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Business Organizations
last updated 03-Sep-2003

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CLASS NOTES

 

I. Corporation Fundamentals
C. Law of Corporations
1. Introduction to Fiduciary duty, power vs duty

Corporation basics

  • Corporate statutes:  MBCA vs Delaware 
  • Organic documents: articles vs bylaws 
  • Shareholders / directors / officers 
Fiduciary duties
  • limits on agent's actions 
  •  nature of fiduciary duties 
    • source 
    • modify by contract?
  • Duty of care 
    • aspirational standards 
    • Business Judgment Rule
  • Duty of loyalty 
    • direct and indirect conflicts 
    • judicial intervention
  • Duties of shareholders

Power vs duty 

  • valid action, but violation of duty 
  • valid action, but inconsistent with limits placed on other powers
Daily Thoughts

COMPETITIVE SALARY: We remain competitive by paying less than our competitors. 

JOIN OUR FAST-PACED COMPANY: 
We have no time to train you. 

MUST BE DEADLINE ORIENTED:  You'll be six months behind schedule on your first day. 

SOME OVERTIME REQUIRED: Some time each night and some time each weekend. 

DUTIES WILL VARY:  Anyone in the office can boss you around. 

CAREER-MINDED:  Female Applicants must be childless (and remain that way). 

PROBLEM-SOLVING SKILLS A MUST:  You're walking into a company in perpetual chaos. 

REQUIRES TEAM LEADERSHIP SKILLS:  You'll have the responsibilities of a manager, without the pay or respect. 

Problems

 Last year the Chris-Craft board adopted a bylaw that requires any shareholder to give at least three months advance notice of any director nominee -- a so-called “advance notice” bylaw.  Two months before the upcoming annual meeting, the incumbent board announces it will sell the company's TV station.  The Chris-Craft dissidents are aghast, but under the advance-notice bylaw the time for them to nominate their own slate of directors has passed.   Is the advance-notice bylaw valid?

Party A - A dissident shareholder wants to replace the board now.  Argue for the shareholder that the by-law is invalid.  Why doesn't the business judgment rule apply?

Party B - Argue for the board the by-law is valid.  Distinguish Schnell v. Chris-Craft Industries

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