THE MULTINATIONAL ENTERPRISE LECTURE NOTES Professor Jasper Kim IBL-DIS

MULTINATIONAL ENTERPRISES – (MNE) JURIDICAL ENTITY : LEGAL ENTITY WITH “CORPORATE PERSONALITY” CREATED BY LAW (USUALLY DOMESTIC LAW) Entities that have “legal identities” separate from their “owners” 1. Owner’s liability limited to their investments 2. Legal rights and day-to-day management decisions belong to “Company/Entity” (not the Owners) IBL-DIS

MNE ENTITY TYPES: BUSINESS ORGANIZATION TYPES: PARTNERSHIP: COMPANY OF 2 OR MORE PERSONS WHO ARE EACH LIABLE TO THE FULL EXTENT OF THEIR PERSONAL ASSETS LIMITED LIABILITY COMPANY (LLC): company that is a corporation, but is treated as a partnership for tax purposes. Provides limited liability for owners (shareholders) Avoids corporate taxation Must file annual report (since it is a corporation) IBL-DIS

MNE ENTITY TYPES: LIMITED PARTNERSHP: partnership with 1 or more General Partner (with unlimited liability) and 1 or more Limited Partners (with limited liability) BUSINESS TRUST: arrangement whereby owners of assets transfer legal title to such asset to a Trustee. Trustee manages assets for owners. Beneficiaries hold transferable trust certificates (to income and residual equity share) Trustee: unlimited liability; Beneficiaries: limited IBL-DIS

MNE ENTITY TYPES PUBLIC CORPORATION: corporation that raises funds in the financial markets through sale of shares (equity), debt (bonds). Financial statements must be public PRIVATE CORPORATION: corporate that may not seeking financing in the financial markets. Subject to less disclosure requirements than a Public Corporation. IBL-DIS

TERMS: MEMORANDUM OF UNDERSTANDING (MOU): legal instrument creating and describing the basic details of a corporate entity Filed with state agency at incorporation ARTICLES OF INCORPORATION (AOI): legal instrument describing internal regulations of entity (ie, what the entity can and cannot do) DIVIDEND: DISTRIBUTION OF RETAINED EARNINGS TO SHAREHOLDERS IBL-DIS

QUESTION Q: MUST DIVIDENDS ALWAYS BE GIVEN TO SHAREHOLDERS IF THE COMPANY MAKES A PROFIT (IE, HAS RETAINED EARNINGS)? IBL-DIS

COMMON LAW BUSINESS FORMS PAR SHARES: shares that may be sold for a specified predetermined “face” or “par” value – this value amount becomes part of company’s capital base (opposite: no par shares) DEBT INSTRUMENT (BOND): legal obligation to make fixed payments over fixed time periods (ie, principal plus interest) EQUITY (SHARES): partial ownership interest of the issuing company PREFERRED SHAREHOLDERS: Has priority over common shareholders in event of liquidation COMMON SHAREHOLDERS: IBL-DIS

PUERTO RICO V. RUSSELL & CO. ET AL. FACTS: ISSUE 1: WHETHER RUSSELL IS A JURIDICAL ENTITY/CORPORATION OR LIMITED LIABILITY ENTITY IN SUBSTANCE? ISSUE 2: WHETHER A JURIDICAL ENTITY (CORPORATION IN SUBSTANCE) DOMICILED IN PUERTO RICO CAN HAVE FEDERAL JURISDICTION IN US COURTS? IBL-DIS

COMMON LAW CORPORATIONS 3 TYPES: PUBLIC CORPORATION PRIVATE CORPORATION LIMITED LIABILITY COMPANY IBL-DIS

2. PRIVATE CORPORATION CORPORATION TYPE THAT MAY NOT ASK THE PUBLIC TO SUBSCRIBE TO ITS SHARES, BONDS, OR OTHER SECURITIES AND THAT IS SUBJECT TO LESS STRINGENT PUBLIC DISCLOSURE LAWS THAN A PUBLIC CORP. CUMULATIVE VOTING: DIVIDENDS: IBL-DIS

3. UNLIMITED LIABILITY CORP (IN UK, NOT US). MEMBERS ARE LIABLE IN THE EVENT THAT IT IS WOUND UP AND ITS ASSETS ARE INSUFFICIENT TO COVER ITS DEBTS. NOTE: CORPORATIONS AND CERTAIN OTHER COMPANIES ARE JURIDICAL ENTITIES THAT HAVE LEGAL IDENTITIES SEPARATE FROM THEIR OWNERS. RAMIFICATIONS: IBL-DIS

CASE 4-2: BARCELONA TRACTION, LIGHT AND POWER CO FACTS: ISSUES:DOES THE STATE OF THE SHAREHOLDERS OF A COMPANY HAVE A RIGHT OF DIPLOMATIC PROTECTION IF THE STATE WHOSE RESPONSIBILITY IS INVOKED IS NOT THE NATIONAL STATE OF THE COMPANY – HOW CAN WE PUT THIS ISSUE IN ‘PLAIN ENGLISH’ (ie, “Whether….”)? RULE OF LAW: APPLY: CONCLUSION: IBL-DIS

MULTINATIONAL ORGANIZATION TYPES: PARENT COMPANY:.head office (HQ) for an MNE, that owns and controls its subordinate entities BRANCH: unit of a company, not separately incorporated REPRESENTATIVE OFFICE:contact point for referral to branch/parent, Does not conduct business and cannot generate revenue : IBL-DIS

HOLDING COMPANY:. Company owned by the Parent Company to supervise and coordinate operations of its subsidiary companies SUBSIDIARY:.company owned by a Parent Company. Unlike a Branch, it is separately incorporated JOINT VENTURE: association of companies working together relating to a business venture IBL-DIS

Dow Jones v. Gutnick FACTS: ISSUE: RULE OF LAW: APPLY: CONCLUSION: RATIONALE: IBL-DIS