Law Commons^™

The New Regulation Of Small Business Capital Formation: The Impact—If Any—Of The Jobs Act, Rutheford B. Campbell Jr.

Law Faculty Scholarly Articles

The Jumpstart Our Business Startups Act (JOBS Act) was—at least apparently—driven by the desire to promote job creation by facilitating small business capital formation. The legislation was premised on the correct assumptions that small businesses create jobs and that an efficient access to capital is essential for small businesses to emerge, compete, and survive in our competitive, market economy. It is certain that the JOBS Act will have an effect on businesses’ access to external capital. With regard, however, to the capital formation efforts of small businesses—businesses that may account for more than 25% of our national economy—the analysis offered …

Normative Justifications For Lax (Or No) Corporate Fiduciary Duties: A Tale Of Problematic Principles, Imagined Facts And Inefficient Outcomes, Rutheford B. Campbell Jr.

Law Faculty Scholarly Articles

Corporate fiduciary duty standards are at an all-time low in this country. Ironically, the deterioration in standards has come to full maturity during the last two decades, a period of significant and notorious corporate managerial failures.

The deterioration in the standards by which we measure the appropriateness of the actions of corporate managers has been fueled by influential judges' and scholars' ("Advocates"'), who vigorously-and seemingly quite effectively-argue in favor of a lax fiduciary duty regime for corporate managers.

Normative justifications for lax corporate fiduciary duty standards, however, are weak. The justifications fail to provide a persuasive reason to abandon the …

The “New” Fiduciary Standards Under The Revised Uniform Liability Company Act: More Bottom Bumping From Nccusl, Rutheford B. Campbell Jr.

Law Faculty Scholarly Articles

Between 1995 and 2001, the influential National Conference of Commissioners on Uniform State Laws (NCCUSL) promulgated iterations of uniform laws pertaining to partnerships, limited partnerships and limited liability companies. One or more of those acts have been widely adopted by state legislatures.

Each of the three acts—the Uniform Partnership Act (1997) (RUPA), the Uniform Limited Partnership Act (2001) (ULPA (2001)), and the Uniform Limited Liability Company Act (1996) (ULLCA)—contains identical fiduciary duty provisions. The acts all adopt the same standards for the duty of care and the duty of loyalty, and offer parties the same limited rights to opt out …

Bumping Along The Bottom: Abandoned Principles And Failed Fiduciary Standards In Uniform Partnership And Llc Statutes, Rutheford B. Campbell Jr.

Law Faculty Scholarly Articles

Over the last decade or so, the National Conference of Commissioners on Uniform State Laws (NCCUSL) has promulgated a series of uniform laws dealing with unincorporated business entitites. The Uniform Partnership Act (1997) (RUPA), the Uniform Limited Partnership Act (2001) (ULPA (2001)), and the Uniform Limited Liability Company Act (1996) (ULLCA) are recent and important iterations of these uniform laws. One or more of these Acts have been adopted in many states and are certain to garner additional adoptions in the coming years.

Each of the Acts contains provisions that prescribe the fiduciary duties of the entity's managers. The managers' …

Managers’ Fiduciary Duties In Financially Distressed Corporations: Chaos In Delaware (And Elsewhere), Rutheford B. Campbell Jr., Christopher W. Frost

Law Faculty Scholarly Articles

The inherent conflict between creditors and shareholders has long occupied courts and commentators interested in corporate governance. Creditors holding fixed claims to the corporation's assets generally prefer corporate decision making that minimizes the risk of firm failure. Shareholders, in contrast, have a greater appetite for risk, because, as residual owners, they reap the rewards of firm success while sharing the risk of loss with creditors.

Traditionally, this conflict is mediated by a governance structure that imposes a fiduciary duty on the corporation's managers-its officers and directors-to maximize the value of the shareholders' interests in the firm. In this traditional view, …

Introducing The Law Of Nonprofit Organizations And Philanthropy, David A. Brennen

Law Faculty Scholarly Articles

On January 5,2007, the Nonprofit and Philanthropy Law Section of AALS held its first program at the AALS Annual Meeting in Washington, D.C. The program, entitled "State-Level Legal Reform of the Law of Nonprofit Organizations," was a fitting way to launch what should prove to be a valuable contribution to the study of law relating to nonprofit organizations and philanthropy. This burgeoning area of academic legal study is well poised to grow by leaps and bounds in the coming years due to its impact on many traditional areas of legal study, including tax law, corporate law, estate law, trust law, …

Regulation A: Small Businesses’ Search For “A Moderate Capital”, Rutheford B. Campbell Jr.

Law Faculty Scholarly Articles

Small businesses are an important part of our national economy, accounting for as much as 40% of our total economic activity and providing society with important services and products.

Small businesses face daunting economic, structural, and legal impediments when they attempt to acquire external capital. The absence of financial inter-mediation services means that they are almost always on their own to find investors. Their small capital needs mean that their relative offering costs are often sky high. Federal and state securities rules significantly exacerbate these economic and structural disadvantages by imposing onerous and unwarranted conditions on their search for external …

Kentucky Corporate Fiduciary Duties, Rutheford B. Campbell Jr.

Law Faculty Scholarly Articles

In this article I offer an interpretation of Kentucky's corporate fiduciary law. The article is positive, in that it attempts to explain our law by reference to certain principles. The article is also normative, however, in that it offers constructive criticism regarding parts of Kentucky fiduciary law and suggests changes, refinements, and clarifications intended to promote fairness and economic efficiency in Kentucky corporations.

Both the positive and the normative aspects of this piece recognize the importance of the common law developments in Delaware (and other states) and the importance of the law and economics movement. I suggest, however, that Kentucky …

The Ethical Obligation Of Transactional Lawyer To Act As Gatekeepers, Rutheford B. Campbell Jr., Eugene R. Gaetke

Law Faculty Scholarly Articles

Recent examples of managerial misconduct at major corporations have called into question the adequacy of the gatekeeper role provided by transactional lawyers representing corporations. That role is governed by Model Rule 1.13(b), which obligates the lawyer for a corporation to take remedial action if the lawyer knows that corporate managers are engaged in actions that amount to a "violation of a legal obligation" to the corporation or that are unlawful and likely to result in substantial injury to the corporation. In addition, Model Rule 1.2(d) forbids a lawyer from lending assistance to any action by corporate managers "that the lawyer …

The Impact Of Modern Finance Theory In Acquisition Cases, Rutheford B. Campbell Jr.

Law Faculty Scholarly Articles

In February of 1983, the Supreme Court of Delaware decided Weinberger v. UOP, Inc. The case holds that, in determining the present value of a corporation involved in an acquisition, courts are free to use “any techniques or methods [of valuation] which are generally considered acceptable in the financial community…”

The rule in Delaware prior to Weinberger required courts to determine the present value of a corporation by use of the Delaware block method of valuation exclusively. The Delaware block method, however, is a poor way to determine the present value of a corporation. As a result, even before the …

Business Law Reform In The United States: Thinking Too Small?, Douglas C. Michael

Law Faculty Scholarly Articles

Dean Johan Henning presents the South African experience with business entity reform as one part of a coordinated whole. It included, for example, government funding for business, tax reforms, accounting and securities changes. Henning says that these reforms, though multi-faceted, had a uniform purpose: to use small business as an engine to improve the economy and to move “historically and socially disadvantaged groups” into the mainstream of the economy and the society.

These are noble goals and far reaching efforts, and a lot to ask of business entity reform. But because the South African experience was nonetheless successful by all …

Financing Public Health Through Nonprofit Conversion Foundations, Christopher W. Frost

Law Faculty Scholarly Articles

Protection and promotion of the public's health are typically thought of as governmental responsibilities. Certainly, the core functions of responding to contagious diseases through quarantine, vector control, mandatory reporting, mandatory immunizations, and other coercive measures require governmental power. Historically, public health has been defined by governmental response to immediate threats to the health of the population.

As our view of the public's health expands to take into account broader measures, however, so too can we expand our view of the kinds of institutions that serve to promote the public's health. Most commentators agree that public health is a wide ranging …

The Overwhelming Case For Elimination Of The Integration Doctrine Under The Securities Act Of 1933, Rutheford B. Campbell Jr.

Law Faculty Scholarly Articles

The thesis of this Article is that the Securities and Exchange Commission should entirely eliminate the integration doctrine from the Securities Act of1933. Under the integration doctrine, a single "offering" or "issue" of securities cannot be split. The doctrine is expensive for society and furthers no valid policy of the 1933 Act. More specifically, the doctrine does not promote investor protection but does retard capital formation, an outcome that is contrary to the presently articulated purposes of the 1933 Act.

Part II of this Article traces the history of the adoption of the integration doctrine both by the Commission and …

To Know A Veil, Douglas C. Michael

Law Faculty Scholarly Articles

Lawyers, judges, law students, and law professors have a love-hate relationship with the doctrine of “piercing the corporate veil”—the idea that shareholders might sometimes be personally liable for the debts of the corporation. It is the subject covered more than all others in courses on corporation law. It is widely litigated, being the subject of thousands of opinions. Yet, for all this attention, it is routinely vilified by the experts. Most commentators recognize that it is jurisprudence without substance.

This Article is an attempt to form a basis for rigorous analysis of virtually every veil-piercing case and to rid the …

Fair Value And Fair Price In Corporate Acquisitions, Rutheford B. Campbell Jr.

Law Faculty Scholarly Articles

In statutory corporate acquisitions, dissenters' rights entitle shareholders of acquired corporations to obtain a "fair value" for their consideration, while common-law fiduciary duties ensure that such shareholders receive a "fair price" in the transaction. Courts, however, have had difficulty defining and measuring fair value and fair price, leaving this area of the law in disarray. This Article reviews the current framework of appraisal rights and fiduciary duties and proposes refined definitions of fair value and fair price that are based on attractive moral and economic values widely shared by society. The proposal respects the expectations of shareholders and provides guidance …

The Impact Of Nsmia On Small Issuers, Rutheford B. Campbell Jr.

Law Faculty Scholarly Articles

Small businesses may account for 40% of the business activities in this country, but capital formation rules always have discriminated against small businesses and imposed rules that make it unreasonably difficult for small companies to exploit external sources of capital. NSMIA, through its broad statutory delegation to the SEC of the right to expand the preemption of state blue sky laws, provides a unique opportunity for the Commission to deliver much-needed and much-deserved help to small issuers engaged in capital formation and to finally break the hegemonic hold states have over the rules governing capital formation by small businesses. Society …

Asset Securitization And Corporate Risk Allocation, Christopher W. Frost

Law Faculty Scholarly Articles

Asset securitization is a financial innovation in which corporations sell financial assets to a specially formed entity that in turn taps financial markets for the purchase price. The device provides firms an alternative to raising capital through traditional debt and equity markets. Practitioners of the approach tout securitization as a means through which a firm can lower its overall cost of capital by limiting the risk facing investors in the securitized assets. Commentators have described asset securitization as "one of the most important financing vehicles in the United States." Interest in the device is increasing dramatically as more companies see …

Cooperative Implementation Of Federal Regulations, Douglas C. Michael

Law Faculty Scholarly Articles

Professor Michael examines regulatory programs in which the federal government leaves many compliance decisions up to the regulated entities themselves. Drawing on prior research and theory in the area, he concludes that such "cooperative implementation" is feasible if three principles are observed: (1) regulatory standards are written to leave discretion in methods of compliance and that discretion is within the competence of the regulated entities; (2) there are economic incentives to offset the additional costs to these entities; and (3) the entities self-report their own compliance, the agency closely monitors the program, and the agency maintains a residual program of …

A Positive Analysis Of The Common Law Of Corporate Fiduciary Duties, Rutheford B. Campbell Jr.

Law Faculty Scholarly Articles

The purpose of this Article is to offer a positive analysis of the common law of corporate managers' fiduciary duties. The Article attempts to explain the present shape of these corporate fiduciary duties by reference to Pareto criteria.

A particular state of affairs ("state B") is considered to be Pareto superior to another state of affairs ("state A") if at least one person in state B is better off than he or she is in state A and no one in state B is worse off than he or she is in state A. Since in a move from state …

Corporate Fiduciary Principles For The Post-Contractarian Era, Rutheford B. Campbell Jr.

Law Faculty Scholarly Articles

The impact of the law and economics movement on legal scholarship, legal analysis, and, ultimately, on the rules under which our society operates is substantial. The proponents of this movement ("Contractarians") articulate their positions skillfully and apply their principles broadly across the entire spectrum of our laws, including, of course, the area of corporate law.

The purpose of this Article is to propose, explain, and defend broad and unifying principles to guide the development of fiduciary duties of corporate managers in the post-Contractarian period. These principles are based on Pareto criteria, which are demonstrably appealing to society and provide workable …

Legislative Process And Commercial Law: Lessons From The Copyright Act Of 1976 And The Uniform Commercial Code, Harold R. Weinberg, William J. Woodward Jr.

Law Faculty Scholarly Articles

Overlap and conflict are inevitable in any legal system in which a federal government and state governments both have authority to enact laws. In our federal system, the Constitution's Supremacy Clause identifies federal law as preeminent in case of conflict. When conflict develops and litigation is required to determine whether state or federal law controls the issue at hand, our system analyzes the problem using the term preemption as a basis for analysis.

This Article explores the federal legislative process that precedes judicial preemption decisions. By studying the legislative process for its sensitivity to preemption issues, possible ways to modify …

Untenable Status Of Corporate Governance Listing Standards Under The Securities Exchange Act, Douglas C. Michael

Law Faculty Scholarly Articles

United States securities markets operate under a system of supervised self-regulation created by the Securities Exchange Act of 1934 (Exchange Act). That system includes substantive regulation of the traders and the issuers of securities traded in those markets through the use of listing standards.

These listing standards have a unique status. They are part of a self-regulatory system, but are not classic self-regulation. The markets do not govern the traders of which it consists; rather, it governs outsiders—the issuers. The markets and the Securities and Exchange Commissions have sought to control issuers in ways not clearly related to trading in …

The Corporate Officer's Independent Duty As A Tonic For The Anemic Law Of Executive Compensation, Douglas C. Michael

Law Faculty Scholarly Articles

History repeats itself in the law as in other arenas. In the law of executive compensation, such a repetition may be imminent. Ever since the advent of the large industrial corporation in the United States, there has been periodic outrage at payments made to its top executives. This repetition suggests that the law has failed to keep pace with the observed problems. Part I of this Article describes the current and historic uproar over executive compensation in large corporations in the United States. Part II provides the economic background of the process of negotiating executive compensation. Part III analyzes the …

The Plight Of Small Issuers (And Others) Under Regulation D: Those Nagging Problems That Need Attention, Rutheford B. Campbell Jr.

Law Faculty Scholarly Articles

Regulation D traces its roots to section 4(2) and section 3(b) of the Securities Act of 1933. Both of these sections are designed to relieve an issuer from the pains of registration under the 1933 Act in situations where Congress deemed such registration inappropriate. Therefore, under section 4(2), no registration is required for "transactions by an issuer not involving any public offering." Section 3(b) is not a self-executing exemption but instead permits the Securities and Exchange Commission to enact rules and regulations exempting issuers from registration requirements "if it finds that ... [registration] is not necessary in the public interest …

Intracorporate Plurality In Criminal Conspiracy Law, Sarah N. Welling

Law Faculty Scholarly Articles

The concept of conspiracy currently plays a significant role in three areas of substantive law: antitrust, civil rights, and criminal law. Although the role of conspiracy in these substantive areas of law differs in many ways, all three require that the conspiracy consist of a plurality of actors. Determining what constitutes a plurality of actors when all the alleged conspirators are agents of a single corporation poses a continuing problem.

This problem raises two distinct questions. The first is whether, when one agent acts alone within the scope of corporate business, the agent and the corporation constitute a plurality. The …

Santa Fe Industries, Inc. V. Green: An Analysis Two Years Later, Rutheford B. Campbell Jr.

Law Faculty Scholarly Articles

In 1977, the Supreme Court decided Santa Fe Industries, Inc. v. Green. Although the outcome of that decision should have surprised no one, since the trend of the Court clearly had been to constrict the scope of the federal securities legislation, the case was a major decision that will have a substantial impact on the development of corporate law in this country. Indeed, it may turn out to be one of the most significant corporate cases decided by the Supreme Court in recent years. Since by this point the dust has settled from the case, it seems appropriate to …

Definition Of Control In Secondary Distributions, Rutheford B. Campbell Jr.

Law Faculty Scholarly Articles

Section 2(11) of the Securities Act of 1933 (Act) generally subjects the sale of securities by a person "controlling an issuer" to the same rules that govern the sale of securities by an issuer. Accordingly, before a "control" person may sell the securities he holds in the controlled corporation he must either register them with the Securities and Exchange Commission (Commission) or qualify for an exemption from the registration requirement. While the Act clearly requires that a "control" person either register or qualify for an exemption, it fails to define "control." Thus, the task of defining has fallen to the …

Limited Liability For Corporate Shareholders: Myth Or Matter-Of-Fact, Rutheford B. Campbell Jr.

Law Faculty Scholarly Articles

One of the most important and firmly entrenched concepts of modern corporate law is the concept of limited liability. The digests abound with ringing phrases granting the owners of corporations immunity from liability beyond their initial investment. There are, however, numerous cases in which the courts have denied the owners of corporations the protection of limited liability and have held the owners liable for an obligation incurred by the corporation. It is the purpose of this paper to examine the theories under which the owners of corporations have been held liable for the contractual obligation of corporations.