Corporations

• Shareholders


  The owners of the corporation
• Board of directors


  Elected by the shareholders to govern the corporation
• Individual directors are not agents of the corporation, only the board itself can act as a "super-agent" and bind the corporation
• A director can also be a shareholder, especially in closely-held corporations
• Officers


  Hired by the board of directors to manage the day-to-day operations of the business
• Officers are agents of the corporation
• An officer can also be a director and a shareholder
• Limited liability


  A shareholder of a corporation is not personally liable for the acts or debts of the corporation, absent misconduct by the shareholder
• The corporation, as a fictive person, assumes all the liability
• Fiduciary duties


  Officers and directors owe fiduciary duties to the corporation
• Types of corporations


  • Public (Publicly held)
  • Close (Closely held)
• Public (Publicly held) corporations


  • Characterized by a public secondary market in which shares of the company are listed for traded
  • E.g. IBM or Microsoft
• Close (Closely held) corporations


  • Characterized by absence of a secondary market for its stock
  • Often (but not always) a relatively small number of shareholders who actively participate in the firm's management
  • May display many characteristics of partnerships
  • Some are, in a sense, incorporated partnerships
• Delaware' Fiduciary Duties

  • Duty of Care
  • Duty of Loyalty
  • Duty of Good Faith
• Duty of Care

  • Has been described in various ways, including gross negligence
  • Has a procedural component (lack of attention to the matters at hand)
  • There is uncertainty about the extent of a substantive due care violation (conduct that is procedurally sound but simply “unreasonable,” or lacking in any “rational business purpose.” Overlap with the duty of good faith?
  • Is a Waste Claim an example of substantive duty of care? Directors “irrationally squander or give away corporate assets?”
• Business Judgment Rule


  • A default defense to any duty of care claim
  • Gives discretion to the management and board
  • A mistake in business judgment is not enough to establish a duty of care claim
• Waste Claim is an example of substantive duty of care (directors "irrationally squander or give away corporate assets")
• Duty of Loyalty


  • Covers conflicts of interest and the corporate opportunity doctrine
  • Would also cover subjective bad intent (if a manager or director intentionally harms the corporation, even in situations where no conflict of interest is present)
• There is likely overlap between duty of loyalty and duty of good faith, although after Stone v. Ritter, the duty of good faith is seen as a component of the duty of loyalty
• Duty of Good Faith


  • Includes "intentional dereliction of duty" or "conscious disregard for one's responsibility"
  • An example might be intentional failure to comply with the law
• • After Stone v. Ritter, duty of good faith seen as part of duty of loyalty
  • Lack of adequate oversight by directors (Caremark standard) is a breach of good faith, but subsumed under duty of loyalty standard
• Shareholders are not personally liable for debts of the company unless they have signed a personal guarantee
• Disney Case (Duty of Good Faith)

  In Disney, the court describes the duty of good faith as an “in between” category. It includes “intentional dereliction of duty” or “conscious disregard for one’s responsibility”