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Corporate practice

Why BusOrgs?. Bar exam. Corporate practice. Law profession. Citizen of world. Fundamentals Introduction to firm Corporate basics Corporations and policy Corporate federalism Corporate social responsibility Corporate political action Corporate form Organizational choices

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Corporate practice

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  1. Why BusOrgs? Bar exam Corporate practice Law profession Citizen of world Chapter 1 Introduction to the Firm

  2. Fundamentals Introduction to firm Corporate basics Corporations and policy Corporate federalism Corporate social responsibility Corporate political action Corporate form Organizational choices Incorporation Locating corporate authority Corporate finance Numeracy for corporate lawyers Capital structure Corporate externalities Piercing corporate veil Corporate environmental liability Corporate criminal liability Corporate governance Shareholder voting Shareholder information rights Public shareholder activism Fiduciary duties Shareholder litigation Board decision making Board oversight Director conflicts Executive compensation Corporate groups Stock trading Securities markets Securities fraud class actions Insider trading Corporate deals Sale of control Antitakeover devices Deal protection Close corporations Planning Oppression • Fundamentals • Introduction to firm • Corporate basics • Corporations and policy • Corporate federalism • Corporate social responsibility • Corporate political action • Corporate form • Organizational choices • Incorporation • Locating corporate authority • Corporate finance • Numeracy for corporate lawyers • Capital structure • Corporate externalities • Piercing corporate veil • Corporate environmental liability • Corporate criminal liability • Corporate governance • Shareholder voting • Shareholder information rights • Public shareholder activism • 7. Fiduciary duties • Shareholder litigation • Board decision making • Board oversight • Director conflicts • Executive compensation • Corporate groups • 10. Close corporations • Planning • Oppression Chapter 1 Introduction to the Firm

  3. Schedule Fall 2014 Workshops: Sep 11 / Sep 25 / Oct 9 / Nov 13 No classes: Oct 26-30 / Nov 3-6 Exam period: Dec 8-19 Chapter 1 Introduction to the Firm

  4. Grading (see Syllabus) Three components: Shareholder proposal memo – due Nov 21 (20%) Multiple-choice exam – during exam period (30%) 3. Final essay exam – during exam period (50%) Chapter 1 Introduction to the Firm

  5. Your input … 1. College / major / post-college experience Name / Year 2. Business background: 1-zero to 5-lots (describe) 3. Reason taking course: bar, practice, lawyer, worldly 4. In my free time … (how you de-stress) Chapter 1 Introduction to the Firm

  6. What you should expect … • Basic rules / vocabulary • Business understanding • Corporation in law / society • Policy – learn to learn Frank Partnoy Chapter 1 Introduction to the Firm

  7. Class “panels” … Mon: Aleesa  Dunn Tue: Emery  McCurdy Wed: McEvoy  Steger Thu: Summit  York Class groups … Five (5) classmates seated nearby Tammy Hsu (3L) [Teaching Assistant] Chapter 1 Introduction to the Firm

  8. Laptops … Chapter 1 Introduction to the Firm

  9. Module I – Fundamentals Chapter 1 Introduction to the Firm • Risks and risk allocation • Controllable/noncontrollable risks • Risk control devices: diversification, insurance, incentives • Allocation devices: owner/agent • Fiduciary duties • Source: judge-made law • Party expectations vs. legal norms • Understanding of human motivations • Role of law • Mandatory vs. default rules • Types of defaults: majoritarian, tailored, penalty • Nature of US corporate law Bar exam Corporate practice Law profession Citizen of world Chapter 1 Introduction to the Firm

  10. The “business firm” Meinhard v. Salmon Allocating risks Fiduciary duties Business firm Essential questions This course Role of law Mandatory vs. default rules US corporate law Chapter 1 Introduction to the Firm

  11. Meinhard v. Salmon(NY 1928) The business story The parties’ motivations? Which business organization? Nature and extent of fiduciary duties? Chapter 1 Introduction to the Firm

  12. Hotel Bristol Salmon Tower Chapter 1 Introduction to the Firm

  13. Risks uncontrollable controllable Expected returns weighted average risk tolerance Manage risk insurance diversification internal allocation externalization Firm organization Risk to principal Risk to agent Shared risk Meinhard (capitalist) Salmon (manager) Chapter 1 Introduction to the Firm

  14. Expected returns(what are returns worth) Scenarios Return (M’s share) Probability Expected(weighted) Upturn(best-case) $15,000 30% $4,500 Middling (likely-case) $10,000 50% $5,000 Downturn (worst-case) ($6,000) 20% ($1,200) TOTAL $8,300 Chapter 1 Introduction to the Firm

  15. Business organization choicesin Meinhard v. Salmon … Who bears risk? What agency costs arise? How is risk-taking compensated? Chapter 1 Introduction to the Firm

  16. Employer-employee Business organization choices… Lender-borrower Joint ownership Meinhard (owner) Meinhard Meinhard (owner) ---- Salmon (owner) Salmon Salmon (owner) Chapter 1 Introduction to the Firm

  17. Fiduciary duties in Meinhard v. Salmon … What did plaintiff argue? What did court hold? What was remedy? Chapter 1 Introduction to the Firm

  18. “Joint adventurers, like copartners, owe to one another, while the enterprise continues, the duty of the finest loyalty.” “A trustee is held to something stricter than the morals of the market place.” “Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior.” “Uncompromising rigidity has been the attitude of courts of equity when petitioned to undermine the rule of undivided loyalty …” Bejamin Cardozo (1870-1938) Chapter 1 Introduction to the Firm

  19. “There was no general partnership, merely a joint venture for a limited object, to end at a fixed time.” “The new lease, covering additional property, containing many new and unusual terms and conditions, with a possible duration of 80 years, was more nearly the purchase of the reversion than the ordinary renewal with which the authorities are concerned.” William Andrews (1858-1936) Chapter 1 Introduction to the Firm

  20. Essential elements of “business firm” Basic structure Terms of relationship Who is “owner” / “manager”? Financing Sharing of profits/losses Insiders’ liability to outsiders Governance Powers of “manager” Oversight by “owner” Information rights of “owner” Fiduciary duties Discretion/duties of “manager” Method of enforcement Liquidity rights Terminate relationship What if no “owner” market? Change relationship Capitalist (owner) Manager (manager) Chapter 1 Introduction to the Firm

  21. Fundamentals Introduction to firm Corporate basics Corporations and policy Corporate federalism Corporate social responsibility Corporate political action Corporate form Organizational choices Incorporation Locating corporate authority Corporate finance Numeracy for corporate lawyers Capital structure Corporate externalities Piercing corporate veil Corporate environmental liability Corporate criminal liability Corporate governance Shareholder voting Shareholder information rights Public shareholder activism Fiduciary duties Shareholder litigation Board decision making Board oversight Director conflicts Executive compensation Corporate groups Stock trading Securities markets Securities fraud class actions Insider trading Corporate deals Sale of control Antitakeover devices Deal protection Close corporations Planning Oppression Chapter 1 Introduction to the Firm

  22. Identify type of rule … Rule 1 - Every employer shall pay to each of his employees wages at not less than $7.25 an hour. Rule 2 - An employment, having no specified term, may be terminated at the will of either party on notice to the other. Rule 3 - An agent, as fiduciary, must use reasonable efforts to give his principal information relevant to affairs entrusted to him and which, as the agent has notice, the principal would desire to have. Rule 4 - An employee cannot compete with his employer during the term of employment. After employment terminates, a non-compete covenant will not be implied. Mandatory rule - cannot agree otherwise Default rule - can agree otherwise Majoritarian (most parties would choose) Tailored (fits parties’ expectations) Penalty (forces parties to negotiate) Chapter 1 Introduction to the Firm

  23. Role of law (in business firms) Chapter 1 Introduction to the Firm

  24. US v. Europe(who is more mandatory?) Company law rules(131 E.U. directives) Chapter 1 Introduction to the Firm

  25. US v. Europe(who is more mandatory?) Mandatory company law rules(67 E.U. directives) Chapter 1 Introduction to the Firm

  26. Group Hypo Your BusOrg professor is co-author of a Corporations casebook published by West. As part of his deal with West, he receives complimentary author copies. A bookseller has come by the professor’s office and offers to buy the book for $30. Should he sell? The professor’s contract with West does not address the resale of complimentary author copies. The professor and his co-author (who share royalties equally) have no agreement about whether they can sell their complimentary copies. Please advise your professor. Chapter 5 Corporation as “Person”

  27. The end Chapter 1 Introduction to the Firm

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