Language III - First Half Summary

7/31/2019 Language III - First Half Summary

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Language III First Third

TEXTOS JURDICOS (Margarita Moschetti)

>El traductor del texto jurdico debe trabajar en dos niveles: en el de la terminologaespecfica y en el del discurso.

Algunas caractersticas de los textos jurdicos son:-Uso de construcciones impersonales y sujetos indefinidos.-Marcas negativas como nadie puede, nadie debe, etctera.-Marcas que expresan una obligacin: la parte est obligada a /deber.-Uso del presente indicativo para las acciones contemporneas con la celebracin del

acto (se conviene, se obliga) y del futuro del indicativo para las obligaciones emergentes.-Uso del modo subjuntivo para expresar diferentes posibilidades o hiptesis.-Designacin repetida del sujeto con el fin de evitar ambigedades.-Uso frecuente de un lenguaje figurado, como por ejemplo en frases como: descorrer el

velo societario, sociedad madre, venta de humo, hombre de paja.

-Uso de trminos y expresiones derivadas del latn.

>Jean-Claude Gmar: En toda lengua existe un nudo duro de trminos como fruto deuna larga tradicin. Las lenguas de especialidad tienen un vocabulario de apoyo y unvocabulario general. Los trminos son elementos caracterizados por una referencia especialdentro de una disciplina; el resto son simplemente palabras que funcionan como referentesgenerales.

BUSINESS ORGANIZATIONS: USA

*Unit 36: Sole Proprietorships and Partnerships

>Sole proprietorship: They are formed by one single proprietor.-Advantages: The owner has complete control over the business; he may keep

all of the profits made by the sole proprietorship; this business is simple to begin and end.-Disadvantages: The business existence depends entirely upon the sole

proprietor; owners of sole proprietorships often find it difficult to raise a lot of cash quickly forexpansion purposes.

>Partnerships: The Uniform Partnership Act (UPA) defines partnership as anassociation of two or more persons to carry on as co-owners of a business for profit. The sharingof profits is considered prima facie evidence of the existence of a partnership. Partners alsoshare losses. Unlimited liability characterizes partnerships, but it is possible to stipulate in agiven contract that non-partnership property will never be used to satisfy a debt arising out of

the agreement.-Entity theory: A partnership exists as an individual unit with its own identity.-Aggregate theory: The partnership is seen simply as an assembly or a

collection of partners who do business together.-Partnership formation:>By contract: There must be a written agreement establishing the partnership

(partnership agreement or articles of partnership). Contents: name and duration of thepartnership, amount of capital, amount of reserve funds, location and withdrawal, duties ofpartners, location of accessibility of a full and accurate account of partnership transactions,times and amounts each partner is entitled to withdraw from partnership earnings, provisions forthe preparation of an annual balance sheet and income statement and the distribution of net

profits or net losses between partners, limitations on partners, termination notice procedure.>By proof of existence: If one party claims that a partnership exists and the

other party denies its existence, the court will look at a series of elements to solve the problem.


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When a share is paid as repayment of a debt, as wages to an employee or rent to a landlord, asan annuity, as interest on a loan, as consideration for the sale of goodwill they are notconsidered proof of existence of a partnership.

>By estoppel: When an individual says or does something that leads a thirdparty to the reasonable belief that a partnership exists, then the partnership is considered to existonly for the purpose of defending innocent third parties.

-Acquisition of partnership property: Capital contributions are sums that arecontributed by the partners as permanent investments and that the partners are entitled to havereturned when the partnership is dissolved.

-Partners rights, duties, and liabilities (they are determined by the UPA and thepartnership agreement):

>Tenancy in partnership: co-ownership of the partnership property. Eachpartner has a property interest in specific terms of partnership property. This tenancy ischaracterized by an equal right with partners to possess and use specific partnership property for

partnership property. A partners interest in partnership property may not be assigned to a non-partner; partners rights in partnership property are not subject to attachment [secuestro] forpersonal debts or claims against the partners themselves. A deceased partners interest in real

property held by the partnership passes to the surviving partners [sucesin de intereses entremiembros vivos].>Interest in the partnership (economic interest in the firm (share of profits and

surplus [utilidades])): In principle, it is shared equally. This interest can be assigned: suchassignment does not imply any right to participate in the administration of the partnership.

>Management rights: Decisions are made by a majority vote: when decisionscannot be made, the partnership must be dissolved. Decisions to be made unanimously that have

been outlined by the UPA include: admitting a new partner to the firm, disposing of the firmsgoodwill, submitting a partnership claim to arbitration, using partnership property as collateral,and selling or otherwise disposing of the partnerships real property.

>Right to the books and accounting (statement detailing financial transactionsof the partnership and the status of its assets). Partnership books must be available for the

inspection of all partners (and the corresponding copy).>Fiduciary duties: Partners are fiduciaries to one another. Each partner has a

duty to act in the highest good faith, fairness, and trust when conducting partnership business.>Liabilities: The liability for torts committed by a partner or an employee of the

partnership is joint and several. Partners who commit crimes are separately liable. Partners arejointly liable on all contractual obligations of the partnership.

-Dissolution of partnership: According to the UPA, dissolution of partnership isa change in the relation of the partners caused by any partner ceasing to be associated in thecarrying on of the business. The winding up involves completing all ongoing business andselling the partnership property to obtain cash to satisfy all debts owed by the firm.Termination puts the firm out of business.

-Methods of dissolution:

>By acts of the partners: By the termination of a time period specified in theagreement; the occurrence of an agreed-upon event; the completion of a purpose; partnersdecision (partnership at will); expulsion of a partner.

>By operation of law: When one of the partners dies or when he is inbankruptcy or when then partnership is in bankruptcy.

>By court decree: It must reflect irreparable differences among the partners,incapacity of insanity of a partner, breach of agreement, or harmful behavior.

-Notice of dissolution: It must be explicit to people lending credit to thepartnership; and constructive for the rest: an advertisement in a newspaper. Before beingnotified, third persons who deal with a partnership are justified in continuing to deal with it intheir usual manner.

-Winding up of a partnership affairs: It involves the orderly sale of the partnershipsassets, the payment of creditors, and the distribution, if any, of the remaining surplus to the

partners according to their profit-sharing ratios. The liabilities of a partnership are ranked in the


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following order: 1) those owed to creditors other than partners; 2) those owed to partners forloans or advances made to the partnership; 3) those owed to partners as repayment for theircapital contributions; 4) those owed to partners for their share of profits, if any.


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>Registered Partnership Having Limited Liability (RPLL or PLL): Under statutory terms, thepartners in an RPPLL can escape joint and several liability by registering with the appropriatestate office.

Once an RPLL has been created, partners can no longer be held jointly or severallyliable for the torts committed by another partner or by an employee of the partnership.

>Limited Partnerships: The Revised Uniform Limited Partnership Act (RULPA) definesa limited partnership as a partnership [] having one or more general partners [who haveunlimited liability and manage the firm] and one or more limited partners [who arenonparticipating investors]. A limited partner who exercises too much control over partnershipaffairs will lose the protective mantle of limited liability. A failure to file a certificate of limited

partnership will deprive a limited partner of limited liability if third parties attempting to holdthe limited partner liable did not know that they were dealing with a limited partnership.

*Unit 37: Corporate Formation and Finance>A corporation is a legal entity (existing apart from its owners) created by either a state

or federal statute which authorizes individuals to operate an enterprise. The corporate formoffers limited liability to its shareholders. The legal status of the corporation is not affected bythe death, incapacity, or bankruptcy of an officer or shareholder. The corporation is directlytaxed on the income it earns.

>Types of corporations:-Private: Corporation formed by private persons to accomplish a task best undertaken. It

can be organized for profit-making purposes or for nonprofit charitable, education, or scientificpurposes.

-Public: More properly used to describe a corporation created by the federal, state, orlocal government for governmental purposes. Large private corporations which generally selltheir stock to the public at large may also be referred to as Public corporations.

-Quasi-public: It is privately organized for profit but also provides a service upon whichthe public is dependant.

-Domestic: Operates in the states granting the corporations charter.-Foreign: Operates in all other states by grant of the commerce clause of the U.S.

Constitution. For grant, it must obtain a certificate of authority by providing information similarto the information provided by a domestic corporation applying for a charter.

-Close: A business corporation may be designed as close corporation when theoutstanding shares of stock and managerial control are closely held by fewer than fiftyshareholders or by one person.

-S corporation: It avoids double taxation: shareholders have agreed to have the profits ofthe corporation taxed directly to them rather than to the corporation. The corporation must haveno more than 35 shareholders (who must be individuals rather than other business organizations;they must not be nonresident aliens); one class of stock only. Income and losses are dividedamong shareholders on a per share basis. Neither banks nor insurance corporations can becomeS corporations.

>Limited Liability Companies: They are best thought of as a cross between apartnership and a corporation. Like a corporation, the LLC offers the protection of limitedliability; but unlike them, they do not pay taxes, which fall to owners.

LLC may only come into existence if the owners follow the precise legislative steps(they are statutory). The owners of an LLC are called members; those managing them aremanagers.


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>Corporate Formation:-Promoters: People willing to begin a new corporation or willing to incorporate an

existing business are called promoters. They must act in the best interests of the newcorporation and its shareholders: they must be honest and loyal and fully reveal all informationabout any contract made.

-Preformation Contracts: A corporation is not bound by any of the promoters contractsunless it adopts them. Adoption occurs expressly if the directors pass a resolution agreeing to be

bound by a contract. Implied adoption occurs if the corporation accepts the benefits of acontract or makes any payments called for by the agreement.

-Novation: It is a contract entered into by the newborn corporation and the parties to thecontracts adopted by such corporation, who both agree to release the promoters from anyliability.

-Articles of Incorporation: The articles of incorporation are the written application to thestate for permission to incorporate. This written application is prepared by the corporationsincorporators the articles, together with the status of incorporation, represent the legal

boundaries within which a corporation must conduct its business. Some state incorporationstatutes are very strict, requiring detailed information in the articles of incorporation, i.e. the

corporations name, the duration, the purposes, the number and classes of shares, theshareholders rights in relation to shares, classes of shares, and special shares, the shareholdersright to buy new shares, the addresses of its original registered office and its original registeredagent, the number of directors plus and addresses of the initial directors, each incorporatorsname and address.

-Corporate Name: A corporates name features the words or an abbreviation of thewords corporation, company, or incorporated. The corporation cannot choose a name that wouldconfuse the new corporation with one already in existence it is also possible to reserve a name.

-Approval of articles: After the articles of incorporation are submitted to the state, theappropriate state officer, often the secretary of state will also make certain that all filling feeshave been paid and that a registered office and a registered agent (individual designated toreceive service of process when a lawsuit is filed against the corporation) have been appointed.

The charter, or certificate of incorporation, is the corporations official authorization to dobusiness in the state. With the issue of the charter, the corporation becomes a fully and legallyincorporated entity.

-Commencement of business: Most state statutes provide that the first order of businessupon incorporation is the holding of an organizational meeting.

In addition to the appointment of the first directors, the adoption of bylaws (rules thatguide the corporations day-to-day internal affairs; they usually stipulate the time and place ofshareholders and directors meetings, quorum requirements, qualifications and duties ofdirectors and officers and procedures for filling board vacancies), or regulations, also occurs atthe organizational meeting.

>Formation of an LLC: They require at least two persons.

-Articles of Organization: They are the written application to the state for permission toform an LLC. These articles must include the name of the LLC, the duration of the LLC, andthe address where the LLCs operating agreement and bylaws are to be kept. The name of theLLC must include the term Limited LLiability Company. A statutory agent for the service of

process must be named at the time that the articles are filed in the office of the secretary of state.Filing fees must also be paid.

-Operating Agreement: IT establishes the bylaws of the LLC. The operating agreementincludes the formation provisions, operating provisions, the nature of the business to beconducted by the LLC, the distribution of profits and losses, the powers of the managers, thevoting rights of the members, the admission and withdrawal procedures, the provisionsregarding the transfer of a members interest in the LLC, the provisions involving thetermination of the LLC. Adding a provision to the written operating agreement that there can beno oral modifications to that agreement can prevent such thing to happen inadvertently.


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>Defective Incorporation:-De Jure Corporation: A corporation whose existence is the result of the incorporators

having fully or substantially complied with the relevant corporation statutes is a de jurecorporation. Its status as a corporation cannot be challenged by private citizens or the state.

-De Facto Corporation: Sometimes an error is made in the incorporation process. In thiscase the corporation does not exist legally. But as long as certain conditions have been met, a defacto corporation will exist: a valid state incorporation statute must be in effect, the parties musthave made a bona fide attempt to follow the statutes requirements for incorporation; the

business must have proceeded as if it were that of a corporation. Only the state can challenge theexistence of a de facto corporation.

>Corporation by Estoppel: If a group of people act as if they are a corporation when infact and law they are not, any parties who have accepted that counterfeit corporations existencewill not be allowed to deny that acceptance. Similarly, individuals who acted as if they were acorporation will not be able to deny that the corporation exists. Corporations by estoppels do notcreate a real corporation: it is only a legal fiction used by courts to prevent injustice.

>Piercing the Corporate Veil: Sometimes the court will disregard corporate status toimpose personal liability on those who have used the corporation to commit fraud or crimes orto harm the public. The court will pierce the corporate veil and hold the wrongdoers personallyliable for activities committed in the corporations name. Setting up subsidiaries to then commitfraud through them is also a reason for corporate veil piercing (which is determined by applyingthe instrumentality test.

>Failure to maintain an LLC: For tax purposes, an unincorporated entity will be treatedas a corporation if it exhibits at least three of the following:

-Continuity Existence: Those LLCs which have a perpetual existence and do notdissolve with the death, incapacity, retirement, bankruptcy, resignation, or expulsion of amember.

-Centralized management: When the LLC is manager-managed.-Freely transferable interests: The members of an LLC have freely transferable interest

only if they can assign all their rights, including financial rights and management rights, withoutthe consent of the other members.

-Limited liability: The only characteristic of the four that LLCs will always exhibit.

>Corporate Financing:>Classes of corporate stock:-Dividends: Declared and paid out of current corporate earnings or accumulated surplus

at regular intervals. The board of directors has the sole authority to determine the amount, time,lace, and manner of dividend payment. In a few instances, a distribution of earnings is made inshares of capital stock: stock dividend.

-Common stock: It is the most usual type of corporate stock. It carries with it all therisks of the business, inasmuch as it does not guarantee its holder the right to profits. Theshareholder is usually entitled to one vote for each share of stock held. The holders of commonstock are paid dividends when the corporation elects to make such a distribution. Holders ofcommon stock risk whatever they invest.

-Preferred stock: They have rights or preferences over other classes of stocks.Preferences generally involve the payment of dividends and/or the distribution of assets on thedissolution of the corporation. Preferred stock may be cumulative (dividends unpaid one yearwill be paid on the following year) or noncumulative (dividends unpaid one year will not be

paid afterwards).

-Stock valuation: Par value is the value that is placed on the shares of stock atincorporation. This value is stated on the corporations certificate of incorporation. Uninformed

buyers often interpret par value printed on the face of the certificate as the actual market value


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of the shares. To correct this condition, all states have authorized the issuance of no par valuestock (corporate stock that is issued without any stated price).

*Unit 38: Corporate Management and ControlThe business affairs of a corporation are managed by a board of directors elected by the

shareholders. Their obligation is to further the corporations business.Unless prohibited by the corporations certificate of incorporation, membership on the

board of directors can be extended to anyone. Directors are elected at the annual meeting ofshareholders. One third of the board is elected annually. 50-shareholders corporations mayeliminate the board of directors.

If any director is not notified of a special meeting, all actions taken at the meeting arevoid. It is necessary that a quorum exists; special quorums (more than 50% of the total) arerequired for special decisions.

Offices of the corporation are appointed to run affairs of the corporation: president,vicepresident, secretary, treasurer. Officers have the authority of general agents for the

operation of the normal business of the corporation.

>Corporate control theory:-Special interest group control: Many corporate decisions, such as a decision to open or

close a factory, affect the community through its consumers, suppliers, employees, andcommunity neighbors. All of these groups and more should be represented on the boards ofdirectors. Objection: it is impractical.

-State control: Because corporate decision making impacts upon more individuals andgroups than just the shareholders and the managers, those corporate decisions should be made

by an impartial group of corporate outsiders (government officials). Objections: socialistic andimpractical.

-Managerial control: The officers and the director of a corporation are in the best

position for judging not only the needs of the corporation are in the best position for judging notonly the needs of the corporation but also the needs of the community and the needs of societyat large. Shareholders would have a limited intervention. Objection: self-interest.

-Shareholder democracy: The shareholders have the right to run the corporation becausewithout their money the corporation would not be able to survive. Supporters of shareholderdemocracy would make management more responsive to shareholders by giving greater votingcontrol and by making it easier for them to take managers to court. Objection: shareholdersdecision is not an informed one.

*Shareholders voting control:

-One share of common stock equals one vote.

>Voting methods:-Cumulative voting: This system allows shareholders to multiply the number of their

voting shares by the number of directors to be elected. This procedure allows minorityshareholders an opportunity to be represented on the board of directors.

-Proxy voting: Proxy solicitation (also a document) is the process whereby oneshareholder asks another for his voting right.

-Voting trusts: A voting trust is an agreement among shareholders to transfer theirvoting rights to a trustee. Once a voting trust has been created, it cannot be ended until thespecified time period has run its course.

-Pooling agreement: A voting trust is an agreement among shareholders to transfer theirvoting rights to a trustee. Once a voting trust has been created, it cannot be ended until thespecified time period has run its course.


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-Pooling agreements: Voting agreements among shareholders. They differ from proxiesand voting trust because the shareholders retain control of their own votes. If a member of a

pooling agreement changes her vote, however, the other members may bring a lawsuit againstthe shareholder who broke the agreement.

-Shareholder Proposal: Shareholders can compel management to include their proposalsin managements proxy solicitation prior to the next shareholder meeting. The proposal should

be of less than 500 words and submitted 120 days before the meeting. The shareholder mustown at least 1 percent or $1,000 in market value of the voting stock.

>Shareholder suits:-Direct suits: Brought by shareholders who have been deprived of a right that belongs to them asshareholders.-Derivative suits: Allows shareholders to sue corporate management on behalf of thecorporation. The shareholders right to sue is derived from the corporate injury. One

prerequisite is the exhaustion of internal remedies. The shareholders must state the steps thatthey took to exhaust all internal remedies. In order to bring a derivative suit, a shareholder mustalso own stock at the time of the injury and at the time of the suit. State corporate laws also

require to pay a security deposit to cover the corporations potential expenses in defending thederivative suits.

>Management responsibilities:-Rules to judge conduct:

>The business judgment rule: The rule protects managers who act with due care and ingood faith, as long as their decisions are lawful and in the best interests of the corporation.

Reasoning presumption: Managers are in the best position to run the corporation; not asshareholders and judges.

>Fairness rule: Requires managers to be fair to the corporation when they personallybenefit from their business decisions. When contracting with the corporation. In the businessjudgment rule, managers do not profit from business decisions. Requirement: disclosure of

crucial information.

>Other shareholders rights:-Right to examine corporate records-Right to share in dividends; shareholders cannot force the directs to declare a dividend

unless the director are not acting in good faith in refusing to do so.-Right to sell and transfer shares of stock.-Preemptive rights: Shareholders have the right to purchase a proportionate share of

every new offering of stock by the corporation.

>Management of a limited liability company:-Members as managers: May become agents of the LLC.

-Outside managers: Limited power of decision.>Fiduciary duties: To the LLC and to the members of the LLC.

*Chapter 39: Government Regulation of Corporate Business

>Business and the constitution:Government regulation of business organizations>Based on>Police power: states

authority to restrict private rights in order to promote and maintain public health, safety,welfare, and morals (Art. I, Sect. 8, Clause 3 of the US Constitution). This power can alsoregulate business activity that affects interstate commerce.

The Securities and Exchange Commission (SEC) regulates the issuance of securities bycorporation. (Security: money investment that expects a return solely because of another

persons efforts.)


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Securities Act of 1933: Regulates the issuance of new securities by corporations andpartnerships. A registration statement (containing detailed information about the corporation;designed for experts of the SEC) and a prospectus (contains same information in a simplifiedform; designed for potential investors) must be filed with the SEC.

Securities Exchange Act of 1934: Deals with the subsequent trading in securities. Itrequires periodic reports of financial information concerning registered securities, and it

prohibits manipulative and deceptive actions in the sale and purchase of securities. Shareholderssolicit proxies must also follow strict reporting requirements.

>Antitrust regulation: Discourages monopolies (which have exclusive control of amarket) by a business enterprise.

-Sherman Anti-trust Act: Prohibits monopolization contracts, combinations, andconspiracies in restraint of trade.

-Per se violations (whether or not they harm anyone): Harm is presumed and thepractice is prohibited.

-Rule-of-reason standard: The rule-of-reason standard will stop certain practicesonly if they are an unreasonable restriction of competition.

-Post-Sherman Antitrust Legislation:-Clayton Act: Against specific business practices (e.g.: tying agreements,interlocking directorates serving as director for two competing corporations (at least one of thecorporations must have an aggregate worth; banks and common carriers are exempt)) that could

be used to create a monopoly.-Robinson Patman Act: Prohibits a seller from charging different prices to

different customers when such differences might injure competition.-Federal Trade Commission Act: Established the Federal Trade Commission.

Unfair methods of competition, and unfair or deceptive practices in or affecting commerce arehereby declared unlawful.

>Regulation of corporate expansion: The SEC is concerned with regulating the expansion itself,

while the FTC is more concerned with the effects of that expansion.-Expansion Techniques and Securities Law: Expansion techniques: Merger (one

corporation is absorbed by the other) and consolidation (both companies disappear and a newcompany carries on the business under a new name). Shareholders who do not wish to be a partof the merger. Written notice of a dissent is required so that the cost of purchasing thedissenters stock can be figured as a part of the expense involved in the merger.

-SEC regulation: Against false or misleading proxy solicitations; prohibition of takingadvantages of a secret.

-Asset acquisition: One corporation purchases all the property of a second corporation.No debts or other liabilities are transferred from seller to buyer. Exceptions: If a buyer is

simply a continuation of the selling corporation, the buyer will not escape the liabilities of theseller; If the sale is structured fraudulently to escape the liabilities of the selling corporation;

Expressed or implied assumption of liabilities; If despite its label as an asset acquisition, thesale is actually a merger, the liabilities will transfer to the buyer.

>Stock acquisition (takeover): Takeover bid: The suitor offers to buy the voting stock of thetarget. An unfriendly suitor is a hostile bidder, willing to shake up the corporation. The targetcorporation will look for a friendly suitor (white knight). Whenever a suitor makes an offer toacquire more than 5 percent of a target, that suitor must file a statement with the SEC(indicating origin of the money, reason of purchase, how much it is already owned.

-Falsification of information: Reason for takeover bid stopped by a court order.

>Expansion effects and Antitrust Law-Clayton Act (Section Seven): Forbids any corporate expansion if that expansion sets up

a monopoly or otherwise hurts competition.


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-Expansion attempts (closely scrutinized by the FTC):>Horizontal expansion: between companies in the same business.>Vertical expansion: purchase of a company of another link of the process.>Conglomerate expansion: Joins two companies that were not in competition with one

another. They deal different products; they operate in different geographical areas.

-Hart-Scott-Rodino Antitrust Act: Designed to police any expansion attempts that mightharm competition in the marketplace. For expansion matters, a notice of expansion attempt isrequired by the FTC, which then gets the chance to investigate.

>Energy Regulation:-Federal Energy Regulatory Commission: It is responsible for regulating the

transportation and the wholesale price of natural gas and electricity sold for use in interstatecommerce. Rates are calculated to allow companies a specific rate of return on investments.Fuel adjustment charges can be supported by customers.

-Nuclear Regulatory Commission (NRC): It is responsible for nuclear reactors:licensing, construction, operation; possession, use, and transportation of nuclear material.

>Environmental Protection Regulation: Carries out environmental laws.

>National Environmental Policy Act: Its purpose is to establish a national policy that willcombat pollution and improve the environment.

>Employment Regulation: Designed for employees protection.-Employee Retirement Income Security Act: Under its rules, workers are guaranteed the

right to receive their pension benefits regardless of whether they are working under the plan atthe time of retirement.

-Particular cases: Business sale or merger: Depends on the type:>Stock acquisition: Employee benefit plan assumed by purchasing corporation.

>Asset acquisition: Buyer may or may not (amendment of the plan possible)adopt plan.

>Alternative: New plan adoption.*The purchaser should examine pertinent records: annual report that is given to

all participants in the plan, all insurance and annuity contracts, all Internal Revenue Serviceforms associated with the benefit plan, as well as the writing that describes the plan.

-Worker Adjustment and Retraining Notification Act (WARN): Requires employerswith at least 100 full-time employees to give those employees sixty days notice (in writing)

before all plant closings and mass lay-offs.

*Government and Corporate Dissolution:>Involuntary Dissolution: Revocation of corporations charter under a quo warranto

proceeding. Grounds for revocation include a failure to file annual reports, a failure to payfranchise taxes, or a failure to maintain a registered or statutory agent for service of process; andalso fraudulent and ultra vires acts.

Involuntary dissolution can also be requested by a shareholder when there is evidence ofillegal, oppressive, or fraudulent acts, misapplication of waste of corporate assets, a deadlock ofdirectors; or simply to protect his rights.>Voluntary Dissolution: It can be brought by unanimous voting by shareholders; or with the

positive vote of directors with approval of two thirds of the shareholders. Once the decision ismade, a statement of intent must be filed (with the state). The corporation will then cease

business and notify creditors (by certified mail) and the public (by publication). Then creditorsmust be paid their credits and after that the surplus goes to the shareholders. If the existingassets cannot meet all claims, a receiver (person appointed by law to hold property subject todiverse claims) may be called in.


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*Dissolution of a Limited Liability Company:>Circumstances of dissolution are: 1) unanimous written agreement by members; 2) anythingcausing the members of an LLC to drop below two; 3) incompetency, death, expulsion,

bankruptcy, or resignation of a member; 4) a court decree ruling dissolution.>Effects of dissolution: Dissolution must be distinguished from the winding up process, whicheffectively puts the LLC out of business. The winding up process implies completing the LLC

business and the sale of the LLCs property to satisfy debts.

QUESTION: Difference among Dissolution, Winding up process, and Termination.

*Chapter 37: Corporations Formation and Financing (West):>Corporate profits are taxed by various levels of government: they are taxed before and

after becoming dividends to shareholders (double taxation). Consequences of a failure to paytaxes can be severe (corporations dissolution).

>The Bill of Rights guarantees persons certain protections, and corporations areconsidered persons in most cases. They have right to due process, to sue and to be sued, toliberty, property, as well as freedom from unreasonable searches and seizures and from double

jeopardy; they are entitled to freedom of speech. Only the corporations individual officers andemployees possess the Fifth Amendment right against self-incrimination.>A corporation can be held for the torts and criminal acts committed by its agents or

officers within the course and scope of their employment (agency relationships), provided thepunishment is one that can be applied to the corporation.

The US Sentencing Commission created the Federal Organizational CorporateSentencing Guideline, which consists of specific sentencing guidelines for crimes committed bycorporate employees. The corporate sentencing guidelines cover thirty two levels of offenses.The culpability score of a company depends on the role that senior management played in thealleged wrongdoing as well as the companys history of past violations and the extent ofmanagements cooperation with federal investigators.

>A corporation can engage in any act and enter into any contract available to a naturalperson in order to accomplish the purposes for which it was created. The express powers of acorporation are found in the US Constitution, the State constitutions and statutes, its articles ofincorporation and bylaws and the resolutions of the board of directors. The corporation has theimplied power to perform all acts reasonably appropriate and necessary to accomplish itscorporate purposes.

Acts of a corporation that are beyond its express or implied powers are ultra vires acts,normally contracts made for unauthorized purposes. However, when an ultra vires contract is

partially or fully executed at the time of challenge, courts may enforce them if it would beinequitable to allow a party to assert the defense of ultra vires. Under section 3.04 of theRMBCA, the following remedies are available for ultra vires acts: shareholders may sue on

behalf of the corporation to obtain an injunction or to obtain damages for the harm caused by

the transaction; the corporation itself can sue officers and director who were responsible for theultra vires transactions to recover damages; the attorney general of the state may institute a

proceeding to obtain an injunction against the ultra vires transaction or to institute dissolutionproceedings against the corporation for ultra vires acts.

>Classification of corporations:-Domestic: Within its home state.-Foreign: Formed in one state but doing business in another one (for what it is necessary

to obtain a certificate of authority).-Alien: Formed in another country but doing business in the US.

-Public: Formed by the government to meet some political or governmental purpose.-Private: Created either wholly or in part for private benefit. They are owned by private

persons, rather than by the government.


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-Non-profit: Formed for purposes other than making a profit.

-Close: Its shares are held by members of a family or by relatively few persons. There isno trade market for its shares. Its management usually resembles that of a sole proprietorship ora partnership.

-S: Close corporation meeting the qualifying requirements specified in Subchapter S ofthe Internal Revenue Code. It avoids the imposition of income taxes at the corporate level whileit retains many of the advantages of a corporation, particularly limited liability.

Requirements: The corporation must be a domestic corporation; it must not be amember of an affiliated group of corporations; its shareholders (who must not be more thanseventy-five or a non-resident alien) must be individuals, estates or certain trusts.

-Professional: Formed by professionals to obtain the advantages of incorporation.

*Chapter 38: Corporations Directors, Officers, and Shareholders (West)>Directors: They form the government organ of a corporation. They are sometimesinappropriately characterized as agents because they act on behalf of the corporation. Noindividual director, however, can act as an agent to bind the corporation; and as a group,directors collectively control the corporation in a way that no agent is able to control a principal.

>the number of directors is set forth in the corporations articles or bylaws. The firstboard of directors is normally appointed by the incorporators on the creation of the corporation,or else they are named by the corporation in the articles. Subsequent directors are elected by amajority vote of the shareholders. They normally hold office for a term of one year.

>A director can be removed for cause. Vacancies for death, resignation, or incapacitymay be filled by the board or by shareholders.

>The board of directors conducts business by holding formal meetings with recorded

minutes. Quorum requirements may vary among state. Voting is normally done in person: therule is one vote per director. Ordinary matters generally require a simple majority vote; certainextraordinary issues may require a greater-than-majority vote.

>Rights of directors:-Participation: The director must be notified of board of directors meetings so as to

participate in them. No notice of regular meetings is required.-Inspection: A director must have access to all of the corporate books and records to

make decisions and to exercise necessary supervision.-Compensation: Directors are often paid nominal sums as honorariums.-Indemnification: Most states permit a corporation to indemnify a director for legal

costs, fees, and judgment involved in defending corporation related suits.>Duties of directors:

-Authorization for major corporate policy decisions.-Appointment, supervision, and removal of corporate officers and other managerial

employees and determination of their compensation.-Financial decisions, such as the declaration and payment of dividends to shareholders

and the issuance of authorized shares and bonds.

>Officers: Corporate and managerial officers appointed by the board of directors act asagents of the corporation, and the ordinary rules of agency normally apply to their employment.Corporate officers and other high-level managers are employees of the company so their rightsare defined by employment contracts.

>Fiduciary duties: The relation between officers and directors, and shareholders and thecompany is one of trust and confidence and that is why they are called fiduciaries. Fiduciariesowe ethical duties to the corporation and the shareholders. They must exercise due care (the one


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that an ordinary person would exercise) in performing their duties (this implies good faith); dowhat is necessary to become informed to have the necessary information to make rightdecisions, which must be reasonable, as well as his duty to supervise. There is also a duty ofloyalty: personal interests must be subordinated to the welfare of the corporation. Officers anddirectors cannot compete with the corporation, usurp its opportunity, have an interest thatconflicts with the interest of the corporation, engage in insider training, authorize a corporatetransaction that is detrimental to minority shareholders, or sell control over the corporation.

>Liability of Directors and Officers: Under the business judgment rule, a corporatedirector or officer may be able to avoid liability for exercising poor business judgment, as longas their decisions comply with managements fiduciary duties (this requires an informed andloyal decision).

>Shareholders: They have an equitable interest in the firm. Shareholders must approvefundamental changes affecting the corporation before the changes can be implemented: they areempowered to amend the articles of incorporation and bylaws, approve a merger or thedissolution of the corporation, and approve the sale of all or substantially all of the corporations

assets; elect and remove directors.

>Shareholders Meetings: These must occur at least annually. Special meetings can becalled to deal with urgent matters. Shareholders must be notified of such meetings.

>Shareholders Voting: Common shareholders are entitled to one vote per share. Thearticles of incorporation can exclude or limit voting rights, particularly to certain classes ofshares.

A quorum must be present for shareholders to ac during a meeting. This condition ispresent when shareholders holding more than 50% of the outstanding shares are present.Corporate matters are presented in the form of resolutions that must be approved or disapproved

by shareholders. A majority vote of the shares represented at the meeting is usually required to

pass resolutions, but sometimes more than a simple majority vote is required.

>Shareholders rights:-Stock certificates: In jurisdictions that require the issuance of stock certificates,

shareholders have the right to demand that the corporation issue certificates and record theirnames and addresses in the corporate stock record books.

-Preemptive rights: A shareholder is given a preference over all other purchasers tosubscribe to or purchase a prorated share of a new issue of stock. These rights allowshareholders to maintain their portion of control, voting power, or financial interest in thecorporation.

-Stock warrants: Transferable options to acquire a give number of shares from thecorporation at a stated price.

-Dividends: Distribution of corporate profits or income ordered by the directors andpaid to the shareholders in proportion to their respective shares in the corporation; they can bepaid in cash, property, or stock of other corporations. Depending on state law, these may be paidfrom the following sources: retained earnings (undistributed net profits earned by thecorporation); net profits; surplus. When directors fail to declare a dividend, shareholders can aska court of equity for an injunction to compel the directors to meet and declare a dividend. Theshareholders must show that the directors have acted so unreasonably in withholding thedividend that their conduct is an abuse of their discretion.

-Inspection rights: Limited to inspection and copying of corporate books and records fora proper purpose.

-Transfer of share (by indorsement and delivery).-Rights on dissolution: Shareholders have the right to petition to court to dissolve the

corporation.


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-Shareholders derivative suit: Shareholders are permitted to sue in the corporate name.A wrong must have been done to the corporation and the shareholders must have stated theircomplaint to the board of directors: only if the directors fail to solve the problem or to takeappropriate action can the derivative suit go forward.

>Shareholders liability: Shareholders are normally not personally liable. But a courtmay pierce the corporate veil and hold shareholders individually liable for fraud,undercapitalization, or careless observance of the corporate business. In certain other instances,a shareholder can be personally liable:

-Illegal Dividends: Those paid inappropriately in order to cause the corporation tobecome insolvent.

-Stock-subscription Agreement: A shareholder can be held personally liable when hebreaches his contracts to sell his shares of stock.

-Watered Stock: That conformed of shares that are issued by the corporation for lessthan their fair market value.

>Majority Shareholders Duties: When majority shareholders own a sufficient number

of shares to exercise de facto control over the corporation, they have a fiduciary duty to thecorporation and the minority shareholders.

*Chapter 39: Corporations Merger, Consolidation, and Termination (West)>Merger: It involves the legal combination of two or more corporations. After the

merger, only one corporation continues to exist. After the merger, one of the corporations isrecognized as a single corporation possessing all the rights, privileges, and powers of itself andthe rest of the corporations. It becomes liable for all its debts and obligations.

>Consolidation: Two or more corporations combine so that each corporation ceases toexist and a new one emerges. In the process, the original corporations cease to exist and the newone accedes to all the rights, privileges, and powers previously held by the original corporations.The articles of consolidation take the place of the original corporations original corporate

articles and are thereafter regarded as the new corporations corporate articles.>Merger and Consolidation Procedures: The basic requirements for mergers and

consolidations are set forth in the Revised Model Business Corporation Act:(i) The board of directors of each corporation involved must approve a merger

or consolidation plan.(ii) The shareholders of each corporation must vote to approve of the plan at a

shareholders meeting.(iii) The plan is filed, usually with the secretary of state.(iv) The state issues a certificate of merger to the surviving corporation or a

certificate of consolidation to the newly consolidated corporation.-Short-form mergers: RMBCA provides a simplified procedure for the merger of a

substantially owned subsidiary corporation (90% or more) into its parent corporation. A short-

form merger can be accomplished without the approval of the shareholders of eithercorporation. The board of directors must approve of a plan for the merger and then send copiesto shareholders.

-Appraisal Rights: A shareholder has the right to dissent from a merger or consolidationdecision (by presenting a written notice of dissent) and be entitled to be paid the fair value forthe number of shares held on the date of the merger or consolidation (by making a writtendemand for payment and for the fair value of his shares).

>Purchase of assets: When a corporation acquires all or substantially all of the assets ofanother corporation by direct purchase, the purchasing corporation simply extends its ownershipand control over more physical assets. The corporation whose assets are acquired must obtainapproval from both its board of directors and its shareholders. The purchasing corporation is notliable for the responsibilities of the selling corporation unless this is what it impliedly orexpressly undertakes; the sale amounts to what in fact is a merger or a consolidation; the sale is


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fraudulently executed to escape liability; or when the purchaser retains the same business andpersonnel.

>Purchase of stocks: Purchase of a substantial number of the voting shares of its sock(corporate takeover) enables the acquiring corporation to gain control of the acquiredcorporation (target corporation).

-Tender offer: When the acquiring corporation makes a public offer to all shareholdersof the target corporation, it is called a tender offer. The price offered is generally higher than themarket price of the target stock prior to the announcement of the tender offer.

BUSINESS ORGANIZATIONS: UK

*Company Law (Cavendish)>Company: It is a separate person in law (Salomon v Salomon & Co Ltd); it can own

property, commit crimes and conclude contracts. It pays corporation tax as a separate entity.>Partnership: It is considered the sum total of the partners who make up the partnership

or firm. The tax is paid under the scheduler income tax system by the individual partners in thefirm.

>Advantages of incorporation: The registered company has access to limited liability,although there are indeed companies with unlimited liability that do not need to file annualaccounts. In contrast, partnerships are unable to limit the liability of all partners.

The company can separate ownership from control. As it is a separate entity, it may goon forever.

A company is able to mortgage all of its assets by way of a floating charge to secure aborrowing (e.g. from a bank); this mechanism is not available for a partnership.

Costs of incorporation are minimal. But there are hidden costs involved: those of settingthe company up and the annual on-going costs of preparing company accounts. There are

various company forms to be filed regarding management, issue of shares, debentures, andetcetera. The annual return has to be filed every year. The company is obliged to keep a registerof directors, a register of members, and one for charges.

According to the Companies Act 1985, partnerships may be formed by up to 20members. If more are willing to associate, they may do it in a company.

Companies must pay double taxation.

> Salomon v Salomon & Co Ltd: Salomon sold his shoes business to a company ownedby him and his family. Facing an economic crisis, he sold a debenture to Broderip, secured by afloating charge. When the business failed, Broderip sued to enforce his security and was paidwith liquidation. The liquidator counter-claimed that the debentures were invalid for beingissued as fraud: the liquidator claimed all the money back that was transferred when the

company was started: rescission of the agreement for the business transfer itself, cancellation ofthe debentures and repayment of the balance of the purchase money.

InBroderip v Salomon, Williams Justice said Broderip's claim was valid. The companyhad a right to indemnity against Salomon, as his agent. The Court of Appeal confirmedWilliams J's decision against Salomon, though on the grounds that he had abused the privilegesof incorporation and limited liability, which Parliament had intended only to confer on"independent bona fide shareholders, who had a mind and will of their own and were not mere

puppets". Lindley LJ held that the company was a trustee for Salomon, and as such was boundto indemnify the company's debts.

The House of Lords unanimously overturned this decision, rejecting the arguments fromagency and fraud. Lord Halsbury LC stated that the statute "enacts nothing as to the extent ordegree of interest which may be held by each of the seven [shareholders] or as to the proportionof interest or influence possessed by one or the majority over the others." Lord Herschell notedthat in recent years many companies had been set up in which one or more of the seven


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shareholders were "disinterested persons" who did not wield any influence over themanagement of the company. Anyone dealing with such a company was aware of its nature assuch.

>Types of companies:-Corporations aggregate:

>Chartered companies: They are created by grant of a royal chart, which createsthe company and sets out its purposes, for non-trading matters. Creditors must rely on thecompanys assets.

>Statutory companies: They are created by special Acts of Government. Theyare currently being nationalized. They normally provide public utilities under authorizedmonopolies.

>Registered companies: They are incorporated merely by regulation in themanner laid down by the Companies Act. Registered companies are classified into:

(i) Limited by shares: liability is limited to the amount unpaid of theshareholders shares.

(ii) Limited by guarantee: liability is limited to the amount guaranteed by the

members as their contribution to the Companys debts and payable if the company is wound up.(iii) Unlimited: liability is unlimited.

-Another classification of registered companies:>Public companies: They are limited by guarantee of share.>Private companies:Private companies can be small or medium-sized. They preserve the

confidentiality of their accounts to compete with bigger companies. The information presentedis of an abbreviated type. Two sets of accounts must be submitted: one for members and theother one for the Registrar of Companies. An abbreviated balance sheet should be submittedalong with the filing of the directors report and profit and loss account.

(i) Small company: It must be within the limits of any of two of the

following thresholds for the current financial year and one year before: the turnover must be ofup to two million pounds; the balance sheet must show up to 975,000 pounds; the employeesmust be up to fifty.

(ii) Medium-sized company: It has to have been within the limits of

any of two of the following thresholds for the current financial year and one year before: theturnover of up to eight million pounds; the balance sheet must be of up to nine million pounds;employees must be around two hundred.

(iii) Theres a third type: Dormant companies: Those that remaininactive because some other company controls business. They are in the market but do not domuch; they only try to preserve their names.

Private Companies Public Companies

Companies are normally private -

Proxies speak at meetings: they vote on a pollbut not on a show of hands

Proxies may not speak at meetings

There is no age limit for directors Age limit for directors is 70. Special notice isrequired when it is proposed to elect a directaged 70 or above, or to reelect him

Ltd. Must accompany the name PLC must accompany the nameThe memorandum must state that it is such aform


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It can commence business on incorporation It can commence business on the issue of 117of certificate by the registrar of companies

Minimum number of persons: three Minimum number of persons: five

They need to have only one director They must have at least two directors

They need to have only one member They must have at least two members

Their company secretary need not have arecognized professional qualification Their company secretary must have arecognized professional qualification

There is not a minimum capital requirement The minimum capital required is 50,000pounds, of which 25% must be paid before itcan be incorporated and commence its

business

They cannot seek finance from the public: tooffer shares or debentures to the public is

prohibited

They may seek finance from the public:unrestricted rights to offer shares ordebentures to the public

Preemptive rights (1988 Act) Preemptive rights (1988 Act)

Extraordinary general meetings are notapplicable

Extraordinary general meetings are to becalled

There is no such a requirement for privatecompanies

Before they can pay a dividend, they mustensure that they have trading profits and thattheir capital assets are maintained in value toat least the value of the subscribed sharecapital plus un-distributable reserve

There is no such a requirement for privatecompanies

They must obtain an independent expertsvaluation of a property before they can issueshares in exchanges for it

There is no such a restriction for privatecompanies

They may not issue shares in exchange ofservices

There is no such a restriction for privatecompanies

They may not allot shares in exchange for aconsideration which includes a undertakingwhich may be performed by more than fiveyears after the date of allotment

Payment by subscribers may be made in cashor in some other consideration

Subscribers to memorandums of publiccompanies must pay their shares in cash

They must have an independent accountantsreport on the value of non-cash assets used asa consideration for an issue of shares

The completion of an independent accountantsreport on the value of non-cash assets used asa consideration for an issue of shares does notapply

- They cannot validly acquire non-cash assetsfrom subscribers to the memorandum in thefirst years of its existence unless an

independent accountants report is receivedWhere interim accounts (balances

providence) are used to support a proposeddistribution these accounts must be filed withthe registrar of companies

-

It must comply with the capital maintenancerule

They need only fulfill the basic requirement ofprofits available for distribution

>Unincorporated associations: They do not have a legal personality distinct from themembers of the association. They include trade unions and most societies and clubs.Associations are normally treated as groups of persons who are thus individually responsible for

the associations actions. Exceptions to this rule include: when the association must berepresented in court; when the association wants to own land (under the Law of Property Act


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1925 no more than four people can own land together); when the association wants to delegatepowers to a committee.

>Piercing the veil: Statutory provisions removing the advantages of forming a companyfor its limited liability offering cover the following situations:

(i) If the membership of a company falls below two, then the remaining membershould after a grace period of six months be liable for the companys debts and obligationswhere they know of the situation.

(ii) Where a public company fails to obtain a trading certificate in addition to itscertificate of incorporation before trading and borrowing money, then, the companys directorsare liable for any obligations incurred.

(iii) Where a group of situation exists group accounts should be prepared. Inassessing whether this is the case, the veil is clearly being lifted to determine if the holdingcompany-subsidiary company relationship exists.

(iv) If a company officer fails to describe correctly the company in a letter, bill,invoice, order, receipt, or other document, then the officer is liable in the event of the companynot honoring the obligation concerned.

(v) If a director who is disqualified continues to act, he will be personally liablefor the debts and obligations of the company.(vi) If a director or shadow director ought to know that the company is unable to

pay its debts as they fall due, he may be held liable to make a contribution to the companysassets where the company is being wound up.

(vii) For combating fraud: whenever a company is used to avoid an existingcontractual obligation.

(viii) Agency: if the company is merely an agent of the shareholder, the courtsmay hold them personally liable for the corporate debts.

(ix) Groups: the fact that a company is within a group may be seen as a reasonfor identifying it with another company in addition to the statutory situations where the veil islifted on this basis.

(x) Trusts.

>Companys constitution: Compulsory clauses of the memorandum of incorporationare:

-Name.-Public status (if applicable).-Object.-Limitation of liability.-Share capital.

COMPANY LAW IN A NUTSHELLMethods of Trading:

Sole trader Partnership (individuals bound by mutual trust and confidence and generally not

exceeding 20 Companies Act 1985) Partners are unlimitedly, jointly and severallyliable for each others action.

Limited Partnership Company: It evolved from the unincorporated association. Companies have been

formed by charter or by statute. The usual method now is by registration under thecompanies act.

Public and Private Limited CompaniesMembers of an unlimited company acquire the advantage of incorporation but their personalliability to creditors of the company is unlimited. Therefore most companies are limitedcompanies, with the liability of members limited to the nominal value of the shares they


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hold or, less commonly, the amount they guarantee to contribute to the company onliquidation.A registered company is a public limited company (P.l.c must follow its name) if it is limitedby shares or (having a share capital) by guarantee,its memorandum of association states itis a public company and it is so registered. Remaing registered companies are privatecompanies (ltd), which must not offer its securities (shares or debentures) to the public. (Publiccompanies, authorized minimum nominal share capital: 50.000 pounds and at least of thenominal value of each share allotted has been received)

RegistrationBy delivery of certain documents to the Registrar of Companies:

The memorandum of association: stating name, location of registered office, objects,whether it is limited or not, and its initial share capital.

Articles of association: terms regulating the association of the members.

The memorandum of a public company must, as near as possible, follow the form prescribed bystatutory instrument and its initial share capital must not be less than the authorized minimum.

The Registrar must satisfy himself that the statutory requirements have been fulfilled and thenregister the company and issue a certificate of incorporation.Promoters Remuneration and expensesOne who undertakes to form a company with reference to a given project and to set itgoing, and who takes the necessary steps for that purpose. The promoters are often thecompanys first directors.The importance of establishing whether a person is a promoter lies partly in locating liability foracts done on behalf of or in connection with the company to be formed.

Liability of promotersA promoter may become liable to third parties for misrepresentation of perhaps as the partner of

another promoter, under agency principles in partnership law. Possible, he will be liable to thenew company under contract or conceivable for deceit or negligence. The traditional area ofliability to the company is for breach of the fiduciary duties he owes.

Remuneration and expensesThe promoter does his work and incurs expenses at a time before the company has becomelegally capable of acting. Hence, it cannot enter into a binding agreement with him toremunerate him nor can the company, when formed, retrospectively validate any suchagreement made when it did not exist.The practical solution is for promoters to secure the insertion in the articles of a provisionenabling directors to pay promoters expenses plus reasonable remuneration, which provisionwill be valid if full disclosure is made.

Trading certificateA certificate issued by the Registrar after he receives from a public company initiallyregistered as such a declaration that the nominal value of the allotted share capital meetsthe authorized minimum.

Share issues and transfersA company may issue shares by various methods:

1) Invite tenders or subscriptions directly from the public (usually through the agency ofan issuing house of known standing).

2) It might sell them to the issuing house, for it to resell them to the public.

Raising and maintenance of capital


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A company may finance its activities in a number of ways. It could simply obtain an overdraftfrom its bank. It could buy equipment on hire-purchase terms or lease it. For borrowing ofsubstantial sums and/or for long-term borrowing, it will often issue debentures at a fixed rate ofinterest. Shares provide the initial finance for most companies.

CapitalNominal capital: The amount of money the company`s memorandum entitles it to raise.Issued share capital: The shares actually issuedUnissuedshare capital.Paid up capital: The money actually received from share issues.Uncalled capital: The amount still owed.Reserve capital: Uncalled capital which the company has resolved only to call uponliquidation.-Profits undistributed as income are kept in a reserve fund.

Raising capitalThe liability of members of limited companies is limited to the nominal value of their shares.

Certain rules help to ensure that creditor guarantee fund is not illusory.

Rules Authorised minimum of the nominal value of all issued shares must be paid up Shares must not be issued at a discount. A commission may be paid to underwriters. Shares may be allotted for money or moneys worth If a public companys shares are allotted for moneys worth, the consideration must be

valued by an expert, whose report must be made to the company and made available tothe allottee.

DividendsDividends may be declared as provided by the articles, which generally authorize the directorsto make or recommend declarations. The directors should retain sufficient profits to ensure thatthe company does not trade in a risky fashion and has adequate reserves for business.

SHARESA person may become a shareholderby subscribing to the memorandumand having one ormore shares allotted to him, or by having shares transferred to him by an existingshareholder, or by applying for shares and having them allotted to him (generally inresponse to a prospectus).

Companies must keep a register of the class and extent of members shareholdings which isopen to inspection.

A share is an item of property and normally freely transferable. In gives its holder aninterest in the company and entitles him to the rights contained in the articles. Theholdings represent the extent of his liability to creditors.

Preference shares: A company can issue a class of shares carrying preferential rights, inwhich case a presumption of equality applies to those aspects where there is no preference (e.g.a right to preferential dividend does not exclude the right to equal participation in capital onliquidation.)

Share certificates


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Under CA 1985, a company must within two months of the allotment of shares or debentures(or transfer of such securities) complete certificates unless a) Otherwise provided in the originalissue b) is not entitled to a certificate by virtue of the Stock Transfer Act 1982.

Insider dealing: (Ver del apunte)DebenturesA company may raise finance by borrowing as well as by issuing shares. This is commonlydone on a long-term basis by means of debentures, documents evidencing the amount of thedebts. Instead of a series of debentures for a number of separate debts, it may create one fund ofdebenture stock and issue certificates for particular divisions of the fund. In many ways, adebenture-holder is as much an investor as a shareholder. But a shareholder is a member of thecompany whereas a debenture-holder is a creditor.

CAPITALIZATION

*Securities: Bonds and stocks (West)>Corporations are financed by the issuance and sale of corporate securities.

-Stocks represent the right to participate in earning and the distribution of corporateassets: ownership in a business firm. Bonds represent borrowing by the firm.

>Bonds: They almost always have a designated maturity date. Types of bonds issuedare:

-Debenture bonds: Those for which no specific assets of the corporation are pledged asbacking: they are backed by the general credit rating of the corporation.

-Mortgage bonds: Those which pledge specific property.-Convertible bonds: They can be exchanged for a specified number of shares of stock.-Callable bonds: A bond which the issuer has the right to redeem prior to its maturity

date. When issued, the bond will explain when it can be redeemed and what the price will be. Inmost cases, the price will be slightly above the par value for the bond and will increase the

earlier the bond is called. Generally, callable bonds will carry something called call protection.This means that there is some period of time during which the bond cannot be called. They arealso called redeemable bond, opposite of irredeemable bond or non-callable bond. The maincause of a call is a decline in interest rates. If interest rates have declined since a company firstissued the bonds, it will likely want to refinance this debt at a lower rate of interest.

>Types of stock issued by corporations include:-Common stock: It represents the true ownership of a corporation. It provides a

proportionate interest in the corporation regarding (i) control, (ii) earning, and (iii) net assets.- Preferred stock: They have rights or preferences over other classes of stocks.-Cumulative preferred stock: Preferred shares for which required dividends not paid in a

given year must be paid in a subsequent year before any common-stock dividends can be paid.

-Participating preferred stock: Preferred shares entitling the owner to receive (i) thepreferred-stock dividend and (ii) additional dividends after the corporation has paid dividendson common stock.

-Convertible preferred stock: They entitle the owner to convert their shares into aspecified number of common shares either in the issuing corporation or in another one.

-Redeemable/callable preferred stock: It is issued with the express condition that theissuing corporation has the right to repurchase the shares as specified.

> Interest on bonds must always be paid, whether or not profit has been earned, whilestocks (common) do not have a fixed dividend rate. Bondholders do not have voice or voteregarding control of the corporation, while stockholders can elect its board of directors. Bondshave a maturity date while stocks do not. The claim of bondholders against the property of thecorporation must be met before that of stockholders.


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*Legal Aspects of Capital (Pepe)>Concept of Capital: According to company law, capital can be defined as the

contribution made by any person intending to become a member of, or to create, a company andwho undertakes to bring into it any item of property, be it tangible or intangible, upon theconstitution of the company. A second definition refers to a fixed amount stated in thecompanys constitutional documents and in its financial statements.

We have different views on the legal nature of capital: a first view sees it as an abstractand static figure representing the monetary valuation of members contributions. Argumentsagainst this view are (i) that it fails to emphasize the crucial function of capital as guarantee tocreditors; (ii) that capital doesnt necessarily equal the value of contributions; and (iii) that thetemporal relationship between capital and contribution is different: contributions are alwaysmade after the amount of capital has been determined.

A second nominal or abstract view: theres a difference capital, which is a notional sum,abstract and static, and net worth [patrimonio neto], which is the difference between thecompanys resources and its debts. The net worth fluctuates, as is subject to increases andreductions. Capital may be clearly depicted by considering its characters of adequacy (to net

worth) or inviolability, designed to preserve the company members position and creditorsrights.A third position states that capital is capable of a dual characterization. From a nominal

approach, it is seen as an abstract or static figure set out in the companys constitutionaldocuments and financial statements; from a real perspective, it is seen as a portion of the networth and cannot be disposed of, for protection of members and interested third partiesinterests.

Argentine scholars identify capital with its legal concept, i.e. nominal capital: capital isthus related to an accounting figure.

>Principles governing the legal concept of capitalThese are designed to preserve the productive resources making up the entitys

patrimony for a threefold purpose: it allows its business to carry on activities to satisfy itspurposes; it lets outsiders know of the true magnitude of the companys assets; it assuresshareholders the preservation of the proportional equivalence between their shares and the

portion of capital they represent (this implies the use of preemptive rights).-Inviolability of capital: Members contributions must be duly ascertained and fairly

valued to preserve the value of capital, in order to protect members and creditors. The capitalamount, duly determined by valuation of specified considerations, is thus inviolable in the sensethat it must be preserved for the purpose of protecting the companys creditors and members.Inviolability further constitutes a principle of public policy incapable of being overridden by

private agreement. However, capital is actually capable of mutation and may accordingly bevaried as a consequence of valid increases decided by relevant corporate organs and upon strictcompliance with mandatory provisions to that effect.

The inviolability of capital requires valuation of non cash consideration and equivalencebetween the value of contribution and nominal value of subscribed capital which preventsshares being issued below par. The intangibility of capital also prevents members fromcollecting profits accrued during a relevant period where losses incurred in previous accountingor economic period have not yet been absorbed. Inviolability of capital is also reflected in legal

provisions requiring that non cash contributions (which must be fully paid in upon subscription)may only consist of specified property capable of being foreclosed.

-Productive functions of capital: Capital constitutes the crucial element in the generationof the productive activity of the business concern (this is the economic potentiality of a businessentity). Capital constitutes a collection of economic assets.

Capital is directly related to the act or series of acts which the company proposes tocarry on in accordance with its articles (to preserve its guarantee function). Capital must be

proportionally related to the companys activity in order to ensure proper assumption ofeconomic risks and availability of assets in the event of execution.


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The companys capital is likely to be determined with reference to multifarious factors:time, management strategies, internal corporate policies, external factors of the market, riskmanagement and control, exercise of borrowing powers, and investment policies.

-New concept of enterprise: It demands a responsible conduct from the companyconcerning the business it conducts, and requiring the entity a fair treatment in respect of itsmembers, the community, and the environment. The complexity of technology and capitalmarkets demands a moral duty from the entity.

-Registration authority and control: In order to prevent undercapitalization, the Registrarof business organizations has power to ponder the eligibility of the initially stated capitalamount. The registering authority fairly intends to keep the initial proportion between capitaland corporate objects for the purpose of preventing companies from being undercapitalized,thereby defrauding third parties dealing with the entity as to the real magnitude of thecompanys assets.

>Types of undercapitalization:(i) Real: Company members fail to contribute assets necessary to accomplish

the corporate objects.(ii) Nominal: Capital contributions by company owners fairly reflect the needed

funds to carry out its objects but any such considerations were given by means of a casual titleother than a legal title as contributor.Reasons for undercapitalization are: business risk avoidance and parent

companys assets hiding.The adequacy of capital, in principle, can only be really pondered when the

entity is in fact doing business. The initial capital figure of a company upon constitution doesnot certainly reflect its adequacy to the business to be carried on account of the inherently riskynature of commercial transactions. The control of legality by the Registrar is thus essential tocontribute to the accuracy of the presumption of legality of registered documents.

-Guarantee function of capital: Under English law, whenever a creditor is afforded apayment priority over specified property of the debtor or a third person, a security interest hasbeen created. Consensual security interests arise by way of agreement of the parties; security

interests that arise by operation of law include the common law lien and a lien arising byoperation of law.

The security function of corporate capital in limited liability structures must be analyzedin relation to the companys economic solvency together with all relevant legal requirementscontributing to its accuracy and enhancement, such as the transparency and publicity ofaccounting methods, which are crucial factors for determining the companys credit and the

prevention of real undercapitalization.One advantage of guarantees is that judgment processes are avoided.

>The concept of capital: From a pragmatic approach to the concept of capital, there area productive and a guarantee function to be born in mind.

According to a modern approach, in addition to the initial static figure determined in the

companys constitutional documents, capital is formed by the subsequent economic resourcescapable of becoming part of the assets (capital increase). The 22,903 Argentine Act stated thatfinancial records should be represented in constant currency: the nominal capital sum is henceyearly adjusted in order to reflect its real value. Under English company law the amount of theauthorized capital is in itself of no importance as an indication of creditworthiness because thecompanys capital will ultimately be determined with reference to its paid up capital(companys real capital).

From a realistic approach, capital must be defined with regard to the net economicresources underlying the formally stated capital amount. Capital is thus likely to comprise otheritems such as revaluation of assets (integral adjustment), share premiums, contributions ofcreditors that will become shares of stock, or irrevocable contributions to capital to be furthercapitalized upon capital increase.


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>Valuation of Capital Contributions (property or undertakings so contributed):Valuation of capital contributions is relevant to determine the minimum value of the capital of acompany on constitution; to determine the share whereby the contributor shall participate in the

business and his consequent rights; to fix the initial limit of shareholders liability towards thecompanys creditors. Valuation ensures the fair value and consequent adequacy betweennominal capital and the aggregate non cash assets representing it. Further, it guarantees a fairand equitable equivalence between payment for shares. There are certain legal requirementsgoverning contributions to capital:

(i) Monetary valuation (of non-cash consideration)-Under English Law: Payment for shares can be made in kind. Except for the

case of public companies under the ECA 2006 and for Limited companies under the ACA, theparties valuation of non cash consideration will be accepted as conclusive. It is possible thatshares be watered by agreeing to accept payment in property which is worth less than thenominal value of the shares: the company would be issuing shares at a discount. Privatecompanies are protected from share watering by sending the Registrar a Return of Allotmentsdocument. The share watering risk is avoided, in the context of English public companies, byrequiring non cash considerations to be independently valued by a person qualified to be

appointed. -Under Argentine Law (ACA, sections 51 to 53): Assets shall be assessedaccording to their market price or by the appraisal of one or more expert valuers appointed bythe registering authority. The ACA provides that valuation of non cash consideration may bechallenged by any shareholder alleging it to be detrimental to him, as well as by creditors incases of equitable insolvency or bankruptcy; judicial valuation cannot be challenged. Undersection 53 of the ACA, valuation of non-cash consideration for companies with a share capitalmust be approved by the Registrar and shall be ascertained according to market values or byexpert valuers.

>Undervaluation (where the valued contribution exceeds subscribedcapital): Undervaluated contributions are admissible under section 53 of the ACA. Theshareholder may challenge the valuation within five years following the date he gave it. The

shareholder whose contribution has been undervalued may require a reduction of its value toone resulting from the valuation if shareholders representing three quarter of subscribed capitalconsent to any such reduction.

>Overvaluation: In case of overvaluation of non-cash consideration thecontributor shall be required to pay the relevant balance. In LLCs, under section 150 of theACA, members are jointly and severally liable to third parties for overvaluation of thecontribution representing their share of interest in the company.

(ii) Ascertainment(iii) Capability of being listed on inventory(iv) Susceptibility of being foreclosed(v) Documentary representation of intangible assets (legal rights not constituting claims,

legal claims, collection of legal rights): Intangible assets must be represented by documents for

the sake of their individualization and conclusive evidence of existence. They must reflect thelegality of the contributors entitlement; they must be instrumented; be capable of future gain;must not constitute the subject matter of a legal claim; and represent nominal rights or values.

(vi) It must not constitute any undertaking to do work or perform services in the case ofLLCs and company of persons (under Argentine company law)

(vii) The contributor is presumed to transfer property of the assets raised.

>Capital and assets: Capital (notional figure) must be differentiated from contributionsrepresenting the promise of the contributor; assets it represents; net worth (which is the dynamicrelation between aggregate assets and aggregate liabilities).

>Accounting implications of capital: It would be true to refer to capital as potentialliability of the company by considering its guarantee function to companys creditors, or its


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restitution function (if any) to its owners on distribution of the assets of the company upon theentity being extinguished as such.

>Capital constitution: subscribed shares and paid up shares (not yet allotted);outstanding shares (held by shareholders) and treasury shares (acquired by the company).

NEGOTIABLE INSTRUMENTS

*Chapter 26: Basic concepts, negotiability, and transferability>Negotiable instrument: A signed writing that contains an unconditional promise or

order to pay an exact sum of money, either when demanded or at an exact future time.>Article 3 of the UCC and its revision: In 1990 a revised version of Article 3 was issued

for adoption by the states.>Function of instruments: 1) As a substitute for money; 2) as an extension of credit. It is

essential that the instrument be easily transferable without danger of being uncollectible so thatit operates practically.

>Types of negotiable instruments:-Categories: drafts, checks, notes, certificates of deposit (CDs).-Classifications: orders to pay and promises to pay; demand instruments (if it (i)

states that it is payable on demand or at sight, or otherwise indicates that it is payable at the willof the holder, or (ii) does not state any time of payment) and time instruments (payable at afuture time).

>Drafts: A bill of exchange or draft is an unconditional written order that involves threeparties. The party creating the draft (the drawer) orders another party (the drawee) to paymoney, usually to a third party (the payee). A draft can be both a time draft and a sight draft,such a draft is payable at a stated time after sight.

-Trade acceptances: The seller of the goods is both the drawer and the payee.

When the draft is drawn by a seller on the buyers bank for acceptance, it is called a bankersacceptance.

>Checks (type of draft): The writer of the check is the drawer, the bank on which thecheck is drawn is the drawee, and the person to whom the check is payable is the payee. Withcertain types of checks, such as cashiers checks, the bank is both the drawer and the drawee. Atellers check is a draft drawn by one bank on another bank. Travelers checks require the

purchasers authorized signature before becoming payable.

>Promissory note: Written promise made by one person (the maker of the promise topay) to another (usually the payee). It can be made payable at a definite time or on demand. Anote that is secured by personal property is called a collateral note, because the property ple

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Language III - First Half Summary