Business organization and finance : legal and economic principles / by William A. Klein and John C. Coffee, Jr, Frank Partnoy.
2010
KF1366 .K56 2010 (Map It)
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Author
Title
Business organization and finance : legal and economic principles / by William A. Klein and John C. Coffee, Jr, Frank Partnoy.
Published
New York : Thomson Reuters/Foundation Press, 2010.
Call Number
KF1366 .K56 2010
Edition
Eleventh edition.
ISBN
9781599414492 (pbk.)
159941449X (pbk.)
159941449X (pbk.)
Description
xv, 476 pages : illustrations ; 24 cm.
System Control No.
(OCoLC)611986929
Bibliography, etc. Note
Includes bibliographical references and index.
Record Appears in
Gift
Gift of Prof. Harvey J. Goldschmid (c.2)
Added Author
Gift
The Arthur W. Diamond Law Library
Gift of Prof. Harvey J. Goldschmid (c.2)
Table of Contents
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
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
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