OUTLINE PROFILE:

Author:  	Original author unknown
School:		University of Texas
Course:		Business Associations
Year:		Fall 1996
Professor:	Robert Hamilton
Book:		Corporations, Hamilton, 5th Ed.
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SOURCE OF THIS OUTLINE:

ILRG Law School Course Outlines Archive 	<http://outlines.ilrg.com/>
Internet Legal Resource Guide 			<http://www.ilrg.com/>
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	PARTNERSHIPS

I.	DID PARTIES FORM A PS?
A.	UPA §6:  Share in control, share in profits, intent of parties
B.	UPA §7:  Rules for determining existence of PS.
C.	If yes, UPA applies.  If no, check to see if Ps are liable against 3rd parties anyway in the form of an inadvertent PS.

II.	DID PARTNERS TREAT ONE ANOTHER PROPERLY?  [All Default Provisions that may be drafted around]
A.	Sharing of Profits & Losses Split appropriately?:  
1.	Profits & losses shared equally.  §18(a).
2.	P not entitled to payment for services.  §18(f).  Richert v. Handly
3.	Interest:  OK for loans, but not capital contributions.  §18(c) & (d).
B.	Fiduciary Duty Violated?
1.	§21(1) and Meinhard v. Salmon = very high duty.  Extends before, during and after formation.  But (1994) §404 applies only to conduct and winding up, just not at formation.
2.	§20 gives a duty to render information "on demand."  But (1994) §403 makes it clear that a PS has no mandatory duty to have any books and records and that burdensome and unreasonable demands to do not have to be met.
3.	Partnership Opportunity Doctrine Implicated?
a.	Is there a nexis b/w opportunity and PS business?  
b.	When did P take advantage?  BUT, duty extends after dissolution.
c.	Did P share the info with the other P?  §20 says "on demand," but cts may hold to higher stdrd.
d.	D can argue other P couldn't take advantage b/c s/he was broke.
e.	D can argue P asserted rights too late, but most cts ignore.
f.	Remedy?  Cash OR D holds profits in trust for P.

III.	WERE THE PS PROPERTY RIGHTS INFRINGED?
A.	Who's property is it?  See §8
B.	Did use violate PS interest?  §25 says only use for PS purpose.  Plus other limits.
C.	Distinguish b/w interest in PS property and PS itself.

IV.	WHAT ARE THE RIGHTS OF 3rd PARTIES V. PS?
A.	Did the act bind the PS?
1.	Actual authority?  §9(2).  §18(e) says all Ps have equal right to manage PS.  National Biscuit Co. v. Stroud says that if an act, such as buying bread to stock a partnership owned grocery store, is reasonably part of ordinary business, P cannot restrict other P’s authority to buy it.  ½ is not a majority.
2.	Apparent authority?  §9(1).  Principal creates impression on 3rd party that agent has actual authority.  E.g., "managing P," or similar transactions in the past, or how businesses in the area generally operate. *** Smith v. Dixon:  Even though Smith exceeded the actual authority granted him by the partnership, the partnership is nonetheless bound because of Smith’s apparent authority.  *** Rouse v. Pollard:  Exceeding scope of PS = Ps not bound. *** Rouch v. Mead:  Business conduct conducted w/in scope of PS = vicarious liability for Ps.
B.	P's individual liability to 3d Parties:
1.	J&S liable for torts.  §15(a).
2.	Jointly liable for Ks.  §15(b).
3.	In Texas, J&S liable for both torts and Ks.
C.	Agreement b/w Ps to limit liability of 3d parties = indemnification b/w the Ps, but not enforceable against the 3d party
D.	Old obligations?  New P is liable, but only to the extent PS property (not his own) can be used to satisfy obligation.  After P joins, P may be charged with knowledge or notice (§12) or liable for wrongful act of another (§13).  Roach v. Mead.  
E.	Entity approach of (1994) UPA does not leave PS free to break the law, as in US v. A&P Trucking.        1 USC §1.  Respondeat superior doctrine applies.
F.	Was the K a post dissolution K?  If so, see below.

V.	DISSOLUTION
A.	Did it occur?  
1.  	Definite Term expire?  §31(1)(a)
2.	At-Will dissolved by express will of any P?  §31(1)(b).
3.	Expulsion ?  §31(d), PS is dissolved, liquidated.  §601, entity continues by option of other Ps. 
4.	§31(2) grants power to dissolve at any time, but not the right.  Otherwise, BOK.
	5. 	Death causes.  §31(4).  Survivor may compel winding up §38(1) or judicial dissolution §38(2).
	6. 	Banruptcy of any P causes per §31(5), but RUPA makes bankrupcty wrongful.  §602(b)(2)(iii).
	7.	Decree by Court causes.  §32
B.	Wrongfully Dissolved?  
1.	Rights of other Ps in §38(2)  Includes damages for breach of K.
2.	Can continue the business of the PS if they want.  §38(2)(b).  Rt. to damages, §38(2)(a)(II)
	3.	Bankrupcty wrongful.  RUPA §602(b)(2)(iii)
C.	Liability for Post Dissolution Ks?
1.	Is PS bound?
a.	For winding up:  §35(1)(a)
b.	For other affairs:  §35(1)(b)
2.	Are Ps liable?  RUPA §306:  Ps are j/s liable for all PS obligations “unless otherwise agreed to by the claimant or provided by law.”  §15 says Ps are jointly liable for Ks and j/s liable for torts.  
3.	Right of contribution amongst Ps?
a.	If P acts to bind to PS w/o knowledge of the dissolution, then the he has a right of contribution from the other Ps.  §34
D.	What is priority for Distribution?
1.	General Order in §40(b).
2.	When PS & P are insolvent:  §40(h).  Check Bankr caveat.
3.	When P is insolvent:  §40(i).
E.	If one P doesn't pay up, other Ps must bear that portion proportionately.  §40(d).

	INADVERTENT PARTNERSHIPS

I.	WAS THERE RELIANCE BY A CREDITOR?  §16(1)

II.	DID OTHERS ASSOCIATED WITH THE ACTOR ADOPT THE ACT?  §16(2)

	CORPORATIONS

I.	IS THERE INDIVIDUAL LIABILITY?
A.	For a Promoter?
1.	If Defendant didn't know that Corp hadn't been incorporated:
a.	CL says not liable under 2 theories:
(1)	De Facto Incorporation.  2 elements
(a)	state law that allows incorp
(b)	colorable attempt to comply, which means an attmept to deliver the A/I to the Secy of State
(2)	Corp by Estoppel.  Defendant not liable if 3rd party treated association as if it were a corp.  Hamilton Rule application.  But see Robertson.
b.	RMBCA §2.04 says not liable if didn't know that Corp hadn't been incorporated, but statute makes it clear that the issue turns on the promotor’s mental state.  *** Cite Robertson v. Levy, where Levy was subject to personal liability b/c before the date of incorporation, he assumed to act as a corp. w/o any authority to do so. *** 
2.	If Defendant did know that Corp hadn't yet been formed, liable unless
a.	3d party agreed to look only to Corp for performance.
(1)	A fact intensive analysis.  Intent of parties is key.  Examples of cases
(a)	Promotor liable when sig not conform to Corp sig.  Stanley J. How & Assoc, Inc. v. Boss held a Promotor liable when his signature on the pre-incorporation K didn't conform to proper corporate form.  It was signed "X, agent for a corp to be formed, who will be the obligor."
(b)	Promoter liable when he made 1st payment on K out of own pocket. O'Rorke v. Geary
(c)	Promoter not liable when 3d party pressed for immediate action, knowing corp hadn't yet been formed. Quaker Hill, Inc. v. Parr
b.	OR a novation occurs.  Happens when Corp. knowingly agrees:
(1)	promoter and 3d party agree in advance that Corp will become liable, and 
(2)	the Corp later adopts the Contract.
3.	Is Corp liable?
a.	Yes, if Court adopts the K.  Either express or implied.
b.	Does novation occur automatically when Corp adopts the K?
(1)	Many cts say no.  Gotta have other elements for novation.
(2)	Williston on Ks says yes.  Corp steps into promoter's shoes.
B.	Will Court Pierce the Corporate Veil?
1.	Question is whether the Corp is merely an alter ego of the individual/other Corp.  Will the cout broadly or narrowly apply the doctine?  General test is to prevent fraud or to achieve equity.  Courts have applied tests of instrumentality or alter ego to justify PCV.   Basic rule is that a corp. is independent of its SHs and that PCV liability should be imposed “reluctantly” and only in “extreme” cases.  (See Missouri test, Sub. F below.)

	FACTOR	
	TORTS	
	CONTRACT CLAIMS	

Alter Ego?	
One SH who controls the Corp?  Is it merely an instrumentality of the individual?  	

Fraud	
Irrelevant unless fraud is the tort complained of.	
Cts pierce for actual fraud.  Some for constructive fraud.	

Hamilton Rule	
Irrelevant.	
Important.  Weighs against PCV.	

Who will be held liable?	
Cts more likely to PCV when going after a Parent Corp's assets, where PC has not maintained clear separation.  Less likely when going after individual assets.	

* Amount of Capitalization of Enterprise.  Adequacy is Key.	
Most important factor in torts cases.  If Debt to Equity Ratio is too low, then liable.	
Not too important here b/c of Hamilton Rule.	

Did Corp/SHs observe corporate formalities?	
Often a significant factor for the imposition of individual liability in both tort and K cases.	
Important, especially in parent-subsidiary cases.  Less formality req'd for CHCs.	

Policy Reasons?	
E.g., environmental cleanup, where somebody has to be responsible.  When it is equitable to do so, such as in bankrupcy, courts may PCV.	

2.	If Ct won't PCV, will it apply Deep Rock doctrine? (Ct’s subord. of SHs’ claims to those of creditors where claim of the SH is in some sense inequitable.  SC says inherent in juris. of FCs)
a.	Did SH violate fiduciary duty it owed to Corp?  Was transaction self-dealing?
b.	BofP on SH to prove good faith.
c.	Compare facts to Pepper v. Litton:  Sole SH.  Corp confesses jud for back salary to SH while another suit is pending.  SH executes jud on Corp, and buys Corp back at sheriff's sale.  Then Corp files Brcy, & SH files claim for unsatisfied portion of jud.
d.	Apply Deep Rock on a creditor by creditor basis.
C.	Any Watered Stock Liability?
1.	Any watered stock purchased?  Par value?  Consideration paid for it?
a.	MBCA not allow prom notes or future services.  RMBCA does.
b.	MBCA requires dollare value on consideration; RMBCA doesn't.
c.	BJR applies to Directors' valuation of consideration.
2.	Statutory Liability?  Reliance irrelevant.
3.	CL liability.  Trust Fund Doctrine.  Implied K Theory.  Holding Out Theory, w/ 2 exceptions:  if creditor knew a/b H2O, or if credit extended prior to H2O transaction (b/c reliance is key).
D.	Will Court subordinate SH's loans to 3d party creditors in Bankr?  Obre says not w/o showing of fraud, undercapitalization misrepresentation or estoppel.  Much more lenient than Pepper v. Litton standard.  Compare facts:  Obre involved a legitimate debt.  Pepper involved questionable debt for "unpaid salary."
E. 	PCV cases: full of rhetoric & gen. short on reasoning = “juris. by metaphor or epithet.” =high criticism.
F. 	Missouri Test = Radaszewski.  Good PCV Test:  (1) Control, as manifested through complete domination of finances, policy, and business practice so that inferior corp. had no separation of mind, (2) Control was used to commit fraud or violate a statutory duty, (3) Use of control & breach of duty proximately caused injury.
G. 	Horizontal Piercing.  Favored.  Cite Walkovsky v. Carlton, each pair of cabs incorporated = not playing fair.
H. 	Vertical Piercing.  Split.  Walkovsky: inadequacy of cap. not enough to get to SHs.  Dissent said not equitable, insurance policy alone not enough to preserve C structure.

II.	CAN SH CHALLENGE ACTS OF THE CORP?  (1) PE rights give the holders of outstanding shares the right to subscribe & pay for a proportionate part of any new issue of securities by C at price est. by BOD.  Goal is to protect against dilution of equity or voting rights.  (2) Get a writ of mandamus if when official does not do what he is supposed to do per A/I or bylaws, per Matter of Auer v. Dressel.  
A.	Using Ultra Vires:  3.04(b)(1) allows SH to enjoin acts that are beyond powers of Corp, listed in 3.02.
B.	Challenge issuance of additional shares?   First, only if SH has voting rights.  6.30(b)(4),(5).  Then, is issuance harmfully oppressive or an abuse of discretion?  If not, no PE right per Hyman v. Velsicol.  Minority SH, per L&E analysis says people are sophisticated, thus should negotiate provisions that prevent mistreatment (i.e. buy-out agreement or veto power) = Lawyer’s responsibility to advise!  Ct may compel buy-out.  Davis v. Sheerin.
1.	Does SH have a preemptive right to purchase addtional shares under statute or A/I?  6.30(a).
a.	RMBCA 6.30(a) says no, unless “A/I so provide.”
b.	If not, see #5, below.  
c.	If so, is SH exempt from PE rights provision anyway?  RMBCA, if it applies, has default exceptions in 6.30(b)(3)(i)&(ii)=compensation exception. (iv) shares not for $.
2.	Did SH waive PE right?  6.30(b)(2) allows.  May waive if not timely raised.  Stokes says SH’s offer that was too low isn't a waiver.
3.	Remedy?  Specific performance or expectation damages?
4.	Does SH have a right not to purchase addt'l shares w/o facing dillution?  Katzowitz v. Sidler says in a CHC, majority SHs must show a good business reason to sell additional shares cheaply.  If no good reason, i.e., a freeze-out tactic, then SH has right not to buy, and not to face dillution.
5.	Even if SH has no PE right via statute, still has a Katzowitz (no freez-out) right, supra #4.
	6.	If ALL SHs exercise PE rights, no dilution, & additional cap. needed raised from present SHs.
	7. 	If BOD acts in bad faith unfair to minority SHs, may be limited by a general fiduciary duty.
C.	Can SH challenge Distribution?  Unreasonable Salaries, Expenses?   Yes.  Test is bad faith as in Gottfried v. Gottfried.  Essential test is whether policy of directors is dictated by their personal interest rather than by the C welfare.  No single bad faith test exists, but the factors to consider are (1) hostility of majority to minority SHs, (2) excluding minority from C employment, (3) high salaries, bonuses, or C loans made to officers, (4) majority would be faced with higher income tax if dividends paid, (5) desire of majority to take over minoritiy’s interest. (See VIII, challenging liquidation)
1.	Was there a distribution?  1.40(6)  Salary and additional shares aren't a distribution.  If it's addtional shares, see PE rights analysis, above.  If it's unreasonable expenses, e.g., outrageous salaries, see below.
2.	What point in time must 6.40(c) tests be applied?  6.40(e).  
3.	Were 6.40(c) tests satisfied?  If not, then distribution prohibited.
a. 	Equity Insolvency Test:  Can C pay its debts after distibution?  §6.40(c)(1).  If not, then no.
b. 	Balance Sheet Test:  Would A > L + amount needed to satisfy preferential liquidation rights of shares after distribution?  If so, then dist. may be OK.  See bad faith CL test above
c. 	Tests exclude certain debts.  6.40(g).  Date of indebtedness is calculated after distribution.
4. 	Were the dividends disguised?  Tax Evasion.  IRS roots out disguised dividends, per Hatt.
5. 	Is BOD dissinterested?  If so, cts. less likely inquire of reasonableness of salary.  Wilderman.  Look to (1) salaries of others similarly situated, (2) ability of executive, (3) whether IRS allowed C’s deduction of amount alleged to be too high, (4) whether salary bears reasonable relation to C’s success, (5) previous salary.  See E(3) below and last VI.
D.	Can SH force Corp to buy her shares?
1.	Is there a buy-sell agreement?
2.	Minority SH has the right to force Corp to buy back proportionate number of her shares whenever Corp redeems shares of the controlling interest.
3.	Only applies in a CHC where majority redeems its shares at lucrative price, but refuses to offer same deal to minority.
4.	Donahue v. Rodd says majority owes a fiduciary duty to minority, but later courts retreated from this standard.  Now courts balance fiduciary duty v. BJR.
E.	Can SH challenge an unreasonable expense?  (See C(5) above.  Disinterested board? And VI at end.)
1.	Is it a conflict of interest?  See below.
2.	Wilderman v. Wilderman held a SH can force director to remit unreasonable portion of a director's salary back to Corp.  
3.	Heller v. Boylan says ct will only strike down excessive salaries if so high as to amount to spoilation and waste.  SH has to prove salary has no relationship to the services rendered.
F.	Can SH force a distribution?  Generally only with HUGE surplus, #4.  BUT see Bad Faith, C above.
1.	Usually no.  BJR applies.  Absent a showing of fraud or bad faith, forget a/b it.  
2.	Compare to Gottfried v. Gottfried, where facts were typcial freeze-out scenario.  Majority controlled, and got money out of corp w/o declaring dividends.  Minority was stuck.  Ct still applied BJR.
3.	Maybe cite Donahue v. Rodd:  Cts have retreated from this fiduciary standard.
4.	Only exception was Dodge v. Ford Motor Co., where Corp had HUGE surplus, and wanted to use it to lower car prices.

III.	CAN SH CHALLENGE AN AGREEMENT BY OTHER SHs TO BIND DIRECTORS?
A.	If RMBCA applies, does agreement comply w/ requirements?  See 8.01(b)&(c) and 7.32.  (p.124,120).  SHs can just about do anything so long it was in A/I or bylaws, approved by all SHs at time of adoption, and made known to C, or all SHs enter into a subsequent written agreement per §7.32(b)(1).  Subject to amendment or expiration after 10 years unless specified to the contrary.  §7.32(b)(2) and (3).
B.	If RMBCA not apply, or rqmts not met, look to CL.
1.	If state has a CHC statute:
a.	If Corp is elegibe, and filed under it, agreement probably OK.  Look to statute.
b.	If Corp is eligible, but didn't file under it, Ct might be willing to give Corp the protection of the statute anyway, e.g., Zion.  As long as it won't hurt 3d party creditors, probably OK.
2.	If State doesn't have CHC statute:
a.	If J/D follows McQuade, forget a/b it!
b.	If J/D not follow McQuade, look to see which case the exam facts match.

	CASE	
	AGREEMENT	
	OTHER FACTS	
	ENFORCEABLE?	

McQuade v. Stoneham (NY 1934)	
SHs to vote for one another as Directors.  Also agree to elect one another as officers, including the amount of salary.	
K viewed as contrary to public policy.	
No.  Agreement to elect one another as SHs OK, but can't agree to bind the Directors.  Directors must be free to use BJR	

Clark v. Dodge (NY 1936)	
SHs agree to retain one of them as General Manager, with a set salary of 1/4 of net income.	
All SHs are party to the agreement.	
Yes.  Ct says the agreement is only a slight impingement on the Directors' power, and all SHs were party to the agreement.	

Long Park, Inc. v. Trenton-New Brunswick Theatres Co. (NY 1948)	
SHs agree to give one of them full authority and power to direct the operation and management of their theatres.	
Directors couldn't remove the manager.  Could only be done by arbitration amongst the SHs.	
No.  This agreement completely sterilizes the Bd of Directors.  It goes far beyond the slight impingement or innocuous variance upheld in Clark v. Dodge.	

Galler v. Galler (Ill. 1964)	
SHs agreed that upon one brother's death, his surviving widow would retain 50% control.  	
Not all SHs were party to agreement.  There was a minority SH who didn't participate.  Compare to Clark v. Dodge.	
Yes.  Ct recognizes difference b/w close and public corps.  Says agreement OK b/c it (i) it didn't harm any body (creditors, public or minority SH), and (ii) there is no complaining minority SH.	

Zion v. Kurtz (NY 1980)	
SHs agreed that the sole owner of the class A stock would have complete veto power.	
State had special incoporation statute for CHC that allows SHs to control corp, but corp didn't take advantage, even though it was qualified.
	
Yes.  Ct allowed the CHC corp the protection of the CHC corp statute even though they didn't file under it.	

IV.	CAN SH CHALLENGE OTHER SH VOTING AGREEMENTS?
A.	Is it a voting trust?  Lehrman test is (1) voting rights of the stock are separated from the other attributes of ownership.  (2) Voting rights granted are intended to be irrecovable for a definite period of time.  (3) Principle purpose of the grant of VRs is to acquire voting control of the C.  If says revocable, not a VT.
1.	If yes, gotta follow rqmts of 7.30:
a.	shares must be assigned to the trust, in name of trustee on the books of the Corp.
b.	agreement must be delivered to the Corp
c.	trust not valid for longer than 10 years unless extended in 10 year terms by members of the voting trust.
2.	If rqmts of 7.30 not met, then Ct can invalidate agreement as an impermissible voting trust.  Elements of impermissible voting trust =
a.	voting rights are separated from other attributes of ownership.
b.	intended to be irrevocable for a definite period.
c.	principal purpose of the grant is to acquire voting control; and
d.	formal rqmts for establishing a voting trust weren't met.
B.	If it's not a voting trust:
1.	Agreement OK under 7.31 as long as SHs sign the agreement
2.	Agreement is specifically enforceable under 7.31(b).

V.	CAN SH CHALLENGE RESULTS OF SH ELECTIONS?	
A. 	Did C prepare a list of SHs eligible to vote at the meeting?  §7.20 requires.
B. 	Quorum present?  §7.25 says majority on votes entitled to be cast.  Not frustrated w/ leaving-abstaining (b).
C. 	Is there a proxy problem?  If so, see infra, II (A) under PHC.
D. 	Check quorum and voting rqmts:
1. 	For elections of directors, see 7.25(a), 7.27 and 7.28.
2. 	For other matters, see see 7.25(a) & 7.27.
E. 	Remedy?  Force deadlock for two years then bring suit for dissolution.  §14.30
F. 	Cumulative voting involved?  Strait voting = default per §7.28.  Cite Humphries v. Winous.  CV guarantees right to VC, not effectiveness.  33 states still permit staggering.  Getting around CV:  (1) Where rights to CV are permissive, elect otherwise.  (2) Remove minority-elected directors w/o cause.  (3) Reduce # of directors so minority needs a greater % to elect a director.  (4) Est. committee systems.  (5) Unofficial meetings.
G. 	Rights of shares not identical?  They must be unless A/I says otherwise.  §6.01(a) & §6.02(c) (p.102) says “All shares of a class must have preferences, limitations, & relative rights identical with those” of same class.

VI.	CAN SH CHALLENGE RESULTS OF BOARD OF DIRECTORS' ELECTIONS?
A.	Check quorum and voting requirements: 
1.	To Fill a Vacancy on the Board, see 8.10 and 8.05(e).
2.	For all other acts, see 8.24.

VII.	CAN SH FORCE LIQUIDATION?
A.	A SH can force court ordered liquidation if elements of 14.30(2) are satisfied. (p.167)
B.	If 14.30(2) not met, can still try to force liquidation for "Oppressive Conduct."  If opp. conduct then:
1.	acts of majority serve to frustrate legitimate expectations of minority Shs.
2.	when majority's conduct defeats the reasonable expectations that minority had when it decided to join the venture.
3.	Exadaktilos (NJ) says it's oppressive when majority unfairly deprives minority of its reasonable expectations.
C.	Remedy?  Ct has authority to force a buy-out by majority/Corp of minority's interest instead of liquidating co.

VIII.	ARE RESTRICTIONS ON TRANSFER OF SHARES INVOLVED?  Must meet reqmts of §6.27.
A. 	Are restrictions conspicuous?  Must be per §6.27(b) or not enforceable.
B. 	Do A/I have permissible restrictions?  Make sure to check.  OK restrictions are listed in §6.27(d).  (p.107)
1. 	SH may be compelled to give C first right of refusal, a buy-sell agreement. §6.27(d)(1)
2. 	C or a designee may be compelled to purchase shares. §6.27(d)(2)
C. 	Buy-sell agreements are desirable per Waldbam since (1) bargaining power is equal since none of the SHs know who will be on the buying or selling end.  (2) Once an agreement is in place, everyone knows where they stand and can plan accordingly.  Advantages are (A) w/o a BS agreement, a nasty dispute will usually follow over shares.  (B) Estate must file an estate tax return.  B/c no market may exists for CH stock, IRS values it!  Use book value, a fixed price in the agreement, have it appraised, use a self-adjusting formula.  Must have arms length negotiation.
D. 	Is there a cross purchase agreement (SH-SH) or a stock redemption agreement (SH-C)?

IX.	IS C DEADLOCKED?  Solutions:  (1) Provide for Arbitrator.  (2) Write in an “out”, i.e. 50% may compel dissolution.
A. 	See III(B) above.  Else, Director will continue to serve despite expiration of his term.  §8.05(e)
B. 	Is business profitable?  In re Hedberg v. Freidheim, ct’s has discretion on when to compel dissolution.

	PUBLIC CORPORATIONS

I.	A PROBLEM WITH A PROXY STATEMENT?
A.	Is the Statement regulated by SEC §14(a)(9)?  If Yes, then B.
1.	Does §14(a) apply?  Only if §12 requires registration of the security.
2.	Does §12 require registration?  Yes, if:
a.	traded on exchange; or
b.	OTC, & issuer has > $5mill assets, & the class has at least 500 owners of record
3.	Does SEC have J/D?  Yes, if an istrumentality of interstate commerce
4. 	Does vote relate to director and proxy sent by mgt?  If so, 14(a)(3) requires annual report to accompany proxy sol.
5.	Is the Statement a Solicitation of Proxy?
a.	Gittlin test:  part of a continuous plan to culminate in solicitation of proxy
b.	Conagra test:  a stmt issued close in time to vote with purpose to influence the vote
c.	Communications b/w beneficial owners and owners of record excluded
d. 	You may solicit < 10 SHs.
e. 	Is solicitation exempt?  You may disregard proxy regs if you disclose in a speech, press release, published or broadcase opinions, statements or ads appearing in broadcase media or bona fide publication.
B.	If Yes, to 1st part, does Proxy Statement Violate §14(a)(9)?
1.	Yes, if statement not registered, or if it contains “false or misleading statements or omissions of material facts.”
2.	Does plaintiff have a private cause of action?
a.	JI Case v. Borak says yes b/c purpose is to "protect investors."
b.	Either for self, or in derivative.
c.	J/D?  §27 says Fed Dist Ct where violation occured.
d.	Congress must clearly & explicitly state that there should be a private right of action.
3.	Is there causation?  Yes, if plaintiff can show that the proxy statement was an essential link in the accomplishment of the transaction.  Mills.
4.	Was the fact/omission material?  Standard Used:  A reasonable SH would (v. might=narrower std) have considered the fact when making up her own mind.  TSC v. Northway.
5.	What degree of culpability is required for liability?  Unknown.  Cts split.  Varies by negligence, gross negligence, insiders, outsiders, and whether they had actual knowledge.
6.	What is appropriate remedy? Ct may (1) undo a merger keeping in mind public & private interests involved, (2) grant equitable relief if SH can prove actual damages, (3) order an accounting to ensure SHs get value that was represented to them, (4) allow recovery of atty fees

II.	PROBLEM WITH A SHAREHOLDER'S PROPOSAL?
A.	Is SH eligible?
1.	own at least 1% or $1,000 in mkt value of securities;
2.	hold for at least one year; and
3.	continue to own until time of meeting
B.	Is proposal eligible?
1.	only one per SH per meeting
2.	< 500 words
C.	Can Corp omit under an exception?
1.	(c)(5) Social/Political Exception:  Corp doesn't have to publish material that is related to social or political factors that are unrealted to the corp's business.  It's a numerical test.  Corp can omit if the proposal relates to operations that 
a.	account for less than 5% of corp's total assets; and
b.	account for less that 5% of net earnings and gross sales; and
c.	aren't otherwise significant to a corp's business.
2.	(c)(7) Ordinary Business Exception:  Corp can omit if proposal deals with ordinary business operations.  
3.	(c)(5) and (c)(7) are book ends.  If proposal is too general, it can be omitted.  If it's too specific, it can be omitted.  Tough line to draw.  Depends on how willing courts are to let SH include the proposal.  Most courts are favorable to the SH.  Some examples:
a.	golden parachutes don't fall w/in ordinary business excpetion
b.	nuclear power plant location not w/in oridnary business exceptin
c.	limits on tobacco advertising aren't w/in ordinary business
d.	SEC said proposal that dealt w/ companies ban on homosexuals was w/in ordinary business exception, but Dist Ct overturned b/c substantial policy considerations were involved
4.	(c)(3):  If proposal violates any SEC proxy rule, including 14a-9, corp can omit.  Thus, if stmt includes false or misleading items, corp can omit.
5.	(c)(2):  Corp can omit if proposal would require illegal acts by the Corp.
6.	(c)(12) = an exception for re-submissions. Corp can omit a proposal if it deals with substantially the same subject matter as a prior proposal that was submitted w/in the past five years: provided that
a.	if the proposal was submitted once, it received < 3% of the total votes cast; OR
b.	if the proposal was submitted twice, it received < 6% of the total votes cast at the latest submission; OR
c.	if the proposal was submitted 3 or more times before, it received < 10% of the total votes cast at the latest submission.

III.	CAN A DIRECTOR BE HELD PERSONALLY LIABLE?
A.	Did Director Fail 8.30 standard of care? (p.130)  
1.	Applies on a director by director basis: Good faith, as a reasonable person, best interests.
2.	If not fail, then not liable under 8.30(d).
B.	If Director failed 8.30, then maybe still protected by CL BJR.
1.	Choose which standard to apply:
a.	Bank = Litwin standard of negligence.
b.	Takeover = Smith v. Van Gorkum standard of gross negligence.
c.	Ordinary business = Shlensky v. Wrigley standard of fraud, illegality or conflict of interest.  [See conflicts discussion below]
2.	If exam facts don't fit neatly w/in any of these cases, choose the closest fact pattern:

	CASE	
	PERTINENT FACTS	
	STANDARD APPLIED	

Shlensky v. Wrigley	
*"Ordinary business"
*General corp policy
*Inaction v. action
*Only a hypo loss to SHs	
Fraud, illegality or conflict of interest.	

Smith v. Van Gorkom	
*Takeover/buy-out case
*Specific transaction	
Gross negligence.	

Litwin v. Allen	
*Bank
*Specific transaction
*Action v. inaction
*Actual out of pocket loss to SHs	
Negligence.	

C.	If Fail BJR and 8.30, then maybe director is protected by indemnification or insurance.
1.	8.51 = allows corp to indemnify (p.135)
2.	8.52 = mandatory indemnification when director prevails on the merits or otherwise (p.135)
3.	8.54 = director can ask court for indemnification unless A/I specify otherwise (p.136)
4.	8.57 = allows corp to buy insurance even if not allowed to indemnify under 8.51 or 8.52

IV.	CAN A SH BRING A DERIVATIVE ACTION SUIT?
A.	Does SH meet the contemporaneous ownership rule?  Either owned shares at time of the act complained of, or acquired shares as a matter of law.
B.	Did SH post necessary Bond?  RMBCA not require it. 
C.	Did SH meet demand requirement?
1.	If SH made demand, but SLC decided not to sue:  Ct defers to SLC's decision.  BJR applies, i.e., SH must prove that SLC acted in bad faith, or had a conflict of interest.  Gall v. Exxon.
2.	If SH makes no demand, and Ct doesn't excuse the demand rqmt, then Ct defers to SLC's decision.  BJR applies, i.e., SH must prove that SLC acted in bad faith, or had a conflict of interest.  Aronson v. Lewis and Gall v. Exxon.
3.	If SH makes no demand, Court may excuse under 2 instances per Aronson v. Lewis:
a.	A majority of the board is interested in the underlying transaction.  
(1)	A bright line rule.  If majority is interested, demand is excused automatically.  If minority is interested, Ct has discretion to excuse on a case-by-case basis if SH can show specific instances of bias in the other directors.
(2)	NOTE:  Just b/c a director is being asked to sue herself doesn't mean that she's interested.  Personal interest is more:  It's when the board member profited herself from the underlying transaction.
b.	When a majority of the board is beholden to a majority SH who benefitted from the underlying transaction.  [Election to board by majority SH not enough.  Gotta have specific facts to show "beholden."
D.	Effect of Excused Demand (See Zapata v. Maldanado)
1.	Corp has Burden to show SLC acted in good faith.  If Corp fails to meet its burden, SH allowed to bring the derivative suit.
2.	If Corp satisfies it's burden on SLC, the Ct may apply its own business judgment to determine whether SH should be able to pursue the litigation.
a.	Ct will substitute its own Bus Jud when SLC meets the technical criteria of #1, but not the spirit.  E.g., in Zapata, the SLC not created until 4 years after suit was filed.  Ct thought Corp was jerking plaintiff around.
b.	Court will rarely substitute its own bus jud.
c.	If Ct not substitute its own bus jud, then it defers to SLC under BJR.  Means plaintiff loses.

V.	DOES A DIRECTOR HAVE A CONFLICT OF INTEREST?  Duty of Care, Self-Dealing?
A.	Under CL:
1.	Is it fair to the Corp?  If yes, no problem.
2.	Does it defraud the Corp?  If yes, Ct will set aside the transaction.
3.	Does it fall b/w the extremes?  Ct will let stand if
a.	majority of disinterested directors OR
b.	majority of disinterested SHs 
c.	approve transaction after full disclsoure of material facts
4.	Does transaction involve excessive salaries or bonuses?  
a.	If so, Heller v. Boylan says ct will only strike down if so high as to amount to spoilation and waste.
5.	Does transaction involve parent-subsidiary?
a.	If parent received benefit from a deal in which the subsidiary doesn't, then Ct applies the "inherent fairness" standard.  Inherent Fairness standard = BofP on parent to show it was objectively fair in its dealings.
b.	If there's no self-dealing, the BJR applies.
B.	Under RMBCA:
1.	Is there a transaction?  8.60(2) requires.  Can't be a decision not to do something, or a general policy matter.
2.	Does transaction involve a director's conflicting interest?
a.	Yes, if director or a relative is a party to the K.  8.60(1)(i)
b.	Yes, if director has a beneficial financial interest in the transaction so as to affect her judgment if called upon to vote on the transaction.  8.60(1)(ii).
c.	Yes, if the transaction is with an entity (or parent, sub, etc...) in which the director is an officer, director, etc..  8.60(1)(ii)
d.	Yes, if the transaction is with a general partner, principal or employer of the director.  8.60(1)(ii)
3.	Does transaction fall w/in an exception?
a.	OK if approved by a majority of qualified directors after full disclosure.  8.62(a).  Qualified director = one who has neither her own conflicting interest in the transaction, nor a relationship with a director who does.  8.62(d).
b.	Also OK if approved by a majority of qualified shares.  8.63(a).  Qualified share = owned by someone other than a director (or relative thereof) who has a conflicting interest in the transaction.  8.63(b).
4.	Even if transaction fails the RMBCA tests, Ct has discretion to validate it if it's fair to the Corp.

VI.	IS INSIDER TRADING INVOLVED?
A. 	Is it in connection with purchase or sale of a security?  10b-5’s goal is a prohibition against manipulative/deceptive device in connection with purchase or sale of sec.
B. 	Were the mails or facilities of interstate commerce used, including any facility of a nat. sec. exchange?  Must.
C. 	Is the statement untrue?  10-b5 applies.
D. 	Must prevent person from engaging in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person.  Ernst & Ernst requires scienter (deceptive intent).
E. 	Did the company start a bad rumor about itself in order to buy back its stock?  If so, actionable.
F. 	Does the person have standing?  Blue Chip Stamps requires person to be a purchaser or seller of securities.
G. 	Did other party aid or abet?  Central Bank v. First State Bank says no liability for aiding or abetting.
H. 	Statute of limitations at issue?  Gilbertson says 1933 Act’s SOL applies:  one year from disclosure or 3 years from transaction.
I. 	Remedy?  All SHs who trade during the period that the false info has not been corrected is entitled to difference between their selling price and the opeing price after the suspension of trading was lifted.  Basic, Inc.  White’s dissent notes that conducting fact-finding is difficult.