Table of Contents

I.) INTRODUCTORY PRINCIPLES 2
A.) Efficiency and Other Concepts 2
B.) Agency and Partnership Law 2

II.) INTRODUCTION TO THE CORPORATE FORM 16
A.) Formation and Structure 16
B.) Debt, Equity, and Valuation 22

III.) CONTROL OF CORPORATE DECISIONS 32
A.) The Role of the Shareholder 32
B.) Management Obligations 50
1.) Duty of Care 51
2.) Duty of Loyalty 56
3.) Duty of Fairness: Parent-Subsidiary Relationships 63
4.) Duty of Good Faith 64
5.) Management Obligations Under Federal Securities Laws 67
C.) Shareholder Litigation 76

IV.) Structural Changes 85
A.) Transactions in Control 85
B.) Mergers and Acquisitions 86
1.) Mergers 87
2.) Sale of Assets 93
3.) Asset Purchase or Tender Offer 94
C.)
o Types of Firms:

▪ Sole Proprietorship- single owner firm

▪ Partnership- an association of two or more persons to carry on as co-owners of a business for profit

▪ Corporation- a special business form created by state law, requiring cooperation of the state

▪ Modern firms have additional options

• LLCs, LLPs, BusinessTrusts, etc

▪ Key components

• Nature of ownership

• Formality of structure

o What is a firm?

▪ Jensen & Meckling- firm is a “black box”

Operate according to maximize profits/value

▪ Who determines the objectives?

▪ Why profit maximization?

o Why do we use firms?

▪ Reducing costs-esp. transaction costs, agency costs…

▪ Coase-firm reduce transaction costs

▪ Choice between the firm and the market

▪ Transaction costs versus agency costs

Agency and Partnership Law

• Agency Cost Theory: Focuses on how actions of the agent affect interests of the principal. Corporate law is largely about addressing agency costs (in U.S. between managers and shareholders).

o Assumptions:

▪ Economic actors are rational, informed, utility maximizers (of their own interests)

▪ Managers offer to investors a