Class 5 Wrap Up and Takeaways GSB 42201: The Legal Infrastructure of Business Entity Choice; Director Duties; Securities Markets Randal C. Picker Leffmann Professor of Commercial Law The Law School The University of Chicago Copyright © Randal C. Picker. All Rights Reserved.
Entity Attributes Limited Liability: Creating It and Waiving It Non-recourse debt as contractual limited liability Consensual creditors can agree to limits or seek waivers of limited liability devices through personal guarantees Non-consensual creditors bear the downside of limited liability devices like corporations and other entities January 18, 2016The Legal Infrastructure of Business. Copyright © Randal C. Picker.2
Entity Attributes Benefits of Limited Liability Makes possible greater separation of ownership and control Investors can easily invest in many enterprises which facilitates diversification Investors need not worry about wealth of fellow investors January 18, 2016The Legal Infrastructure of Business. Copyright © Randal C. Picker.3
Entity Attributes Entity Creation and Taxation Creation of corporation creates possible problem of double incidence of taxation with taxes at both the corporate level and the individual level New entity types such as LLCs often get benefit of partnership-style pass-through taxation January 18, 2016The Legal Infrastructure of Business. Copyright © Randal C. Picker.4
Entity Attributes Entity Governance Control Default terms vs. mandatory terms January 18, 2016The Legal Infrastructure of Business. Copyright © Randal C. Picker.5
Van Gorkum The Limits of Fiduciary Duties for Officers and Directors Rare case of liability for breach of duty of care Pretty extreme facts required for liability finding Delaware immediately amended corporate law to give corps option of limiting possible liability in these circumstances January 18, 2016The Legal Infrastructure of Business. Copyright © Randal C. Picker.6
Securities Law Key Distinction between Insiders and Outsiders Insider trading regulates opportunities for insiders to take advantage of outsiders An asymmetric information situation Outsider-to-outsider symmetric info situations should be treated quite differently January 18, 2016The Legal Infrastructure of Business. Copyright © Randal C. Picker.7
Securities Law Basic v. Levinson Adopts probability and magnitude framework for evaluating disclosure choice regarding mergers “In a subsequent decision, the late Judge Friendly, writing for a Second Circuit panel, applied the Texas Gulf Sulphur probability/magnitude approach in the specific context of preliminary merger negotiations. January 18, 2016The Legal Infrastructure of Business. Copyright © Randal C. Picker.8
Securities Law “We agree with that analysis.” Class Actions, Common Facts, Reliance and Fraud-on-the-Market Key idea here is that class members need to have sufficient commonality to maintain class status With individualized reliance inquiry, this would be hard to do January 18, 2016The Legal Infrastructure of Business. Copyright © Randal C. Picker.9
Securities Law Fraud-on-the-market theory “solves” this problem All traded in market where information was reflected in market price giving rise to deemed universal reliance January 18, 2016The Legal Infrastructure of Business. Copyright © Randal C. Picker.10