Business associations — страница 9

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board is fully informed of the opportunity), then the dir may pursue it. b)Defenses (available in most, but not all jurisdictions): 1)Inability--If the corp is legally or financially unable to take the opportunity, then the dir generally may take advantage of it. (But the question of who caused the financial inability is quite relevant. Example: Irving Trust Co--the defense of inability was rejected). 2)Rejection, abandonment, or approval--then the fiduciary has a valid defense. c)Remedies--constructive trust or damages--the fiduciary must account to the firm for all the profits he has made as a result of usurpation. d)Definition of a Corporate Opportunity: 1)Line of business test--does the firm have fundamental knowledge, practical experience, and ability to pursue the

opportunity? If yes, then it is within the firm’s line of business. It should be a natural fit, and not a mere desire by a firm to pursue the opportunity. 2)Interest/expectancy test e)Application--Guth Rule and Corollary: 1)Guth rule (offered in corporate capacity)--if there is presented to O/D a business opportunity which the corp is (1)financially able to undertake, which is from its nature (2a) in the line of business and is of practical advantage to it OR (2b)is one in which the corp has an interest or reasonable expectancy (under an established corporate policy or plan), and, (3)by embracing the opportunity the self-interest of the dir will be brought into conflict with that of his corp, then officer or dir may NOT take the opportunity. 2)Guth corollary (a safe harbor;

satisfy all provisions and dir can take)--if a business opportunity (1)comes to O/D in his individual capacity and (2) is not essential to the corp and is (3)one in which corp has no interest or expectancy, then the O/D can treat it as his own, IF he has not taken corporate resources to pursue the opportunity. I)”Essential”--indispensably necessary to the continued viability of the firm; ii)Individual or corporate? Look at O/D capacity to determine how offer was made 5.COMPETING WITH CORPORATION--such competition by a dir or officer may be a breach of fiduciary duty even when the competing business is not a corporate opportunity 6.COMPENSATION FOR SERVICES TO THE CORPORATION--the compensation plan must be duly authorized by the board, and its terms must be reasonable. Good

faith and the BJR ordinarily protect disinterested dirs from liability to the corp for approving compensation. a)Publicly Held Corporations--The SEC has authorized shs to make proposals about executive pay in management’s proxy statements. Further, the tax code now limits expense deductions for executive pay over $1mln, unless it is tied to the corp’s performance. b)Past and Future Services--compensation for past services is generally invalid. Compensation for future services is proper if there is reasonable assurance that the corp will receive the benefit of the services. VI.INSIDER TRADING--purchase or sale of securities by someone with access to material nonpublic information. It may be illegal. It affects corps with more than $1 mln in total assets and with at least

500/750 shs. a)Who may be hurt by insider trading: 1)Target shareholders--they sell too early; 2)Other arbitrageurs--they lose a portion of the gain that they make from honest effort 3)Other issuers--they lose confidence in the stock market 4)The acquiring company--insider trading drives up their cost of acquisition, since the target may adopt defensive measures otherwise not in place. b)Possible Sources of Liability: 1)Common Law; 2)10b-5 traditional; 3)10b-5 misappropriation theory (O’Hagan); 4)Mail or wire fraud; 5)14e-3; 6)Statutory liability under 16(b)--insiders are forced to give their profits to the corp, if the y buy and sell securities within a 6-month period regardless of whether they are using insider info. (Need to know 2, 3, 6) c)O’Hagan--insider trading

violation where a partner in law firm took info rom his firm regarding the firm’s client’s plans for acquisition of Pillsbury and used that info to buy shares in Pillsbury d)Penalties For Insider Trading--ITSA (Insider Trading Sanctions Act)--3 measures: 1)Out-of-pocket measure--if a sh buys a share for $10, while in fact it costs $9, his out-of-pocket expense is $1. 2)Causation-in-fact--because an insider engaged in insider trading, it caused a loss 3)Disgorgement--we look at D’s profit. ITSA measures the damage to sh by the amount of profit that D received from the transaction. 2)SEC civil penalties--treble damages; SEC may seek penalty capped by three times profit gained or loss avoided. A.COMMON LAW--under the majority rule, there was no duty to disclose to the shs