Law Commons^™

Shareholders Do Not Have Standing To Bring An Individual Action Against Third Parties Who Have Damaged The Corporation: Adair V. Wozniak, Frank Carrino

Akron Law Review

Apart from the context of a derivative action, can a shareholder in a corporation sue individually for wrongful acts committed against the corporation by third parties?

The general rule of corporate law states that a shareholder cannot attain standing for such a suit. This rule is grounded on the theory that all shareholders should incur loss from third party wrongdoing in proportion to the amount of shares he or she holds, and likewise should proportionately benefit when the corporate entity wins an action. In addition, courts are fearful that if this rule were not in force, then there would be …

Statutory Limits On A Corporation's Right To Make Distributions To Shareholders: The Law Of Distribution In The 1984 Revised Model Business Corporation Act, Philip Mcgough

Akron Law Review

The purpose of this paper is to review the law of distribution in the 1984 Model Business Corporation Act. As we shall see, the 1950 MBCA's basic stance was that distributions should be made from earnings and that any distribution from contributed capital should require notification and approval of shareholders. The 1984 MBCA rejects the original stance and provides for minimal restrictions on distributions. What follows is in two parts: the first is a general survey of the law of distribution, the second compares the 1950 and 1984 versions of the MBCA in how they regulate distributions to shareholders.

Alternative Relief Available To Dissenting Shareholders Of A Cash-Out Merger, Edwin Davila

Akron Law Review

This article relates to the standing and right of a minority shareholder, who has dissented from a cash-out merger and commenced an appraisal proceeding, to pursue a separate individual claim of fraud in the merger through an action for rescissory damages against the participants for breaches of fiduciary duties to the shareholder. This issue arises from a cash-out merger of the minority shareholder. The situation encompasses two suits: a first filed statutory appraisal proceeding (the "Appraisal Action"); and a later filed shareholder's individual suit for damages for alleged fraud, conspiracy, self-dealing and waste of corporate assets (the "Fraud Action").

Unlimited Liability In The Modern Context: An Examination Of Shareholder Liability In Nova Scotia Unlimited Liability Companies, Sarah P. Bradley

Dalhousie Law Journal

For over 30 years, unlimited liability companies have been ubiquitous in USCanadian M&A transactions. Typically interposed between a US parent company and a Canadian operating company, these entities quietly function to make such structures more tax efficient. They are facilitated by Nova Scotia's venerable Companies Act, which has allowed for the incorporation of corporations with unlimited liability for over a hundred years. Unlimited liability of shareholders is the singular defining characteristic of the ULC, but the precise nature of ULC shareholder liability was apparently regarded as something of a technicality and rarely, if ever, closely examined in the professional or …

Balance And Team Production, Kelli A. Alces

Seattle University Law Review

For decades, those holding the shareholder primacy view that the purpose of a corporation is to earn a profit for its shareholders have been debating with those who believe that corporations exist to serve broader societal interests. Adolph Berle and Merrick Dodd began the conversation over eighty years ago, and it continues today, with voices at various places along a spectrum of possible corporate purposes participating. Unfortunately, over time, the various sides of the debate have begun to talk past each other rather than engage with each other and have lost sight of whatever common ground they may be able …

The Boundaries Of "Team" Production Of Corporate Governance, Anthony J. Casey, M. Todd Henderson

Seattle University Law Review

We examine the cooperative production of corporate governance. We explain that this production does not occur exclusively within a “team” or “firm.” Rather, several aspects of corporate governance are quintessentially market products. Like Blair and Stout, we view the shareholder as but one of many stakeholders in a corporation. Where we depart from their analysis is in our view of the boundaries of a firm. We suggest that they overweight the intrafirm production of control. Focusing on the primacy of a board of directors, Blair and Stout posit a hierarchical team that governs the economic enterprise. We observe, however, that …

The Agency Cost Paradigm: The Good, The Bad, And The Ugly, Claire A. Hill, Brett H. Mcdonnell

Seattle University Law Review

In the “managerialist” world that preceded our present shareholder value world, some corporate managers could, and did, help themselves when they should have been doing their jobs. The modern agency cost paradigm has focused attention on this problem, in part by conceptualizing the duty of corporate managers as maximizing shareholder value. This paradigm has had a variety of effects: some good, some bad, and some ugly. The agency cost paradigm has had a good effect by focusing on the problem of managerial enrichment and providing a simple, clear benchmark—shareholder value-- that may quickly indicate when managers are performing badly. However, …

The Corporation As Time Machine: Intergenerational Equity, Intergenerational Efficiency, And The Corporate Form, Lynn A. Stout

Seattle University Law Review

This Symposium Article argues that the board-controlled corporation can be understood as a legal innovation that historically has functioned as a means of transferring wealth forward and sometimes backward through time, for the benefit of present and future generations. In this fashion the board-controlled corporation promotes both intergenerational equity and intergenerational efficiency. Logic and evidence each suggest, however, that the modern embrace of “shareholder value” as the only corporate objective and “shareholder democracy” as the ideal of corporate governance is damaging the corporate form’s ability to serve this economically and ethically important function.

A Theory Of The Just Corporation, Ronit Donyets-Kedar

Seattle University Law Review

In their seminal article A Team Production Theory of Corporate Law, Margaret Blair and Lynn Stout hold that the modern corporation is best understood in terms of team production. Challenging the principal–agent model, Blair and Stout offer an analysis that considers the various stakeholders of the corporation as members of a team. Accordingly, they suggest, the purpose of corporate law is to provide a response to the problems created by collective production processes, in particular those pertaining to the distribution of profits stemming from the cooperation. According to Blair and Stout, the solution to this problem is to be found …

Testing The Normative Desirability Of The Mediating Hierarch, Zachary J. Gubler

Seattle University Law Review

In their influential article, A Team Production Theory of Corporate Law, Professors Margaret Blair and Lynn Stout explained how corporate law might be viewed as an attempt at solving what is known as the team production problem. At its core, this problem has to do with the opportunistic behavior that arises when multiple economic actors make investments—whether of labor, capital, or otherwise—in a business venture where these investments are said to be “firm specific” because they cannot be easily withdrawn and redeployed in other projects. The problem is how to construct a governance regime that will create incentives for the …

Team Production And Securities Laws, Urska Velikonja

Seattle University Law Review

In the seminal paper that this symposium celebrates, A Team Production Theory of Corporate Law, Margaret Blair and Lynn Stout made two related points. First, that Delaware law does not require shareholder primacy in public corporations. Rather, the broad deference afforded to the decisions of predominantly independent corporate boards of directors is consistent with a contrary theory, that of team production, or, as they call it, “the mediating hierarch” theory. The fundamental role of the board of directors is to mediate between the interests of various stakeholders that contribute to the corporation’s output. As a result, Delaware courts have repeatedly …

Shareholder Wealth Maximization As Means To An End, Robert P. Bartlett, Iii

Seattle University Law Review

In several recent cases, the Delaware Chancery Court has emphasized that where a conflict of interest exists between holders of a company’s common stock and holders of its preferred stock, the standard of conduct for directors requires that they strive to maximize the value of the corporation for the benefit of its common stockholders rather than for its preferred stockholders. This article interrogates this view of directors’ fiduciary duties from the perspective of incomplete contracting theory. Building on the seminal work of Sanford Grossman and Oliver Hart, incomplete contracting theory examines the critical role of corporate control rights for addressing …