The Law of Corporations

by Hamilton, Robert W.

• ISBN13: 9780314241320
• ISBN10: 0314241329
• Edition: 5th
• Format: Paperback
• Copyright: 2000-09-01
• Publisher: West Group

Summary

The Corporation in Perspective; Unincorporated Business Forms; Formation of Corporations; Limited Role of Ultra Vires; Preincorporation Transactions; "Piercing the Corporate Veil" and Related Problems; Financing the Corporation; Distribution of Powers Within a Corporation; Special Problems; Shares and Shareholders; Directors; Officers; Closely Held Corporation; Publicly Held Corporation; Duties of Directors, Shareholders and Officers; Indemnification and Insurance; Shareholder's Suits; Class Action Suits; Dividends, Distributions and Redemptions; Inspection of Books and Records; Organic Changes; Amendments, Mergers and Dissolution.

Table of Contents

Table of Cases	xxv
Modern Business Forms and the Corporation	1	(45)
Historical Dominance of the Corporation in the United States	1	(1)
Publicly Held and Closely Held Corporations	2	(2)
Adjustment of Law School Curricula to Current Trends	4	(1)
Traditional Business Forms: Introduction	5	(1)
Proprietorships	6	(1)
General Partnerships: Introduction	7	(1)
General Partnerships: Financial Provisions	8	(2)
General Partnerships: Participation in Management	10	(1)
General Partnerships: A Separate Entity?	11	(1)
General Partnerships: Artificial Entities as Partners	12	(1)
General Partnerships: Dissolution, Winding Up and Termination	12	(2)
General Partnerships: Revisions Made by the 1994 Act	14	(2)
Limited Partnerships: In General	16	(2)
Limited Partnerships with a Corporate General Partner	18	(1)
A New Business Form: The Limited Liability Partnership	19	(4)
Another New Business Form: The Limited Liability Company	23	(3)
A Menu of Modern Business Forms Based on the Number of Owners	26	(1)
Factors Influencing the Selection of Business Forms	27	(1)
Federal Tax Regimes	28	(2)
Impact of Tax Rates on Tax Minimization Strategies	30	(2)
Tax Classification of Unincorporated Limited Liability Entities: The Kintner Rules and ``Check the Box''	32	(4)
A Comparison of Taxation under Subchapter K and Subchapter S	36	(4)
Non-Tax Differences Between an LLC and a Corporation	40	(2)
Differences Between the LLC and Various Partnership Forms	42	(1)
Selection of Business Form for a Start-up Business	43	(2)
What Does the Future Hold?	45	(1)
The Corporation in Theory	46	(16)
The Corporation as an ``Artificial Entity''	46	(2)
Limitations of the ``Artificial Entity'' Theory	48	(2)
The Corporation as a Privilege or Contract	50	(2)
The ``Nexus of Contracts'' Model	52	(10)
Development of American Corporation Law	62	(15)
The Early History of Corporation Law in the United States	62	(1)
The ``Race for the Bottom''	63	(3)
What Explains Delaware's Success in Attracting Corporations?	66	(3)
The Debate Over Social Responsibility Within The Publicly Held Corporation	69	(3)
Modern Corporation Statutes	72	(2)
The Model Business Corporation Act (1984)	74	(2)
Federal Regulation	76	(1)
Formation of Corporations	77	(33)
In General	77	(1)
Selection of the State of Incorporation	77	(1)
Mechanics of Creating a Corporation	78	(3)
Incorporators	81	(1)
Articles of Incorporation: In General	82	(2)
Articles of Incorporation: The Corporate Name	84	(3)
Articles of Incorporation: Period of Duration	87	(1)
Articles of Incorporation: Capitalization	88	(1)
Articles of Incorporation: Registered Office and Registered Agent	89	(1)
Articles of Incorporation: Initial Board of Directors	90	(1)
Articles of Incorporation: Limitation of Directoral Liability	91	(1)
Articles of Incorporation: Purposes and Powers	92	(3)
The Common Law Doctrine of Ultra Vires	95	(2)
The Modern Role of Ultra Vires	97	(2)
Ultra Vires Problems in Connection With Corporate Powers	99	(5)
Completion of the Organization of the Corporation: In General	104	(1)
Nature and Purpose of Bylaws	105	(1)
The Corporate Seal	106	(1)
Organizational Meetings	107	(3)
Preincorporation Transactions	110	(24)
Introduction	110	(1)
Subscriptions for Shares	110	(4)
Agreements to Form Corporation	114	(1)
Promoters in General	115	(2)
Promoters' Contracts	117	(5)
Liability of Corporations for Promoters' Contracts	122	(2)
Promoter's Fiduciary Duties	124	(1)
Organizational Expenses Incurred by Promoters	125	(2)
Premature Commencement of Business and the De Facto Doctrine	127	(4)
Corporations by Estoppel	131	(2)
A Unified Conception of ``Defective Incorporation''	133	(1)
``Piercing the Corporate Veil'' and Related Problems	134	(29)
``Piercing the Corporate Veil'' In Context	134	(1)
Shareholder Responsibility for Corporate Indebtedness: Introduction	135	(1)
The Rhetoric of ``Piercing the Corporate Veil''	136	(2)
Piercing the Corporte Veil in Contract and Tort Cases	138	(4)
Inadequate Capitalization	142	(3)
Failure to Follow Corporate Formalities	145	(2)
Parent-Subsidiary Cases	147	(4)
The Concept of ``Enterprise Entity''	151	(1)
Choice of Law and ``Piercing the Corporate Veil''	152	(2)
The Federal Law of ``Piercing the Corporate Veil''	154	(2)
Reverse Piercing	156	(1)
``Piercing the Corporate Veil'' to Further Public Policy	157	(2)
``Piercing the Corporate Veil'' in Taxation and Bankruptcy	159	(2)
Other Generalizations About ``Piercing the Corporate Veil''	161	(2)
Financing the Corporation	163	(65)
Introduction	163	(1)
Common Stock: The Basic Definition	164	(1)
Common Stock: Authorized and Issued Shares	165	(1)
Common Stock: The Price at Which Shares Are Issued	166	(2)
Common Shares: Par Value and ``Watered'' Stock	168	(3)
Common Shares: Par Value and the Capital Accounts of the Corporation	171	(5)
Common Stock: No Par Shares in a Par Value Regime	176	(2)
Common Stock: Share Issued for Property or Services	178	(4)
Common Stock: Liability for Watered Shares	182	(5)
Common Share: Options, Warrants and Rights	187	(1)
Common Stock: Non-Voting Shares	188	(1)
Common Stock: Classes of Common Shares in Closely Held Businesses	189	(1)
Common Stock: Classes of Common Shares in Publicly Held Businesses	190	(2)
Common Stock: Tracking Shares	192	(1)
Common Stock: Treasury Shares	192	(2)
Common Stock: Circular Ownership of Shares	194	(1)
Common Stock: Current Trends Regarding Par Value	195	(1)
Common Stock: Preemptive Rights	196	(5)
Oppressive Issuance of Shares	201	(2)
A Cautionary Postscript: The Risk of Violating Securities Acts While Raising Capital	203	(1)
Preferred Shares	204	(6)
The Distinction Between ``Equity'' and ``Debt''	210	(2)
Equalizing Capital and Services When Forming a Corporation	212	(3)
The Advantages of Debt Financing	215	(4)
Tax Consequences of Excessive Debt Capitalization in C Corporations	219	(2)
Debt as a Second Class of Stock in S Corporations	221	(1)
The Deep Rock Doctrine Revisited	221	(2)
Publicly Traded Debt Securities	223	(5)
The Distribution of Powers Within a Corporation: Special Problems	228	(26)
The ``Statutory Scheme'' in General	228	(1)
The Power to Vary the Statutory Scheme	229	(2)
The Statutory Scheme: Shareholders	231	(1)
The Statutory Scheme: Directors	232	(3)
The Statutory Scheme: The Power to Remove Directors	235	(3)
Elimination of the Board of Directors	238	(1)
The Statutory Scheme: Officers	239	(1)
Shared Responsibility With Respect to Corporate Operations	240	(1)
Shared Responsibility: Approval of Fundamental Corporate Changes	241	(2)
Shared Responsibility: Bylaw Amendments	243	(1)
Restrictions on Directors in Close Corporations	244	(7)
Ameliorating Trends	251	(1)
Delegation of Management Powers and the Statutory Scheme	252	(2)
Shares and Shareholders	254	(50)
Annual and Special Meetings of Shareholders	254	(3)
Shareholder Action by Consent	257	(1)
Record and Beneficial Ownership of Shares	258	(2)
Record Dates	260	(2)
Preparation of Voting List	262	(1)
Election of Directors: Cumulative or Straight Voting	263	(7)
``Classified'' Boards of Directors	270	(2)
Other Devices to Minimize Cumulative Voting	272	(1)
Voting by Proxy	273	(2)
Irrevocable Proxy Appointments	275	(2)
Vote Buying	277	(1)
Shareholder Voting Agreements	278	(3)
Voting Trusts: Purpose, Operation, and Legislative Policy	281	(3)
Voting Trusts: Use in Public Corporations	284	(1)
Voting Trusts: Powers and Duties of Trustee	284	(2)
Creation of Floating Voting Power Through Different Classes of Shares	286	(2)
Share Transfer Restrictions: Purposes, Operation, and Effect	288	(3)
Share Transfer Restrictions: Scope and Validity	291	(2)
Share Transfer Restrictions: Duration of Restraints	293	(1)
Share Transfer Restrictions: Procedural Requirements	294	(1)
Option or Buy/Sell Agreements: Who Should Have the Right or Privilege to Buy?	295	(2)
Option or Buy/Sell Agreements: Establishment of Purchase or Option Price	297	(4)
Option or Buy/Sell Agreements: Life Insurance	301	(1)
Selection of the Purchaser in Deadlock Buyouts	302	(1)
Deferred Payment of the Purchase Price	303	(1)
Directors	304	(18)
Number and Qualifications of Directors	304	(2)
Directors' Meetings: Notice, Quorum, and Similar Matters	306	(4)
Compensation of Directors	310	(1)
Filling Vacancies	311	(2)
Hold-Over Directors	313	(1)
Necessity for Meeting and Personal Attendance	313	(2)
Telephonic Meetins	315	(1)
Action Without a Meeting	316	(1)
Directors' Objections to Actions	316	(2)
Committees of the Board of Directors	318	(4)
Officers	322	(21)
Statutory Designations of Officers	322	(2)
An Introduction to Principles of Agency Law	324	(1)
Sources of Authority of Corporate Officers	325	(1)
Bylaw Provisions Describing Roles of Corporate Officers	326	(2)
Express Authority Created by the Board of Directors	328	(2)
Inherent Power of the Corporate President	330	(1)
Implied Authority, Ratification, Estoppel, and Unjust Enrichment	331	(3)
Fiduciary Duties of Officers, Employees and Agents	334	(1)
Liability of Officers and Agents to Third Parties	335	(2)
Imputation of Knowledge to Corporation	337	(1)
Tenure of Officers and Agents	338	(1)
Long-Term Employment Contracts	339	(4)
The Closely Held Corporation	343	(33)
The Meaning of ``Closely Held'' and ``Publicly Held''	343	(1)
The Economic Importance of Closely Held Corporations	344	(2)
The Reality of Management, Control and Participation in a Closely Held Corporation	346	(2)
Advance Planning in Closely Held Corporations	348	(4)
Limitations on the Power to Contract Within Closely Held Corporations	352	(1)
Classes of Shares	353	(3)
Increased Quorum and Voting Requirements	356	(1)
Special Close Corporation Statutes	357	(3)
Section 7.32 of MBCA (1984)	360	(2)
Deadlocks	362	(1)
Resolution of Disputes by Arbitration	363	(2)
``Oppression''' ``Freeze-Outs'' and ``Squeeze-Outs''	365	(1)
Share Transfer Restrictions and the ``Market'' for Shares in a Closely Held Corporation	366	(3)
Receivership and Involutary Dissolution: The Traditional Solutions to Oppression and Deadlock In Closely Held Corporations	369	(2)
Court-Ordered Buy-Outs	371	(1)
Section 14.34 of MBCA (1984)	372	(1)
Fiduciary Duties of Controlling Shareholders	373	(3)
The Publicly Held Corporation	376	(68)
The Publicly Held Corporation in Perspective	376	(1)
The ``High Tech'' or ``Dot.com'' Company	377	(3)
The Impact of Technology on Public Trading of Securities	380	(2)
Description of The Very Large Publicly Held Company	382	(2)
The Internal Structure of Very Large Corporations	384	(2)
Profit Centers	386	(2)
The Home Office	388	(3)
The Chief Executive Officer	391	(1)
Compensation of Senior Executives	392	(2)
Shareholders as ``Investors'' or ``Owners''	394	(3)
Institutional Investors	397	(2)
Street Name Registration of Securities; Book Entry	399	(3)
The Board of Directors of Large Publicly Held Companies: Theory and Reality	402	(2)
The Election of Directors	404	(1)
``Inside'' and ``Independent'' Directors	405	(1)
Historic Dominance of the Board by the CEO	406	(2)
The Modern Board of Directors	408	(4)
The ``Chicago School'' of Law and Economics	412	(4)
Share Prices and The Changing Body of Shareholders	416	(1)
The Takeove Movement of the 1980s	417	(1)
Proxy Regulation in Publicly Held Corporations	418	(2)
Disclosure Requirements in Connection With Proxy Solicitations	420	(4)
Shareholder Proposals	424	(3)
Private Actions for Violations of Federal Proxy Rules	427	(2)
Proxy Contests	429	(4)
Cash Tender Offers During the 1970s and 1980s	433	(3)
Combination Strategies Involving Proxy Fights and Cash Tender Offers	436	(1)
Defensive Tactics	437	(3)
State Intervention in the Takeover Movement	440	(2)
The Takeover Movement in the 1990s	442	(2)
Duties of Directors	444	(80)
Directors, Controlling Shareholders and Senior Officers as ``Fiduciaries''	444	(1)
Duties of Shareholders and Junior Officers	445	(1)
Sources of Law Relating to Duties of Directors--- Common Law, State and Federal Statutes	446	(1)
Duty of Care	447	(6)
The ``Business Judgment Rule''	453	(2)
The Famous Case of Smith v. Van Gorkom	455	(4)
Section 102(b)(7) of the Delaware GCL	459	(1)
The Business Judgment Rule in Takeover Contests	460	(3)
The Business Judgment Rule in Derivative Litigation	463	(4)
The Duty of Loyalty	467	(1)
Self Dealing	467	(6)
Interlocking Directors	473	(1)
Executive Compensation	474	(4)
Corporate Opportunities in General	478	(1)
What is a Corporate Opportunity?	479	(2)
When May a Director Take Advantage of A Corporate Opportunity?	481	(1)
Must a Director First Offer the Opportunity to The Corporation?	482	(1)
Competition with the Corporation	483	(1)
Fairness to Minority Shareholders	484	(2)
``Fairness'' and the Merger of a Subsidiary into Its Parent	486	(3)
The Effect of Shareholder Ratification	489	(1)
Provisions That Exonerate Directors	490	(1)
Statutory Duties and Statutory Defenses	490	(3)
Purchase or Sale of Shares or Claims Under State Law	493	(4)
Duties of Directors of Financially Distressed Corporations	497	(1)
Disclosure Obligations Under State Law	498	(1)
Rule 10b-5	499	(3)
Rule 10b-5 as Anti-fraud Provision	502	(1)
Insider Trading: The Beginnings	503	(1)
Insider Trading: The Defining Case Law	504	(5)
Insider Trading: Statutory Recognition and SEC Enforcement Policies	509	(1)
Insider Trading: The Possession/Use Debate	510	(1)
Insider Trading: The Policy Justifications	511	(1)
Rule 10b-5 as a Protector of the Issuer	512	(1)
Rule 10b-5 as a General Prohibition Against Wrongful Conduct	513	(1)
Section 16(b) of the Securities Exchange Act of 1934	514	(3)
Transfers of Control	517	(7)
Indemnification and Insurance	524	(11)
Definitions of Terms	524	(1)
The Need for Protection of Directors and Officers	525	(1)
Public Policy Limitations on Indemnification	526	(1)
Statutory Treatment of Indemnification	527	(3)
Advances for Expenses	530	(2)
D & O Insurance	532	(3)
Derivative Litigation	535	(21)
Direct and Derivative Suits in General	535	(1)
Derivative and Direct Claims Disinguished	536	(2)
Alignment of Parties in a Derivative Suit	538	(1)
Role of the Plaintiff's Attorney	539	(3)
Derivative Litigation as Strike Suits	542	(1)
Contemporary Ownership	543	(1)
Demand on Directors and Shareholders	544	(2)
Security-For-Expenses Satutes	546	(2)
Verification of the Complaint	548	(1)
Resolution of Derivative Litigation by Board Committees	548	(4)
Defenses in a Derivative Suit	552	(2)
Private Settlement of Derivative Suits	554	(1)
Res Judicata Effect of Derivative Suits	555	(1)
Class Actions Under Federal Securities Acts	556	(19)
Securities Class Actions in General	556	(1)
SEC Disclosure Requirements and the ``Safe Harbor''	557	(2)
The Growth of Class Action Securities Litigation	559	(2)
Original Judicial Response to ``New Era'' Class Actions	561	(1)
The Private Securities Litigation Reform Act of 1995	562	(1)
PSLRA Class Action Provisions	562	(1)
New Safe Harbor Provisions for Forward Looking Statements	563	(2)
PSLRA Discovery Provisions	565	(1)
PSLRA Proportionate Liability Provisions	566	(1)
PSLRA Settlement Provisions	567	(1)
PSLRA Fee Shifting Provisions	567	(1)
PSLRA Pleading Provisions	568	(2)
PSLRA Damage Provisions	570	(1)
PSLRA Aiding and Abetting Provisions	570	(1)
PSLRA Auditor Disclosure Provisions	570	(2)
The Securities Litigation Uniform Standards Act of 1998 (SLUSA)	572	(3)
Dividends, Distributions, and Redemptions	575	(24)
Cash or Property Dividends and Distributions	575	(2)
Share Dividends and Share Splits	577	(3)
Distributions of Rights or Warrants	580	(1)
Share Reacquisitions as Distributions; Treasury Shares	581	(2)
Shareholders' Rights to a Dividend	583	(2)
Stautory Restrictions on the Declaration of Dividends	585	(5)
Contractural Provisions Relating to Declarations of Dividends	590	(2)
Liability of Directors and Shareholders for Illegal Dividends	592	(1)
Shareholders' Right to Compel a Dividend	592	(2)
Corporate Repurchase of Its Own Shares: Installment Sale	594	(3)
Redeemable and Convertible Securities	597	(2)
Inspection of Books and Records	599	(10)
Inspection by Directors and Shareholders Compared	599	(1)
Common Law and Statutory Rights of Inspection by Shareholders	600	(2)
Corporate Records: What May Be Examined?	602	(2)
What Is a ``Proper Purpose''?	604	(1)
Who Is Entitled to Inspect?	605	(1)
Inspection of Shareholders Lists	606	(2)
Financial Reports for Shareholders	608	(1)
Organic Changes: Amendments, Mergers, and Dissolution	609	(28)
Introduction and Caveat	609	(1)
Amendments to Articles of Incorporation in General	610	(1)
Vested Rights	611	(2)
Voting by Classes	613	(2)
Mergers and Consolidations	615	(4)
Triangular Mergers, Cash Mergers, Short Form Mergers, and Related Developments	619	(2)
Cash-out Mergers	621	(1)
``Upstream'' and ``Downstream'' Mergers	622	(1)
Short Form Mergers	623	(1)
Fiduciary Duties in Mergers	624	(1)
Sales of All or Substantially All the Assets of a Corporation	625	(2)
The Right of Dissent and Appraisal	627	(4)
Voluntary Dissolution	631	(2)
Changes Made by the 1999 MBCA Amendments	633	(4)
Glossary	637	(38)
Index	675