Chapter One．The Corporation in Perspective 1
1.1 What Is a Corporation?The Concept of an Artificial Entity 1
1.2 What Is a Corporation?Other Theories 4
1.3 The"Nexus of Contracts"Theory 6
1.4 The Development of Corporation Law in the United States 12
1.5 Economic Analysis of the"Race for the Bottom" 14
1.6 What Explains Delaware's Success in Attracting Corporations? 16
1.7 The Model Business Corporation Act 18
1.8 The Federal Securities Laws 19
1.9 The Debate Over Social Responsibility and the Publicly Held Corporation 20
1.10 "Closely Held"and"Publicly Held"Corporations 22
Chapter Two．Unincorporated Business Forms 25
2.1 Unincorporated Business Forms In General 25
2.2 A Dictionary of Unincorporated Business Forms 25
2.3 Personal Liability and Taxes:The Most Important Factors in Selecting a Business Form 30
2.4 An Introduction to Federal Taxation of Business Forms 32
2.5 Taxation of"C"and"S"Corporations 35
2.6 Combining Partnership Tax Treatment and Limited Liability 37
2.7 Economic Effects of the Double Tax Regime 39
Chapter Three．Formation of Corporations 42
3.1 In General 42
3.2 Selection of the State of Incorporation 42
3.3 Mechanics of Creating a Corporation 43
3.4 Incorporators 45
3.5 Articles of Incorporation:In General 47
3.6 Articles of Incorporation:The Corporate Name 49
3.7 Articles of Incorporation:Period of Duration 53
3.8 Articles of Incorporation:Purposes and Powers 53
3.9 Articles of Incorporation:Capitalization 56
3.10 Articles of Incorporation:Registered Office and Registered Agent 58
3.11 Articles of Incorporation:Imtial Board of Directors 59
3.12 Articles of Incorporation:Limitation of Directoral Liability 60
3.13 Completion of the Organization of the Corporation:In General 61
3.14 Nature and Purpose of Bylaws 62
3.15 The Corporate Seal 63
3.16 Organizational Meetings 63
Chapter Four．The Limited Role of Ultra Vires 66
4.1 The Common Law Doctrine of Ultra Vires 66
4.2 The Modern Role of Ultra Vires 68
4.3 Ultra Vires Problems in Connection With Corporate Powers 69
Chapter Five．Preincorporation Transactions 76
5.1 Introduction 76
5.2 Subscriptions for Shares 76
5.3 Agreements to Form Corporation 79
5.4 Promoters in General 81
5.5 Promoters'Contracts 83
5.6 Liability of Corporations for Promoters'Contracts 87
5.7 Promoter's Fiduciary Duties 89
5.8 Organizational Expenses Incurred by Promoters 90
5.9 Premature Commencement of Business and the De Facto Doctrine 92
5.10 Corporations by Estoppel 95
Chapter Six．"Piercing the Corporate Veil"and Related Problems 98
6.1 "Piercing the Corporate Veil"In Context 98
6.2 Shareholder Responsibility for Corporate Indebtedness:Introduction 99
6.3 The Standard Rhetoric of Piercing the Corporate Veil 100
6.4 Piercing the Corporate Veil in Contract and Tort Cases 101
6.5 Inadequate Capitalization 104
6.6 Failure to Follow Corporate Formalities 107
6.7 Parent-Subsidiary Cases 109
6.8 The Concept of"Enterprise Entity" 113
6.9 Choice of Law Issues in"Piercing the Corporate Veil"Cases 113
6.10 The Federal Law of"Piercing the Corporate Veil" 115
6.11 Reverse Piercing 116
6.12 "Piercing the Corporate Veil"to Further Public Policy 117
6.13 "Piercing the Corporate Veil"in Taxation and Bankruptcy 119
6.14 Other Generalizations About"Piercing the Corporate Veil" 122
Chapter Seven．Financing the Corporation 123
7.1 Introduction 123
7.2 Basic Definitions:Common Stock;Authorized and Issued Shares 124
7.3 The Price of Common Shares 126
7.4 Par Value,Stated Capital and Related Concepts 127
7.5 No Par Shares 135
7.6 Shares Issued for Property or Services 136
7.7 Liability of Shareholders for Watered Stock 140
7.8 Treasury Shares as a Device to Avoid Restrictions on the Issuance of Shares 146
7.9 Current Trends Regarding Par Value 147
7.10 Other Types of Securities:"Equity"and"Debt"Securities 148
7.11 Characteristics of Debt Securities 149
7.12 Classes of Equity Securities;Preferred Shares 152
7.13 The Advantages of Debt Financing 160
7.14 Tax Consequences of Excessive Debt Capitalization in C Corporations 164
7.15 Debt as a Second Class of Stock in S Corporations 165
7.16 The Deep Rock Doctrine Revisited 166
7.17 Equalizing Capital and Services When Forming a Corporation 167
7.18 Issuance of Shares by a Going Concern:Preemptive Rights 170
7.19 Oppressive Issuance of Shares 175
7.20 Circular Ownership of Shares 177
7.21 A Cautionary Postscript:The Risk of Violating Securities Acts While Raising Capital 177
Chapter Eight．The Distribution of Powers within a Corporation:Special Problems 179
8.1 The"Statutory Scheme"In General 179
8.2 The Statutory Scheme:Shareholders 182
8.3 The Statutory Scheme:Power of Shareholders to Remove Directors 183
8.4 The Statutory Scheme:Directors 185
8.5 Elimination of the Board of Directors 188
8.6 The Statutory Scheme:Officers 189
8.7 Shared Responsibility With Respect to Corporate Operations 190
8.8 Shared Responsibility:Approval of Fundamental Corporate Changes 192
8.9 Shared Responsibility:Bylaw Amendments 193
8.10 Restrictions on Directors in Close Corporations 194
8.11 Delegation of Management Powers and the Statutory Scheme 202
Chapter Nine．Shares and Shareholders 203
9.1 Annual and Special Meetings of Shareholders 203
9.2 Shareholder Action by Consent 206
9.3 Record and Beneficial Ownership of Shares 207
9.4 Record Dates 208
9.5 Preparation of Voting List 210
9.6 Election of Directors:Cumulative or Straight Voting 211
9.7 "Classified"Boards of Directors 219
9.8 Other Devices to Minimize Cumulative Voting 220
9.9 Voting by Proxy 221
9.10 Irrevocable Proxy Appomtments 223
9.11 Vote Buying 225
9.12 Shareholder Voting Agreements 226
9.13 Voring Trusts:Purpose,Operation,and Legislative Policy 229
9.14 Voting Trusts:Use in Public Corporations 232
9.15 Voting Trusts:Powers and Duties of Trustee 233
9.16 Creation of Floating Voting Power Through Different Classes of Shares 234
9.17 Share Transfer Restrictions:Purposes,Operation,and Effect 236
9.18 Share Transfer Restrictions:Scope and Validity 239
9.19 Share Transfer Restrictions:Duration of Restraints 241
9.20 Share Transfer Restrictions:Procedural Requirements 241
9.21 Option or Buy/Sell Agreements:Who Should Have the Right or Privilege to Buy? 242
9.22 Option or Buy/Sell Agreements:Establishment of Purchase or Option Price 244
9.23 Option or Buy/Sell Agreements:Life Insurance 248
9.24 Selection of the Purchaser in Deadlock Buyouts 249
9.25 Deferred Payment of the Purchase Price 250
Chapter Ten．Directors 252
10.1 Number and Qualifications of Directors 252
10.2 Directors'Meetings:Notice,Quorum,and Similar Matters 254
10.3 Compensation of Directors 257
10.4 Filling of Vacancies on the Board 258
10.5 Hold-Over Directors 259
10.6 Necessity for Meeting and Personal Attendance 260
10.7 Telephonic Meetings 261
10.8 Action Without a Meeting 262
10.9 Directors'Objections to Actions 263
10.10 Committees of the Board of Directors 264
Chapter Eleven．Officers 268
11.1 Statutory Designations of Officers 268
11.2 Express Authority and Power to Act In General 270
11.3 Roles of Corporate Officers 271
11.4 Express Authority Delegated by Board of Directors 272
11.5 Inherent Power of the Corporate President 274
11.6 Implied Authority,Apparent Authority,Ratification,Estoppel,and Unjust Enrichment 275
11.7 Fiduciary Duties of Officers and Agents 277
11.8 Liability of Officers and Agents to Third Parties 278
11.9 Imputation of Knowledge to Corporation 281
11.10 Tenure of Officers and Agents 282
11.11 Long-Term Employment Contracts 283
Chapter Twelve．The Closely Held Corporation 286
12.1 The Meaning of"Closely Held"and"Publicly Held" 286
12.2 Management and Control of the Closely Held Corporation 287
12.3 "Oppression"and"Freeze-Outs" 289
12.4 Advance Planning in Closely Held Corporations 293
12.5 Traditional Protection Devices in Closely Held Corporations 294
12.6 Classes of Shares as Control Devices 295
12.7 Increased Quorum and Voting Requirements 298
12.8 Deadlocks 299
12.9 Involuntary Dissolution 301
12.10 Section 14.34 of MBCA(1984) 304
12.11 Fiduciary Duties of Shareholders of Closely Held Corporations 305
12.12 Resolution of Intracorporate Disputes by Arbitration 307
12.13 Special Close Corporation Statutes 308
12.14 Section 7.32 of MBCA(1984) 310
Chapter Thirteen．The Publicly Held Corporation 313
13.1 The Publicly Held Corporation in Perspective 313
13.2 The Internal Structure of Large Corporations 315
13.3 Profit Centers 317
13.4 The Corporate Headquarters 320
13.5 The Chief Executive Officer 323
13.6 Compensation of Senior Executives 324
13.7 Shareholders as"Investors"or"Owners" 326
13.8 Institutional Investors 328
13.9 Registration of Securities in Street Name or in the Name of Nominees;Book Entry 332
13.10 The Board of Directors:Theory and Reality 335
13.11 The Election of Directors in Publicly Held Corporations 337
13.12 "Inside"and"Independent"Directors 339
13.13 Relationships Between the CEO and the Board 340
13.14 The Modern Board of Directors 342
13.15 The"Chicago School"of Law and Economics 347
13.16 Share Prices and The Changing Body of Shareholders 352
13.17 The Takeover Movement of the 1980s 353
13.18 Proxy Regulation in Publicly Held Corporations 354
13.19 Disclosure Requirements in Connection With Proxy Solicitations 356
13.20 Shareholder Proposals 359
13.21 Private Actions for Violations of Federal Proxy Rules 362
13.22 Proxy Contests 364
13.23 Federal Regulations Relating to Proxy Contests 368
13.24 The Modern Takeover Movement 368
13.25 Defensive Tactics 373
13.26 State Legislative Responses to the Takeover Movement 375
Chapter Fourteen．Duties of Directors,Shareholders and Officers 378
14.1 The Director as a"Fiduciary" 378
14.2 Duties of Shareholders and Officers 379
14.3 Sources of Law Relating to Duties——Common Law,State and Federal Statutes,"Federal Common Law" 380
14.4 Duty of Care 381
14.5 The"Business Judgment Rule" 385
14.6 Section 102(b)(7)of the Delaware GCL 391
14.7 The Business Judgment Rule in Takeover Contests 392
14.8 The Business Judgment Rule in Derivative Litigation 395
14.9 The Duty of Loyalty 398
14.10 Self Dealing 399
14.11 Interlocking Directors 404
14.12 Executive Compensation 405
14.13 Corporate Opportunities 409
14.14 Fairness to Minority Shareholders 413
14.15 "Fairness"and the"Business Judgment Rule" 415
14.16 Shareholder Ratification 418
14.17 Exoneratory Provisions 419
14.18 Statutory Duties and Statutory Defenses 420
14.19 Purchase or Sale of Shares or Claims Under State Law 423
14.20 Duties of Directors of Financially Distressed Corporations 427
14.21 Rule 10b-5 428
14.22 Rule 10b-5 as an Anti-Fraud Provision 431
14.23 Rule 10b-5 as a Prohibition Against Insider Trading 431
14.24 Rule 10b-5 as a Protector of the Issuer 437
14.25 Rule 10b-5 as a General Prohibition Against Wrongful Conduct 438
14.26 Section 16(b)of the Securities Exchange Act of 1934 439
14.27 Transfers of Control 442
Chapter Fifteen．Indemnification and Insurance 448
15.1 Definitions of Terms 448
15.2 The Need for Protection of Directors and Officers 449
15.3 Public Policy Limitations on Indemnification 450
15.4 Statutory Treatment of Indemnification 451
15.5 Advances for Expenses 454
15.6 D＆O Insurance 456
Chapter Sixteen．Shareholder's Suits 459
16.1 Direct and Derivative Suits In General 459
16.2 Derivative and Direct Claims Distinguished 460
16.3 Alignment of Parties in a Derivative Suit 462
16.4 Role of the Plaintiff's Attorney 463
16.5 Derivative Litigation as Strike Suits 466
16.6 Contemporary Ownership 467
16.7 Demand on Shareholders 468
16.8 Security-For-Expenses Statutes 469
16.9 Verification of the Complaint 471
16.10 Demand on Directors and Litigation Committees 472
16.11 Defenses in a Derivative Suit 477
16.12 Private Settlement of Derivative Suits 478
16.13 Res Judicata Effect of Derivative Suits 479
Chapter Seventeen．Class Action Suits 481
17.1 Securities Class Action Suits In General 481
17.2 SEC Disclosure Requirements 482
17.3 The Growth of Class Action Securities Litigation 483
17.4 Judicial Response to the Increased Litigation 485
17.5 The Private Securities Litigation Reform Act of 1995 486
17.6 Class Action Provisions 486
17.7 Safe Harbor Provisions 487
17.8 Discovery Provisions 489
17.9 Proportionate Liability Provisions 489
17.10 Settlement Provisions 491
17.11 Fee Shifting Provisions 491
17.13 Pleading Provisions 492
17.14 Damage Provisions 493
17.15 Aiding and Abetting Provisions 494
17.16 Auditor Disclosure of Corporate Fraud Provisions 494
17.17 What the Future Holds as a Result of PSLRA 496
Chapter Eighteen．Dividends,Distributions,and Redemptions 498
18.1 Cash or Property Dividends and Distributions 498
18.2 Share Dividends 500
18.3 Distributions of Rights or Warrants 504
18.4 Share Reacquisitions as Distributions 504
18.5 Shareholders'Rights to a Dividend 506
18.6 Statutory Restrictions on the Declaration of Dividends 508
18.7 Contractual Provisions Relating to Declarations of Dividends 514
18.8 Liability of Directors and Shareholders for Illegal Dividends 515
18.9 Shareholders'Right to Compel a Dividend 515
18.10 Tax Consequences of Failure to Pay Dividends in Closely Held Corporations 517
18.11 Corporate Repurchase of Its Own Shares 518
18.12 Redeemable Securities 521
Chapter Nineteen．Inspection of Books and Records 523
19.1 Inspection by Directors and Shareholders Compared 523
19.2 Common Law and Statutory Rights of Inspection by Shareholders 524
19.3 Corporate Records:What May Be Examined? 526
19.4 What Is a"Proper Purpose"? 528
19.5 Who Is Entitled to Inspect? 529
19.6 Inspection of Shareholders Lists 530
19.7 Financial Reports for Shareholders 532
Chapter Twenty．Organic Changes:Amendments,Mergers,and Dissolution 533
20.1 Amendments to Articles of Incorporation In General 533
20.2 Vested Rights 534
20.3 Voting by Classes 536
20.4 Mergers and Consolidations 538
20.5 Triangular Mergers,Cash Mergers,Short Form Mergers,and Related Developments 542
20.6 Cash-Out Mergers 544
20.7 "Upstream"and"Downstream"Mergers 545
20.8 Short Form Mergers 545
20.9 Fiduciary Duties in Mergers 547
20.10 Sales of All or Substantially All the Assets of a Corporation 548
20.11 The Right of Dissent and Appraisal 550
20.12 Voluntary Dissolution 554
Glossary 557
INDEX 593