Corporations condensed outline

I) Agency
A) 3 elements of agency
1) Consent: can be indefinite, implied, spoken/unspoken, written, found in silence or
acquiesced to. No contract necessary, no consideration needed.
2) Act: Acting on behalf of the principal within the scope of authority
(a) Need not be a benefit to the principal (see Doty)
3) Control: subject to principal’s control through directions, instructions, conditions,
approval, oversight, etc
B) Who is an agent?
1) Gorton v. Doty “lending a car to the coach”
(a) Ms. Doty liable because gave CONSENT to coach to drive the car, coach drove
(ACT) pursuant to that consent and within scope, CONTROL in that Ms. Doty
required the coach to be the driver.
(b) Mere ownership of the car lent is prima facie proof of agency
C) Liability of Principal to 3rd parties in contract
1) Principals bound to contracts their agent enters into for them
(a) Undisclosed principal exception
(i) A third party is sometimes entitled to:
• insist on rendering performance through the agent; or,
◊ When not allowing it would significantly change or increase the third
party’s burden
• escape the contract entirely
◊ If the contract states it is inoperative if the third party is representing
anyone
◊ If the agent fraudulently represents that they are not acting for a
principal and the third party would not have entered into the contract
but for reliance on that misrepresentation

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 ⇒ The third party must also show that the agent or principal had
reason to know there would be no contract had they known of the
undisclosed party
2) Actual authority/implied/incidental authority
(a) Elements
(i) Some manifestation by principal
(ii) Agent’s reasonable interpretation of it under circumstances
(iii) Leads agent to believe is authorized
(b) Remember
(i) Actual authority includes authority to do what is incidental to authorized act
• That which usually accompanies ar is reasonably necessary to the
authorized act
• Can be based on custom or past dealings, other facts, or the principal’s
objectives (implied)
◊ Mill St. Church v. Hogan
⇒ D was allowed in previous dealings to hire another painter for the
church, thus, he reasonably believed he could do so here and
implied authority existed
(ii) Implied authority: Actual authority circumstantially proven where the
principal actually intended the agent to possess or the agent believes the
principal intended them to possess, and includes only such power as is
practically necessary to carry out the duties actually delegated.
(iii) Express manifestation can always negate authority
3) Apparent Authority
(a) Where there is the appearance of legitimate authority in the eyes of the third party
(i) Prior practices/dealings weigh heavily here
(b) Elements
(i) Objective manifestation from one party (the apparent principal)
• “secret instructions” given to an agent will always negate
(ii) Reaches a third party

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 (iii) Third party reasonably believes the agent is authorized to act for the
principal
(c) White v. Thomas “Ms. Simpson’s iffy land deal”
(i) No actual, implied, or apparent authority because Ms. Simpson was only
present to buy land, not to sell it. Actions of the agent must fall within the
scope of the actual and apparent authority to bind the principal.
(ii) The blank check supports this assertion, as only authority to buy it
• Declarations of the agent alone are not enough to establish agency, absent
some other evidence as such
(iii) Even though she went outside scope of purchase authority (principal could
have gotten out of the deal) by going over budget, principal ratified the
purchase ex post facto.
(d) Dweck v. Nasser “the shifty client”
(i) Actual/Implied authority: Attorneys agreeing to settle a case are presumed to
have lawful authority to settle as it normally comes in the business of a lawyer
• Also, had implied authority based on previous dealings with client
(ii) Apparent authority: negotiating parties relied on apparent authority to settle
4) Inherent authority--***only where there is a wholly undisclosed principal***
(NOTE: this doctrine no longer exists in Restatement 3rd)
(a) Watteau v. Fenwick “nonpayment for Bovril”
(i) The plaintiff did not know about the existence of the undisclosed principal
• The manager’s name was hung over the door and was allowed to take
other items for credit, and taking items on credit is within in the usual
custom of a bar manager’s position.
(i) Duties within the ordinary authority of an active partner can never be defeated
by the secret instructions of a dormant partner
(ii) “Mischievous consequences” would result if the principle of inherent agency
were not followed.
5) Fiduciary Obligation of Agents
(a) General Automotive Manuf. Co. v. Singer “the moonlighting mechanic”
(i) Agents owe fiduciary duty to not earn secret profits in competition with the
principal
• The nature of the business is the ruling factor in whether competition
existed
• The duty requires acting in good faith and loyalty and prohibits acting
adversely to the principal

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 (ii) Full disclosure of each “secret profit” taken from principal prior to accepting
would have absolved agent
II) Sole Proprietership
A) Characteristics
1) One owner
2) Exclusive claim to profits and management
3) Personally liable for debts of the business/vicariously liable for acts of employees
within the scope of business
(a) Should have liability insurance
III) General Partnership
A) Characteristics
1) Two or more owners/residual claimants
2) Share profits/management/decisions
(a) According to partnership agreement
3) Branch of the law of agency
(a) Partners are considered to be agents of the partnership and have the power to
incur obligations on the partnership’s behalf
(b) All partners are liable as principals for partnership obligations, and can incur
debts for the partnership, even if prohibited in the partner agreement
(c) Concealing or not disclosing a partner’s identity or existence does not absolve
them as principally liable with the disclosed partners
B) Advantages
1) Flow-through tax treatment (no double tax issue)
(a) Losses flow to the investors, not the business
2) Ease of operation and flexibility in management/structure/partnership agreement
(a) Flexibility in allocating partnership income, loss, deductions, credits

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 (i) Can utilize partnership losses to offset their active or passive income
C) Disadvantages
1) Binding power of each partner
2) Liability for debts of the business and acts of other partners (within scope)
3) Liability for taxes on distributive share of partnership
4) Partnerships dissolve at death, bankruptcy, or withdrawal of any partner
(a) Can specify otherwise in agreement
5) Restrictions on alienability/transferability without consent of all partners
D) Protections to take
1) Liability insurance
2) Thorough partnership agreement (UPA rules apply as default without one)
(a) Provisions to specify
(i) Continuation provision with buy-sell and valuation provisions
• Treatment of capital accounts, profits/losses, voting %’s, salaries
• Term of partnership/dissolution
• Buy-sell
◊ Redemption agreement: entity may or must buy departing partner’s
interest
◊ Cross-purchase agreement: some/all remaining owners may/must buy
(ii) Assignment/transfer provisions
• Title to partnership property (by partnership or indiv. owners)
(iii) Delegate/split management responsibilities

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 (b) Default provisions (UPA)
(i) §§ 9, 18(e)- equal rights in mgmt, 1 vote per partner regardless of ownership
proportion (all partners liable for acts/transactions of a partner in the usual
course of business)
(ii) § 18(g)- transfer requires unanimous consent
(iii) § 18(a)- after partners recoup capital contributions, profits shared equally
regardless of initial contributing proportion
• Losses shared equally regardless
(iv) §18(h)- majority vote resolves mgmt differences (only unanimous if
contravenes partnership agreement)
(v) § 31- any partner may dissolve at will, without liability for damages;
partnership dissolved upon death, bankruptcy, or expulsion of any partner
E) Determining if one is a partner
1) Martin v. Peyton “Are the lenders actually partners?”
(a) Partnership results from contract (express or implied). May be proved by written
instrument, testimony of conversation/agreement, circumstantial evidence.
(i) Here, not enough showing that lenders agreed to be partners
• Had option to become partners in contract and did not choose to
(ii) Creditors reap limited profits
(b) A certain amount of management control can deem a lender to be a partner
(i) Here, was limited to veto—normal conduct of creditor to protect against loss
F) Fiduciary obligation of partners
1) Meinhard v. Salmon “the 5th Ave. property”
(a) Partners owe a fiduciary obligation to other partners to include them (during the
life of the partnership) in business opportunities related to partnership (“the finest
duty of loyalty, not honesty alone”
G) Rights of Partners in Management
1) National Biscuit v. Stroud “Unpaid bread delivery and stating no longer responsible”
(a) All partners have equal rights in mgmt of business, agreement specified no
restrictions on these rights

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 (b) One partner cannot restrict the other’s authority to make decisions in the normal
course of business outside the partnership agreement
IV) Limited Partnership
A) Characteristics
1) Combines attributes of partnerships and corporations
(a) One-time taxation with corporate organization
2) Requires at least one general partner and one limited partner
(a) General partners have role and liability risk of partners in regular partnership
(b) Limited partners take on passive role and limited liability (limited losses to
amount of investment)
(i) RULPA § 303 changed old law that a limited partner will lose limited status
and become general if they take more than passive role
V) Limited Liability Partnership
A) Characteristics
1) Newest type of business association
2) A general partnership whose owners, by filing a registration and complying with
other formalities, obtain full or partial limited liability depending on the statute
3) Requires state filing
B) Piercing the veil of an LLP
1) Frigidaire v. Union “limited partners hands in the till”
(a) Standard piercing test may apply
(i) but here there was no unity of entities or fraud-like behavior
(ii) also no evidence of improper acts of limited partners in running the operations
(b) just because limited partners exercise management duties, does not mean they
automatically incur liability/become general partners
2) RULPA § 303- a limited partner is not liable on account of being an officer, director,
or shareholder (however § 303(a) puts this “shield” at risk if limited partner
participates in the control of the business)

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 (a) The “control rule” subject to a bunch of safe harbors and exceptions though
(making it essentially inapplicable in most cases)
VI) Corporations
A) Characteristics
1) Independent legal personality with indefinite life (legally fictitious entity)
2) Many owners/residual claimants/equity investors
(a) Owners/shareholders passive
(i) Delegate control to management
(b) Shares of stock (freely transferrable)
3) Contract allocates control and profits
4) Centralized management (appointed by equity investors)
5) Limited liability (makes free transferability more valuable/less risk)
6) Cheaper to form (no frills form) than a partnership or LLC because of elaborate
default provisions require less drafting
7) 2 kinds of corporations
(a) Public
(b) Close/closely held/private
B) Ways to capitalize a corporation (get money into a corporation)
1) Debt: Through a lender/borrower relationship for interest (creditors)
(a) Creates leverage and thus, risk/profitability-- the more debt financing a corp. has,
the higher the risk of loss, but also the higher the potential to profit (see long
outline p.30)
(b) Advantages of debt: interest payments tax deductible, priority on liquidation
(c) Disadvantages: potential for equitable subordination (see p.31)
2) Equity: Through investors for ownership shares of company

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 (a) Equity = ownership interest
(b) Stocks =
(i) Bonds: debts Secured by corp assets
(ii) Debencher: Unsecured debts
(iii) Notes: Small share
(c) Issuing equity securities
(i) NY BCL §§ 501, 504, 506 (see long outline p. 21-22)
(ii) Whether stock is fully paid and nonassessable
• Consideration and payment
◊ Amount and quality of consideration
◊ May be money, services, property; but must have realizable value
◊ Some states prohibit use of unsecured promissory notes or promise of
future services
◊ Ineligible consideration leans to voidable or unpaid stock
• Watered stock liability
◊ When stock issued for less than par (or bought with assets a court later
deems were overvalued)
C) The process of incorporating
1) The incorporator (any person, cannot be another corporation, who signs the docs and
pays fees) (NY BCL § 401- any natural person over 18 yrs of age)
2) Drafting the document (NY=certificate of incorporation/DE=articles of inc./charter)
(NY BCL § 402, see long outline p. 20 for specifics)
(a) State purpose and powers of corp., define all special features. (flexible)
(b) Identify principal corp. office within the state, or designate a registered agent
(c) Identify original incorporators

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 (d) Name the corp., state its business (broadly)
(e) Fix original capital structure
(i) Provide for voting stock/shares, size and composition of board of directors,
shareholder voting on certain transactions, classes of stock, voting rights, etc
(f) Any customized features
(i) Supermajority voting on certain issues
(ii) Term
(iii) Membership requirements that directors be shareholders, or that
shareholders be of a certain professions
(iv)Indemnification, corp. payment of legal fees, choice of law (courts bound to
apply incorporating state in absence of provision/corp. must do substantial
business in chosen state)
(v) Anything else not wanted to default to state law
• Cannot deviate too much from corporate norms or court can find
unenforceable
3) Corp. legal life begins
(a) DE- when charter is filed (GCL § 106)
(b) Others- when Secretary of State issues signed corp. charter
(c) NY- upon filing (BCL § 403) (text p.20 long outline)
4) First acts of business
(a) Organizational meeting
(i) Elect directors (if not named in charter)
• NY BCL § 701- corp. business shall be managed by bd. of dir. who each
must be over 18 yrs. Old. Cerrt. Of incorp. May require other
qualifications.
• BCL § 702- one or more members, number may be fixed by by-laws or
shareholder vote. If not fixed, default number is 1. “Entire board” means
total number of directors if no vacancies. The number may be changed
with by-law amendment or shareholder vote, providing, majority of board
agrees by vote, and decrease in number will not shorten term of any
incumbernt director
• BCL § 703- shareholders elect directors at each annual meeting, for a 1 yr.
term. (Cert. of incorp. May provide that certain classes vote, etc) Directors
shall hold office til expiration of term and successor is elected and
qualified.
• BCL § 704- Directors may be divided into 2, 3, or 4 classes, in as equal
numbers as possible. 1st class term expires at next annual meeting of
shareholders, 2nd at the 2nd meeting, 3rd at succeeding and so on. If changes
in numbers occur, balancing must occur at next meeting.

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 (ii) Adopt by-laws
(iii) Appoint officers
D) Accounting
1) Balance sheets basic formula (2 sides must always equal)
(a) Equity = assets – liabilities, or, assets = liabilities + equity
(i) Stockholder’s equity- amount assets exceed liabilities; the corp net worth
• In a corp with one class of stock, the book value of each share is
shareholders equity divided by the number of shares

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Assets _________= Liabilities _________ +

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 Equity _________(shareholders
equity)

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 (b) Rules/Examples
(i) Corp issues new stock= assets and shareholders equity increase
(ii) Corp borrows money= assets and liabilities increase
(iii) Corp loses money= assets and shareholders equity decrease
(iv)Corp repays a loan= assets and liabilities decrease
(v) Beginning owners equity + net income – dividends declared + stock issued –
stock repurchased = ending owners equity
(vi) Beginning capital + stock issued – stock repurchased = ending capital
(vii) Beginning retained earnings + revenues – expenses – dividends = ending
retained earnings
2) Assets
(a) Current
(i) Cash: cash, bank account funds, U.S. treasury bills or notes, certificates of
deposit, commercial paper, bankers’ acceptance, money market accounts
(ii) Assets expected to turn to cash in one year: marketable securities, accounts
receivable (minus doubtful accounts estimation), inventories
(b) Noncurrent- fixed assets (property), prepayments and deferred charges, intangible
assets (ie:patents), debts owed to the company in over one year, minority interests
in other companies
3) Liabilities
(a) Current- to be paid out of current year’s assets, or come due within the year
(i) Accounts payable, notes payable, accrued expenses payable
(b) Long-term- come due in more than one year
(i) Mortgages, bonds, debentures
4) Stockholders/shareholders equity
(a) Includes all capital contributions and stocks issued
(b) 2 parts
(i) Non-debt capitalization of business
• Stated/paid-in capital
◊ Aggregated par value of the corp’s outstanding equity securities (if no
par, board establishes states value for each share by resolution)
(outstanding means owned shares, whether by public or insiders (but
not by the company))

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Assets Liabilities $0
Cash $200,000

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Total $200,000 Equity
Stated capital: $100
par common, 2,000
shares $200,000
Total $200,000

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(ii) Capital/Paid-in surplus (or capital contributed in excess of par)- what shares
actually sold for over par value [if no par, entire issue price is allocated to
stated/paid-in capital unless board decides to allocate some in capital/paid-in
surplus]

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Assets Liabilities $0
Cash $200,000
Total $200,000 Equity
Stated capital: $10
par common, 2,000
shares $20,000
Capital Surplus $180,000
Total $200,000

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19
(c) Retained Earnings/Accumulated Retained Earnings/Earned surplus
(i) Accumulated income of the business (less any distributions to owners)
• Accumulated profit/losses from all time periods

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Assets Liabilities $0
Cash $230,000

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Total $230,000 Equity
Stated capital: $10
par common, 2,000
shares $20,000
Capital Surplus $180,000
Earned Surplus $30,000
Total $230,000

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E) Limitations on corporate distributions
1) Transfer assets to shareholders—by dividends, capital or liquidating distributions,
stock redemptions, corporate repurchases
(a) DE GCL § 170- The director may declare and pay dividends out of surplus, or if
no surplus, out of net profits for the current or previous fiscal year
(b) NY BCL § 510- out of surplus only and prohibited where paying them would
make company insolvent
2) Equity insolvency test: prohibits distributions that would render a corp. insolvent or
unable to pay debts as they come due
3) Balance sheet tests
(a) Legal capital balance sheet test
(i) Several tests, which one is used depends in incorporating state statute
(ii) Surplus test (capital impairment test)
• Allows dividends to extent capital is not impaired; allows distributions
only when surplus exceeds stated capital
(iii) Earned surplus test
• Allows dividends to only come from earned surplus
(iv)Nimble dividends
• Allows dividends to come from current earnings even when surplus is
unavailable
(b) Modern balance sheet test (Post 1985 MBCA and most modern statutes use this)
(i) Requires only that, after a distribution, assets exceed liabilities + the total
amount that would have to be paid on liquidation to any senior preferred
shares (sometimes referred to as bankruptcy/insolvency test)
F) Distribution on balance sheet
1) Distribution of dividends reduces both assets and shareholders equity
2) Stock dividends increases number of shares outstanding without affecting amounts of
assets or liabilities, stated capital will increase, earned surplus will decrease.
3) Stock splits do not affect stated capital or surplus, will reduce par value to the ratio of
the stock split, but will not change overall stockholders equity amount
4) Repurchase and redemptions
(a) Reduce the assets and shareholders equity
(b) Under legal capital test, shareholders equity changes to reflect that repurchased or
redeemed stock becomes treasury stock. Earned surplus is restricted until treasury
stock is resolved, restored, or cancelled when repurchased; redeemed stock is just
cancelled or reverts to unissued.
(i) Post 1984 NBCA does away with treasury stock & it reverts to authorized but
unissued (a corp can reacquire its own stock as long as assets exceed liabilities
G) Duties and powers of the corporate structure (board of directors, officers)
1) Automatic self cleansing v. Cunningham “supermajority provision in charter”

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 (a) The machinery of a corp. can only be overridden by special resolutions, which
require 2/3 majority vote of shareholders
(b) The only way to change this would be to amend the charter with board approval
2) Jennings v. Pittsburgh Merc. Co. “the sell and buy back plan and the board disagrees”
(a) Court applied laws of agency: was not CEO so did not have actual authority, no
apparent authority because selling and buying back the company not in normal
course of VP or treasurer duties
3) Menard Inc., v. Dage-MTI “CEO sells corp. and board backs out”
(a) Board placed condition of approval on authority and CEO did not get that
(b) Inherent authority existed here. CEO was senior agent & would normally be
allowed to make such a decision, and board did not attempt to back out for a
hundred days. (rest 3d = no inherent authority)
H) The role and purpose of corporations
1) AP Smith v. Barlow “Charitable contribution to Princeton”
(a) Philanthropic giving is good for policy reasons and is allowable (a reasonable
amount is a profit making decision)
(i) Cannot make donations to pet charities
(b) NY § 202(a)(12)- anonymous giving is ok (donations allowable irrespective of
corporate benefit if it is good for the community)
2) Dodge Bros “Ford’s attempt at cheaper cars”
(a) Directors never have to award dividends, but they may also not withhold them
arbitrarily. (profit for shareholders must be a primary purpose of the corp)
(b) Some philanthropic giving is ok, provided it is attached to the long term goal of
profit for shareholders. But to keep money from shareholders to change the
purpose of the corp to philanthropy is too much.
(i) Ford should have couched his reasoning in benefit to the corporation, but he
chose to say he wanted to benefit the people with cheaper cars
• Can pretty much do anything in the interest of profitability as long as it is
for the good of the company
3) Shlensky v. Wrigley “no lights for the Cubs””
(a) Wrigley’s stated interests in preserving the neighborhood would serve a suitable
business purpose. Plaintiffs had burden to show otherwise and did not.
4) Business judgment rule: If corporation/directors show they were acting in the interest
of the business, using reasonable judgment, then they are protected from liability even
if was a bad decision
(a) To overcome must show fraud, illegality, conflict of interest, or complete
disregard for business interests
(b) An affirmative defense against a claim of breach of duty of care
I) Direct v. Derivative Actions
1) Direct = benefit to individual P/derivative = benefit to corporations (not class actions)

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 (a) Close corporation exception to derivative recovery—Court may allow recovery to
shareholders if the corp is not unfairly exposed to multiple claims, creditors are
not materially prejudiced, and recovery can be fairly distributed
(b) NY BCL § 626- (see long outline p.40)
2) Eisenberg v. Flying Tiger “reorganizing the airline pisses off shareholders”
(a) The state in which a federal court sits is the law which must apply in determining
whether to impose costs upon a plaintiff (make them post security)
(i) BCL § 627 NY security costs statute (NY courts ruled the statute will apply
whether or not substantive NY law applies in the case)
• Applies only to derivative actions
(ii) DE has no such requirement
(b) If the gravamen of the complaint is injury to the corp, it is derivative. If it is injury
to the plaintiff as stockholder, it is individual and may take the form of a
representative class action
(i) Derivative suits seek to gain a judgment in the corp’s favor
(c) If the complaint does not challenge the actions of mgmt on behalf of the corp, it is
not derivative. This complaint challenges the right of present mgmt to exclude
stockholders from participation in corp affair, thus, it is direct (or representative)
3) In re Oracle “The Stanford Professors and the special litigation committee (“SLC”)”
(a) The SLC did not meet its burden to show the absence of material factual question
regarding its independence, and enough doubt existed of it
(b) Financial ties, personal ties, pecuniary gain, etc. all compromise independence
J) Piercing the corporate veil
1) If shareholders are using the corporation for personal benefit/use/etc, and the
corporation serves as their personal alter ego, a court may pierce the veil
(a) If the corp is an extension of the person; corporate formalities are not followed;
funds are mixed; corp is used as an agent of the shareholder, etc.
2) Horizontal (enterprise liability) v. vertical
(a) Sister/parent/grandparent/subsidiary/holding company liability = horizontal
(i) Easier than vertical: will be granted where assets and resources are shared
among companies and they do not have separate identities
(ii) Courts likely to find joint liability where it appears structured to avoid liability
(b) Liability of shareholders = vertical (rare)
3) Walkovsky v. Carlton “Taxi corporate structure to avoid liability”
(a) Courts will pierce the corporate veil where necessary to prevent fraud or to
achieve equity
(i) Must show stockholders were acting for their own benefit, cannot pierce
merely because insurance was inadequate
(ii) There was no fraud as alleged, it is not fraudulent to have minimum insurance

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 (b) General rules of agency apply when determining whether to pierce (ie: when one
uses the corp to further personal rather than corporate purposes, he will be liable
per respondeat superior) (treat corp as an agent)
4) Sea-land Svcs Inc v. Pepper Sauce “the spicy case and the unpaid debt”
(a) The Van Dorn Test (IL rule for piercing)
(i) 1. Unity of interest between the corp and the individual such that separate
personalities no longer exist
• Factors showing this is the case
◊ Failing to maintain corp records or comply with corp formalities
◊ Mixing of funds and assets
◊ Undercapitalization
◊ Treating corp assets as one’s own/sharing assets and resources
(ii) 2. Adhering to the corporate fiction would endorse fraud or promote injustice
5) Kinney Shoe v. Polan “the unpaid property lease”
(a) 2-prong test (WV law) with a 3rd to apply in certain cases
(i) 1. Unity of interest and ownership between the owner and the corp. such that
separate personalities no longer exist
(ii) 2. Would an inequitable result occur if the corp form was upheld?
(iii) 3. In certain cases: If it would be reasonable for a party to investigate
creditworthiness prior to entering contract, the party will be charged with the
knowledge that such due diligence would disclose. (only used in context of
financial institution lending)
• Following this third prong would have resulted in inequity
(b) Here, the corp was a shell for Polan
(c) When nothing is invested in a corp., it provides no protection for its owner
(d) Corporate formalities must be followed
6) Perpetual Real Estate v. Michaelson “the condo joint venture”
(a) Also 2-prong test with a potential third (4th cir)
(i) 1. Corp was an alter ego for the individual (as shown by undue domination
and control over the corp., fail to observe corp. formalities, etc)
(ii) 2. The corp was a device to disguise legal wrongs, fraud, or crime (why the
court overturned ruling below, did not prove)
(iii) 3. Parties entering contract have done so willingly and assumed a duty to
investigate risk (similar to WV test)
K) Equitable subordination (turning debtor claims into equity)
1) When outside creditors cannot be paid due to a lack of corporate funds, and inside
creditors possess claims, those claims may be subordinated to the outside creditors
when necessary to ensure equity and fairness
2) Costello v. Fazio “the plumbers fudge funds” (9th cir)

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 (a) Test—“Whether the transaction can be justified within the bounds of reason and
fairness”
(i) Here, inequitable conduct resulted in creditors not able to get paid
• Rules of equitable jurisprudence apply
◊ The corp. was left undercapitalized as a result of the withdrawal
• Where the claim is found to be inequitable, it may be set aside or
subordinated to the claims of other creditors
(ii) Fraud or misrepresentation is not necessary, only inequity
(iii) Where the claims are filed by fiduciaries of the corp, a different test
applies: “whether or not, under all the circumstances, the transaction carries
the earmarks of an arm’s length bargain (under either test, this claim fails)
L) Duty of care
1) ALI Principles of Corporate Governance require a director or officer to perform
functions: in good faith; in a manner they reasonably believe to be in the best interest
of the corp.; with the care an ordinarily prudent person would reasonably be expected
to exercise in a like position under similar circumstances (ie: the 3 duties of
obedience, loyalty, care)
(a) Duty of obedience: fiduciaries must act consistently with the legal documents that
create their authority, following all procedural requirements set forth
(b) Duty of loyalty: fiduciaries must exercise authority in a good-faith attempt to
advance corp. purposes. Bars officers and directors from competing with the corp,
appropriating its property, information, or opportunities, and unfair transactions
(c) Duty of care
(i) Reaches every aspect of an officer or director’s conduct
(ii) Requires fiduciaries to act with the care of an ordinarily prudent person in the
same or similar circumstances
(iii) But the law still insulates officers and directors from liability based on
negligence, to avoid risk averse conduct in management of the business
• Business judgment rule
◊ The acts of directors or officers are entitled to a presumption of good
faith, and the challenger of the action has the burden to disprove
2) Kamin v. AMEX “waste in decision to pay dividends?”
(a) Courts will not interfere with business judgment of the board unless there is
illegality, or unconscionable result (fraud, illegality, self-dealing)
(b) The issuance of dividends is exclusively a matter of business judgment
(c) Just because a business decision was a poor one does not incur liability
(i) If it was done in good faith on behalf of the shareholders (good faith requires
following a rational process)
3) Gagliardi v. Trifoods “attemot to recover losses from mismanagement”
(a) No claim can be stated based on mismanagement alone

27
 (i) If management undertaken in good faith, entitled to business judgment rule
(b) Where a director is independent and disinterested there can be no liability for
corporate losses, unless the facts are such that no person could possibly authorize
such a transaction if they were attempting in good faith to meet their duty
4) Smith v. VanGorkom “the hasty decision to sell” (DE)
(a) Amends business judgment rule to require informed good faith.
(i) There is a presumption of informed good faith in the best interest of the
company; plaintiffs must rebut the presumption that judgment was informed
(ii) There is no protection for unintelligent or unadvised decisions—but the
standard is gross negligence
• If using informed business judgment, by definition, not grossly negligent
(b) Here, directors breached duty because failed to inform themselves of all
information reasonably available and relevant to their decision
(i) Additionally, their failure to disclose all information reasonably available and
relevant to the shareholders, the shareholder vote is reversed
• Ratification of shareholders only gets board of the hook if it is informed
(c) To avoid VanGorkom problem
(i) Get a fairness opinion
• An independent third party evaluation (usually by investment banks)
(ii) Or a real expert to say on the record that waiting for an evaluation not possible
• Proper credentials
• Get one for any value determination
• Make them write reports
(iii) Have a valid business reason for everything
(iv)If lose business judgment rule protection must prove the deal was fair
5) Informed business judgment rule
(i) Must make a contextual decision based on fact
(ii) Requires disclosure (duty of disclosure/candor) of all material facts
reasonably available and relevant to enable shareholders to make informed
decision; also requires truthtelling to shareholders
6) NY BCL § 402(b) (and DE GCL § 102(b)(7))
(i) Corporations may add indemnification provision to charter/certificate with
shareholder approval
(ii) Except cannot indemnify where there is bad faith, misconduct, personal gain,
or knowing violation of the law
7) NY BCL § 717 Duty of directors (see long outline p.53)
8) Francis v. United Jersey Bank “liability for nonfeasance” (not DE, pre-VanGorkom)
(a) The easiest way to violate the duty of care is to not show up or pay attention
(i) Even if there was no fraud, illegality, or conflict of interest
(b) A director must

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 (i) Read financials, know enough about business to understand what is going on
• Acquire at least a rudimentary understanding of the business of the corp
(ii) Keep informed of the activities of the corp
• Does not require detailed inspection, but a general monitoring of corporate
affairs and policies; and a familiarity with financial status
(iii) May not shut their eyes to corp misconduct and claim they did not know
M) Duty of loyalty—directors and managers (requires accusation of pecuniary motives/self-
dealing)
1) Bayer v. Beran “the rayon radio singer and ads”
(a) Business judgment rule still applies where directors use some care, diligence, or
prudence in their actions on questions of policy, mgmt, expediency, etc
(i) Not all self-dealing is unfair/bad
(b) Failing to observe formal corporate procedural requirements alone is not fatal
(c) TEST- When disloyalty (improvidence) is alleged, the court must determine
whether the director “intended to serve some outside purpose, regardless of the
consequences to the company, and in a manner inconsistent with its interests”
2) DE GCL § 144- a contract or transaction will not be automatically void or voidable
just because 1 or more of its directors or officers, or between corps has a financial
interest or participates in the authorization of the transaction if
(a) The material fact as to the relationships are disclosed to the board or committee
and approved by majority of disinterested directors, or by vote of shareholders
(b) The transaction is fair to the corp at the time entered into
(c) Common or interested directors may be counted in determining a quorum
3) NY BCL § 713 (essentially the same as DE)
N) Duty of loyalty—corporate opportunities (requires pecuniary motive)
1) Broz v. Cellular Information Systems “competing cell service license apps”
(a) 4-factor test for corporate opportunity
(i) 1. Presenting the opportunity to the corporation
(ii) 2) Financial capability of the corporation to have taken advantage of the
opportunity in question
(iii) 3) Cognizable interest or expectancy in the opportunity by the corp
(iv)4) Conflict between the interests of the individual and the corp
(b) Corporate opportunity doctrine is only implicated where the fiduciary’s seizure of
an opportunity results in a conflict between the fiduciary’s duties to the
corporation and the self-interest of the director received from the seizure.
2) In re E-Bay “derivative suit for private offerings not offered to Ebay”
(a) Satisfied all 4 factors of the test
(i) Ebay never given opportunity to turn down offer
(ii) Ebay was able to purchase shares financially
(iii) Ebay was in the business of investing in securities
(iv) There was a conflict between the personal interests of the officers and Ebay
3) Duty of good faith/duty to monitor
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 (a) Created upon rearguing in Disney (see also GCL § 102, long outline p.58)
(i) In re Walt Disney “derivative suit for good faith breach”
• Unable to rebut presumption of good faith business judgment here
◊ Discussed compensation with experts & relied on that; also relied on
advice of general counsel in determination to fire
• Hiring for much money was not waste because company became more
productive after he was hired
• Analogizes faith on a continuum between good and bad
◊ Consciously, knowingly, or intentionally disregarding an obligation is
in the middle, but still counts as bad faith
(b) Stone v. Ritter “A blind eye to Ponzi schemes” (2006)
(i) Federal law here had mandatory reporting requirement on bank managers to
report suspicious activity, they did not, fined 50 million
(ii) There is no independent duty of good faith, rather it is part of the duty of
loyalty
• Acting in good faith is a condition precedent of the duty of loyalty
◊ Acting with a purpose other than benefitting the corp, violates duty of
loyalty
• Where directors fail to act in the face of a known duty to act, thus with
conscious disregard, they breach their duty of loyalty by failing to
discharge that fiduciary obligation in good faith
(iii) There is an obligation to monitor, if none, can be assumed there is
indifference
• Duty to monitor also part of duty of loyalty
(iv)Waiver of demand does not apply here because there is no allegation that the
board is not independent or contravening the duty of loyalty
O) Dominant shareholders and preferred stock
1) Sinclair Oil v. Levine (DE 1971) “favoring majority over minority shareholders”
(a) Shareholders do not have a fiduciary duty unless they are a controlling majority
(b) No self-dealing
(i) Levine got his proportionate share like everyone else. Self-dealing requires
detriment to corp., or minority shareholders
(ii) The 1) motive must be improper, and 2)must amount to waste
(iii) Court admits there was self-dealing, but it was fair, so business judgment
rule applies
(c) There was breach of contract
(i) Minority did not get share because contracts were breached; this was not
intrinsically fair under GCL § 144
(d) No loss of corporate opportunity
(i) Other subsidiaries got the opportunities, defer to business judgment on
decision to do this
(e) Should have just bought out the minority shareholders and avoided all the mess
2) Zahn v. Transamerica (3d cir 1947) “redemption of tobacco class a stock undervalue”
(a) Self-dealing here (so no biz jud rule)
(i) They liquidated the corporation in a way that was unfair to one of the classes
of stock (siphoned off A shareholders for low cost before liquidation)
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 • Because charter gave class a stock 2 to 1 liquidation payments
(b) Directors had duty to disclose real proper knowledge of opportunity to get their
investment back at liquidation
VII) Limited Liability Companies (LLC’s)
A) Characteristics
1) Owners enjoy limited liability, and
2) Flexibility to take on the management powers of general partners without
jeopardizing their limited liability
3) Flow-through taxation similar to general and limited partnerships (single tier)
4) Many LLC’s emerging lately as statutes are enabling them
B) Water Waste & Land D/B/A/ Westec v. Lanham (CO 1998) “the business card not
identifying LLC”
1) The statutory constructive notice provision applies only when a third party seeks to
impose liability on LLC members simply due to their status as members of an LLC
(a) Here, sued under agency theory instead (undisclosed principal)
(b) To avoid fraud, statutory notice applies only when third party knows the name of
the business they are dealing with
2) The members could have made clear they were acting on behalf of an LLC to escape
liability
C) The operating agreement
1) Elf Atochem v. Jaffari “the joint venture for solvent and arbitration forum clause”
(a) The DE LLC Act intended to give broad discretion and flexibility in drafting
agreements, with defaults if nothing specified. Members may contract for
whatever they want as long as does not contradict the Act.
(b) The failure of one party to sign the operating agreement makes no difference
when entry was agreed to
(c) Public policy favors arbitration
D) Piercing the LLC Veil
1) Kaycee Land and Livestock v. Flahive (WY 2002) “lease of above ground land and
contamination by insolvent corp.”
(a) There is no reason in law or policy to treat LLC’s any differently from
corporations when determining whether to pierce the veil
(i) However the factors may differ, given the flexibility in management offered
E) Fiduciary obligation
1) McConnell v. Hunt Sports (OH 1999) “the Columbus Hockey franchise”
(a) Extrinsic evidence of the meaning of the operating agreement to determine intent
of the parties will only be admitted if the contract is clear or ambiguous, or the
circumstances surrounding the agreement afford special meaning
(i) Words will be given ordinary meanings to determine clarity, unless manifest
absurdity results or some other meaning is clear on its face or in context
(ii) Here, the agreement allows for competition between parties
(b) An operating agreement may limit a fiduciary duty
VIII) Closely Held Corporations
A) Characteristics
1) Partnership-type owner-management rights AND corporate-type limited liability
(a) Can be incorporated partnerships
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 2) Membership limited/not public
(a) Few shareholders (who are often officers and directors and take returns as tax
deductible salaries instead of dividends)
3) Incorporated for tax liability purposes instead of raising capital
4) Charters
(a) May restrict transferability, or buy-sell agreements
(b) May commit to make further capital contributions
5) Difference between public and close corps
(a) Public have a class of securities held by 500 or more people and assets of 1
million + (always C corporations)
(b) Closely held corps may be C corps or subchapter S corps if they qualify and
shareholders elect to do so
(i) Subchapter S corps get flow through tax treatment
• It is a federal law election, not state; and should be chosen wherever
possible
(ii) Advantages of an S corp
• Income or loss flows through to the shareholders (like partnerships)
◊ Prevents gains/losses from recognition twice
◊ Losses passing through to shareholders do not include portion of corp
debts, like in a partnership
◊ Pro rata allocation of shares
• If losses are expected in 1st year, best to organize as S corp
• Assets that appreciate should be held by an S corp when possible
• Comes with all the other benefits of a corp (limited liability, centralized
mgmt, ease of raising capital, continuity of life, free transferability
• Avoids tax disadvantages of C corps (double taxation)(no need to zero out
balance sheet and avoid paying dividends)
B) Control issues in closely held corporations
1) Galler v. Galler (IL 1964) “leaving bro’s widow out in the cold”
(a) Court finds the shareholder agreement enforceable as it did not harm creditors or
the minority shareholder.
(i) Need to give shareholders flexibility in determining terms of the agreement
(ii) In a small corporation with no market, need to protect shareholders
(b) Even though agreement technically impinges on the power of the directors, that is
not enough to void it (reasonable encroachment ok, if no harm is caused, or
objections raised)
2) NY BCL § 620(b)—makes shareholder agreements possible as long as it is in the
articles of incorporation and legend on all shares
(a) Directors cannot enter voting agreements; must maintain independence
3) Ramos v. Estrada “Broadcast group v. Ventura”

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 (a) Shareholder agreement included terms requiring sale of all shares with interest if a
shareholder breaches agreement (Ms. Estrada did, in voting contrary to majority)
(b) Voting agreements are enforceable, this was not a proxy
4) Wilkes “freeze out of one of four partners”
(a) Shareholders owe a fiduciary duty to other shareholders in close corporations
(i) Utmost good faith and fair dealing
(ii) Must have legitimate business purpose to cause injury to minority
(iii) Harmed shareholder can show ends were accomplishable without harm if
get to this step
(b) Court could have found the same result following the corporate doctrine of self-
dealing because Wilkes’ salary went to the other partners.
IX) Securities Laws
A) Rule 10(b)(5)
1) Text
(a) Shall be unlawful for any person...to use manipulative or deceptive device in
contravention of rules and regulations the Commission prescribes
(b) Prohibits nondisclosure and misrepresentation, and any “artifice to defraud”, and
any act “which operated or would operate as a fraud or deceipt”
2) Basic Inc v. Levinson (1988 SCt) “Denied negotiations of merger to the public”
(a) Private cause of action exists for 10(b)(5)
(b) Elements/requirements of 10(b)(5) violation
(i) Manipulative or deceptive act
(ii) in connection with a purchase or sale
(iii) duty to disclose
(iv)scienter
(v) confidentiality
(vi)materiality (the issue here) (aka: reliance; causal connection between the
misrepresentation and the injury, this is presumed, “Presumption of reliance”)
• information concerning merger discussions is not excluded from the
materiality definition as they are significant to the trading decisions of the
reasonable investor
◊ materiality of premerger discussions is to be determined on the
particular facts of the case
◊ premerger discussions can become material earlier than lesser
transactions would, even given failed merger rates
• an omitted fact is material if there is a substantial likelihood it will affect
how a shareholder votes-- Depends on the significance the reasonable
investor would place on the withheld or misrepresented information
• 2 rules (magnitude/probability test adopted)

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 ◊ Agreement in principle rule: merger discussions not material until
“agreement in principle” has been reached as to price and structure of
the transaction (not followed here)
◊ Magnitude/probability rule: materiality depends on balancing the
indicated probability that the event will occur and the anticipated
magnitude of the event in light of the totality of the company activity
⇒ Magnitude
♦ Consider the size of the two corporate entities and the potential
premiums over market value
⇒ Probability
♦ Look to indicia of interest in the transaction at the highest
corporate levels (board resolutions, instructions to investment
bankers, and actual negotiations between principals or
intermediaries serve as indicia of interest)
(vii) Bases materiality finding on “fraud on the market theory”
• Prices of stock are determined by available material information
• Misleading statements will defraud purchasers of stock even if they do not
rely on the misstatements
• Leads to Presumption of reliance
◊ Allows assumption of facts where proving them would be difficult
◊ An investor’s reliance on material misrepresentations is presumed
◊ However, any rebuttal that severs the presumed connection between
the reliance and the injury (either the price received or the decision to
trade) will suffice to defend here
3) Short form merger and appraisal rights
(a) Santa Fe v. Green (1977 SCt) “Kirby buy-out for low value”
(i) Turn to the text of the 1934 act to decide whether states a claim for fraud
(ii) The alleged conduct was not deceptive or manipulative; no claim stated for
10b-5 violation here; should have sought appraisal in chancery court
(iii) Manipulation or deception are necessary elements of 10b-5 actions, a case
states a 10b-5 claim only if conduct alleged can be fairly viewed as
manipulative or deceptive
• There was no omission, misstatement, failure to disclose
◊ Shareholders were provided all the relevant information
• Conduct was also not manipulative (ie: wash sales, matched orders, rigged
prices, artificially affecting market activity)
◊ Corporate mismanagement not under 10b-5

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 (iv)No cause of action where disclosure occurred; or, where cause of action is
traditionally one relegated to state law (P’s were offered a remedy in DE
chancery court appraisal, must use it)
4) Insider trading
(a) SEC v. TX Gulf Sulphur (2d cir 1969) “Massive copper strike denied publicly and
insiders traded quickly”
(i) All purchasers by persons apprised of the drilling results were made in
violation of 10b-5 (even the one who bought stock just after disclosure
occurred because the news did not have time to penetrate the market yet; ie:
“appear over the media of widest circulation like Dow Jones tape)
(ii) The information traded on must be
• Confidential
◊ Duty to keep information confidential and not make capital gains from
it (2 choices, disclose or abstain)
• Non public
◊ Omission occurs here because you are not disclosing material
information to the people you are trading with
• Material
◊ Such that would incite action/that one would consider important in
deciding whether to trade or not (that a reasonable investor would have
relied on it)
(iii) Tippees are like accessories after the fact, and are just as guilty (but not
before the court here)
• Tippees are those that get the information from the insider
(b) Chiarella v. US (SCt 1980) “the printing employee’s lucky day”
(i) NOT in violation of 10b-5 because he was not an insider of the corporation
whose shares were being traded (no relationship of trust/fiduciary duty
between Chiarella and the shareholders of the traded corp)
• Silence can only be a 10b-5 violation where there is a duty to speak
(ii) SEC created rule 14e-3 after this ruling to create cause of action against non-
fiduciaries in cases of tender offers
(c) Dirks v. SEC (SCt 1983) “the investigator/tipper tips off his clients”
(i) Limitations on trading only exist where there is a breach of fiduciary duty
owed to the corporation being traded
(ii) 3 factors required for insider trading violations
• 1. Breach of a fiduciary duty
• 2. With a pecuniary or personal motive
• 3. To trade in securities

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 (iii) A tippee can be equally liable ONLY if they know or have reason to
know that the information was disclosed to them in breach of a fiduciary duty
of the tipper to the corp being traded
B) Rule 14(e)
1) US v. O’Hagan (SCt 1997) “the crooked lawyer and the 14e-3 challenge”
(a) Misappropriation of information breaches the fiduciary duty
(b) To be a 10b-5 violation requires deceit, here, it was feigning loyalty to the
company while misappropriating information
(c) 14e-3 makes trading on material, confidential, non-public information on a tender
offer illegal, regardless of fiduciary duty or connection to company being traded
(d) 14e-3 challenge
(i) The 1934 Act clearly gives SEC broad discretion to promulgate rules on
tender offers
(ii) 14e-3 is not arbitrary, capricious, or manifestly contrary to the statute
C) Takeovers
1) Cheff v. Mathes (DE 1964) “threats and greenmail”
(a) Greenmail- a defensive action to fend off takeover; buying out shareholder at a
premium to fend off takeover of majority
(i) Not good solution because not structural; probably agreed not to turn around
and purchase more shares and threaten again, but that does not someone else
from trying the same threat (can’t greenmail everyone)
(ii) Defensive action is permitted if:
• Actions of the board were motivated by a belief that buying out the hostile
stockholder was necessary to maintain what the board believed to be
proper business practice (business judgment rule applies)
◊ Burden on the board to shoe reasonable grounds for belief that a
danger to corporate policy and effectiveness existed (must show good
faith to retain business judgment rule)
• NOT if board acted solely or primarily for desire to perpetuate their office
◊ Using funds for this purpose is improper and breach of duty of loyalty
◊ Can be A motive, just not the primary one
(b) NOW—IRS imposes severe tax penalty on greenmailing, so not done anymore
2) Unocal Corp v. Mesa Petroleum(DE 1985)“going into debt to buy shares for shutout”
(a) The actions taken here were permissible given the circumstances
(b) Discriminatory offer held ok here, but the SEC later regulated against them
(c) Directors are not entitled to presumption of business judgment rule where acting
to avoid takeover (too much potential for self-dealing)
(i) 3-part test to determine worthiness for business judgment rule
• 1. Cognizable threat: board has burden to show reasonable grounds for
believing a danger to corp policy and effectiveness existed

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 ◊ Factors—inadequate price offered, nature and timing of offer,
illegality questions, impact on creditors, employees, customers,
community, risk of non-consummation, quality of securities being
offered in exchange
• 2. Proportionality: response taken was reasonable to the perceived threat
to the company
◊ An action is reasonable if not preclusive or coercive
• 3. Good faith and investigation
◊ Showing is materially enhanced by approval of the board of majority
outside independent directors who met first 2 prongs
(ii) Unocal applies to all defensive devices
3) “shark repellents” – actions to prevent takeovers
(a) Could buy a company that competes with the company attempting takeover and
hope anti-trust law will prevent acquisition
(b) Self-tender—buying own stock
(c) “poison pills”
(i) In shareholder agreement or charter create special goodies for shareholder’s
stock that acquirer’s stock will not get. “poison’s” the pot so the acquirer does
not want it anymore as not beneficial to them
• Ie: if someone buys over 25% of stock, the minority shareholder get
option to purchase additional stock for a very deep discount
◊ This reduces value of all shares and dilutes value of what acquirer gets
(ii) “flip”—getting option to buy stock in the company before a takeover
(iii) “flip over”—getting to buy stock in the new company at a deep discount
(iv)Directors are often permitted to rescind poison pills to enable ideal
acquisitions
(d) Poison debt—acquiring debt to make the company unattractive
4) Revlon v. MacAndrews & Forbes (DE 1985) “the lock-up to fend off Pantry Pride”
(a) Business rule applies if directors were informed, acted in good faith, and in the
best interests of the company
(i) Business judgment rule applies in the face of imminent takeover, if directors
acted in good faith, informed, and in best interests of the
company/shareholders
(ii) Breach of fiduciary duty occurred when entering lock-up agreement to shut
out Pantry Pride and ending auction. The auction prices were steadily going
up and that would have been good for the company and the shareholders. By
entering the lock-up, it was done on impermissible considerations at the
expense of the stockholders.
• Cannot play favorites to the detriment of stockholders
◊ Here, Revlon had personal dislike for Pantry Pride owner

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 • Forstman’s offer was not much better than Pantry Pride’s
• Forstmans’ promise of director indemnification upon merger shows they
were acting improvident in the deal
(b) Once takeover is imminent, a director’s job is to get the best price for the
shareholders—meaning lock-ups can never be a good thing as it prevents offers
(i) When the company is about to be sold, typical fiduciary duties are replaced
with this one for best price—key point is where they know they can no longer
preserve the company as is
(c) Revlon duties
(i) Triggered at point in which sale or change of controls is imminent
• Ie: a cash tender offer, a bust-up deal, a deal causing a diffusely held
company to come under the control on an individual
(ii) Strict shareholder welfare in maximization of price
• Board can still decide the process used to maximize shareholder value
◊ Often stirring up an auction
◊ If there is only one bidder, perform a market check to make it known
that the corporation is for sale and see if you get a better offer
5) Paramount Communications v. Time Warner (DE 1989)
(a) Revlon only applies where the integrity of the acquired company will be
fundamentally altered upon the acquisition. It is this point where the duty
changes to get the best price for the shareholders.
(i) Revlon does NOT apply where the management and company being bought
will stay intact
(b) Analysis (Unocal, then Revlon)
(i) Unocal
• Cognizable threat
◊ Inadequate value os not the ONLY cognizable threat
◊ Threats to strategic plan of corporation also merit defensive action
• Proportionality
◊ Board not required to abandon previous plan unless there is clearly no
basis to sustain the corp strategy
◊ Reasonable because no coercive, Paramount could still make an offer
for the entire corporation
• Starts to look like business judgment rule so Unocal duties only apply
when Revlon also applies
(ii) Revlon
• Does NOT apply here
◊ Applies only when

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 ⇒ 1. A corp initiates an active bidding seeking to sell itself or to
effect a business reorganization involving a clear breakup of the
company, or
⇒ 2. When in response to a bidder’s offer, a target abandons its long
term strategy and seeks an alternative transaction involving the
breakup of the company
◊ A defensive response to a hostile tender offer that is NOT an
abandonment of the corporation’s continued existence does not trigger
Revlon duties, only Unocal duties—structural safety devices do not
trigger Revlon
⇒ Look to the form of the transaction
♦ A cash tender offer is more likely to trigger Revlon because it
changes the status of shareholders
(c) Paramount v. QVC (DE 1994)
(i) The deep rationale of Revlon is that it is the last chance for shareholders to get
an exit premium for their shares—so Revlon duties apply
• Here, Paramount would go from diffusely held to held by an individual
◊ This changes makeup and control of corp, also status of shareholders
and their rights
6) Summary on takeovers
(a) When defending against takeover—Unocal duties
(b) When inevitable that the corporation will be sold—Revlon duties
(c) If deciding to sell and use deal protection devices—BOTH duties apply

39