Business structures / by David G. Epstein [and others].
2010
KF1355 .B875 2010 (Map It)
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Title
Business structures / by David G. Epstein [and others].
Published
St. Paul, MN : Thomson/West, [2010]
Copyright
©2010
Call Number
KF1355 .B875 2010
Edition
Third edition.
ISBN
9780314200594
0314200592
0314200592
Description
643 pages : illustrations ; 27 cm.
System Control No.
(OCoLC)619142588
Note
Includes index.
Bibliography, etc. Note
Includes bibliographical references and index.
Series
Record Appears in
Added Author
Table of Contents
Preface
v
Acknowledgements and Conventions
vii
Table of Cases
xxi
ch. One
What Do Businesses Do and What Do Lawyers for Businesses Do?
1
A.
Why Does Someone Own a Business or an Interest in a Business?
1
1.
The Epstein-Freer View and the Roberts-Shepherd View
1
2.
Views of Other "Gontser Machers"
3
Questions
4
3.
Views of Courts and Legislatures
5
Questions and Note
8
B.
How Does the Owner of a Business Make Money From the Business?
11
C.
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?
12
1.
The Income Statement
13
2.
The Cash Flow Statement: A First Look
15
3.
The Balance Sheet
17
4.
The Cash Flow Statement: A Second Look
20
5.
Financial Statements and the Value of a Business
21
Problems: Use of Financial Statements
21
D.
The Sarbanes-Oxley Act and Corporate Governance
21
1.
The Motivation for Fraud
23
2.
Types of Fraud
23
3.
The Intent of Sarbanes-Oxley
23
E.
What Does a Lawyer for a Business Do?
24
Questions and Notes
25
F.
What Are the Legal Structures for Businesses?
27
1.
What Choices Are Available?
27
a.
The Sole Proprietorship
27
b.
The Corporation
28
c.
The (General) Partnership
28
d.
The Limited Partnership
29
e.
The Limited Liability Company (LLC)
29
f.
The S Corporation and Not-For-Profit Corporations
29
2.
How Do You Choose?
30
ch. Two
What is a Sole Proprietorship and How Does It Work?
31
A.
What is a Sole Proprietorship? What is Sole Proprietorship Law? What Are the Problems in Starting a Business as a Sole Proprietorship?
31
B.
What Are the Problems in Operating a Business as a Sole Proprietorship?
32
1.
Employees and Introduction to Principles of Agency
32
Problems: Liability of the Sole Proprietor for Contracts of Her Employee
36
Problems: Liability of the Sole Proprietor for Torts of Her Employee
39
2.
Other Agency Relationships in Business
40
a.
Attorney-Client
40
Questions and Notes
42
b.
Franchises and Other Business Relationships
43
Questions and Notes
51
C.
How Does a Sole Proprietorship Grow?
53
1.
Funding by the Owner
53
2.
Overview of Debt and Equity
53
3.
Borrowing Money
55
4.
Sharing Profits With a Lender
55
Questions and Note
60
ch. Three
What is a Partnership and How Does It Work?
62
A.
What is a Partnership?
62
Questions
63
B.
What is Partnership Law?
64
C.
What Are the Legal Problems in Starting a Business as a Partnership?
65
Problems: Partnership Agreement
65
D.
What Are the Problems in Operating a Business as a Partnership?
67
1.
Who Owns What?
67
Problems: Partnership Property
67
2.
Who Decides What the Partnership Will Do?
68
Problems: Partnership Decision-Making
68
Questions and Notes
74
Questions
75
3.
Who is Liable for What to Whom?
76
a.
Liability of the Partnership
76
b.
Liability of the Partners
76
Problems: Partnership and Partner Liability
77
c.
Note About Limited Liability Partnerships (LLPs)
77
E.
How Does a Partnership Business Grow?
78
1.
Existing Owners
78
Problem: Capital Contribution Requirement in Partnership Agreement
78
2.
Outside Lenders
79
Problem: Partner's Guarantee of Loans to the Partnership
79
3.
Additional Owners (i.e., Investors)
79
a.
Financial Issues
79
b.
Legal Issues
80
Problems: New Partners
81
4.
Earnings From Business Operations
81
Problem: Use of Partnership Earnings
81
F.
How Do the Owners of a Partnership Make Money?
81
1.
Salary
82
Problems: Partnership Salary
82
2.
Profits
82
Problems: Partnership Profits
82
3.
Sale of Ownership Interest to a Third Party
83
Problems: Sale of Partnership Interest
83
4.
Sale of Ownership Interest Back to the Partnership
84
a.
Buy-Sell Agreements
84
b.
Withdrawal of a Partner
84
Problems: Partner Withdrawal
85
Questions and Notes
91
G.
Partnership Endgame
93
1.
Dissolution, Winding Up, and Termination as Endgame for the Partnership
93
Problems: Partnership Dissolution
94
Problems: Winding Up
95
Problems: Partnership Accounts
96
Questions and Notes
99
2.
Expulsion as an Endgame for a Partner
99
Questions and Notes
103
3.
Freeze-Out as an Endgame for a Partner
105
Questions
107
ch. Four
What is a Corporation and How Does a Business Become a Corporation?
109
A.
What is a Corporation and What is Corporation Law?
110
1.
A Corporation is
112
2.
Corporate Law is
114
B.
What Are the Legal Problems in Starting a Business as a Corporation?
115
1.
Preparing the Necessary Papers
115
Problems: Articles and Bylaws
117
2.
Contracting Before Incorporating
117
Problems: Liability of Promoters and of the Corporation on Pre-Incorporation Contracts
117
3.
De Facto Corporation and Corporation by Estoppel
119
Problem: Liability When There is Defective Incorporation
119
4.
Issuing Stock
120
Problems: Issuance
124
5.
Choosing the State of Incorporation and Qualifying as a "Foreign Corporation"
125
Questions
129
ch. Five
How Does a Corporation Operate?
131
A.
Who is Liable to the Corporation's Creditors?
131
Questions and Notes
136
Questions and Notes
142
B.
Who Gets to Make Decisions for the Corporation?
147
1.
Board of Directors and Officers
148
Questions
149
Problems: Corporate Decision-Making
153
Questions
157
2.
Shareholders' Decisions Instead of Directors' Decisions
157
Questions and Notes
162
3.
Shareholders' Decisions About Directors and Cumulative Voting
162
Problems: Cumulative Voting
164
4.
Shareholders' Voting on Directors' Decisions on "Fundamental Corporate Changes"
165
5.
Where Shareholders Vote, and Who Votes
166
Problems: Voting
167
6.
Who Votes (and What Are Proxies)?
167
7.
Federal Proxy Rules
169
a.
False or Misleading Statements of Fact
169
Questions and Notes
176
b.
Shareholder Proposals
179
Questions and Notes
185
8.
Shareholders' Inspection Rights
186
Questions and Notes
195
9.
Shareholders' Voting Agreements
195
Questions
200
C.
What Are the Responsibilities of a Corporation's Decisionmakers and to Whom Are They Responsible?
201
1.
What Are the Decisionmakers' Business Responsibilities?
201
2.
What Are the Legal Responsibilities?
203
a.
Duty of Care
203
i.
Breach of Duty of Care by Board Action
203
Questions
208
Questions and Notes
212
Questions and Notes
218
ii.
Breach of Duty of Care by Board Inaction
219
Questions and Notes
222
Questions
229
Questions and Notes
233
b.
Duty of Loyalty
233
i.
Competing With the Corporation
234
Questions and Notes
236
ii.
"Usurping" a Corporate Opportunity
237
Questions and Notes
243
Questions
248
iii.
Being on Both Sides of a Deal With the Corporation ("Interested Director Transactions")
248
Questions
253
Questions and Note
260
c.
The Requirement of Good Faith
260
d.
The Special Case of Executive Compensation
261
D.
Who Sues and Who Recovers?
271
1.
What Are Derivative Suits and Why Do We Have Them?
271
Questions
276
2.
Procedural Requirements of a Derivative Suit
277
a.
Stock Ownership and Other Standing Requirements
277
Questions and Note
277
b.
Security-for-Expenses
278
c.
Demand on Directors
278
Questions and Note
288
Questions
293
Questions
301
d.
Court Approval of Settlement or Dismissal
302
3.
Recovery in Derivative Suits
303
E.
Who Really Pays?
303
1.
Indemnification
304
Questions
304
2.
Insurance
305
Questions and Note
307
ch. Six
How Does a Business Structured as a Corporation Grow?
309
A.
How a Business Decides How Much Money It Needs and How to Get it
309
1.
Debt and Equity Capital
309
2.
Debt and Return on Equity Capital
311
3.
Debt and the Financial Crisis
311
4.
The Best Capital Structure
312
5.
Calibrating Risk
313
6.
The Financial Crisis Revisited
315
Questions
318
B.
Borrowing More Money
318
C.
Issuing More Stock
319
1.
To Whom?
319
a.
Preemptive Rights and Other Rights of Existing Shareholders
319
Questions
320
Questions
324
b.
Selling to Venture Capitalists
324
c.
Selling to a Person (or a Few People) or to the Public
326
2.
What Are the Legal Constraints on How a Corporation Issues its Stock?
327
a.
Registration Requirements for Public Offerings
327
i.
Some of What Your Clients Might Have Learned About Securities Registration in B-School
327
Questions and Note
332
ii.
Some of the Legal Issues in Securities Regulation
333
Questions and Notes
334
b.
Common Law Fraud and Misrepresentation and Rule 10b-5 Constraints on Any Stock Issuance
335
Problems: Application of 10b-5 to Stock Issuance
336
D.
Using Earnings
337
ch. Seven
How Do the Owners of a Corporation Make Money?
338
A.
Receiving Salaries From the Corporation
340
1.
Who Decides Which Shareholders Get Salaries?
340
Questions and Note
351
2.
What Are the Legal Limitations on Salaries?
352
Questions
356
Questions and Notes
362
B.
Receiving Dividends From the Corporation
362
1.
What is a Dividend?
362
2.
Why Do Corporations Pay Dividends? Why Do Investors Pay Attention to Dividends?
362
3.
What is the Law on When a Dividend May Be Paid? What is the Law on When a Dividend Must Be Paid?
363
Questions and Note
368
Questions and Note
372
4.
To Whom Are Dividends Paid: Preferred, Participating, Cumulative?
373
C.
Buying and Selling Stock at a Profit
375
1.
How Does Someone Know What Shares of a Corporation's Stock Are Worth?
375
a.
Available Information
375
b.
Reliability of Information---Common Law and 10b-5 Protection From Fraud
376
Questions and Note
383
Questions
392
Questions
399
2.
What Are the Legal Duties Applicable to Buying or Selling Stock?
400
a.
10b-5 Again and Buying or Selling With Inside Information
400
Questions
402
Questions and Notes
405
Questions
411
Questions and Note
419
Questions and Notes
427
Questions and Note
433
b.
Section 16(b) and Short-Swing Trading
434
Questions and Notes
436
Problems: [§] 16(b) Suits
437
c.
Common Law Duty of Selling Shareholder
438
Questions and Note
444
Questions and Notes
450
Note: "Selling" Fiduciary Offices With the Controlling Interest
452
3.
To Whom Can a Shareholder Sell Her Shares?
453
a.
Redemption and the "Equal Access" Rule
454
Questions
462
b.
Buy-Sell Agreements
463
Questions
474
Questions
479
ch. Eight
What Are the Various "Endgames" for the Corporation, Its Shareholders, Its Managers?
480
A.
Introduction About Fundamental Corporate Changes
480
B.
Dissolution
482
Questions
483
C.
Merger
484
1.
Effects of a Merger on the Creditors and the Shareholders of the Disappearing Corporation
484
Problems: The Effect of a Merger
484
2.
Shareholder Protection
484
a.
Sue the Directors Who Approved the Merger for Breach of Duty of Care
485
b.
Vote Against the Merger
485
Problem: Shareholder Approval of a Merger
485
c.
Assert Dissenting Shareholders' Right of Appraisal
485
Questions
493
d.
Sue the Directors Who Approved the Merger for Breach of a Duty of Loyalty
493
Questions and Notes
501
Questions
508
Problem: Cash Out Mergers
508
D.
Sale of Substantially All the Assets
508
1.
Effect of Sale of Assets on the Creditors of the Selling Corporation
508
Questions
512
2.
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
513
Problem: A Sale of Assets That Arguably Looks Like a Merger
514
E.
Hostile Takeover
514
1.
What Is a Hostile Takeover?
514
2.
Takeover Defenses
518
Questions and Notes
523
Questions and Notes
531
Questions
542
Questions and Note
556
Questions and Note
563
3.
Federal and State Regulation of Hostile Takeovers
563
ch. Nine
What is a Limited Partnership and How Does it Work?
578
A.
What is a Limited Partnership and What is Limited Partnership Law?
579
B.
What Are the Legal Problems in Starting a Business as a Limited Partnership?
580
Questions
581
C.
What Are the Legal Problems in Operating a Business as a Limited Partnership?
582
1.
Who Decides What?
582
Questions and Note
583
2.
Who is Liable to Whom for What?
584
a.
To Third Parties
584
Questions
585
Questions
593
b.
To the Partnership and Partners
593
Questions and Notes
598
Questions
604
D.
How Do the Owners of a Business Structured as a Limited Partnership Make Money?
605
1.
Transfer of Ownership Interest to a Third Party
605
Questions and Notes
606
2.
Transfers of Ownership Interest to Limited Partnership
606
Questions and Note
606
Problem: Withdrawing From a Limited Partnership
607
ch. Ten
What is a Limited Liability Company and How Does It Work?
608
A.
What is an LLC and What is LLC Law?
608
B.
What Are the Legal Problems in Starting a Business as an LLC?
609
Questions
610
C.
What Are the Legal Problems in Operating a Business as an LLC?
611
1.
Who Decides What?
611
Problems: Decision-Making in an LLC
612
2.
Who is Liable to Whom for What?
612
a.
Members' Liability to Third Parties
612
Questions
614
Questions
617
b.
Members' and Managers' Liability to the Company
618
Questions
621
D.
How Do the Owners of a Business Structured as a Limited Liability Company Make Money?
622
Problem: Transfers of Members' Interests
623
Questions and Notes
631
Questions
634
E.
From Limited Liability Companies to
634
Index
635