Business Organizations Law Commons^™

A Rule-Based Method For Comparing Corporate Laws, Lynn M. Lopucki

UF Law Faculty Publications

Part I explains the processes for specifying a Scenario. It introduces the Scenario that will serve as the illustration in the remainder of this Article—a comparison of the liability of directors for the exercise of poor judgment in a Delaware corporation with the corresponding liability in a United Kingdom public limited company. Part II explains and illustrates the necessity of selecting specific entity types for comparison. Part III describes and illustrates the method for resolving the Scenario in both jurisdictions. Part IV explains and illustrates the novel process for close comparison—the extraction, juxtaposition, and comparison of decisional rules from the …

Protecting Llc Owners While Preserving Llc Flexibility, Peter Molk

UF Law Faculty Publications

LLC statutes allow owners to restrict or completely waive standard governance protections required of other business forms. Corporate law mandatory stalwarts like fiduciary duties can be entirely eliminated in an LLC. This flexible approach has the potential to generate the most efficient governance relationships: tailored negotiation among LLC investors can produce an optimal set of governance terms that corporate law’s mandatory protections cannot. Yet when owners lack sophistication or bargaining power, contractual freedom allows for opportunistic terms that misprice capital, reduce investment, and inefficiently allocate capital across LLCs. A series of cases involving opportunistic conduct have brought this problem to …

More Ways To Protect Llc Owners And Preserve Llc Flexibility, Peter Molk

UF Law Faculty Publications

This online companion to Protecting LLC Owners While Preserving LLC Flexibility considers several alternative approaches that might unify LLCs’ twin goals of owner protection and governance flexibility. I examine self-regulation, private certification, investor-led market forces, lawyers in their gatekeeping capacity, and mandated disclosure systems. Ultimately, each of these alternatives proves less satisfying than a system that bifurcates LLC law based on the presumed sophistication of LLC owners.

No Longer Peas In A Pod: More Implications Of The Divorce Of Minnesota Corporate And Llc Law, Daniel S. Kleinberger

Faculty Scholarship

Twenty-five years ago, when an MSBA task force drafted Minnesota’s first limited liability company(LLC) statute, the drafters copied chapter 302A, the corporate statute, to the maximum extent possible. Labels were changed—e.g., member instead of shareholder; board of governors instead of board of directors— and substance was modified to the extent necessary to comply with the then-applicable tax classification regulations. But otherwise, the task was an exercise in replication.

The approach was far out of the mainstream. Almost everywhere else LLC statutes were being derived from partnership law. The task force’s rationale for going rogue was straightforward. At the time, most …

Climate Change, Corporate Social Responsibility, And The Extractive Industries, Sara Seck

Articles, Book Chapters, & Popular Press

During the negotiation of the Paris Agreement, many argued that the final text should integrate a human rights approach so as to better align climate governance under the UNFCCC with climate justice. Reference to human rights ultimately appeared only in the Preamble, despite submissions from the UN High Commissioner for Human Rights that urgent and ambitious State action to combat climate change is an existing duty of international human rights law. Another submission highlighted the role of businesses as duty-bearers who must contribute to climate mitigation and be accountable for climate impacts. This article will consider an unexplored avenue through …

Lessons For The Treaty Process From The International Law Commission And International Environmental Law, Sara L. Seck

Articles, Book Chapters, & Popular Press

The chapter examines Amnesty case studies in order to document the state practice identified and the gaps that need to be filled. The chapter will then consider the work of the ILC in its progressive codification of the law on prevention and loss allocation with respect to transboundary harm arising from hazardous activities, culminating in draft Articles8 and draft Principles,9 respectively, in 2001 and 2006. The modest claim of this chapter is that as the key United Nations body responsible for the progressive development and codification of international law, the work of the ILC should surely be of relevance to …

Foreword – The 2017 Tax Cuts: How Polarized Politics Produced Precarious Policy, Michael J. Graetz

Faculty Scholarship

By lowering the corporate tax rate from 35% to 21%, the 2017 tax legislation brought the U.S. statutory rate into closer alignment with the rates applicable in other Organisation for Economic Co-operation and Development (OECD) nations, thereby decreasing the incentive for businesses to locate their deductions in the United States and their income abroad. Its overhaul of the U.S. international income tax rules simultaneously reduced preexisting incentives for U.S. multinationals to reinvest their foreign earnings abroad and put a floor on the benefits of shifting profits to low-tax jurisdictions. The 2017 legislation also added an unprecedented, troublesome lower rate for …

The Case Against Passive Shareholder Voting, Dorothy S. Lund

Faculty Scholarship

American investors have begun to embrace the reality that academics have been championing for decades — that a broad-based, passive indexing strategy is superior to picking individual stocks or investing in actively managed funds. But there are several reasons to believe that the rise of passive investing will have harmful consequences for firm governance, shareholders, and the economy. First, because passive funds seek only to match the performance of an index — not outperform it — they lack a financial incentive to ensure that each of the companies in their very large portfolios are well-run. Second, passive funds face an …

Does Shareholder Voting Matter? Evidence From The Takeover Market, Paul Mason, Usha Rodrigues, Mike Stegemoller, Steven Utke

Scholarly Works

Voting rights are a basic shareholder-protection mechanism. Outside of the core voting requirements state law imposes (election of directors and votes on fundamental changes), federal law grants shareholders additional voting rights. But these rights introduce concomitant costs into corporate governance. Each grant of a voting right thus invites the question: is the benefit achieved worth the cost the vote imposes?

The question is not merely a theoretical one. Recently the SEC, concerned about Nasdaq’s potential weakening of shareholder voting protections, has lamented that little evidence exists on the value of the shareholder vote. This Article provides that evidence. It examines …

Guardians Of The Galaxy: How Shareholder Lawyers Won Big For Their Clients And Vindicated The Integrity Of Our Economy, Daniel J. Morrissey

Loyola of Los Angeles Law Review

Securities class actions are the most economically significant form of litigation. Highly skilled lawyers expend huge sums and relentless efforts in these matters but because of the costs involved and the potential for enormous liability very few of them ever make it to trial. This Article is the story of one that did, a mammoth fraud where a jury returned a $1.5 billion verdict that, with interest, increased to almost $2.5 billion by the time the case reached the appellate court.

There the Court upheld the shareholders’ theory that their damages could be measured by the excessive amounts they had …

Caremark's Hidden Promise, Ezra Wasserman Mitchell

Loyola of Los Angeles Law Review

In re Caremark, decided in 1996, established for the first time a director’s duty to monitor under Delaware law. A significant amount of jurisprudence and commentary has developed. Almost all of this literature parses the language of the case and those following, and disregards the underlying claims for damages. As a result of this linguistic focus, many have concluded that the duty to monitor largely is toothless and, importantly, deals only with claims of failure to monitor legal risk. A duty to monitor business risk has been disavowed.

Following the money reveals a different story. Classifying the cases according to …

Evolving Norms Of Corporate Social Responsibility: Lessons Learned From The European Union Directive On Non-Financial Reporting, Constance Z. Wagner

All Faculty Scholarship

This article examines an important development in the field of corporate social responsibility, namely theadoption of a 2014 European Union Directive (“2014 EU Directive”) mandating non-financial reporting by certain large companies. Such disclosure has traditionally been provided by businesses on a voluntary basis, but the 2014 EU Directive reflects an emerging global trends toward mandatory reporting. Such trend emerged in response to the perceived low quantity and poor quality of information disclosed voluntarily onsocial and environmental topics of importance to corporate stakeholders. The author analyzes the history and development of policy and legislation on this issue both at the European …

Holacracy And The Law, Matthew T. Bodie

All Faculty Scholarship

No law requires companies to have CEOs, officers, supervisors, chains of command, or even employees. But traditional managerial structures are so ingrained in our political economy that legal doctrines take them for granted. What if they were to disappear? Under holacracy, a new version of participatory management adopted at companies like Zappos and Medium, companies are replacing managers, organizational charts, and subordinates with governance circles, roles, and lead links. The promise of holacracy is a system of management that devolves responsibilities to teams, empowers workers to act freely within specified zones of authority, and energizes the entire organization around an …

The State's Role In The Regulation And Provision Of Legal Services In South Africa And The United States: Supporting, Nudging Or Interfering?, Helen Kruuse, Philip Genty

Faculty Scholarship

An independent legal profession is said to be “the bulwark of a free and democratic society.” It is also said that a high measure of independence of mind and action by legal actors is necessary for the maintenance of the rule of law. However, too often, there is the allegation (within the sociological literature in particular) that the legal profession has used the concepts of independence and the rule of law as a shield or cuirass rather than as a sword. The image of lawyers representing unpopular clients fearlessly and advocating on behalf of unpopular causes, so as to uphold …

Initial Public Offerings In The Cmu: A U.S. Perspective, Merritt B. Fox

Faculty Scholarship

This chapter begins by considering the especially severe information-asymmetry problem that plagues primary offerings of truly new securities. It then examines market-based solutions for these problems, the shortcomings of exclusive reliance on such solutions, and the rationale for having a government-designed affirmative-disclosure regime, whereby an issuer making an offering is required to answer certain questions. It also addresses the question of whether this regime should be imposed on all issuers making such offerings or only those that volunteer to be subjected to it. The remainder of the chapter considers the rationale for mandating the imposition of liability on issuers, issuer …

Who's Causing The Harm?, Catherine A. Hardee

Faculty Scholarship

My parents started a software company out of our family room when I was just five years old As a child, the business felt like the sixth member of our family A fourth child who grew up alongside my sisters and me and whom my parents struggled with, stressed over, and strove to infuse with their values just as they did their flesh and blood children. Take pride in your work and stand behind what you do applied equally to homework and product launches. The Golden Rule to treat others as you would like to be treated meant that, long …

Corporate Governance As Privately-Ordered Public Policy: A Proposal, Lynn A. Stout, Sergio Alberto Gramitto Ricci

Faculty Works

In this Article, we show how our society can use corporate governance shifts to address, if not entirely resolve, a number of currently pressing social and economic problems. These problems include: rising income inequality; demographic disparities in wealth and equity ownership; increasing poverty and income insecurity; a need for greater innovation and investment in solving problems like disease and climate change; the “externalization” of many costs of corporate activity onto third parties such as customers, employees, creditors, and the broader society; the corrosive influence of corporate money in politics; and discontent and loss of trust in the capitalist system among …

From “Arbitrary” To Arbitration: Using Adr’S Popular Favorite To Resolve Commercial Marijuana Disputes, Madeline G. Landry

UC Law Business Journal

No abstract provided.

Public Reporting By Benefit Corporations: Importance, Compliance, And Recommendations, Maxime Verheyden

UC Law Business Journal

No abstract provided.

The Behavioral Economics Of Multilevel Marketing, Heidi Liu

UC Law Business Journal

Multilevel marketing companies (MLMs) - sales organizations that compensate independent consultants based on the sales and recruitment of other consultants - form a significant part of the American economy. Yet, MLMs provide little information to regulators and potential participants regarding potentially material information. Although MLMs are often compared to pyramid schemes, consultants argue that participation in a MLM allows them to make money outside of the traditional full-time labor force. This paper examines the law, economics, and psychology of MLMs, suggesting that MLMs may draw on prospective consultants' cognitive biases in persuading consultants to join and continue a MLM. Consultants …

The Future Of Independent Contractors And Their Status As Non-Employees: Moving On From A Common Law Standard, John A. Pearce Ii, Jonathan P. Silva

UC Law Business Journal

No abstract provided.

Some Implications Of The Agency-Cost Theory Of The Nonprofit Firm, Benjamin Leff

Contributions to Books

Social enterprises are business enterprises that seek to pursue social goals. In order to do that, they need to be able to make binding commitments to a variety of stakeholders that they will indeed pursue such goals. At least since Henry Hansmann wrote his seminal works on nonprofit organizations in the early nineteen eighties, it has been widely understood that a significant value of the nonprofit organizational structure is the ability of the "nondistribution constraint" to serve as just such a commitment mechanism. In the case of for-profit social enterprises, where the nondistribution constraint does not apply, what mechanisms might …

Corporate Law Federalism In Historical Context: Comparing Canada And The United States, Camden Hutchison

All Faculty Publications

Although American and Canadian corporate law share many similarities, they are also marked by important institutional differences. Among the most notable are the differing roles of federal versus state/provincial policymaking in the two countries: While American corporate law has been deeply influenced by jurisdictional competition among the states, Canadian law has instead been shaped by federal legislative activity, as seen today in the standardizing influence of the Canada Business Corporations Act. These different institutional histories have led to distinct evolutionary paths, with important substantive consequences for contemporary corporate law. Despite considerable academic attention to the subject of corporate law federalism, …

The Up-C Revolution, Gregg D. Polsky, Adam H. Rosenzweig

Scholarly Works

Over the past few years, a revolutionary new tax structure, known as the Up-C, has become increasingly popular, particularly in instances where an LLC is being taken public. In such an Up-C IPO, a newly formed C corporation is placed on top of the existing LLC, which continues to operate the business. Shares of the C corporation are sold to new investors, and the proceeds are used by the C corporation to buy an interest in the LLC. Meanwhile, the legacy owners of the LLC (typically, founders and private investment funds) retain their interests in the LLC, while receiving exchange …

The Fiduciary Principle Of Insider Trading Needs Revision, Roberta S. Karmel

Faculty Scholarship

No abstract provided.

The Long And The Short: Portfolio Turnover Ratios & Mutual Fund Investment Time Horizons, Anne M. Tucker

Scholarly Works

Mutual fund portfolio turnover ratios (PTR) are at the center of the short-termism debate, which criticizes corporate maneuvers taken to prop up near-term earnings at the expense of long-term, value focused investments and policies. Scholars and policymakers often rely on portfolio turnover ratios to argue that mutual fund short-termism, as measured by the PTR, is increasing and infecting operating company time horizons. This article answers two main questions central to discerning mutual funds' role in the short-termism debate. The first is, how long, on average do U.S. registered mutual funds hold onto their assets? The second is, how good of …

Submission To The Open Call For Input Regarding The Working Group’S Report On The Gender Lens To The Un Guiding Principles On Business And Human Rights, Sara Seck, Penelope Simons

Articles, Book Chapters, & Popular Press

In October 2017, we co-hosted a conference and policy meeting on the subject of extractive industries and the human rights of women and girls, at the Human Rights Resource Education Centre in Ottawa. This submission will reflect on some of the insights that emerged from the conference and policy meeting, as well as our own subsequent research. A selection of conference papers are forthcoming in a special issue of the Canadian Journal of Women and the Law. We have inserted our submissions in response to some of the specific questions raised by the Working Group.

Corporate Governance, Capital Markets, And Securities Law, Adam C. Pritchard

Book Chapters

This chapter explores the dividing line between corporate governance and securities law from both historical and institutional perspectives. Section 2 examines the origins of the dividing line between securities law and corporate governance in the United States, as well as the efforts of the SEC to push against that boundary. That history sets the stage for section 3, which broadens the inquiry by examining the institutional connections between capital markets and corporate governance. Are there practical limits to the connection between securities law and corporate governance? The US again illustrates the point, as Congress has increasingly crossed the traditional boundary …

Democracy And Dysfunction: Rural Electric Cooperatives And The Surprising Persistence Of The Separation Of Ownership And Control, Randall S. Thomas, Debra C. Jeter, Harwell Wells

Vanderbilt Law School Faculty Publications

Since the 1930s, corporate law scholarship has focused narrowly on the public corporation and the problem of the separation of ownership and control-a problem many now believe has been mitigated or even solved. With rare exceptions, scholars have paid far less heed to other business forms that still play important roles in the American economy. In this Article, we examine a significant and almost completely overlooked business form, the Rural Electric Cooperative (REC). RECs were founded in a moment of optimism during the New Deal. As with other cooperatives, their organizational rules differed sharply from those of for-profit corporations. They …

Re-Examining The Law And Economics Of The Business Judgment Rule: Notes For Its Implementation In Non-Us Jurisdictions, Aurelio Gurrea-Martinez

Research Collection Yong Pung How School Of Law

The business judgment rule, as it has been traditionally understood, seems to be based on three underlying assumptions that make this rule economically desirable. First, directors are subject to a credible threat of being sued for a breach of the duty of care. Second, the primary role of the corporation is to maximise shareholder value. Third, shareholders want the directors to pursue those investment projects with the highest net present value regardless of their volatility. This article challenges these assumptions and argues that the business judgment rule might not be desirable in some jurisdictions outside the United States and even …