1. 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 773.702.0864/r-picker@uchicago.edu Copyright © 2001-11 Randal C. Picker. All Rights Reserved.

2. 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 © 2001-12 Randal C. Picker.2

3. 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 © 2001-12 Randal C. Picker.3

4. 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 © 2001-12 Randal C. Picker.4

5. Entity Attributes Entity Governance Control  Default terms vs. mandatory terms January 18, 2016The Legal Infrastructure of Business. Copyright © 2001-12 Randal C. Picker.5

6. 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 © 2001-12 Randal C. Picker.6

7. 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 © 2001-12 Randal C. Picker.7

8. 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 © 2001-12 Randal C. Picker.8

9. 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 © 2001-12 Randal C. Picker.9

10. 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 © 2001-12 Randal C. Picker.10