AGENCY  Agent uses position to make a $ unrelated to P partnership business to the point where it is not reasonably

An agency relationship exists where P manifests control Duty of Care – Subject to an agreement w/ P, an agent has practicable to carry on.
for A to act on their behalf, subject to their control, and A a duty to act with reasonable care in all circumstances.  Dissolution & Dissociation end fiduciary duties after
does so. fully dissolved or dissociated.
Elements PARTNERSHIPS Limited Liability Partnerships – A limited liability
 Principal 2+ persons carrying on a business for profit. partnership is made up of two or more persons, one of
 Agent Elements whom has uncapped liability as general partner, and the
 Manifestation of P’s assent  Two + persons rest which are not jointly and severally liable for the
 Manifestation of agent’s assent  Engaged in a business partnership’s debts, obligations, and liabilities. Partners
 Agent acting on P’s behalf  W/ an intent to make a profit can contract away fiduciary duties.
 Agent subject to P’s control **A partnership is formed whenever all essential elements
Actual Authority – manifestation to P, reasonably are met. Exam Questions – who is a partner? what are partners
understood by agent, agreeing that agent acts on Agency – Each partner is an agent of the partnership. liable for? Who has agency and/or authority to act?
principle’s behalf. Uncapped Liability – partners are jointly and severally
Express – authority agent holds as a result of explicit liable for debts of partnership. Any partner who joined LLCs
conferral by P. after the debt is incurred is not liable. Limited liability entities
Implied – stems from words or conduct (possibly past Fiduciary Duties Requirements
conduct) between the P and agent; authority to do sub-part  Duty of Loyalty  One or more persons
of task o Can’t misuse partnership assets  Deliver articles of organization to SOS
Apparent Authority – power held by agent to affect the P’s o Can’t deal w/ partnership as or on behalf of an  Filing fee
legal relations with a third party when the third party adverse party Limited liability – members NOT subject to J&S liability,
reasonably believes the agent has authority to act, and that o Can’t compete w/ partnership (1) unless art. of org. states otherwise, and (2) members
belief is traceable to the P’s manifestations.  Duty of Care – to refrain from engaging in grossly consent in written agreement to the adoption of the
Ratification – Elements: negligent or reckless conduct, willful or intentional provision.
 Acceptance of the result of the agent’s act misconduct, or a knowing violation of the law. De facto LLC – (1) good faith (2) valid statute (3)
 With an intent to ratify o Can be contracted away authorized purpose (4) executed and acknowledged art. of
 Full knowledge of material circumstances. Partnership Property – belongs to the partnership and not org. pursuant to that purpose.
Agency by Estoppel – A P is liable for losses incurred by a to the partners. In determining whether property belongs to LLC by Estoppel – Appropriate where parties enter into a
third party as a result of the P’s failure to exercise the partnership, the intent of the partners at the time it was contract believing that an LLC was validly formed, and the
reasonable care in ensuring only those with authority are acquired is relevant. parties proceed under that belief.
held out as its agents. Transfer – permissible, no right to management, just $$ Piercing the Veil – A court will pierce the veil and hold
Respondeat Superior – An employer is subject to liability Distribution of Losses/Profits – All partners share in members liable if:
for torts committed by employees while acting within the proportion to their interest.  Unfairness/injustice
scope of their employment. Management – All have equal rights in management.  LLC and owner operate as single economic unit, alter
Elements Partners can bind the partnership through acts within the ego.
 Agency relationship ordinary course of business. A majority vote is required to Veil will NOT be pierced solely for failing to comply w/
 Sufficient control change the ordinary course of business or for anything formalities.
 Acting within scope of employment – assigned by outside the ordinary course of business. Fiduciary Duties
employer or course of conduct subject to employer’s Dissolution – Dissolution is appropriate where a partner’s Member managed – all members have equal right in
control. conduct makes it not reasonably practicable to carry on. management; owe fiduciary duties to other members;
Duty of Loyalty – An agent has a fiduciary duty to act for The partnership dissolves upon entry of a court order, not DEFAULT
the P’s benefit in all matters connected to the agency with filing of complaint. Any partner acting in good faith Manager managed – manager manages day-to-day
relationship. can purchase assets. business; NOT unilateral authority over business decisions
Three Situations  Partners always have power to dissolve, but not right. outside the usual course of business; owes fiduciary duties
 Receiving $$ from 3rd party in connection w/ Dissociation – A partner may be dissociated when they are to the LLC and the members, but members owe NO
transaction acting wrongfully or their conduct interferes with fiduciary duties.
 Secret $$ by secretly transacting w/ P
  Duty of Loyalty – **oper. agrmt. can contract away Benihana – Abdo did not use his influence as a member of
liability Shareholder Primacy – The purpose of a corp is to the Benihana board to set the terms of the transaction,
o Can’t misuse partnership assets maximize value to SHs, meaning corp exists primarily for deceive the board, or dominate or control the other
o Can’t deal w/ partnership as or on behalf of an the economic benefit of the SHs. director’s approval.
adverse party Dodge – A company can’t take actions that are harmful to Bayer – When the duty of loyalty is challenged, the board
o Can’t compete w/ partnership SHs when they are motivated solely by social concerns, has the burden of: (1) showing good faith of the
 Duty of Care – to refrain from engaging in grossly not business concerns. transaction, and (2) showing the transaction’s fairness.
negligent or reckless conduct, willful or intentional Shlensky – As long as directors can show a valid business
misconduct, or a knowing violation of the law. purpose for their decision, shareholder primacy is still Corporate Opportunities – can’t take an opportunity that
o Oper. Agrmt. can contract away liability. prioritized. (1) corporation has an interest or expectation around; (2)
Dissolution – Judicial dissolution is appropriate where it is A.P. Smith – a charitable gift to a university is permissible opportunity in the same line of business as the corporation.
no longer reasonably practicable to continue the business, because wanting an educated populace from which a corp **Intrinsic Fairness – the burden is on the directors to
OR if the manager or members in control are acting can draw employees is a legitimate business purpose. show, subject to close scrutiny, that the transaction was
illegally or in an oppressive manner that is directly harmful objectively fair.
to the applicant. Duty of Care – duty to refrain from engaging in grossly Broz – An opportunity that specifically excludes the
negligent or reckless conduct, intentional misconduct, or a corporation and the corporation does not have the financial
Exam Questions – Member v. manager-managed LLC. knowing violation of the law. Requires directors to: wherewithal to take on is not a corporate opp.
Who has a FD? Was anything breached? Double check  Act with reasonable care eBay – Directors are not permitted to accept private stock
who has the fiduciary duties  Consider all material information reasonably allocations when the corporation buys stock as part of its
available (properly informed, opportunity to ask ordinary business.
CORPORATIONS questions). Sinclair – Self-dealing between parent and subsidiary is
Generally Business Judgment Rule – Director’s decisions are subject to intrinsic fairness test.
Shareholders – limited management abilities; generally, do presumed to have been made on an informed basis in good Zahn – Dividends are not self-dealing if they are paid out
not owe fiduciary duties to the corporation or to one faith and in an honest belief that the action was taken in pro rata to all SHs, but directors paying dividends to
another. the best interests of the company. themselves constitutes self-dealing.
Board of Directors – elected to supervise the officers and Kamin – paying out dividends to AmEx SHs with DLJ Ratification – For ratification of an interested transaction,
make big picture decisions; generally, owe fiduciary duties stock was not alleged to be bad faith, and gets business the board needs an affirmative vote of the majority of
to the corporation and to the SHs. judgment rule protection. disinterested shareholders.
Management – supervised by the board; make day-to-day Smith v. Van Gorkom – A vote after a meeting of only two Fliegler – If a decision is ratified by a majority of
business decisions. hours w/o written material that was not presented by the interested directors, the burden is on the board to show the
material’s drafter violated duty of care. (Cinerama – transaction was fair.
Piercing the Veil – A corporate entity will be disregarded flawed decision that came up with an entirely fair price
and, the veil of limited liability will be pierced WHEN: was okay). Good Faith – Under the duty of good faith, directors are
Francis – Mrs. Pritchard’s inaction is not given business obligated not to consciously disregard their duties.
 Alter ego
judgment rule protection. Disney – Large golden parachute contract was not bad
 Unfairness/injustice
§ 102(b) – can eliminate personal liability for duty of care faith or waste because it enticed Ovitz to work for Disney.
Walkovszky – Piercing the veil is not appropriate just
violations; can’t eliminate liability for duty of loyalty or Stone v. Ritter (Caremark) – Directors are obligated to
because the assets and mandatory insurance does not
good faith violations. make a good faith effort to ensure that an adequate
provide the plaintiff with a remedy.
corporate internal information and reporting system exists.
Sea-Land – Examples of things that prove piercing the veil
Duty of Loyalty – Directors are generally forbidden from: They can be liable for bad faith if:
is necessary: used corp. bank accounts to pay personal
 Standing on both sides of the transaction; and  Directors knew/should have known that employees
expenses including alimony and child support, education
 Deriving personal benefit through self-dealing. violating the law
expenses, personal automobile expenses, health care $$,
etc. § 144 – self-dealing does not constitute a breach in  Declined to make a good faith effort to prevent; and
Frigidaire – Piercing the veil is not appropriate when the fiduciary duty if:  The lack of action was the proximate cause of
general partner in an LP is a corporate entity, when the  discloses all material facts + disinterested vote; or damages.
corporate affairs are separate and there is no evidence, they  The self-interest of the director aligns with the corp’s A breach of good faith proves a breach of duty of loyalty.
engaged in fraud. self-interest. Failure to act in good faith may result in liability because
the requirement to act in good faith is an element of the  Independence and good faith of SLC (Auerbach)  Related to operations accounting for > 5% of assets,
duty of loyalty.  Court’s BJR net earnings, or gross sales
In re China Argitech – gross negligence alone is not Interested v. Disinterested – some friendship and financial o Lovenheim – if < 5%, can only be included if
enough to show bad faith. connections render a director incapable of making an the proposal gets at an important social policy
unbiased decision. issue.
Shareholder Actions Martha Stewart - personal friend and longtime CEO of  Deals w/ matter relating to the company’s ordinary
Direct – harm to shareholder. Examples: Sears. Sears sold many Martha Stewart products – business requirements
 Refusal to distribute dividend when other SHs got $ disinterested; attended a wedding once that Martha Stewart o Trinity – Unless, it deals with significant social
$. was also asked – disinterested; contacted a publishing policy issue that transcends the ordinary
 Denial of voting rights to a particular SH. company to complain about a biography that painted business – ex. employment discrimination.
 Refusal to allow inspection of SH list Martha Stewart in a bad light – disinterested.  Deals with an election
 Dilution of voting rights as a result of breach. Delaware County Employees Retirement Fund - Longtime o AFSCME – must be related to a specific
 Violations of fed securities laws. friendship (50+ years), executive officer for another election, not elections generally.
Derivative – harm to corp. Requirements: company Sanchez owned, Sanchez employed brother too =  In conflict w/ or duplicates a proposal submitted to
 Contemporaneous ownership – SH at the time of the interested. the same meeting.
incident
 Standing – SH throughout litigation Proxy Contests Inspection Rights – SH have right to access some corp
 Demand – make demand on the board or plead facts Levin – Corporate money can be used to fund proxy info; access is dependent on state law.
alleging demand is waived. contests as long as the costs are not excessive, and the Pillsbury – can’t inspect for moral reasons in DE, must
 Court approval of any settlement fight focuses on business strategies and goals (policy- have economic reasons.
Ex – claims for board action that made stock go down; based).
waste; overpaying. Rosenfeld – An incumbent slate may be reimbursed Voting Control – every share has the same vote. However,
In re Medtronic – direct v. derivative analysis asks who whether they win or lose. An insurgent slate may be corps can change this.
would recover. If the SH recover, the claim is direct. If the reimbursed if they win. Stroh – proprietary interests include both economic and
corp will recover, the claim is derivative. § 14a-9 – statements included with proxy materials cannot voting interests.
**When P makes demand on board, board gets BJR. be false or materially misleading. Espinoza – majority SH can unilaterally ratify an
Demand is excused when a plaintiff pleads facts alleging:  Material – information a reasonable shareholder interested board’s decision only if they adhere to relevant
 Disinterested and independent would consider important in deciding how to vote. state law provisions.
J.I. Case Co. – private parties have a cause of action for
 Not the product of a valid exercise of business
damages arising from material misstatements or omissions Closely Held Corp – Straight voting – 1 vote 1 share; can
judgment (board uninformed).
in disclosures. only vote in each director spot. Cumulative voting – total #
Grimes – No take back rule – once you make demand on
Mills – No need to show causation; showing the material of votes, can allocate however you want.
the board, you give up your right to allege that demand
misstatement is enough. Shareholder Agreements – contracts between shareholders
was excused.
Seinfeld – materiality does not require Black-Scholes. that they will vote in specific ways; only valid in CHC.
Marx – compensation for CEO/officers – demand not
excused; pay for board themselves – demand was excused.  Vote pooling – shareholders vote as a block to elect
Shareholder Proposals – can be excluded if: members to board
Special Litigation Committees – committees made up of  Noncompliance with procedural requirements (500 Ringling – vote pool agreement that required binding
disinterested board members to address demand. words, sufficient shares, SH for sufficient time, arbitration in the case of disagreement was valid.
Auerbach – gold standard (reviewed transcripts from 10 sufficient notice) Ramos – vote pooling agreement is valid, and breach can
corporate officers and employees’ testimony with the SEC;  Improper under state law (or federal or foreign) cause SH to lose shares if that is what the agreement says.
studied documents; collected works of the individual o CA, Inc. – Cannot issue bylaws that effect or  Board Controlling – shareholders agree to name
external law firm that was involved in the investigation; put some limitation on the board if they may certain people as officers or veto transaction as
interviews with the directors said they weren’t involved; theoretically cause the directors to breach their directors.
reviewed a questionnaire sent by an external firm; sought fiduciary duties. o Unanimous and included in the charter, bylaws,
advice from the external firm).  Violate proxy rules – materially false or misleading or separate agreement.
Zapata – If a special litigation committee is used, the court  Related to redress of personal grievance
must:
  McQuade – when other SHs are subject Haley – court may dissolve an LLC with an exit
to board action, board controlling mechanism in the case of deadlock when the exit Tipper/Tippee
agreements are invalid. mechanism is insufficient. Dirks – tippee liability requires a breach of tipper’s
 Clark – when every SH is party, the Pedro – a court will not dissolve where other equitable fiduciary duty. The tipper must personally benefit in order
board controlling agreement is valid. relief is possible (i.e., a functioning exit mechanism exists) to liability to attach.
o Limited to 10 years, unless agreement provides Stuparich – involuntary dissolution is only appropriate Salman – a gift is a personal benefit; chain of tipper/tippee
otherwise. where a min SH has ACTUALLY been frozen out. A min can continue indefinitely.
o Legend SH who disagrees with maj SH’s votes and continues to US v. O’Hagan – attorney/accountant is liable for insider
o CHC receive dividends is not frozen out. trading by virtue of their duty to the source of the info, not
o No personal liability as a result necessarily their duty to SHs; undisclosed use of info
Galler – board controlling agreement should be held up if Transfer of Control belonging to your principal.
it (1) hurts no min SH nor the public, (2) is reasonable, and Right of first refusal – contractual right that forces a SH to
(3) when dealing with a CHC owned by families, there are offer shares they are interested in selling to someone Mergers – legal mechanism by which two entities combine
legit reasons to protect interests like this. before selling them generally. through state law.
Buy-sell agreement - different contractual right says that if DE Law – requires (1) board resolution (2) approved by
Minority Oppression I refuse to buy your shares, you have to offer to buy mine SH
Shareholders do not owe fiduciary duties to one another in at the same price. Appraisal right – if you are a min SH who votes against a
their capacity as shareholders. **Right of first refusal + buy-sell agreement = max merger, you have a right to sell back your shares for fair
MA Rule – Min SHs must be offered the same opportunity protection market value.
to sell shares as maj SHs have. Two-part inquiry: Frandsen – No right of first refusal is triggered in a merger De facto merger – doctrine does not exist under DE law –
 Legit business purpose because the shares extinguish and are not sold. Hariton – regardless of the consequences, the form of a
o Wilkes – just bc they don’t like him ≠ legit bus Zetlin – a maj SH selling for a premium does not entitle transaction will be respected.
purp (need evidence of misconduct) min SH to benefits because controlling interest > min Entire Fairness – directors on both sides of transaction;
interests. burden on the board to show that:
 Reasonable less harmful alternative.
Perlman – steel case; Where a sale of a corporation’s  Price was fair; and
DE Rule – A min SH in a CHC, by that status alone,
controlling interest attempts to siphon off a corporate  Conflicted board engaged in fair dealing.
acquires no right from corp or maj SHs against freeze outs.
advantage for personal gain disguised as a “control Weinberger – where a price window is fair and SHs are
** employment contract; buy-sell agreement – solve
premium”, the minority has a right to the profits, as well. offered a low price without disclosure that up to the high
problems.
Essex – To the extent that you’re buying control and you price would be fair, the entire fairness test is not met; SH
Is it a freeze out?
can prove you’ll have control in the case of a staggered must be informed with all material info.
 Can min SH sell?
board, you are entitled to take control. Kahn – If you condition merger approval on (1)
 Is min SH still getting salary, director’s fees, loan,
independent special committee’s investigation and
dividends? Inside Info approval, and (2) informed SH vote, merger subject to
Ingle – without evidence of a freeze out, employment-at- Rule 10b-5 Elements BJR.
will governs.
 Misstatement or omission Coggins – A controlling shareholder who is also a director
Brodie – proper remedy is the benefits that the SH
 Of a material fact on which the plaintiff relied on both sides of a freeze-out merger must show that the
reasonably expected but did not receive as a result of the
 In connection with the merger is for the advancement of a legitimate business
breach ≠ not buy back unless maj SH were offered buy
 Purchase or sale of securities purpose. Personal loan ≠ legit bus purp
back.
 Causing Rauch – A conversion of shares to cash in a merger is
Smith – A minority SH who repeatedly blocks corp action
 Damages. legally distinct from a redemption and does not trigger a
as a result of his veto power is akin to a maj SH, and other
Goodwin – Where an omission is speculative and the SH rights.
min SH are frozen out.
Jordan – a material omission may be akin to a freeze out. transaction/sale impersonal, no duty to disclose the info to
the buyer exists. Takeovers – two types:
Dissolution
Alaska Plastics – A court can look at a petition for Texas Gulf Sulphur Co. – Individuals with knowledge of  Tender offer, and
dissolution and craft some other equitable remedy. A corp inside info must either: o Pro rata from every tendering SH
is not required to buy back, and evidence they offered it  Disclose and wait for dissemination; or o Highest price available to every SH
can not mandate it.  Abstain from trading. o Keep tender offer open for 20 days
  Proxy contest
Defensive Techniques: staggered board, supermajority
voting requirement, golden parachute, poison pill.
Unocal – A defensive action is permissible if (1) board had
reasonable grounds to believe offer was a threat; and (2)
board responded proportionally. Entitled to BJR protection
here.
Revlon – When it becomes clear that takeover is inevitable
and the only remaining issue is price, board has a no BJR
protection and has only a duty to maximize SH profit.
Paramount – change in control (can be from one to many
SH) subjects a corp to the Revlon test.