Securities Law Commons^™

Taxation- Federal Income Tax-Status Of Stock-For-Stock Exchange Where Boot Is Involved, Roger B. Harris S. Ed

Michigan Law Review

Taxpayer was the sole stockholder of International Dairy Supply Company. In 1952, Foremost Dairies, Inc. acquired from taxpayer all his stock in Supply Company in exchange for 82,375 shares of Foremast's common stock and 3,000,000 dollars cash. Taxpayer reported as gain from the transaction only the 3,000,000 dollars "boot" received, less allowable expenses. The Commissioner determined a deficiency of 278,823 dollars, asserting that the nonrecognition provision of the 1939 Code counterpart of section 356 (a) (1) was inapplicable and therefore taxpayer's entire gain realized on the disposition must be recognized. The Tax Court upheld taxpayer's contention that by virtue of …

Regulation Of Business - Sec Rule X-10b-5 - Recovery By Corporation Fradulently Induced To Issue Shares, William S. Bach

Michigan Law Review

Defendants, Mountain States Securities Corporation and former officers of Consolidated American Industries, Inc., organized a dummy corporation, the Mid-Atlantic Development Company. The defendants drew a formal contract whereby Mid-Atlantic agreed to transfer worthless Cuban insurance company stock and equally valueless Honduran oil exploration rights to Consolidated in exchange for 700,000 shares of Consolidated stock. Consolidated's former secretary falsely certified a corporate resolution authorizing the issuance of the stock, and its former general counsel advised Consolidated's stock transfer agent that the transaction was exempt from SEC regulation. Acting on these representations, the transfer agent issued the Consolidated stock. Since at this …

Federal Antitrust Law - Stockholders' Remedies For Corporate Injury Resulting From Antitrust Violations: Derivative Antitrust Suit And Fiduciary Duty Action, William Y. Webb S.Ed.

Michigan Law Review

The question of what remedies are available to a stockholder whose corporation has been injured or is threatened with injury by acts violative of the federal antitrust laws is largely unexplored. The staggering fines suffered by a number of corporations in the recent electrical industry criminal antitrust convictions demonstrate, however, that the question is both timely and important. Moreover, its answer could have a great impact both upon the means of protecting corporate minority rights and upon the means of private enforcement of the federal antitrust laws. The stockholders' derivative suit affords two remedies which deal with these two points …

Tingle: The Stockholder's Remedy Of Corporate Dissolution, Hugh L. Sowards

Michigan Law Review

A Review of The Stockholder's Remedy of Corporate Dissolution. By James O'Malley Tingle

Forming A Subsidiary In The European Common Market, Alfred F. Conard

Michigan Law Review

The appearance of a new market which is open to free enterprise and contains almost as many customers as the United States has opened immense opportunities to American enterprises, with their unique experience in mass production and mass marketing. General counsel for large American enterprises are confronted with a new need for some understanding of the problems of organizing subsidiary companies in this new market. The present article is written to supply an introduction to the legal factors which bear on solutions of these problems.

Trusts - Principal And Income - Apportionment Under Pennsylvania Rule Of Stock Dividends Based On Capital Surplus, James H. Devries

Michigan Law Review

Under the terms of a trust established in New York in 1915 income was to be paid to a beneficiary for life and upon his death the principal was to be distributed to certain descendants of the settlor. Two extraordinary stock distributions were received by the trust during the life of the income beneficiary. In issuing the additional shares each of the corporations had transferred to capital stock account its entire capital surplus and sufficient earned surplus to support the additional shares at their par value. At the time of creation of the trust New York applied the Pennsylvania rule …

Stockholder Votes Motivated By Adverse Interest: The Attack And The Defense, Earl Sneed

Michigan Law Review

It is the purpose of this article to study stockholder votes motivated by adverse interest from the standpoint of the attack and the defense. First, the remedies available to the complaining minority are examined. Then follows a study of the indicia of adverse interest in specific shareholder actions. Knowledge of the nature and import of these indicia should enable the careful lawyer to avoid or defeat the charge that unconscionable adverse interest vitiated the result of a stockholder vote.

Antitrust Laws- Judicial Relief For Violations Of Section Seven Of The Clayton Act - Disenfranchisement In United States V. E. I. Du Pont De Nemours & Co., Barbara B. Burt S. Ed.

Michigan Law Review

This comment will approach section 7 relief questions and solutions primarily in the light of du Pont's unique facts, which included a vertical stock acquisition made thirty years before the judicial proceeding plus the complicating factors of vast financial interests, numerous innocent investors and several corporate interrelationships. Thereby were posed complex problems regarding (1) parties to the relief determination, (2) interests to be affected by the decree and (3) the manner of affecting those interests.

Corporations - Amendment Of Articles Of Incorporation - Power Of Majority To Require Holders Of Redeemable Preferred Stock To Accept Bonds Instead Of Money In Redemption, Clayton R. Smalley

Michigan Law Review

Plaintiffs owned 6 percent cumulative convertible prior preferred stock in defendant corporation. The stock had a stated value of $100 per share, and was redeemable at the option of the corporation at $115 per share plus accumulated dividends. By vote of more than two-thirds of the outstanding shares of each class of stock issued, defendant's articles of incorporation were amended to authorize its board of directors to redeem the prior stock at $120 per share, payable in the company's 5 percent 30-year debentures. Interest on the debentures was to be cumulative, paid out of earnings, and subordinated to the other …

Administrative Law - Powers Of Agencies - Right Of Registrant To Withdraw Registration Statement Filed With The Securities And Exchange Commission, John Edward Porter

Michigan Law Review

Petitioner filed a registration statement with the Securities and Exchange Commission for an issue of corporate stock. Shares of the same class as those being registered were widely held by members of the public. Petitioner repeatedly amended the statement, so that it had not yet become effective nearly three months after the initial filing. At this time, petitioner sought to withdraw its registration statement. The commission denied the application for withdrawal, and after a hearing, issued a stop order, preventing the statement from becoming effective and indicating its unreliability. On petition for review of the order, held, affirmed. Where …

Constitutional Law - Due Process - Retroactive Application Of Uniform Principal And Income Act, Thomas E. Kauper S.Ed.

Michigan Law Review

The trustee of a trust created prior to the 1957 enactment of the Uniform Principal and Income Act petitioned for instructions as to whether a stock dividend received by it subsequent to the passage of the act should be allocated to principal or income. The Uniform Act provides a rule for the treatment of stock dividends contrary to the judicial rule previously adopted in Wisconsin, and is expressly made applicable to trusts existing on its date of enactment. The county court, finding the act could not be constitutionally applied to trusts created prior to its enactment, ordered the allocation of …

Setting The Price In An Close Corporation Buy-Sell Agreement, David Keith Page

Michigan Law Review

The stockholders of a close corporation may consider it important to keep control of the business "within the family." This can be accomplished through a restrictive agreement, typically one which gives the corporation or the remaining stockholders a first option to purchase the shares of any departing stockholder. The original owners may also wish to guarantee themselves a ready purchaser for their stock when they die or leave the business. This second objective can be attained by adopting a restrictive agreement which places an obligation on the departing stockholder to sell to the corporation or to the surviving stockholders, who …

Trusts - Construction - Distinction Between "Stock Dividends" And "Stock Spit" For Allocation Purposes, Roger W. Findley S.Ed.

Michigan Law Review

In 1918 a settlor created two identical trusts, the corpus of each consisting of 300 shares of General Electric no-par common stock. The income was to go to life beneficiaries, and at their deaths the principal was to revert to the settlor or his residuary estate. The trust instrument directed the trustee to transfer to the settlor or his executor, "free of all trusts hereby created, any and all stock dividends .... " In 1954 the corpus of each trust included 1200 shares of G.E. no-par stock with a stated value of $6.25 per share, there having been two stock …

Federal Taxation - Tax Aspects Of Corporate Buy And Sell Agreement, Joel D. Tauber S.Ed.

Michigan Law Review

It is the purpose of this comment to consider the tax problems connected with both types of "conventional" corporate buy and sell agreements. It should be recognized, however, that there are many questions of local law and business necessity that also exert influence on the use of such agreements.

Corporations - Compensation Of Management - Bonus Plan, Sidney Buchanan

Michigan Law Review

Defendant corporation's board of directors adopted a profit-sharing retirement plan which was never ratified by the shareholders. The plan assigned to key employees "units" having a fixed dollar value equal to the current market value of the corporation's common stock. The company promised to pay each unit holder, upon termination of employment, a sum equal to the number of units held times the increase in market value of the stock from the time the units were issued to the date employment terminated or any date within five years thereafter selected by the employee. The right of each unit-holder to receive …

Choka: An Introduction To Securities Regulation, Laylin K. James

Michigan Law Review

A Review of An Introduction to Securities Regulation. By Allen D. Choka

Loss & Cowett: Blue Sky Law, Homer D. Crotty

Michigan Law Review

A Review of Blue Sky Law. By Louis Loss and Edward W. Cowett.

Corporations - Derivative Suits - Stockholder Demand As Condition Precedent, W. Stanley Walch S.Ed.

Michigan Law Review

A derivative suit alleging directors' fraud was brought by a minority shareholder, but there was no allegation of a demand for relief having been made on the corporation's stockholders prior to bringing the suit. The plaintiff did allege, however, that it was useless and impossible for him to make demand on the stockholders because the complaint charged directors' fraud which was a void act beyond the power of the stockholders to ratify, and secondly because it would be highly unreasonable to require plaintiff to make a demand for relief on more than 100,000 stockholders of the corporation. Delaware Chancery Rule …

Bonds - Income Bonds - Rights Of Bondholders And Deductibility Of Interest For Federal Income Tax Purposes, Guy B. Maxfield S.Ed., Michael M. Lyons S.Ed.

Michigan Law Review

An income bond is an obligation of a corporation on which interest is payable only out of earnings, as distinguished from the ordinary corporate bond on which interest is a fixed charge regardless of earnings. Long regarded as a hybrid security which is to be issued only as a last resort, income bonds have grown surprisingly in popularity over the past two decades. It is the purpose of this comment to consider the historical background of income bonds, to make a comparative analysis of the bond indentures as they affect investors' rights, and to consider the deductibility of income bond …

A New Deal For Fiduciaries' Stock Transfers, Alfred F. Conard

Michigan Law Review

For nearly one hundred years, executors and administrators have been struggling with the excessive documentation which corporations demand as a condition of recording stock transfers. For almost as long, legislatures have been passing laws in the hope-generally vain-of alleviating the burden.

In 1957, at least three states (and possibly four) opened a door through which estate representatives can emerge from their long bondage. For the first time, identical acts were passed in different states, and interstate recognition of simplification measures began. For the first time acts were passed which get to the root of the transfer agent's problem.

Fiduciary Administration - Nominee Statutes - Transfer Of Securities Held For The Benefit Of Another, Joseph T. De Nicola

Michigan Law Review

Michigan is the forty-second jurisdiction to enact a nominee statute. Nominee statutes authorize a fiduciary to nominate a third person to hold stock or securities in the third person's name without giving notice on the stock certificate or on the transfer books of the corporation of his qualified ownership. For the most part it has been assumed that these statutes would facilitate a more rapid transfer of securities. It is the purpose of this comment to compare and analyze these statutes and to determine whether they are the most effective means of accomplishing the end they are intended to serve.

Corporations - Stock Transfer - Enforceability Of Restrictions On Right Of Transfer When Not Stated On Certificate, L. Ronald Modlin

Michigan Law Review

A by-Iaw of defendant corporation provided that no stockholder could sell his shares unless he first offered them for sale to the corporation or its directors. The by-law also stated that this restriction should be printed on the stock certificates and would thereupon bind all present or future owners or holders. The corporation never complied with this latter provision. Plaintiff, having knowledge of the by-law restriction, purchased two shares of the corporation's stock, but these shares were not first offered for sale to the corporation or its directors. When the corporation refused to transfer the shares, plaintiff sued to compel …

Regulation Of Business - Securities Act Of 1933 - Sec Loses Fight To Regulate Variable Annuity, William J. Wise S.Ed.

Michigan Law Review

The defendant, Variable Annuity Life Insurance Company, regulated as a life insurance company by the District of Columbia, issued a contract which it termed an annuity, but which differed from a conventional annuity in certain important respects. Ordinary annuity premiums are invested in debt securities while the premiums paid on the variable annuity are invested in common stocks. Further, instead of benefit payments in fixed dollar amounts, the variable annuity's benefits fluctuate since the value of the fund from which they are paid is affected by changing stock prices and dividend policies. The SEC, claiming these provisions brought the contract …

Corporations - Capital And Stock - Applicability Of Restrictions On Transfer Of Stock To Transfer Caused By Death, Robert P. Luciano

Michigan Law Review

The stock of the Taylor Trunk Company, with the exception of the two shares now in controversy, was divided equally between two brothers, the remaining two shares having been held by a third brother now deceased. A by-law provided: "That no transfer or sale of the stock of the Company can be made without first offering said stock for sale to the remaining stockholders. . . ." The administrator with will annexed and the legatee of the decedent sought in this action to have the two shares of stock owned by decedent at his death transferred on the books of …

Corporations - Shareholders - Delegation Of Director's Principal Duties Insufficient To Invalidate A Voting Trust, Gerald D. Rapp

Michigan Law Review

The directors of an intermediate unit in a string of holding companies caused the corporation's sole substantial asset, the stock representing control of a subordinate holding company, to be deposited in a voting trust. Most of these directors, serving one-year terms, comprised the majority of the trustees who were to serve for the life of the ten-year trust. This act served to insulate the lower companies from the control of plaintiffs who were majority shareholders of the top holding company. The plaintiffs sought an injunction restraining the use by the trustees of the stock controlled by the trust to effect …

Executive Compensation And Federal Securities Legislation, Myer Feldman, V. Henry Rothschild

Michigan Law Review

In this article we first consider the type of compensation plan or arrangement which must be registered with the Securities and Exchange Commission. We shall then outline the requirements for disclosing the plan and its terms, as imposed by federal securities legislation and administrative regulation thereunder.

Corportations - Cumulative Voting, Classified Boards And Proportional Representation, William R. Luney S.Ed.

Michigan Law Review

In two recent decisions, Wolfson v. Avery and Janney v. Philadelphia Transportation Co., a constitutional provision guaranteeing to every corporate shareholder the right to cumulate his votes in an election of directors was construed in light of a statute authorizing the classification of directors and the election of only one class annually. In both, it was argued by a minority shareholder that the constitutional provision guaranteed him representation on the board proportional to his stock holdings, and that the classification statute, authorizing a reduction of the number of directors to be elected at each election, required a greater number …

Corporations - Liquidation Upon Deadlock In Closely-Held Corporation - Interpretion Of Wisconsin Statute, Strong V. Fromm Laboratories,, Paul Komives

Michigan Law Review

Plaintiff, as trustee of an estate, held fifty percent of the shares of a going corporation. An election to fill all four positions on the corporation's board of directors was held. Since a by-law required that directors be shareholders, plaintiff was the only member of his own faction for whom he could vote. The opposing faction, holding the remaining fifty percent of the shares, had four eligible candidates. Votes for each of the four were cast, with one receiving one vote less than the other three. Plaintiff voted all of his shares for himself and also cast a vote of …

Federal Jurisdiction - Securities And Exchange Commission - Application Of Rule X - 10b-5 To Transactions Involving Non-Securities, Richard Singer

Michigan Law Review

Plaintiff brought an action for damages and the cancellation of certain instruments under section 10 (b) of the Securities Exchange Act of 1934 and rule X-10B-5 promulgated thereunder by the Securities and Exchange Commission. She proved a series of interrelated acts which took place over a period of months by which the defendants fraudulently deprived her of both securities and other property. The defendants objected to the jurisdiction of the district court on the ground that rule X-10B-5 was not applicable to transactions involving non-securities. The district court retained jurisdiction on the theory that all of the acts complained of …

Corporations - Appraisal Statutes - Elements In Valuation Of Corporate Stock, John C. Baity

Michigan Law Review

The purpose of this comment is to consider the elements of stock valuation generally applicable under the statutory appraisal remedies, and to analyze in some detail the interpretation of such a statute in one jurisdiction-Delaware.