Editing Business Associations
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==CHOICE OF ENTITY== | ==CHOICE OF ENTITY== | ||
===Types of Entities=== | ===Types of Entities=== | ||
* 1. Sole Proprietorship | |||
* 2. General Partnership | |||
* 3. Limited Partnership | |||
* 4. Limited Liability Partnership | |||
* 5. Limited Liability Company | |||
* 6. Corporation | |||
<u>'''6 Factor Analysis to think of clients'''</u> | <u>'''6 Factor Analysis to think of clients'''</u> | ||
* 1. Liability- who's responsible for debts | |||
* 2. Management and control- who gets to call the shots | |||
* 3. Transferability- How easily can you get out | |||
* 4. Continuity of Existence (Duration) How long can entity last | |||
* 5. Taxation | |||
* 6. Raising Capital | |||
====Unlimited Liability Entities==== | ====Unlimited Liability Entities==== | ||
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Hypos: Corp sells 1 share of common stock. The par value is $10/share. It sells to the investor for $1,000. How is this reflected in balance sheet? | Hypos: Corp sells 1 share of common stock. The par value is $10/share. It sells to the investor for $1,000. How is this reflected in balance sheet? | ||
{| | {| style="border-spacing:0;border:1pt solid #00000a;width:100%;" | ||
| | |- style="padding-top:0in;padding-bottom:0in;padding-left:0.0785in;padding-right:0.075in;" | ||
| '''ASSETS''' | | align=center| '''ASSETS''' | ||
| | | align=center| '''LIABILITIES''' | ||
|- | |- style="padding-top:0in;padding-bottom:0in;padding-left:0.0785in;padding-right:0.075in;" | ||
|| Cash: $1,000 | || Cash: $1,000 | ||
|| | || | ||
|- | |- style="padding-top:0in;padding-bottom:0in;padding-left:0.0785in;padding-right:0.075in;" | ||
|| | || | ||
|| Common Stock: $ 10 (1 share x $10) | || Common Stock: $ 10 (1 share x $10) | ||
|- | |- style="padding-top:0in;padding-bottom:0in;padding-left:0.0785in;padding-right:0.075in;" | ||
|| | || | ||
|| APIC: $990 | || APIC: $990 | ||
|- | |- style="border:0.5pt solid #00000a;padding-top:0in;padding-bottom:0in;padding-left:0.0785in;padding-right:0.075in;" | ||
|| Total Assets: $1,000 | || Total Assets: $1,000 | ||
|| Total Liability + Owner's Equity: $1,000 | || Total Liability + Owner's Equity: $1,000 | ||
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Hypos: Corp sells 50 shares of common stock, par value $5/share and sells to shareholders at $100/share. Then corp. sells 10 shares Series A preferred stock, par value $20, sold for $20 a share. | Hypos: Corp sells 50 shares of common stock, par value $5/share and sells to shareholders at $100/share. Then corp. sells 10 shares Series A preferred stock, par value $20, sold for $20 a share. | ||
{| | {| style="border-spacing:0;border:1pt solid #00000a; width:100%;" | ||
|- | |- style="border:0.5pt solid #00000a;padding-top:0in;padding-bottom:0in;padding-left:0.0785in;padding-right:0.075in;" | ||
|| '''ASSETS ''' | || '''ASSETS ''' | ||
|| ''' LIABILITIES ''' | || ''' LIABILITIES ''' | ||
|- | |- style="border:0.5pt solid #00000a;padding-top:0in;padding-bottom:0in;padding-left:0.0785in;padding-right:0.075in;" | ||
|| Cash: $5,000 (50 shares x $100) | || Cash: $5,000 (50 shares x $100) | ||
|| | || | ||
|- | |- style="border:0.5pt solid #00000a;padding-top:0in;padding-bottom:0in;padding-left:0.0785in;padding-right:0.075in;" | ||
|| $200 | || $200 | ||
|| ''' Owner's Equity ''' | || ''' Owner's Equity ''' | ||
|- | |- style="border:0.5pt solid #00000a;padding-top:0in;padding-bottom:0in;padding-left:0.0785in;padding-right:0.075in;" | ||
|| | || | ||
|| Preferred Stock Account: $200 (10 X $20) | || Preferred Stock Account: $200 (10 X $20) | ||
|- | |- style="border:0.5pt solid #00000a;padding-top:0in;padding-bottom:0in;padding-left:0.0785in;padding-right:0.075in;" | ||
|| | || | ||
|| Common Stock: $ 250 (50 x $5) | || Common Stock: $ 250 (50 x $5) | ||
|- | |- style="border:0.5pt solid #00000a;padding-top:0in;padding-bottom:0in;padding-left:0.0785in;padding-right:0.075in;" | ||
|| | || | ||
|| APIC: $ 4,750 (50 X $95) | || APIC: $ 4,750 (50 X $95) | ||
|- | |- style="border:0.5pt solid #00000a;padding-top:0in;padding-bottom:0in;padding-left:0.0785in;padding-right:0.075in;" | ||
|| ''' Total Assets: $ 5,200 ''' | || ''' Total Assets: $ 5,200 ''' | ||
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'''Revlon Duties (as Care or Loyalty)''' | '''Revlon Duties (as Care or Loyalty)''' | ||
' | Defensive measures in a Sale process are really not appropriate, because they deter bidding (also for crown jewel lockup) | ||
As a director, your obligations change to that of an auctioneer, charged with getting the highest price reasonably available from a responsible and reputable bidder | |||
Triggered By→ an independent decision of the target board to abandon their existing strategy and to put themselves up for sale and seek out a buyer | |||
A 3rd Party CANNOT trigger Revlon duties in a Target BoD | |||
The mere fact that someone launches a takeover of your company, DOES NOT mean your board is in Revlon mode | |||
Defenses that go overboard and deter an active auction process are disloyal to your shareholders! | |||
Thinking about the needs of a group of contract claimants (exchange note-holders), caring about them because they are threatening to sue you is disloyal to shareholders as well! | |||
Court doesn't recognized "Breach of Revlon duties"-Malpiede, | |||
You have to bring an allegation of Breach of Duty of Care (which may get squashed in terms of an exculpatory charter provision) or as a Breach of Duty of Loyalty | |||
Revlon teaches how the directors can fulfill their existing fiduciary duties in the context of putting themselves up for sale | |||
Revlon | |||
Typical hostile takeover, where Ron Perlman's vehicle of choice—Pantry Pride—launched a hostile tender offer for the Revlon shares | |||
Revlon had a variety of takeover defenses | |||
1. Self Tender Offer | |||
To buy back some of its own shares. Useful from a defensive perspective by placing them into friendly hands (people that wouldn't tender to Ron Perlman) | |||
2. Poison Pill | |||
**Court said searching for a white knight is explicit recognition that you are for sale! | |||
3. Exchange Offer | |||
Designed to take more shares out of the marketplace so they can be used for defensive purpose | |||
B/c Revlon didn't have a lot of money to buy stock, the issued Notes that contained features that would cause them to explode (immediately due and payable on the spot), if certain events occurred without the blessing of the independent directors of Revlon | |||
4. White Knight→ Puts company for sale | |||
Search for anyone other than Perlman that would interested in buying Revlon | |||
They found Forstman | |||
Pantry Pride tried to dismantle those takeover defenses, and was successful in acquiring Revlon | |||
Forstman's deal with Revlon had a # of Deal Protection Measures- measures designed to keep these 2 parties locked in the deal until it's consummated & to persuade other people to go away | |||
1. Lock-up Option | |||
Forstman would have the ability to buy key divisions of Revlon at a "bargain-basement" price should another party like Pantry Pride purchase more than 40% of Revlon stock (which it might do with the tender offer) | |||
2. No-Shop Provision | |||
Whereby Revlon would be prohibited from shopping itself around once it signed a deal with Forstman | |||
3. Cancellation Fee | |||
25mm should anyone acquire more than 20% of Revlon stock | |||
4. Forstman's agreement to support the value of those exchange notes in the marketplace | |||
The secondary market price plummeted once the market learned that Forstman would be incurring large amounts of debt secured by the assets of Revlon…which made those exchange notes much more risky investments. So people discounted the notes' value by factoring in that risk | |||
Result—Forstman agreed to buy notes in the secondary market to prop up the price (to provide a floor that the notes' price couldn't fall below) | |||
Court- Boards DO have duties in the context of hostile takeovers. Have to keep a watchful eye on takeover defenses | |||
Unocal Standard | |||
1. Reasonable Grounds Test | |||
Substantive Coercion- Pantry Pride started off at $47, and there was documented evidence that Revlon was worth in the mid $50's | |||
BUT, ultimately Forstman offers $57.25, and Pantry Pride offers $58 | |||
Odd situation as a BoDs where someone you dislike it offering more money than someone you like | |||
2. Proportionality Test | |||
Well, once Pantry Pride got into the mid $50's, and started offering even more money, there is no substantive coercion anymore, so WHERE IS THE THREAT that needs to be defended? | |||
***Court said searching for a white knight is explicit recognition that you are for sale! | |||
Defensive measures in a Sale process are really not appropriate, because they deter bidding (also for crown jewel lockup) | |||
As a director, your obligations change to that of an auctioneer, charged with getting the highest price reasonably available from a responsible and reputable bidder | |||
Defenses that go overboard and deter an active auction process are disloyal to your shareholders! | |||
Thinking about the needs of a group of contract claimants (exchange note-holders), caring about them because they are threatening to sue you is disloyal to shareholders as well | |||
=====Class Favoritism===== | =====Class Favoritism===== |