Business Organizations Law Commons^™

Federal Forum Provisions And The Internal Affairs Doctrine, Dhruv Aggarwal, Albert H. Choi, Ofer Eldar

Articles

A key question at the intersection of state and federal law is whether corpo- rations can use their charters or bylaws to restrict securities litigation to federal court. In December 2018, the Delaware Chancery Court answered this question in the negative in the landmark decision Sciabacucchi v. Salzberg. The court invalidated “federal forum provisions” (“FFPs”) that allow companies to select federal district courts as the exclusive venue for claims brought under the Secur- ities Act of 1933 (“1933 Act”). The decision held that the internal affairs doc- trine, which is the bedrock of U.S. corporate law, does not permit charter …

Golden Parachutes And The Limits Of Shareholder Voting, Albert H. Choi, Andrew C.W. Lund, Robert Schonlau

Articles

With the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010, Congress attempted to constrain change-in-control payments (also known as “golden parachutes”) by giving shareholders the right to approve or disapprove such payments on an advisory basis. This Essay is the first to empirically examine the experience with the Say-on-Golden-Parachute (“SOGP”) vote. We find that unlike shareholder votes on proposed mergers, there is a significant amount of variation with respect to votes on golden parachutes. Notwithstanding the variation, however, the SOGP voting regime is likely ineffective in controlling golden parachute (“GP”) compensation. First, proxy advisors seem …

Negotiating The Lender Of Last Resort: The 1913 Federal Reserve Act As A Debate Over Credit Distribution, Nadav Orian Peer

Publications

“Lending of last resort” is one of the key powers of central banks. As a lender of last resort, the Federal Reserve (the “Fed”) famously supports commercial banks facing distressed liquidity conditions, thereby mitigating destabilizing bank runs. Less famously, lender-of-last-resort powers also influence the distribution of credit among different groups in society and therefore have high stakes for economic inequality. The Fed’s role as a lender of last resort witnessed an unprecedented expansion during the 2007–2009 Crisis when the Fed invoked emergency powers to lend to a new set of borrowers known as “shadow banks”. The decision proved controversial and …

The Shifting Tides Of Merger Litigation, Matthew D. Cain, Jill E. Fisch, Steven Davidoff Solomon, Randall S. Thomas

All Faculty Scholarship

In 2015, Delaware made several important changes to its laws concerning merger litigation. These changes, which were made in response to a perception that levels of merger litigation were too high and that a substantial proportion of merger cases were not providing value, raised the bar, making it more difficult for plaintiffs to win a lawsuit challenging a merger and more difficult for plaintiffs’ counsel to collect a fee award.

We study what has happened in the courts in response to these changes. We find that the initial effect of the changes has been to decrease the volume of merger …

Private Enforcement Of Company Law And Securities Regulation In Korea, Hwa-Jin Kim

Book Chapters

This chapter offers a brief overview of the private enforcement of corporate law and securities regulation in Korea, with particular reference to the current legislative efforts in the Korean National Assembly and recent court cases. This chapter also talks about Korea’s ill-fated and misguided adoption of the fraud-on-the-market theory in securities fraud litigation.

The Bylaw Puzzle In Delaware Corporate Law, David A. Skeel Jr.

All Faculty Scholarship

In less than a decade, Delaware’s legislature has overruled its courts and reshaped Delaware corporate law on two different occasions, with proxy access bylaws in 2009 and with shareholder litigation bylaws in 2015. Having two dramatic interventions in quick succession would be puzzling under any circumstances. The interventions are doubly puzzling because with proxy access, Delaware’s legislature authorized the use of bylaws or charter provisions that Delaware’s courts had banned; while with shareholder litigation, it banned bylaws or charter provisions that the courts had authorized. This Article attempts to unravel the puzzle.

I start with corporate law doctrine, and find …

Carrot Or Stick? The Shift From Voluntary To Mandatory Disclosure Of Risk Factors, Karen K. Nelson, Adam C. Pritchard

Articles

This study investigates risk factor disclosures, examining both the voluntary, incentive-based disclosure regime provided by the safe harbor provision of the Private Securities Litigation Reform Act as well as the SEC's subsequent mandate of these disclosures. Firms subject to greater litigation risk disclose more risk factors, update the language more from year to year, and use more readable language than firms with lower litigation risk. These differences in the quality of disclosure are pronounced in the voluntary disclosure regime, but converge following the SEC mandate as low-risk firms improved the quality of their risk factor disclosures. Consistent with these findings, …

Back From The Dead: Reviving Transfer Pricing Enforcement, Reuven S. Avi-Yonah

Articles

The OECD has recently come to recognize that the transfer pricing system does not work as intended. In its report on base erosion and profit shifting 2013 WTD 140-17: Other Administrative Documents, the OECD recognizes that BEPS results in revenue losses that affect all states, especially poorer ones; that systematic tax avoidance by the richest and most powerful companies in the world undermines the general legitimacy of taxation; that it gives MNEs significant competitive advantages over purely domestic firms, resulting in inefficient allocations of investment and major distortions to economic activity; and that it skews the decisions of the MNEs …

Revisiting 'Truth In Securities Revisited': Abolishing Ipos And Harnessing Private Markets In The Public Good, Adam C. Pritchard

Articles

My thesis is that the transition between private- and public-company status could be less bumpy if we unify the public-private dividing line under the Securities Act and Exchange Act. The insight builds on Cohen's thought experiment where Congress first enacted the Exchange Act. My proposed public-private standard would take the company-registration model to its logical conclusion. The customary path to public-company status is through an IPO, typically with simultaneous listing of the shares on an exchange. There is nothing about public offerings, however, that makes them inherently antecedent to public-company status. What if companies became public, with required periodic disclosures …

Money On The Table: Why The U.S. Should Tax Inbound Capital Gains, Reuven S. Avi-Yonah

Articles

On March 21, 2011, AT&T announced that it will buy T-Mobile from Deutsche Telekom for $39 billion. This transaction will be tax free to Deutsche Telekom (DT) not because it qualifies as a reorganization, but because DT is a foreign corporation and capital gains of nonresidents are generally not subject to U.S. taxation because they are deemed to be foreign source. Also, DT is protected from taxation by article 13(5) of the Germany-U.S. tax treaty, which provides that capital gains are generally taxable only by the country of residence.

Stoneridge Investment Partners V. Scientific-Atlanta: The Political Economy Of Securities Class Action Reform, Adam C. Pritchard

Articles

I begin in Part II by explaining the wrong turn that the Court took in Basic. The Basic Court misunderstood the function of the reliance element and its relation to the question of damages. As a result, the securities class action regime established in Basic threatens draconian sanctions with limited deterrent benefit. Part III then summarizes the cases leading up to Stoneridge and analyzes the Court's reasoning in that case. In Stoneridge, like the decisions interpreting the reliance requirement of Rule 10b-5 that came before it, the Court emphasized policy implications. Sometimes policy implications are invoked to broaden the reach …

All In The Family As A Single Shareholder Of An S Corporation, Douglas A. Kahn, Jeffrey H. Kahn, Terrence G. Perris

Articles

Subject to a few exceptions, a corporation that has elected to be taxed under subchapter S of chapter 1 of subtitle A of title 26 of the United States tax code is not taxed on its net income. Instead, the income, deductions, credits, and other tax items of an S corporation pass through to its shareholders on a pro rata basis. To qualify for subchapter S treatment, an electing corporation must satisfy the requirements that are set forth in section 1361, one of which is that the corporation can have no more than 100 shareholders. One aspect of that requirement …

Prevention Of Double Deductions Of A Single Loss: Solutions In Search Of A Problem, Douglas A. Kahn, Jeffrey H. Kahn

Articles

In the current tax system, a corporation is treated as a separate taxable entity. This tax system is sometimes referred to as an entity tax or a double tax system. Since a corporation is a separate and distinct entity from its owners, the shareholders, the default rule is that transfers between them are treated as realization events. Without a specific Internal Revenue Code (Code) provision providing otherwise, such transactions will also require the parties to recognize the realized gain or loss. Congress has enacted several nonrecognition corporate provisions when forcing the recognition of income could prevent changes to the form …

The Irrational Auditor And Irrational Liability, Adam C. Pritchard

Articles

This Article argues that less liability for auditors in certain areas might encourage more accurate and useful financial statements, or at least equally accurate statements at a lower cost. Audit quality is promoted by three incentives: reputation, regulation, and litigation. When we take reputation and regulation into account, exposing auditors to potentially massive liability may undermine the effectiveness of reputation and regulation, thereby diminishing integrity of audited financial statements. The relation of litigation to the other incentives that promote audit quality has become more important in light of the sea change that occurred in the regulation of the auditing profession …

The Silver Lining: The International Tax Provisions Of The American Jobs Creation Act - A Reconsideration, Reuven S. Avi-Yonah

Articles

The American Jobs Creation Act of 2004, passed by the US Congress on 12 October and signed into law by President Bush on 22 October 2004, has been greeted by general dismay by various critics. The Act has been described as overloaded with “pork” and giveaways to special interest groups like tobacco farmers. The critics contend that the only achievement of the Act, the repeal of the “extraterritorial income” (ETI) regime that was ruled by the WTO to be a prohibited export subsidy, is dwarfed by 633 pages of special interest legislation. Even the Bush Administration distanced itself from the …

Institutional Competition To Regulate Corporations: A Comment On Macey, Jill E. Fisch

All Faculty Scholarship

No abstract provided.

Should Congress Repeal Securities Class Action Reform?, Adam C. Pritchard

Other Publications

The Private Securities Litigation Reform Act of 1995 was designed to curtail class action lawsuits by the plaintiffs’ bar. In particular, the high-technology industry, accountants, and investment bankers thought that they had been unjustly victimized by class action lawsuits based on little more than declines in a company’s stock price. Prior to 1995, the plaintiffs’ bar had free rein to use the discovery process to troll for evidence to support its claims. Moreover, the high costs of litigation were a powerful weapon with which to coerce companies to settle claims. The plaintiffs’ bar and its allies in Congress have called …

Litigator's Thumbnail Guide To The Warn Act, David A. Santacroce

Articles

When large companies choose to lay off workers or close down plants without prior notice, they can be subject to extensive liability under the federal Worker Adjustment and Retraining Notification Act (WARN), including 60 days backpay to all affected workers, daily fines to local government, and attorney fees generated during the suit. In the following article, the author presents the bare bones basics of WARN in order for employees and their advocates to understand how and when WARN applies.

The Qualified Legal Compliance Committee: Using The Attorney Conduct Rules To Restructure The Board Of Directors, Jill E. Fisch, Caroline M. Gentile

All Faculty Scholarship

The Securities and Exchange Commission introduced a new corporate governance structure, the qualified legal compliance committee, as part of the professional standards of conduct for attorneys mandated by the Sarbanes-Oxley Act of 2002. QLCCs are consistent with the Commission’s general approach to improving corporate governance through specialized committees of independent directors. This Article suggests, however, that assessing the benefits and costs of creating QLCCs may be more complex than is initially apparent. Importantly, QLCCs are unlikely to be effective in the absence of incentives for active director monitoring. This Article concludes by considering three ways of increasing these incentives.

Aggregation, Auctions, And Other Developments In The Selection Of Lead Counsel Under The Pslra, Jill E. Fisch

All Faculty Scholarship

No abstract provided.

The U.S. Treasury's Subpart F Report: Plus Ça Change, Plus C'Est La Même Chose?, Reuven S. Avi-Yonah

Articles

On 29 December 2000, the U.S. Treasury Department released its long-awaited study of Subpart F, entitled “The Deferral of Income Earned through U.S. Controlled Foreign Corporations." This study was commenced in the aftermath of the controversy that ensued from the issuance and subsequent withdrawal of Notice 98-11. The study was originally expected to be issued in 1999 in response to the report published that year by the National Foreign Trade Council, which advocated significant changes in Subpart F. The Treasury Study’s delayed issuance at the end of the Clinton Administration means that it only has (at best) persuasive force for …

A Definition Of "Liabilities" In Code Sections 357 And 358(D), Douglas A. Kahn, Dale A. Oesterle

Articles

Internal Revenue Code section 351(a) provides that no gain or loss shall be recognized if property is transferred to a corporation solely in exchange for its stock or securities and the transferors control the corporation immediately after the exchange. If, in addition to receiving stock or securities in an exchange that would otherwise qualify for section 351 treatment, a transferor receives other property or money -- "boot" -- any realized gain is recognized up to the amount of the money and the fair market value of the other property received. The transferee corporation's assumption of the transferor's liabilities or its …

The Constitutionality Of The Federal Corporation Tax, Ralph W. Aigler

Articles

During the special session of Congress held the past summer there was enacted as an amendment to the new Tariff Law what is generally known as the Federal Corporation Tax.1 At the time of its consideration in Congress and since its enactment there has been considerable discussion regarding the constitutionality of the measure, and no little doubt has been expressed as to its validity.

A Proposed National Incorporation Law, Horace Lafayette Wilgus

Articles

In an article in the February number of this magazine1 the writer discussed the need of a national incorporation law. The following is proposed as such; its object is to set forth what, perhaps, may be possible under such a law; what some will think necessary or desirable; what some will think unnecessary and undesirable; and what others will undoubtedly think is all wrong, if not vicious. Whatever view is taken the writer's purpose will be accomplished if consideration and discussion of the proper details of such a law, are provoked. There are two classes who desire a national incorporation …

Limits To State Control Of Private Business, Thomas M. Cooley

Articles

The present purpose is to inquire whether, in the matter of the regulation of property rights and of business, legislation has not of late been occupying doubtful, possibly unconstitutional grounds. The discussion in the main must be limited to fundamental.-principles, aided by such light as legal and constitutional history may throw upon them, since the express provisions of the constitutions can give little assistance. They always contain the general guaranty of due process of law to life, liberty, and property, but in other particulars they for the most part leave protection to principles which have come from the common law. …