND any nonvoting shareholders it would adversely affect. If would only affect a certain class, only that class votes. Need 50% of whatever group votes. |
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Term
| Bottom line of Southern Gulf Marine v. Camcraft |
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Definition
| One who benefits from dealing with what he believes is a corporation is estopped from claiming it is not a corporation. |
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Term
| Bottom line of Walkovsky v. Carlton |
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Definition
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Term
| main factors considered in whether to pierce the veil (3) |
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Definition
1) observance of corporate formalities (was this really a corp, or just a person?)
2) fraud/injustice (would it be fair if we didn't pierce?)
3) undercapitalization (mostly an issue in torts cases) |
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Term
| statutory standard for "material" (as in material omission on registration statement) |
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Definition
| “matter[] as to which an average prudent investor ought reasonably be informed,” which the court interprets as a “matter[] which such an investor needs to know before he can make an intelligent, informed decision whether or not to buy the security.” |
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Term
| defense to material misstatement in registration statement |
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Definition
due diligence
= - “[H]ad, after reasonable investigation, reasonable ground to believe and did believe, at the time such part of the registration statement became effective, that the statements therein were true and that there was no omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading.” |
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Term
| bottom line(s) of Campell v. Loew's, Inc. |
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Definition
| (1) Board members may be removed without cause (unless there's a staggered board). (2) Obstruction of the corporation’s normal business is legally sufficient cause, but attempting to take over the corporation is not. (3) Before Board members are removed they have a right to be heard by shareholders. |
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