Business Structures

by Epstein, David G.; Freer, Richard D.; Roberts, Michael J.

• ISBN13: 9780314262950
• ISBN10: 0314262954
• Format: Hardcover
• Copyright: 2002-03-01
• Publisher: West Academic

Summary

This law school casebook makes the study of corporations, limited liability companies, partnerships and other forms of business structures understandable and interesting to all students. The book makes the students aware of the business context in which these difficult concepts arise. While all of the classic corporations cases are included, the book also covers Limited Liability Companies (LLCs) and other forms of business structures. Emphasis is placed on the legal issues in starting and growing a business than in representing a Fortune 500 Company.

Table of Contents

What Do Businesses Do and What Do Lawyers for Businesses Do?
Why does someone own a business or an interest in a business?	1	(13)
The Epstein-Freer view and the Roberts view	1	(2)
Views of other ``Gontser Machers''	3	(2)
Views of courts and Legislatures	5	(1)
A.P. Smith Mfg. Co. v. Barlow	5	(9)
How does the owner of a business make money from the business?	14	(1)
How does the owner of a business (and her lawyer) know how much money the business has made and how much money the business is worth?	14	(12)
The income statement	16	(3)
The cash flow statement: a first look	19	(2)
The balance sheet	21	(4)
Cash flow statements: a second look	25	(1)
Financial statements and the value of a business	26	(1)
Problems: use of financial statements	26	(1)
What does a lawyer for a business do?	26	(3)
What are the legal structures for businesses?	29	(6)
What choices are available?	30	(3)
How do you choose?	33	(2)
What is a Sole Proprietorship and How Does It Work?
What is a sole proprietorship? What is sole proprietorship law? What are the problems in starting a business as a sole proprietorship?	35	(1)
What are the problems in operating a business as a sole proprietorship?	36	(24)
Employees and introduction to agency principles	36	(3)
Problems: Liability of the sole proprietor for contracts of his employee	39	(3)
Problems: Liability of the sole proprietor for torts of her employee	42	(1)
Other ``agency'' relationships in business	42	(1)
Attorney-client	42	(1)
Hayes v. National Service Industries	43	(4)
Franchises and other business relationships	47	(1)
Miller v. McDonald's Corp	48	(12)
How does a sole proprietorship grow?	60	(13)
Funding by the owner	61	(1)
Overview of debt and equity	61	(1)
A cash flow view of debt and equity	62	(2)
Borrowing money	64	(1)
Sharing profits with a lender	64	(3)
In re Estate of Fenimore	67	(6)
What is a Partnership and How Does It Work?
What is a partnership?	73	(2)
What is partnership law?	75	(1)
What are the problems in starting a business as a partnership?	76	(3)
Problems: partnership agreement	77	(2)
What are the legal problems in operating a business as a partnership?	79	(13)
Who owns what?	79	(1)
Problems: partnership property	79	(1)
Who decides what the partnership will do?	80	(1)
Problems: partnership decision-making	81	(1)
Meinhard v. Salmon	82	(9)
Who is liable for what to whom?	91	(1)
Liability of the partnership	91	(1)
Liability of the partners	91	(1)
Problems: partnership liability	92	(1)
How does a partnership business grow?	92	(5)
Existing owners	92	(1)
Problem: Capital contribution requirement in partnership agreement	93	(1)
Outside lenders	93	(1)
Problem: partner's guarantee of loans to the partnership	94	(1)
Additional owners (i.e., investors)	94	(1)
Financial issues	94	(1)
Legal issues	95	(1)
Problem: new partners	95	(2)
Earnings from business operations	97	(1)
Problem: use of partnership earnings	97	(1)
How do the owners of a partnership make money?	97	(16)
Salary	97	(1)
Problems: partnership salary	98	(1)
Profits	98	(1)
Problems: partnership profits	98	(1)
Sale of ownership interest to third parties	99	(1)
Problems: sale of partnership interest	100	(1)
Sale of ownership interest back to the partnership	100	(1)
Buy-sell agreements	100	(1)
Withdrawal of a partner	101	(1)
Problems: partner withdrawal	102	(1)
Creel v. Lilly	103	(10)
Partnership endgame	113	(22)
Dissolution, winding up and termination as endgame for the partnership	113	(1)
Problems: partnership dissolution	114	(1)
Problems: winding up	115	(1)
Problems: partnership accounts	116	(1)
Kovacik v. Reed	117	(4)
Expulsion as endgame for a partner	121	(1)
Bohatch v. Butler & Binion	122	(7)
Freeze out as endgame for a partner	129	(1)
Page v. Page	130	(5)
What is a Corporation and How Does a Business Become a Corporation?
What is a corporation and what is corporation law?	135	(6)
A corporation is	138	(2)
Corporate law is	140	(1)
What are the legal problems in starting a business as a corporation?	141	(16)
Preparing the necessary papers	141	(2)
Problems: Articles and bylaws	143	(1)
Contracting before incorporating	144	(1)
Problems: promoter	144	(1)
Issuing stock	145	(5)
Problems: issuance	150	(1)
Choosing the state of incorporation and qualifying as a ``foreign corporation''	151	(6)
How Does a Corporation Operate?
Who is liable to the corporation's creditors?	157	(23)
DeWitt Truck Brokers, Inc. v. W. Ray Flemming Fruit Co	158	(8)
In re Silicone Gel Breast Implants Liability Litigation	166	(14)
Who gets to make decisions for the corporation?	180	(72)
Board of directors and officers	181	(5)
Problems: corporate decision-making	186	(1)
McQuade v. Stoneham	187	(5)
Shareholders' decisions instead of directors' decisions	192	(1)
Villar v. Kernan	193	(6)
Shareholders' decisions about directors and cumulative voting	199	(2)
Problems: cumulative voting	201	(1)
Shareholders' voting on directors' decisions on fundamental corporate changes	202	(1)
Where shareholders vote, and who votes	203	(1)
Problems: Voting	204	(1)
Who votes and proxies?	205	(2)
Federal proxy rules	207	(1)
False or misleading statement of fact	208	(1)
Virginia Bankshares, Inc. v. Sandberg	208	(10)
James Surowiecki, Gadfly, Inc	218	(3)
Shareholder proposals	221	(3)
SEC No-Action Letter, Xerox Corporation March 4, 2001	224	(6)
Shareholders' inspection rights	230	(1)
Kortum v. Webasto Sunroofs, Inc.	231	(14)
Shareholders' voting agreements	245	(1)
Ringling Bros.-Barnum & Bailey Combined Shows, Inc. v. Ringling	245	(7)
What are the responsibilities of a corporation's decisionmakers and to whom are they responsible?	252	(82)
What are the business responsibilities?	252	(3)
What are the legal responsibilities?	255	(1)
Duty of care	255	(1)
Breach of duty of care by board action	255	(2)
Shlensky v. Wrigley	257	(5)
Joy v. North	262	(7)
Smith v. Van Gorkum	269	(8)
Breach of duty of care by board inaction	277	(1)
Barnes v. Andrews	277	(7)
In re Caremark International, Inc. Derivative Litigation	284	(7)
McCall v. Scott	291	(5)
Duty of loyalty	296	(1)
Competing with the corporation	297	(1)
Regenstein v. J. Regenstein Co	297	(3)
``Usurping'' a corporate opportunity	300	(1)
Northeast Harbor Golf Club, Inc. u. Harris	301	(9)
Broz v. Cellular Information System, Inc.	310	(7)
Being on ``both sides'' of a deal with the corporation (i.e., ``interested director transactions'')	317	(1)
HMG/Courtland Properties, Inc. v. Gray	317	(8)
Cookie's Food Products, inc. v. Lakes Warehouse Distributing, Inc.	325	(9)
Who sues and who recovers?	334	(52)
What is a derivative suit and why do we have them?	334	(3)
Eisenberg v. Flying Tiger Line, Inc	337	(6)
How does a derivative suit compare to a class action (and why are both so controversial)?	343	(2)
Problem: derivative suit or class action	345	(1)
Procedural requirements of a derivative suit	346	(1)
Joinder of the corporation and alignment of the parties	346	(1)
Stock ownership and other standing requirements	347	(1)
Security-for-expenses	348	(1)
Demand on directors	349	(2)
Marx v. Akers	351	(15)
Auerbach v. Bennett	366	(6)
Zapata Corp. v. Maldonado	372	(12)
Demand on shareholders	384	(1)
Right to jury trial	384	(1)
Court approval of settlement or dismissal	385	(1)
Recovery in derivative suits	386	(1)
Who really pays?	386	(7)
Insurance	387	(3)
Indemnity	390	(3)
How Does a Business Structured as a Corporation Grow?
Borrowing more money	393	(1)
Issuing more stock	394	(27)
To whom?	394	(1)
Preemptive rights and other rights of existing shareholders	394	(1)
Byelick v. Vivadelli	395	(6)
To venture capitalists	401	(2)
Earth Globe.Com Inc. Venture Capital Term Sheet	403	(2)
To a person (or a few people) or to the public	405	(1)
What are the legal constraints on how a corporation issues its stock?	406	(1)
Registration requirements for public offerings	406	(1)
Some of what your client might have learned about securities registration in B-School	406	(7)
Some of what you can learn about securities regulations from the SEC website	413	(1)
Q & A: Small Business and the SEC	414	(5)
Common law fraud and misrepresentation and Rule 10b-5 constraints on any stock issuance	419	(2)
Problem: application of 10b-5 to stock issuance	421	(1)
Debt v. Equity	421	(2)
Using earnings	423	(5)
How Do the Owners of a Corporation Make Money?
Receiving salaries from the corporation	428	(32)
Who decides which shareholders get salaries?	428	(1)
Hollis v. Hill	429	(16)
What are the legal limitations on salaries?	445	(1)
Exacto Springs Corp. v. Commissioner of Internal Revenue Service	446	(6)
Giannotti v. Hamway	452	(8)
Receiving dividends from the corporation	460	(17)
What is a dividend?	460	(1)
Why do corporations pay dividends? Why do investors pay attention to dividends?	461	(1)
What is the law on when a dividend can be paid? What is the law on when a dividend must be paid?	462	(3)
Zidell v. Zidell	465	(5)
Sinclair Oil Corp. v. Levien	470	(5)
To whom are dividends paid: preferred, participating, cumulative?	475	(2)
Buying and selling stock at a profit	477	(146)
How does someone know what shares of a corporation's stock are worth?	477	(1)
Available information	477	(1)
Reliability of the information-common law and 10b-5 protection from fraud	478	(1)
Basic, Inc. v. Levinson	478	(11)
EP MedSystems, Inc. v. EchoCath, Inc.	489	(15)
Malone v. Brincat	504	(8)
What are the legal duties applicable to buying or selling stock?	512	(1)
§10b-5 again and buying or selling with inside information	512	(1)
Dupuy v. Dupuy	513	(3)
Goodwin v. Agassiz	516	(6)
Securities and Exchange Comm'n v. Texas Gulf Sulphur Co.	522	(8)
Chiarella v. United States	530	(9)
Dirks v. Securities and Exchange Commission	539	(11)
United States v. O'Hagan	550	(8)
16b and short swing trading	558	(1)
Reliance Electric Co. v. Emerson Electric Co	558	(5)
Problems: §16b suits	563	(1)
Common law duty of selling shareholder	563	(1)
DeBaun v. First Western Bank & Trust Co	564	(9)
Perlman v. Feldmann	573	(11)
Note: ``Selling'' fiduciary offices with the controlling interest	584	(1)
To whom can a shareholder sell her shares?	585	(1)
Redemption and the equal access rule	586	(1)
Donahue v. Rodd Electrotype of New England, Inc.	586	(13)
Buy-sell agreements	599	(7)
Jordan v. Duff & Phelps, Inc.	606	(8)
Berreman v. West Publishing Co.	614	(9)
Various ``Endgames'' for the Corporation, Its Shareholders, Its Managers
Dissolution	623	(2)
Merger	625	(35)
Effects of merger on the creditors and the shareholders of the disappearing corporation	625	(1)
Problems: the effect of a merger	625	(1)
Stockholders protection	626	(1)
Sue the directors who approved the merger for breach of duty of care	626	(1)
Vote against the merger	626	(1)
Problems: shareholder approval of a merger	626	(1)
Assert dissenting shareholders' right of appraisal	627	(1)
HMO-W, Inc. v. SSM Heath Care System	628	(10)
Sue the directors who approved the merger for breach of duty of loyalty	638	(1)
Weinberger v. UOP, Inc.	639	(12)
Coggins v. New England Patriots Football Club, Inc.	651	(9)
Problem: cash out mergers	660	(1)
Sale of assets	660	(8)
Effect of sale of assets on the creditors of the selling corporation	660	(2)
Franklin v. USX Corp.	662	(5)
Effect of the sale of all or substantially all of a corporation's assets on the shareholders of the selling corporation and the shareholders of the buying corporation	667	(1)
Problem: A sale of assets that arguably looks like a merger	667	(1)
Hostile takeover	668	(81)
What is a hostile takeover?	668	(1)
Press Release: Chesapeake Commences $17.25 Cash Tender Offer for Shorewood	669	(2)
Phillipe Franq & Jean Van Hamme, Hostile Takeouer Bid	671	(2)
Takeover defenses	673	(1)
Unocal Corp. v. Mesa Petroleum Co.	673	(10)
Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc.	683	(10)
Paramount Communications, Inc. v. Time, Inc.	693	(14)
Paramount Communications, Inc. v. QVC Network, Inc	707	(22)
Federal and state regulation of hostile takeovers	729	(1)
CTS Corp. v. Dynamics Corp. of America	729	(9)
Amanda Acquisition Corp. v. Universal Foods Corp	738	(11)
What is a Limited Partnership and How Does It Work?
What is a limited partnership and what is limited partnership law?	749	(1)
What are the legal problems in starting a business as a limited partnership?	750	(3)
What are the legal problems in operating a business as a limited partnership?	753	(31)
Who decides what?	753	(2)
Who is liable to whom for what?	755	(1)
To third parties	755	(1)
Zeiger v. Wilf	756	(12)
To the partnership and partners	768	(1)
Kahn v. Icahn	769	(8)
In re USACafes L.P.	777	(7)
How do the owners of a business structured as a limited partnership make money?	784	(3)
Transfer of ownership interest to a third party	785	(1)
Transfers of ownership interest to limited partnership	785	(1)
Problem: Withdrawing from a limited partnership	786	(1)
What is a Limited Liability Company and How Does It Work?
What is an LLC and what is LLC law?	787	(1)
What are the legal problems in starting a business as an LLC?	788	(2)
What are the legal problems in operating a business as an LLC?	790	(9)
Who decides what?	790	(1)
Problems: decision-making in an LLC	791	(1)
Who is liable to whom for what?	792	(1)
Members' liability to third parties	792	(1)
Members' and managers' liability to the company	793	(1)
Lynch Multimedia Corp. v. Carson Communications, LLC	794	(5)
How do the owners of a business structured as a limited liability company make money?	799	(14)
Problem: transfer of members' interest	800	(1)
Lieberman v. Wyoming.com LLC	801	(12)
From limited liability companies to	813