| | Preface | iii |
| | Introduction | 1 |
| ch. 1 | The Sole Proprietor | |
| I. | Ownership Attributes | |
| A. | Proprietorships as Organizations | 5 |
| B. | Ownership and Management | 5 |
| C. | Nature of Ownership Interest | 5 |
| II. | Owners and Creditors | |
| A. | Liability for Debts; Open Accounts | 6 |
| B. | Liability for Debts; Unlimited Liability | 6 |
| C. | Nonrecourse Loans | 7 |
| D. | Business and Personal Debt | 7 |
| E. | Debt and Equity | 7 |
| F. | Leverage | 8 |
| G. | Potential Equity Attributes of Debt | 11 |
| III. | Owners and Ordinary Employees | |
| A. | Introduction: Joint Enterprise Versus Purchased Inputs | 12 |
| B. | Implied Standard Contracts and Their Appeal | 12 |
| C. | Cooperation, Trust, Fairness, and Reputation | 13 |
| IV. | Owners and Ordinary Employees: Control | |
| A. | The Servant-Type Agent and the Legal Right to Control | 14 |
| B. | The Economic Significance of the Legal Right to Control | 16 |
| C. | Vicarious Liability | 19 |
| V. | Organization Within Firms and Across Markets | |
| VI. | Owners and Managerial Employees: Control, Risk, and Duration of Relationship | |
| A. | Managers' Resemblance to Co-Owners | 21 |
| B. | Delegation of Broad Decision-Making Authority | 21 |
| C. | Major Versus Minor Decisions | 22 |
| D. | Duration of Relationship, Ease of Replacement, and Symbiosis | 22 |
| E. | Mode of Compensation, Incentive, Risk, and the Employee's Interest in Control | 23 |
| F. | Risk, Control, and Duration of Contract | 25 |
| VII. | Owners and Managerial Employees: Duty of Care | |
| A. | Four Types of Lack of Due Care | 27 |
| B. | Contracts Regarding Duty of Care | 29 |
| C. | Limiting Scope of Authority | 30 |
| VIII. | Owners and Managerial Employees: Loyalty | |
| A. | Conflict Concerning Information Provided to Owner | 32 |
| B. | Loyalty and Conflict Problems and Their Costs | 34 |
| C. | Self-Dealing and the Use of Incentives | 35 |
| D. | Self-Dealing, Joint Ventures, "Waste," and the Mythical Ideal | 37 |
| E. | The Legal Duty of Loyalty | 38 |
| F. | Loyalty and Problems of Ambiguity | 39 |
| G. | Absolute Barriers to Disloyalty | 39 |
| IX. | Irreducible Divergencies of Interest | |
| X. | Avoidance of Conflict | |
| XI. | Recapitulation | |
| XII. | Speculation on Relationships Among Risk, Return, Control, Duration, and Specificity | |
| A. | Risk and Return | 45 |
| B. | Risk and Control | 45 |
| C. | Duration and Specificity | 46 |
| D. | Duration and Control | 46 |
| E. | Duration and Risk | 46 |
| F. | Risk and Control---Owners and Employees | 47 |
| XIII. | Transfer of Ownership---Purchase Subject to Debt and Option to Purchase | |
| A. | Purchase Subject to Debt | 48 |
| B. | Option to Purchase | 48 |
| C. | Lease With Option to Purchase | 50 |
| ch. 2 | Partnerships and Limited Liability Companies | |
| I. | Introduction | |
| A. | Joint Ownership | 51 |
| B. | Rules Designed for Small Firms | 52 |
| II. | Reasons for Joint Ownership | |
| A. | Joint Ownership Versus Purchased Inputs | 53 |
| B. | The Need to Assemble At-Risk Capital | 54 |
| C. | Control Follows Risk | 56 |
| D. | Restatement---An Extreme Case | 56 |
| E. | Other Equity-Type Forms Of Investment | 58 |
| F. | Summary | 59 |
| G. | The Element Of Personal Services | 59 |
| H. | Combining Capital And Services | 60 |
| III. | Nature and Significance of "Partnership" | |
| A. | Nature | 62 |
| B. | Significance | 63 |
| IV. | Formation | |
| A. | Creation Without Formality | 63 |
| B. | The "Silent Partner" | 63 |
| C. | Implied Terms | 64 |
| D. | Tailor-Made Provisions | 65 |
| E. | "Spoiling the Deal" | 66 |
| F. | The Partnership Agreement as a Drafting Challenge | 67 |
| V. | The Entity and Aggregate Concepts | |
| A. | Reification and the Entity-Aggregate Distinction | 68 |
| B. | Who Cares? | 69 |
| C. | An Illustration | 70 |
| VI. | Fiduciary Obligation | |
| A. | Fiduciary Obligation---A Legal Duty of Fairness | 71 |
| B. | Illustration: The Scope-of-Business Problem | 73 |
| C. | Economic and Other Effects | 75 |
| D. | Promoters---Drafting Around the Rule | 76 |
| E. | Summary | 78 |
| VII. | Contributions, Accounts, and Returns | |
| A. | Capital Accounts | 79 |
| B. | Draw | 81 |
| C. | Capital Accounts and Value of a Partner's Interest | 83 |
| D. | Additional Capital | 84 |
| E. | Debt Held by, and Salaries Paid to, Partners | 89 |
| VIII. | Control, Agency, and Liability | |
| A. | Introduction | 90 |
| B. | Control | 90 |
| C. | Partners as Agents of the Partnership | 93 |
| D. | Liability | 94 |
| IX. | Duration and Transferability | |
| A. | Terminology | 95 |
| B. | Dissociation at Will | 95 |
| C. | Providing for Continuity | 97 |
| D. | Transferability | 99 |
| X. | Variations | |
| A. | Limited Partnerships | 100 |
| B. | Limited Liability Companies | 102 |
| C. | Limited Liability Partnerships | 104 |
| D. | Mining Partnerships | 105 |
| ch. 3 | Corporations | |
| I. | A Brief Overview | |
| A. | Preliminary Observations | 106 |
| B. | The Important Characteristics | 108 |
| C. | Variations: Closely Held, Intermediate, and Start-Up Corporations | 110 |
| II. | The Development of the American Business Corporation: A Historical Overview | |
| III. | The Reification Illusion | |
| A. | "Decomposing" the Corporation | 117 |
| B. | Illustrations | 119 |
| IV. | The Basic Structure for Control and Operation | |
| A. | Introduction | 122 |
| B. | Shareholders | 124 |
| C. | Directors | 131 |
| D. | Officers | 137 |
| V. | Formation | |
| A. | The Formal Process | 139 |
| B. | Amendment | 141 |
| C. | Negotiations at the Formation Stage | 142 |
| D. | Duration and Transferability | 144 |
| E. | Limited Liability and its Exceptions | 146 |
| F. | Choice of Law | 150 |
| G. | Purposes, Powers, and Ultra Vires | 155 |
| VI. | Obligations of Officers and Directors | |
| A. | Duty of Care | 156 |
| B. | Duty of Loyalty | 162 |
| C. | Duties Regarding Information: Rule 10b-5 | 170 |
| VII. | Corporate Accountability: The Issue of Separation of Ownership and Control | |
| A. | Implications of the Separation of Ownership and Control | 178 |
| B. | The Mechanisms of Corporate Accountability | 185 |
| VIII. | Fundamental Changes: Mergers and Acquisitions | |
| IX. | A Slice of Financial History: "Watered Stock" and Its Lessons in Fraud | |
| X. | Dividends, Retained Earnings, and Compensation | |
| A. | Dividends | 230 |
| B. | Retained Earnings and Capital Gain | 233 |
| C. | Compensation for Services | 233 |
| XI. | Additional Capital | |
| XII. | The Shareholder as Lender | |
| XIII. | Federal Income Tax Considerations | |
| A. | Formation | 235 |
| B. | Substituted Attributes | 236 |
| C. | The Corporation as a Taxable Entity | 237 |
| D. | Losses | 238 |
| E. | "S" Corporations | 239 |
| ch. 4 | Basic Corporate Investment Devices: Economic Attributes and Formal Characteristics | |
| I. | Introduction | |
| II. | Some Definitions | |
| A. | Expected Return | 242 |
| B. | Risk and Uncertainty | 243 |
| C. | Yield | 245 |
| D. | Risk Premium | 246 |
| E. | Risk Aversion | 248 |
| F. | Compensation for Volatility Risk | 249 |
| III. | Types of Securities: Formal and Functional Characteristics | |
| A. | Bonds, Debentures, and Notes | 251 |
| B. | Shares of Common Stock | 286 |
| C. | Interests Derived From Common Stock | 295 |
| D. | Preferred Stock | 305 |
| E. | Other Forms of Investment | 310 |
| F. | Miscellaneous Devices and Hedging | 313 |
| IV. | Financial Alternatives Inside and Outside the Firm | |
| ch. 5 | Valuation, Financial Strategies, and Capital Markets | |
| I. | Valuation | |
| A. | The Interest Rate | 320 |
| B. | Market Price | 321 |
| C. | Discounted Present Value | 322 |
| D. | The Discount Rate | 333 |
| E. | Allowing for Risk: Two Methods | 341 |
| II. | Leverage and Choice of Capital Structure | |
| A. | Introduction | 343 |
| B. | Pure Leverage Effect | 344 |
| C. | Leverage and Risk | 345 |
| D. | Some Variations | 346 |
| E. | Spurious Leverage | 349 |
| F. | Leverage and Wealth | 350 |
| III. | Capital Structure | |
| A. | Introduction | 352 |
| B. | A Hypothetical Corporation in a Simplified World | 353 |
| C. | The Advantage of Unbundling | 353 |
| D. | The Net Income Perspective | 354 |
| E. | How Much Leverage? | 355 |
| F. | Another View: Homemade Leverage | 356 |
| G. | Extending the Argument: Arbitrage | 357 |
| H. | Another Perspective: The One-Owner Corporation | 359 |
| I. | Unleveraging | 360 |
| J. | The Real World | 361 |
| K. | Tax Effects | 363 |
| L. | Monitoring Problems | 373 |
| M. | Managerialism | 377 |
| N. | Asymmetric Information and Signaling | 380 |
| O. | Another Perspective: Extreme Leverage | 382 |
| IV. | Dividend Policy | |
| A. | Constraints | 385 |
| B. | The Conventional View | 386 |
| C. | Separation of the Investment Decision and the Dividend Decision | 395 |
| D. | Redemption | 398 |
| ch. 6 | Financial Markets | |
| I. | Introduction | |
| II. | Rethinking Business Organizations Using Derivatives | |
| A. | Categories and Uses of Derivatives | 403 |
| B. | Options | 405 |
| C. | Forwards | 410 |
| D. | Hybrids | 414 |
| E. | Structured Finance | 416 |
| III. | The Evolving Nature of Financial Markets | |
| A. | Exchange and Over-the-Counter Markets | 422 |
| B. | The Impact of Technology and New Trading Platforms | 432 |
| IV. | Market Efficiency and Behavioral Finance | |
| V. | New Regulatory Approaches | |
| A. | Globalization and Foreign Competition | 447 |
| B. | Disclosure and Accounting Harmonization | 448 |
| C. | Deregulation | 449 |
| | Table of Cases | 457 |
| | Index | 461 |
