BA Kim S18 (Attack) PDF

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Business Associations Attack Outline Professor Kim; Spring 2018 Fiduciary relationship > Agency relationship > M/S relationship I.

Agency a. What is an agency? (page 1) i. Mutual consent ii. Action on behalf of P iii. A is subject to P’s control b. Does A have the authority to bind the P? (page 1) i. Actual authority ii. Apparent authority iii. Ratification iv. Estoppel

II.

Partnership a. Key attributes: (page 5) i. Partners are agents of partnership ii. Partners are liable as principals (joint liability for K; joint & several for tort) iii. Partners share profits & losses equally (unless agreed otherwise) b. Fiduciary duties to partnership: (page 6) i. Duty of care ii. Duty of loyalty

III.

Limited Partnership & LLC a. Limited Partnership (page 7) i. General partner has full personal liability ii. Limited partner has limited liable unless takes part in “control” of the business b. LLC i. Pre-formation contracts (page 8) 1. Organizer personally liable unless parties agree otherwise 2. LLC can expressly/impliedly adopt the K 3. If Organizer fails to form LLC, Organizer is liable unless De Facto LLC exists or LLC by estoppel applies

IV.

Corporation a. Limited Liability (page 11) i. Van Dorn PCV test  Horizontal & Vertical Piercing 1. Unity of interest & ownership/control/alter ego; and 2. Fraud or injustice ii. Parent-Subsidiary Piercing 1. Totality of circumstances: is Sub under “substantial domination” of P? 2. Is Sub mere instrumentality/alter ego of P? (some states require to show “fraud”) b. Charitable Contributions (page 13): all jurisdictions & DGCL basically allow this as long as there’s a nexus to serve the basic purpose of corporations  maximize profit c. Fiduciary Duties

i. Duty of care (page 17) 1. Substantive due care (replaced with waste in DE) 2. Procedural due care (gross negligence standard) ii. Duty of loyalty (page 20) 1. Director self-dealing transactions a. Disinterested directors authorize b. Majority of disinterested SHs authorize c. No majority of disinterested SHs approval 2. Corporate opportunity (page 23) a. Interest/expectancy test b. Line of business test 3. Executive compensation: directors set their own fees  COI a. Stock options (page 26) 4. Obligation of good faith (page 28) a. Delaware provides 3 possible bases for finding bad faith (not exclusive): i. Subjective bad faith ii. Gross negligence iii. Intentional dereliction of duty, conscious disregard of one’s responsibilities 5. Duty to monitor (page 28) a. Notice rule/Graham rule: liability only if directors are on notice b. Caremark rule: affirmative duty to monitor d. Insider Trading (page 29) i. Basic elements of insider trading violation: 1. Trading on (or tipping) material, nonpublic info in breach of a fiduciary duty (or fiduciary-like duty*) a. owed to the trading counterparty [classical theory]; OR b. owed to source of info (w/o prior disclosure to source) [misappropriation theory] *similar duty arising out of a relation of trust or confidence ii. SEC Rule 10b-5 & Classical Theory (page 30) 1. There are 2 ways to show fraud: a. It involves a material lie (misrepresentation); or b. Silence/omission when there’s a duty to disclose arising from a relationship of trust and confidence b/w the parties of the transaction 2. Tipping unaffiliated 3rd party. Tippee inherits fiduciary duty when: a. There’s a breach by the insider tipper when he tipped the tippee; and b. Tippee knows/should know that the insider committed breach by tipping iii. Misappropriation Theory (page 32) 1. Fiduciary relationship b/w trader & source of MNPI; 2. Trader must receive the MNPI from the source; 3. Trader must use MNPI to trade/tip in the securities of the traded firm; AND 4. No prior disclosure of the use of MNPI for trading purposes to the source. e. Indemnification

f.

g.

h. i.

i. Mandatory indemnification (page 33): success on the merits or otherwise ii. Permissive indemnification (page 34) 1. 3rd party suits: lose litigation or settled 2. SH derivative suits: only if director settled, not if lose litigation 3. Corporation may broaden indemnification rights via contract/bylaw amendment iii. Permissive advancement of expenses: no outcome yet, but director has to repay if it’s later determined that he’s liable & not entitled to indemnification iv. D&O Insurance (page 35) Shareholders (page 36) i. Controlling SHs (page 36): duties to minority SHs ii. SH derivative actions (page 38): 3 procedural hurdles 1. Bonding requirement: basically useless, only 8 states have them 2. Demand requirement: no one makes a demand, should get it excused 3. Special Litigation Committee: SLC’s decision not subject to BJR deference iii. Voting (page 44) iv. Proxy Contests (page 45) 1. Incumbent directors can use corporate funds to fight proxy contest 2. But insurgent directors can only get reimbursed if win & majority of SHs approve Statutory Merger (page 47) i. Triangular merger (page 48) 1. Forward triangular merger: Sub absorbs Target 2. Reverse triangular merger: Target absorbs Sub ii. Freeze-out (squeeze-out) merger (page 48): burden on A to show “entire fairness” 1. Fair dealing: duty of candor 2. Fair price: must take into account all relevant factors Asset Purchase (page 49): doesn’t require Acquirer’s SH approval Stock Purchase (page 49) i. Negotiated stock purchase ii. Stock purchase on the open market iii. Tender offer (page 49) 1. Two types of tender offers: a. 1-tier tender offer b. 2-tier tender offer 2. Hostile takeover (page 51) a. Prior to sale of Target being inevitable, standard of review of T’s director’s defensive measures: Unocal 2-prong test i. Threat prong ii. Proportionality prong b. After sale of target is inevitable, standard of review is Revlon’s heightened standard of the same 2-prong test If directors meet both prongs  burden shifts to P to defeat BJR If directors fail either prong  burden on directors to show intrinsic fairness

3. Poison Pill (page 52): defensive measure against hostile takeover a. Flip-in pill b. Flip-over pill...