Corporate law in the United States
Corporate law in the United States is a collection of over 50 different systems of corporate law, or one law for each state. Two sources of law are, however particularly important: the Model Business Corporation Act (MBCA), drafted by the American Bar Association was influential and adopted by twenty four states; and because companies are free to incorporate in any state under the United States Constitution, regardless of whether they are doing business or are headquartered there, many corporations have found Delaware's laws and specialized courts attractive. More than half of US corporations are incorporated under the Delaware General Corporation Law (DGCL), and Delaware corporate law is particularly influential. The corporate laws of large states such as New York and California are also important.
State laws govern corporations' mechanics, but many federal laws are also applicable. Publicly traded corporations must comply with federal securities laws, the most important of which are the Securities Act of 1933 and Securities Exchange Act of 1934. The Sarbanes-Oxley Act of 2002 (SOXA) imposed many new rules on public corporations. Corporations must also comply with the wide variety of federal laws governing employment, environmental protection, food and drug regulation, intellectual property and other areas.
- 1 History
- 2 Corporations and civil law
- 3 Corporate governance
- 4 Directors' duties
- 5 Minority shareholder protections
- 6 Mergers and acquisitions
- 7 Corporate finance
- 8 Theory
- 9 See also
- 10 Notes
- 11 References
- 12 External links
Most corporate charters were, and still are, regulated by the states. Prior to the late 19th century, most companies were incorporated by a special bill adopted by legislature. By the end of the 18th century, there were about 300 incorporated companies in the United States, most of them providing public services, and only eight manufacturing companies. In the early 19th century, states began to enact corporation laws. New York was the first state to enact a corporate statute in 1811. The 1811 New York corporate law allowed for the formation of limited liability corporations with a simple registration system; however, this was only available for manufacturing companies. New Jersey followed New York's lead in 1816, when it enacted its first corporate law. In 1837, Connecticut adopted a general corporation statute that allowed for the incorporation of any corporation engaged in any lawful business. Delaware did not enact its first corporation law until 1883.
These early state corporation laws were all restrictive in design, often with the intention of preventing corporations for gaining too much wealth and power. Investors generally had to be given an equal say in corporate governance, and corporations were required to comply with the purposes expressed in their charters. Therefore, some large-scale businesses used other forms of association; for example, Andrew Carnegie formed his steel operation as a limited partnership and John D. Rockefeller set up Standard Oil as a corporate trust.
Until the late 19th century, the formation of a corporation usually required an act of legislature. State enactment of corporation laws, which was becoming more common by the 1830s, allowed companies to incorporate without securing the adoption of a special legislative bill. However, given the restrictive nature of state corporation laws, many companies preferred to seek a special legislative act for incorporation to attain privileges or monopolies, even until the late nineteenth century. In 1819, the U.S. Supreme Court granted corporations rights they had not previously recognized in Trustees of Dartmouth College v. Woodward. The Supreme Court declared that a corporation is not transformed into civil institution just because the government commissioned its corporate charter; and, accordingly, it deemed corporate charters "inviolable" and not subject to arbitrary amendment or abolition by state governments.
In the late 19th century, state governments started to adopt more permissive corporate laws. In 1896, New Jersey was the first state to adopt an "enabling" corporate law, with the goal of attracting more business to the state. As a result of its early enabling corporate statute, New Jersey was the first leading corporate state. In 1899, Delaware followed New Jersey's lead with the enactment of an enabling corporate statute, but Delaware only became the leading corporate state after the enabling provisions of the 1896 New Jersey corporate law were repealed in 1913. Despite the fact that New Jersey changed its corporate law again in 1917 to reenact an enabling corporate statute similar to the repealed 1899 enabling statute, corporations had relocated to Delaware for good; Delaware has been the leading corporate state since the 1920s.
In 1890, Congress passed the Sherman Antitrust Act, which criminalized cartels that acted in restraint of trade. While the case law developed, which eventually began cracking down on the normal practices of businesses who cooperated or colluded with one another, corporations could not acquire stock in one another's businesses. However, in 1898, New Jersey, at the time the leading corporate state, changed its law to allow this. Delaware mirrored New Jersey's enactment in an 1899 statute that stated that shares held in other corporations did not confer voting rights and acquisition of shares in other companies required explicit authorization. Any corporation created under the Delaware General Corporation Law (DGCL) could purchase, hold, sell, or assign shares of other corporations. Accordingly, Delaware corporations could acquire stock in other corporations registered in Delaware and exercise all rights. This helped make Delaware increasingly an attractive places for businesses to incorporate holding companies, through which they could retain control over large operations without sanction under the Sherman Act. As antitrust law continued to tighten, companies integrated through mergers fully.
Limited liability was a matter of state law, and in Delaware up until 1967, it was left to the certificate of incorporation to stipulate “whether the private property of the stockholders... shall be subject to the payment of corporate debts, and if so, to what extent.” In California, limited liability was recognised as late as 1931.
- New York, Act Relative to Incorporations for Manufacturing Purposes of 1811, allowed for free incorporation with limited liability, but only for manufacturing businesses.
- Bank of the United States v. Deveaux, 9 U.S. 61 (1809) corporations have capacity to sue.
- Gibbons v. Ogden, 22 US 1 (1824) the right of Congress to regulate interstate trade under the commerce clause.
- Santa Clara County v. Southern Pacific Railroad Company, 118 U.S. 394 (1886)
- M Dodd, 'American Business Association Law a Hundred Years Ago and Today', in 3 Law: A Century of Progress: 1835-1935 (Reppy 1937) 254, 289
- AA Berle and GC Means, The Modern Corporation and Private Property (1932)
- Securities Act of 1933 and Securities and Exchange Act of 1934
Corporations and civil law
Corporations are invariably classified as "legal persons" by all modern systems of law, meaning that like natural persons, they may acquire rights and duties. All major public corporations are also characterized by holding limited liability and having a centralized management. When a group of people go through the procedures incorporate, they will acquire rights to make contracts, possess property, to sue for breaches of obligation, and likewise they can be responsible for torts, or other wrongs, and be sued. Although there is significant federal regulation, each of the 50 states has its own corporation law. Most large corporations, however, have historically chosen to incorporate in Delaware. The extent to which corporations should have the same rights as real people is controversial, particularly when it comes to the fundamental rights found in the United States Bill of Rights. As a matter of law, a corporation acts through real people that form its board of directors, and then through the officers and employees who are appointed on its behalf. Shareholders can in some cases make decisions on the corporation's behalf, though generally they remain passive investors. Otherwise, most corporations adopt limited liability so that generally shareholders cannot be sued for a corporation's commercial debts. If a corporation goes bankrupt, and is unable to pay debts to commercial creditors as they fall due, then in some circumstances state courts allow the so-called "veil of incorporation" to be pierced, and so to hold the people behind the corporation liable.
Incorporation and charter competition
Although every state will have slight differences in their requirements, the process of forming a new corporation is usually quick. A corporation is not the only kind of business organization that can be chosen. People may wish to register a partnership or a Limited Liability Company, depending on the precise tax status and organizational form that is sought. Most frequently, however, people will choose corporations which have limited liability for those who become the shareholders: if the corporation goes bankrupt the default rule is that shareholders will only lose the money they paid for their shares, even if debts to commercial creditors are still unpaid. A state office, perhaps called the "Division of Corporations" or simply the "Secretary of State", will require the people who wish to incorporate to file "articles of incorporation" (sometimes called a "charter") and pay a fee. The articles of incorporation typically record the corporation's name, if there are any limits to its powers, purposes or duration, identify whether all shares will have the same rights. With this information filed with the state, a new corporation will come into existence, and be so be subject to legal rights and duties that the people involved create on its behalf. The incorporators will also have to adopt "bylaws" which identify many more details such as the number of directors, the arrangement of the board, requirements for corporate meetings, duties of officer holders and so on. The certificate of incorporation will have identified whether the directors or the shareholders, or both have the competence to adopt and change these rules. All of this is typically achieved through the corporation's first meeting.
One of the most important things that the articles of incorporation determine is the state of incorporation. Different states can have different levels and rules on corporate tax, franchise tax, different shareholder and stakeholder rights, more or less stringent directors' duties, and so on. So far, federal regulation has affected more issues relating to securities markets than the balance of power and duties among directors, shareholders, employees and other stakeholders. The Supreme Court has also acknowledged that one state's laws will govern the "internal affairs" of a corporation, to prevent conflicts among state laws. Regardless of where a corporation operates in the 50 states, the rules of the state of incorporation (subject to federal law) will govern its operation. Early in the 20th century, it was recognized by some states, initially New Jersey, that the state could cut its tax rate in order to attract more incorporations, and thus bolster tax receipts. Quickly, Delaware emerged as a preferred state of incorporation. In the 1933 case of Louis K. Liggett Co. v. Lee, Brandeis J. represented the view that the resulting "race was one not of diligence, but of laxity", particularly in terms of corporate tax rates, and rules that might protect less powerful corporate stakeholders. Over the 20th century, the problem of a "race to the bottom" was increasingly thought to justify Federal regulation of corporations. The contrasting view was that regulatory competition among states could be beneficial, on the assumption that shareholders would choose to invest their money with corporations that were well governed. Thus the state's corporation regulations would be "priced" by efficient markets. In this way it was argued to be a "race to the top". An intermediate viewpoint in the academic literature, suggested that regulatory competition could in fact be either positive or negative, and could be used to the advantage of different groups, depending on which stakeholders would exercise most influence in the decision about which state to incorporate in. Under most state laws, directors hold the exclusive power to allow a vote on amending the articles of incorporation, and shareholders must approve directors' proposals by a majority, unless a higher threshold is in the articles.
In principle a duly incorporated business acquires "legal personality" that is separate from the people who invest their capital, and their labor, into the corporation. Just as the common law had for municipal and church corporations for centuries, it was held by the Supreme Court in Bank of the United States v. Deveaux that in principle corporations had legal capacity. This means corporations can make contracts and other obligations, sue for breaches, hold property, and likewise be sued. Beyond the core of private law rights and duties the question has, however, continually arisen about the extent to which corporations and real people should be treated alike. Corporations are typically capable of commanding greater economic power than individual people, and the actions of a corporation may be unduly influenced by directors and the largest shareholders.
- Dartmouth College v. Woodward
- Paul v. Virginia, 75 U.S. 168 (1869), a corporation was not a citizen within the meaning of the Privileges and Immunities Clause
- Santa Clara County v. Southern Pacific Railroad, 118 U.S. 394 (1886) corporations are entitled to protection of the Fourteenth Amendment
- Buckley v. Valeo, 424 U.S. 1 (1976)
- Citizens United v. Federal Election Commission, 558 U.S. 310 (2010)
- Burwell v. Hobby Lobby Stores, Inc., 573 U.S. ___ (2014)
Delegated management and agents
Although a corporation may be considered a separate legal person, it physically cannot act by itself. There are, therefore, necessarily rules from the corporation statutes and the law of agency that attribute the acts of real people to the corporation, to make contracts, deal with property, commission torts, and so on. First, the board of directors will be typically appointed at the first corporate meeting by whoever the articles of incorporation identify as entitled to elect them. The board is usually given the collective power to direct, manage and represent the corporation. This power (and its limits) is usually delegated to directors by the state's law, or the articles of incorporation. Second, corporation laws frequently set out roles for particular "officers" of the corporation, usually in senior management, on or outside of the board. US labor law views directors and officers as holding contracts of employment, although not for all purposes. If the state law, or the corporation's bylaws are silent, the terms of these contracts will define in further detail the role of the directors and officers. Third, directors and officers of the corporation will usually have the authority to delegate tasks, and hire employees for the jobs that need performing. Again, the terms of the employment contracts will shape the express terms on which employees act on behalf of the corporation.
Toward the outside world, the acts of directors, officers and other employees will be binding on the corporation depending on the law of agency and principles of vicarious liability (or respondeat superior). It used to be that the common law recognized constraints on the total capacity of the corporation. If a director or employee acted beyond the purposes or powers (ultra vires) of the corporation, any contract would be ex ante void and unenforceable. This was abandoned in the earlier 20th century, and today corporations generally have unlimited capacity and purposes. However, not all actions by corporate agents are binding. For instance, in South Sacramento Drayage Co. v. Campbell Soup Co. it was held that a traffic manager who worked for the Campbell Soup Company Soup did not have authority to enter a 15 year exclusive dealing contract for intrastate hauling of tomatoes. Standard principles of commercial agency apply ("apparent authority"). If a reasonable person would not think that an employee (given his or her position and role) has authority to enter a contract, then the corporation cannot be bound. However, corporations can always expressly confer greater authority on officers and employees, and so will be bound if the contracts give express or implied actual authority. The treatment of liability for contracts and other consent based obligations, however, differs to torts and other wrongs. Here the objective of the law to ensure the internalization of "externalities" or "enterprise risks" is generally seen to cast a wider scope of liability.
One of the basic principles of modern corporate law is that people who invest in a corporation have limited liability. For example, shareholders can only lose the money they invested in their shares. Practically, limited liability operates only as a default rule for creditors that can adjust their risk. Banks which lend money to corporations frequently contract with a corporation's directors or shareholders to get personal guarantees, or to take security interests their personal assets, or over a corporation's assets, to ensure their debts are paid in full. Similarly trade creditors, such as suppliers of raw materials, can use title retention clause or other device with the equivalent effect to security interests, to be paid before other creditors in bankruptcy. However, if creditors are unsecured, or for some reason guarantees and security are not enough, creditors cannot sue shareholders for outstanding debts. Metaphorically speaking, their liability is limited behind the "corporate veil".
There are a number of exceptions, which differ according to the law of each state, to the principle of limited liability. First, at the very least, as is recognized in public international law, courts will "pierce the corporate veil" if a corporation is being used evade obligations in a dishonest manner. Defective organization, such as a failure to duly file the articles of incorporation with a state official, is another universally acknowledged ground. However, there is considerable diversity in state law, and controversy, over how much further the law ought to go. In Kinney Shoe Corp. v. Polan the Fourth Circuit Federal Court of Appeals held that it would also pierce the veil if (1) the corporation had been inadequately capitalized to meet its future obligations (2) if no corporate formalities (e.g. meetings and minutes) had been observed, or (3) the corporation was deliberately used to benefit an associated corporation. However, a subsequent opinion of the same court emphasized that piercing could not take place merely to prevent an abstract notion of "unfairness" or "injustice". A further, though technically different, equitable remedy is that according to the US Supreme Court in Taylor v. Standard Gas Co. corporate insiders (e.g. directors or major shareholders) who are also creditors of a company are subordinated to other creditors when the company goes bankrupt.
Tort victims differ from commercial creditors because they have no ability to contract around limited liability, and are therefore regarded differently under most state laws. The theory developed in the mid-20th century that beyond the corporation itself, it was more appropriate for the law to recognize the economic "enterprise", which typically composes groups of corporations, where typically the parent takes the benefit of a subsidiary's activities, and is capable of exercising decisive influence. A concept of "enterprise liability" was developed in fields such tax law, accounting practices, and antitrust law that were gradually received into the courts' jurisprudence. Older cases had suggested that there was no special right to pierce the veil in favor of tort victims, even where pedestrians had been hit by a tram owned by a bankrupt-subsidiary corporation, or by taxi-cabs that were owned by undercapitalized subsidiary corporations. More modern authority suggested a different approach. In a case concerning one of the worst oil spills in history, caused by the Amoco Cadiz which was owned through subsidiaries of the Amoco Corporation, the Illinois court that heard the case stated that the parent corporation was liable by the fact of its group structure. The courts therefore "usually apply more stringent standards to piercing the corporate veil in a contract case than they do in tort cases" because tort claimants do not voluntarily accept limited liability. Under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, the US Supreme Court in United States v. Bestfoods held if a parent corporation "actively participated in, and exercised control over, the operations of" a subsidiary's facilities it "may be held directly liable". This leaves the question of the nature of the common law, in absence of a specific statute, or where a state law forbids piercing the veil except on very limited grounds. One possibility is that tort victims go uncompensated, even while a parent corporation is solvent and has insurance. A second possibility is that a compromise liability regime, such as pro rata rather than joint and several liability is imposed across all shareholders regardless of size. A third possibility, and one that does not interfere with the basics of corporate law, is that a direct duty of care could be owed in tort to the injured person by parent corporations and major shareholders to the extent they could exercise control. This route means corporate enterprise would not gain a subsidy at the expense of other people's health and environment, and that there is no need to pierce the veil.
Corporate governance, though used in many senses, is primarily concerned with the balance of power among the main actors in a corporation: directors, shareholders, employees, and other stakeholders. A combination of a state's corporation law, case law developed by the courts, and a corporation's own articles of incorporation and bylaws determine how power is shared. In general, the rules of a corporation's constitution can be written in whatever way its incorporators choose, or however it is subsequently amended, so long as they comply with the minimum compulsory standards of the law. Different laws seeks to protect the corporate stakeholders to different degrees. Among the most important are the rights that are guaranteed to shareholders, particularly in relation to voting rights they exercise against the board of directors, either to elect or remove them from office. Federal law, written under the Securities and Exchange Act of 1934, requires minimum standards on the process of voting, particularly in a "proxy contest" where competing groups attempt to persuade shareholders to delegate them their "proxy" vote. Shareholders also often have rights to amend the corporate constitution, call meetings, make business proposals, and have a voice on major decisions, although these can be significantly constrained by the board. Employees of US corporations have often had a voice in corporate management, either indirectly, or sometimes directly, though unlike in many major economies, express "codetermination" laws that allow participation in management have so far been rare.
- Corporate by-law
- DGCL § 102(b) the purpose of a corporation may be anything that is lawful
- Automatic Self-Cleansing Filter Syndicate Co Ltd v Cuninghame  2 Ch 34
- Staggered board of directors
- Nexus of contracts and Concession theory
(a) The business and affairs of every corporation organized under this chapter shall be managed by or under the direction of a board of directors, except as may be otherwise provided in this chapter or in its certificate of incorporation.
- DGCL §211(b) shareholders elect and remove directors through a majority vote.
- DGCL §228, shareholders can act by majority consent, for instance to expand the board's size and elect new directors.
- DGCL §141(k) states that directors can be removed without any cause, unless the board is "classified", meaning that directors only come up for re-appointment on different years. If the board is classified, then directors cannot be removed unless there is gross misconduct. Director's autonomy from shareholders is seen further in §216 DGCL, which allows for plurality voting and §211(d) which states shareholder meetings can only be called if the constitution allows for it. The problem is that in America, directors usually choose where a company is incorporated and §242(b)(1) DGCL says any constitutional amendment requires a resolution by the directors.
- Parliamentary procedure in the corporate world
- Attorney General v. Davy (1741) 2 Atk 212
- R v Richardson (1758) 97 ER 426
- SEC Rule 19c-4 and Business Roundtable v. SEC, 905 F.2d 406 (1990) DC Circuit invalidates ones share one vote regulation
- DGCL §228, shareholders may act by majority consent if there is no meeting, unless the certificate of incorporation prevents this
- DGCL §271, shareholders must approve sale of "all or substantially all assets", held in Gimbel (1974) to be those "qualitatively vital to the existence and purpose" of the corporation; which in Katz v. Bregman (1981) was held to include assets under 50% of the company's value
- DGCL §350, shareholder agreements may only affect a board's discretion in close corporations, and Galler v. Galler, 32 Ill.2d 16 (1964)
- Proxy contest, SEC Rules 14a-1 and 14a-2
- SEC Release No. 34-31326 (16 October 1992) changed rules so that (1) preparing and filing proxy statements are not needed if a person is not seeking to obtain voting authority from another person, but owners of over $5m are required. (2) no prior review of preliminary proxy solicitation materials (3) proxies are required to unbundle proposals so there are separate votes on each.
- Voting trust
- RC Clark, Corporate Law (1986) 32, ‘even if your aim is not to understand all of law’s effects on corporate activities but only to grasp the basic legal ‘constitution’ or make-up of the modern corporation, you must, at the very least, also gain a working knowledge of labor law.’
- US Congress, Report of the Committee of the Senate Upon the Relations between Labor and Capital (Washington DC 1885) vol II, 806
- Commission on Industrial Relations, Final Report and Testimony (1915) vol 1, 92 ff, and LD Brandeis, The Fundamental Cause of Industrial Unrest (1916) vol 8, 7672
- NICB, Works Councils in the United States (1919) Research Report Number 21
- An Act to enable manufacturing corporations to provide for the representation of their employees on the board of directors (3 April 1919) Chap. 0070
- Massachusetts Laws, General Laws, Part I Administration of the Government, Title XII Corporations, ch 156 Business Corporations, §23
- New Jersey Revised Statute (1957) §14.9-1 to 3
- E Appelbaum and LW Hunter, ‘Union Participation in Strategic Decisions of Corporations’ (2003) NBER Working Paper 9590
- RB McKersie, ‘Union-Nominated Directors: A New Voice in Corporate Governance’ (1 April 1999) MIT Working Paper
- JB Bonanno, ‘Employee Codetermination: Origins in Germany, present practice in Europe and applicability to the United States’ (1976-1977) 14 Harvard Journal on Legislation 947
- B Hamer, ‘Serving Two Masters: Union Representation on Corporate Boards of Directors’ (1981) 81(3) Columbia Law Review 639
- Dunlop Commission on the Future of Worker-Management Relations: Final Report (1994)
While corporate constitutions typically set out the balance of power between directors, shareholders, employees and other stakeholders, additional duties are owed by members of the board to the corporation as a whole. First, rules can restrain or empower the directors in whose favor they exercise their discretion. While older corporate law judgments suggested directors had to promote "shareholder value", almost modern state laws empower directors to exercise their own "business judgment" in the way they balance the claims of shareholders, employees, and other stakeholders. Second, all state laws follow the historical pattern of fiduciary duties to require that directors avoid conflicts of interest between their own pursuit of profit, and the interests of the corporation. The exact standard, however, may be more or less strict. Third, many states require some kind of basic duty of care in performance of a director's tasks, just as minimum standards of care apply in any contract for services. However, Delaware has increasingly abandoned substantive objective duties, as it reinterpreted the content of the duty of care, allows liability waivers.
Most corporate laws empower directors, as part of their management functions, to determine which strategies will promote a corporation's success in the interests of all stakeholders. Directors will periodically decide whether and how much of a corporation's revenue should be shared among directors' own pay, the pay for employees (e.g. whether to increase or not next financial year), the dividends or other returns to shareholders, whether to lower or raise prices for consumers, whether to retain and reinvest earnings in the business, or whether to make charitable and other donations. Most states have enacted "constituency statutes", which state expressly that directors are empowered to balance the interests of all stakeholders in the way that their conscience, or good faith decisions would dictate. This discretion typically applies when making a decision about the distribution of corporate resources among different groups, or in whether to defend against a takeover bid. For example, in Shlensky v. Wrigley the president of the Chicago Cubs baseball team was sued by stockholders for allegedly failing to pursue the objective of shareholder profit maximization. The president had decided the corporation would not install flood lights over the baseball ground that would have allowed games could take place at night, because he wished to ensure baseball games were accessible for families, before children's bed time. The Illinois court held that this decision was sound because even though it could have made more money, the director was entitled to regard the interests of the community as more important. Following a similar logic in AP Smith Manufacturing Co v. Barlow a New Jersey court held that the directors were entitled to make a charitable donation to Princeton University on the basis because there was "no suggestion that it was made indiscriminately or to a pet charity of the corporate directors in furtherance of personal rather than corporate ends." So long as the directors could not be said to have conflicting interests, their actions would be sustained.
Delaware's law has also followed the same general logic, even though it has no specific constituency or stakeholder statute. The standard is, however, contested largely among business circles which favor a view that directors should act in the sole interests of shareholder value. Judicial support for this aim is typically found in a case from Michigan in 1919, called Dodge v. Ford Motor Company. Here, the Ford Motor Company president Henry Ford had publicly announced that he wished not merely to maximize shareholder returns but to raise employee wages, decrease the price of cars for consumers, because he wished, as he put it, "to spread the benefits of this industrial system to the greatest possible number". A group of shareholders sued, and the Michigan Supreme Court said squarely that in its judgment a "business corporation is organized and carried on primarily for the profit of the stockholders. The powers of the directors are to be employed for that end." However, in the case itself a damages claim against Ford did not succeed, and since then Michigan law has itself been changed. The US Supreme Court has also made it clear in Burwell v. Hobby Lobby Stores, Inc. that shareholder value is not a default or overriding aim of corporate law, unless a corporation's rules expressly opt to define such an objective. In practice, many corporations do operate for the benefit of shareholders, but this is less because of duties, and more because shareholders typically exercise a monopoly on the control rights over electing the board. This assumes, however, that directors do not merely use their office to further their own goals over shareholders, employees, and other stakeholders.
Conflicts of interest
Since the earliest corporations were formed, courts have imposed minimum standards to prevent directors using their office to pursue their own interests over the interests of the corporation. From trusts law, one of the earliest and best known instances of such fiduciary duties were formulated after the collapse of the South Sea Company in the United Kingdom, suggest that the aim to avoid any possibility of a conflict of interest "should be strictly pursued", and that no inquiry should be made into transactions where the trustee stood on both sides. These principles of equity were received into the law of the United States, and in a modern formulation was said, by Cardozo J in Meinhard v. Salmon, to require "the punctilio of an honor the most sensitive... at a level higher than that trodden by the crowd."
The modern standards applicable to directors, however, departed significantly from traditional principles of equity that required "no possibility" of conflict regarding business opportunities, and "no inquiry" into the actual terms of transactions if tainted by self dealing. In an early Delaware decision, Guth v. Loft Inc., it was held that the Charles Guth, the president of a drink manufacturer named Loft Inc., had breached his duty to avoid conflicts of interest by purchasing the Pepsi company and its syrup recipe in his own name, rather than offering it to Loft Inc. However, although the duty was breached, the Delaware Supreme Court held that the court will look at the particular circumstances, and will not regard a conflict as existing if the company it lacked finances to take the opportunity, if it is not in the same line of business, or did not have an "interest or reasonable expectancy". More recently, in Broz v. Cellular Information Systems Inc, it was held that a non-executive director of CIS Inc, a man named Mr Broz, had not breached his duty when he bought telecommunications licenses for the Michigan area for his own company, RFB Cellular Inc.. CIS Inc had been shedding licenses at the time, and so Broz alleged that he thought there was no need to inquire whether CIS Inc would be interested. CIS Inc was then taken over, and the new owners pushed for the claim to be brought. The Delaware Supreme Court held that because CIS Inc had not been financially capable at the time to buy licenses, and so there was no actual conflict of interest. In order to be sure, or at least avoid litigation, the Delaware General Corporation Law §144 provides that directors cannot be liable, and a transaction cannot be voidable if it was (1) approved by disinterested directors after full disclosure (2) approved by shareholders after disclosure, or (3) approved by a court as fair.
- Miller v. Miller, 222 NW.2d 71 (1974)
Corporate officers and directors may pursue business transactions that benefit themselves as long as they can prove the transaction, although self-interested, was nevertheless intrinsically "fair" to the corporation.
- Lieberman v Becker, 38 Del Ch 540, 155 A 2d 596 (Super Ct 1959)
- DGCL §144 contains the rule that the burden for proving unfairness remains on plaintiff after disclosure
- Flieger v. Lawrence, 361 A 2d 218 (Del 1976) the burden of proof shifts onto the plaintiff to show a transaction was conflicted if approval by disinterested stockholders or directors has been given to a transaction. Also Remillard Brick Co. v. Remillard-Dandini Co., 109 Cal App.2d 405 (1952)
- Oberly v. Kirby, 592 A.2d 445, 467 (Del. 1991)
- Cinerama, Inc. v. Technicolor, Inc., 663 A.2d 1156, 1170 (Del. 1995)
- Benihana of Tokyo, Inc. v. Benihana, Inc., 906 A.2d 114 (Del. 2006)
Duty of care
The duty of care that is owed by all people performing services for others is, in principle, also applicable to directors of corporations. Generally speaking, the duty of care requires an objective standard of diligence and skill when people perform services, which could be expected from a reasonable person in a similar position (e.g. auditors must act "with the care and caution proper to their calling", and builders must perform their work in line with "industry standards") In an old decision of the English Court of Chancery, The Charitable Corporation v Sutton, the directors of the Charitable Corporation, which gave out small loans to the needy, were held liable for failing to keep procedures in place that would have prevented three officers defrauding the corporation of a vast sum of money. Lord Hardwicke, noting that a director's office was of a "mixed nature", partly "of the nature of a public office" and partly like "agents" employed in "trust", held that the directors were liable. Though they were not to be judged with hindsight, the directors were liable, and he could "never determine that frauds of this kind are out of the reach of courts of law or equity, for an intolerable grievance would follow from such a determination." Many states have similarly maintained an objective baseline duty of care for corporate directors, while acknowledging different levels of care can be expected by directors of small and large corporations, and with executive or non-executive roles on the board. However in Delaware, as in a number of other states, the existence of a duty of care has became increasingly uncertain.
In 1985, the Delaware Supreme Court passed one of its most debated judgments, Smith v. Van Gorkom The directors of TransUnion, including Jerome W. Van Gorkom were sued by the shareholders for failing to adequately research the corporation's value, before approving a sale price of $55 per share to the Marmon Group. The Court held that to be a protected business judgment, "the directors of a corporation [must have] acted on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the company." Failing to act on an informed basis, if it caused loss, would amount to gross negligence, and here the directors were liable. The decision triggered a panic among corporate boards which believed they could be open to liability, and insurers whose costs of providing Directors and officers liability insurance could potentially go up. In response to lobbying, the Delaware General Corporation Law was amended to insert a new §102(b)(7) allowing corporations to give directors immunity from liability for breach of the duty of care in their charter. However, for those corporations which did not have liability waivers, the courts subsequently proceeded to reduce the duty of care. In re Caremark International Inc. Derivative Litigation subsequently required "an utter failure to attempt to assure a reasonable information and reporting system exists", and In re Walt Disney Derivative Litigation went further, saying that directors could only be liable for showing "reckless indifference to or a deliberate disregard of the whole body of stockholders" through actions that are "without the bounds of reason". In one of the recent cases, which came out of the Global Financial Crisis, the same line of reasoning was deployed in In re Citigroup Inc Shareholder Derivative Litigation Chancellor Chandler, confirming his previous opinions in Re Walt Disney and the dicta of Re Caremark held that the directors of Citigroup could not be liable for failing to have a warning system in place to guard against potential losses for sub-prime mortgage debt. Although there had been several indications of the significant risks, he held that "plaintiffs would ultimately have to prove bad faith conduct by the director defendants". This suggested that Delaware law had effectively negated any substantive duty of care, meaning that corporate directors were excused of any duty that every other professional performing services would owe. However, it remained unclear, with a change in the Chief Justice of the Delaware Supreme Court in 2014, whether this position would remain.
Because directors owe their duties to the corporation and not, as a general rule, to specific shareholders or stakeholders, the right to sue for breaches of directors duty rests by default with the corporation itself. The corporation is necessarily party to the suit. This creates a difficulty because almost always, the right to litigate falls under the general powers of directors to manage the corporation day to day (e.g. Delaware General Corporation Law §141(a)). Often, cases arise (such as Broz v. Cellular Information Systems Inc) an action is brought because the corporation has been taken over and a new, non-friendly board is in place, or because the board has been replaced after bankruptcy. Otherwise, because of the obvious conflict of interest, the law has sought to define further appropriate circumstances where groups other than directors can sue for breaches of duty. One alternative, common in many other countries, is to allow a specific percentage of shareholders to bring a claim as of right (e.g. 1 per cent). This may still entail significant collective action problems in a dispersed shareholding jurisdiction like the United States. Other systems potentially give claims to stakeholder groups under certain circumstances, particularly creditors, who may not have as strong collective action problems. Otherwise, the main alternative is that any individual shareholder may "derive" a claim on the corporation's behalf to sue for breach of duty, but subject to permission from the court.
The risk involved in allowing individual shareholders to bring derivative suits as of right is thought to be that it could encourage costly, distracting litigation, or "strike suits". Accordingly, it is generally thought that oversight by the court is justified to ensure derivative suits match the corporation's interests as a whole. However, especially from the 1970s some states, and especially Delaware, began also to require that the board have a role. Most other common law jurisdictions have abandoned any equivalent of such rules, and in most states the board's role was no more than a formality. But in the procedure to bring a derivative suit, the first step is often that the shareholder had to make a "demand" on the board to bring a derivative suit. While it appears strange to ask a group of people who will be sued, or whose colleagues are being sued, for permission, Delaware and other states took the view that the decision to litigate ought by default to lie within the legitimate scope of directors' business judgment. For example, in Aronson v. Lewis a shareholder of the Meyers Parking System Inc claimed that the board had improperly wasted corporate assets by giving its 75 year old director, Mr Fink, a large salary and bonus for consultancy work even though the contract did not require performance of any work. Mr Fink had also personally selected all of the directors. Nevertheless, Moore J. held for the Delaware Supreme Court that there was still a requirement to make a demand on the board before a derivative suit could be brought. There was "a presumption that in making a business decision, the directors of a corporation acted on an informed basis in good faith and in the honest belief that the action was taken in the best interests of the company", even if they owed their jobs to the person being sued. A requirement to make a demand on the board will, however, be excused if it is shown that it would be entirely "futile", primarily because a majority of the board is alleged to have breached its duty. Otherwise it must be shown that all board members are in some very strong sense conflicted, but merely working with the accused directors, and the personal ties this potentially creates, is insufficient for some courts.
In some cases corporate boards attempted to establish "independent litigation committees" to evaluate whether a shareholder's demand to bring a suit was justified. This strategy was used to pre-empt criticism that the board was conflicted. The directors would appoint the members of the "independent committee", which would then typically deliberate and come to the conclusion that there was no good cause for bringing litigation. In Zapata Corp v. Maldonado the Delaware Supreme Court held that if the committee acted in good faith and showed reasonable grounds for its conclusion, and the court could be "satisfied [about] other reasons relating to the process", the committee's decision to not allow a claim could not be overturned. Applying Connecticut law, the Second Circuit Federal Court of Appeals held in Joy v. North that the court could substitute its judgment for the decisions of a supposedly independent committee, and the board, on the ground that there was scope for conflicting interests. Then, the substantive merits for bringing the derivative claim would be assessed. Winter J. held overall that shareholders would have the burden "to demonstrate that the action is more likely than not to be against the interests of the corporation". This would entail a cost benefit analysis. On the benefit side would be "the likely recoverable damages discounted by the probability of a finding of liability", and the costs side would include "attorney's fees and other out-of-pocket expenses", "time spent by corporate personnel", "the impact of distraction of key personnel", and potential lost profits which may result from the publicity of a trial." If it is thought that the costs exceed the benefits, then the shareholders acquire the right to sue on the corporation's behalf. A substantive hearing on the merits about the alleged breach of director's duty may be heard. The tendency in Delaware, however, has remained to allow the board to play a role in restricting litigation, and therefore minimize the chances that it could be held accountable for basic breaches of duty.
- Ivanhoe Partners v. Newmont Mining Corp., 535 A.2d 1334 (Del. 1987) a shareholder owning over 50% of shares is a controlling shareholder; but actual control may also be present through other mechanisms
- Citron v. Fairchild Camera & Instrument Corp., 569 A.2d 53, 70 (Del. 1989) non controlling shareholders do not owe duties to minority shareholders and may vote their shares for personal gain without concern
- In re Cysive, Inc. Shareholders Litigation 836 A.2d 531 (Del. 2003) Nelson Carbonell owned 35% of Cysive, Inc., a publicly traded company. His associates' holdings and options to buy more stock, however, actually meant he controlled around 40% of the votes. Chancellor held that "without having to attract much, if any, support from public stockholders" Carbonell could control the company. This was especially so since "100% turn-out is unlikely even in a contested election" and "40% block is very potent in view of that reality."
- Kahn v. Lynch Communications Systems, Inc. 638 A.2d 1110 (Del. 1994) Alcatel held 43% of shares in Lynch. One of its nominees on the board told the others, "you must listen to us. We are 43% owner. You have to do what we tell you." The Delaware Supreme Court held that Alcatel did in fact dominate Lynch.
- Perlman v. Feldmann, 219 F.2d 173 (2d Cir 1955), certiorari denied, 349 US 952 (1955) held it was foreseeable that a takeover bidder wished to divert a corporate advantage to itself, and so the selling shareholders were required to pay the premium they received to the corporation
- Jones v. H.F. Ahmanson & Co. 1 Cal.3d 93, 460 P.2d 464 (1969) holders of 85% of comm shares in a savings and loan association, exchanged shares for shares of a new corporation and began to sell those to the public, meaning that the minority holding 15% had no market for the sale of their shares. Held, breach of fiduciary duty to the minority: "majority shareholders... have a fiduciary responsibility to the minority and to the corporation to use their ability to control the corporation in a fair, just, and equitable manner."
- New York Business Corporation Law section 1104-a, the holders of 20 per cent of voting shares of a non-public corporation may request that the corporation be would up on grounds of oppression.
- NY Bus Corp Law §1118 and Alaska Plastics, Inc. v. Coppock, 621 P.2d 270 (1980) the minority can sue to be bought out at a fair value, determined by arbitration or a court.
- Donahue v. Rodd Elctrotype Co of New England 367 Mass 578 (1975) majority shareholders cannot authorise a share purchase from one shareholder when the same opportunity is not offered to the minority.
- In re Judicial Dissolution of Kemp & Beatley, Inc 64 NY 2d 63 (1984) under a "just and equitable winding up" provision, (equivalent to IA 1986 s 212(1)(g), it was construed that less drastic remedies were available to the court before winding up, and "oppression" was said to mean ‘conduct that substantially defeats the ‘reasonable expectations’ held by minority shareholders in committing their capital to the particular enterprise. A shareholder who reasonably expected that ownership in the corporation would entitle him or her to a job, a share of corporate earnings, a place in corporate management, or some other form of security, would oppressed in a very real sense when others in the corporation seek to defeat those expectations and there exists no effective means of salvaging the investment.’
- Meiselman v. Meiselman 309 NC 279 (1983) a shareholder’s ‘reasonable expectations’ are to be determined by looking at the whole history of the participants’ relationship. ‘That history will include the ‘reasonable expectations’ created at the inception of the participants’ relationship; those ‘reasonable expectations’ as altered over time; and the ‘reasonable expectations’ which develop as the participants engage in a course of dealing in conducting the affairs of the corporation.’
Mergers and acquisitions
- DGCL §203
- Cheff v. Mathes 199 A.2d 548 (Del. 1964)
- Weinberger v. UOP, Inc., 457 A.2d 701, 703-04 (Del. 1983) plaintiff must start by alleging the fiduciary stood to gain a material economic benefit. The burden then shifts to the defendant to show the fairness of the transaction. The court considers both the terms, and the process for the bargain, i.e. both a fair price, and fair dealing. However, if the director shows that full disclosure was made to either the disinterested directors or disinterested shareholders, then the burden remains on the plaintiff.
- Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173 (Del. 1985)
- Hanson Trust PLC v. ML SCM Acquisition, Inc, 781 F.2d 264 (2d Cir 1986), asset lock up in contested takeover, violation of duty of care
- Unitrin, Inc. v. American General Corp.
- Unocal Corp. v. Mesa Petroleum Co. 493 A.2d 946 (Del. 1985)
- Moran v. Household International, Inc., 500 A.2d 1346 (Del. 1985)
- Lacos Land Co v Arden Group, Inc, 517 A 2d 271 (Del Ch 1986)
- Paramount Communications, Inc. v. QVC Network, Inc., 637 A.2d 34 (Del. 1994)
- U.S. Securities and Exchange Commission
- Dodd–Frank Wall Street Reform and Consumer Protection Act
- Stock certificate, Unissued stock and Treasury stock
- Investment Advisers Act of 1940
- Investment Company Act of 1940
- Credit Rating Agency Reform Act of 2006
- Chapter 11, Title 11, United States Code
- Claim in bankruptcy
- Taylor v. Standard Gas and Electric Company
- Marrama v. Citizens Bank of Massachusetts
- WZ Ripley, Wall Street and Main Street (1927)
- AA Berle and GC Means, The Modern Corporation and Private Property (1932)
- LLSV and leximetrics
- Shareholder value, stakeholders and codetermination
- UK company law
- Connecticut General Life Insurance Company v. Johnson
- Citizens United v. Federal Election Commission, 558 U.S. 50 (2010),
- Dodd-Frank Wall Street Reform and Consumer Protection Act 2010
- Swiss referendum "against corporate Rip-offs" of 2013
- List of company registers
- L Bebchuk, 'The Case for Increasing Shareholder Power' (2004-5) 118 Harvard Law Review 833, 844
- See PI Blumberg, The Multinational Challenge to Corporation Law (1993) 6
- Smiddy, Linda O.; Cunningham, Lawrence A. (2010), Corporations and Other Business Organizations: Cases, Materials, Problems (Seventh Edition ed.), LexisNexis, pp. 228–231, 241, ISBN 978-1-4224-7659-8
- See An Act Relative to Incorporations for Manufacturing Purposes, of 22 March 1811, NY Laws, 34th Session (1811) chap LXCII at 151.
- 17 U.S. 518 (1819).
- Delaware General Corporation Law (DGCL) 1883 §23 (17 Del Laws, c 147 p. 212, 14 March 1883); Changed in DGCL 1889 (21 Del Laws, c 273, p. 444, 10 March 1899).
- c.f. RC Clark, Corporate Law (Aspen 1986) 2, who defines the modern public corporation by four main features: separate legal personality, limited liability, centralized management, and freely transferable shares.
- See corplaw.delaware.gov. In 1999, from 6,530 publicly traded nonfinancial firms in the US, 3,771 (57.75%) were incorporated in Delaware, 283 (4.33%) in California, and 226 (3.46%) in New York. See L Bebchuk, A Cohen and A Ferrell, 'Does the Evidence Favor State Competition in Corporate Law?' (2002) 90 California LR 1775, 1809-1810
- See generally, WA Klein and JC Coffee, Business Organization and Finance: Legal and Economic Principles (9th edn Foundation 2004) 137-140
- See also Limited liability limited partnership
- e.g. in Delaware see the Division of Corporations at corp.delaware.gov, in New York see the Division of Corporations at dos.ny.gov/corps, and in California see the "Business Entities" section of the Secretary of State website at sos.ca.gov/business
- See Edgar v. MITE Corp, 457 U.S. 624 (1982) White J., citing Restatement (Second) of Conflict of Laws § 302, Comment b, pp. 307-308 (1971) Also VantagePoint Venture Partners 1996 v. Examen, Inc., 871 A.2d 1108, 1113 (2005) 'The internal affairs doctrine applies to those matters that pertain to the relationships among or between the corporation and its officers, directors, and shareholder.'
- See WL Cary, ‘Federalism and Corporate Law: Reflections on Delaware’ (1974) 83(4) Yale Law Journal 663, 664, noting how under Woodrow Wilson acting as governor tightened New Jersey law, provoking Delaware to change its regulation.
- See William Ripley, Wall Street and Main Street (1927) 30, ‘The little state of Delaware has always been forward in this chartermongering business.’
- 288 U.S. 517 (1933)
- See RK Winter, ‘State Law, Shareholder Protection, and the Theory of the Corporation’ (1977) 6 J Leg Studies 251
- This is vast. See K Kocaoglu, 'A Comparative Bibliography: Regulatory Competition on Corporate Law' (2008) Georgetown University Law Center Working Paper, on SSRN
- e.g. W Bratton, ‘Corporate Law’s Race to Nowhere in Particular’ (1994) 44 U Toronto LJ 401. See also
- e.g. Case of Sutton's Hospital (1612) 77 Eng Rep 960
- 9 U.S. 61 (1809)
- 17 U.S. 518 (1819)
- e.g. DGCL §141(a), "The business and affairs of every corporation organized under this chapter shall be managed by or under the direction of a board of directors, except as may be otherwise provided in this chapter or in its certificate of incorporation." California Corporations Code §300(a). NYBCL §701, "Subject to any provision in the certificate of incorporation authorized by... [the] certificate of incorporation as to control of directors... the business of a corporation shall be managed under the direction of its board of directors..." This is a change from an old dictum in Manson v. Curtis, 119 N.E. 559, 562 (N.Y. 1918) where it was said that a director's powers are "original and undelegated". For support for this position, see JCD Zahn, Wirtschaftsführertum und Vertragsethik im Neuen Aktienrecht (1934) 95, reviewed by F Kessler (1935) 83 University of Pennsylvania Law Review 393 and SM Bainbridge, 'Director Primacy and Shareholder Disempowerment' (2006) 119(6) Harvard Law Review 1735, 1746, at footnote 59
- See NLRB v. Bell Aerospace Co., 416 U.S. 267 (1974) excluding "managerial employees" from the scope of the National Labor Relations Act of 1935 §2(3) and (11). See further A Cox, DC Bok, RA Gorman and MW Finkin, Labor Law Cases and Materials (14th edn 2006) 92-97
- See RS Stevens, 'A Proposal as to the Codification and Restatement of the Ultra Vires Doctrine' (1927) 36(3) Yale Law Journal 297 and MA Schaeftler, 'Ultra Vires - Ultra Useless: The Myth of State Interest in Ultra Vires Acts of Business Corporations' (1983-1984) Journal of Corporation Law 81
- Revised MBCA §3.01(a) presumption that a corporation's purpose is to 'engage in any lawful business unless a more limited purpose is set forth in the articles of incorporation.' Also §3.04, precludes a corporation from asserting ultra vires as a defense from having contracts enforced against it.
- 220 Cal App.2d 851, (3d Dist 1963)
- See further, Restatement of the Law of Agency (3rd edn, 2006)
- LA Bebchuk and JM Freid, ‘The Uneasy Case for the Priority of Secured Claims in Bankruptcy’ (1996) 105 Yale LJ 857, 881-890
- All such interests need to be registered to take effect under the Uniform Commercial Code art 9
-  ICJ 1
- See Re Barcelona Traction, Light, and Power Co, Ltd  ICJ 1
- e.g. MBCA §2.04
- 939 F.2d 209 (4th Cir. 1991)
- See Perpetual Real Estate Services, Inc. v. Michaelson Properties, Inc., 974 F.2d 545 (4th Cir. 1992)
- 306 U.S. 307 (1939) known as the "Deep Rock doctrine"
- See generally AA Berle, 'The Theory of Enterprise Entity' (1947) 47(3) Columbia Law Review 343
- Berkey v. Third Avenue Railway, 244 N.Y. 602 (1927)
- e.g. Walkovszky v. Carlton 223 N.E.2d 6 (NY 1966). Contrast the dissent of Keating J. and the Californian decision Minton v. Cavaney, 56 Cal. 2.d 576 (1961). Traynor J. held the veil would be pierced when shareholders "provide inadequate capitalization and actively participate in the conduct of corporate affairs." This meant the family of a girl who drowned in a swimming pool would be compensated.
- In re Oil Spill by the Amoco Cadiz off the Coast of France on March 16, 1978, 1984 A.M.C. 2123 (N.D. Ill. 1984), McGarr J, at 2191, "As an integrated multinational corporation which is engaged through a system of subsidiaries in the exploration, production, refining, transportation and sale of petroleum products throughout the world, Standard is responsible for the tortious acts of its wholly owned subsidiaries and instrumentalities, AIOC and Transport."
- Perpetual Real Estate Services, Inc. v. Michaelson Properties, Inc., 974 F.2d 545 (4th Cir. 1992) citing WM Fletcher, Fletcher Cyclopedia of the Law of Private Corporations (1990) § 41.85 at 71, "courts usually apply more stringent standards to piercing the corporate veil in a contract case than they do in tort cases. This is because the party seeking relief in a contract case is presumed to have voluntarily and knowingly entered into an agreement with a corporate entity, and is expected to suffer the consequences of the limited liability associated with the corporate business form, while this is not the situation in tort cases." c.f. Fletcher v. Atex, Inc 8 F.3d 1451 (2d Cir. 1995)
- 524 U.S. 51 (1998)
- e.g. Texas Business Corporation Act of 1997, art 2.21(2)
- H Hansmann and R Kraakman, 'Towards Unlimited Liability for Corporate Torts' (1991) 100(7) Yale Law Journal 1879, 1900-1901
- See PA Gourevitch and JJ Shinn, Political Power and Corporate Control (Princeton 2005) 4
- §141(a), Delaware General Corporation Law
- See also, SEC 13d-5, dating from times when groups of investors were considered potential cartels, saying any 5% shareholder voting block must register with the Federal financial authority, the Securities and Exchange Commission.
- 237 N.E. 2d 776 (Ill. App. 1968)
- 28 states in 1991. See C Hansen, 'Other Constituency Statutes: A Search for Perspective' (1991) 46(4) The Business Lawyer 1355, Appendix A for a list of laws. The Connecticut General Statute Ann. §33-756 goes further than most in requiring directors take account of stakeholders.
- 39 ALR 2d 1179 (1953)
- See Lynn A. Stout, Why We Should Stop Teaching Dodge v. Ford', 3 Virginia Law and Business Review 163 (2008)
- See Davis v Louisville Gas and Electric Co, 16 Del. Ch. 157 (1928) ‘the directors are chosen to pass upon such questions and their judgment unless shown to be tainted with fraud is accepted as final. The judgment the directors of the corporation enjoys the benefit of a presumption that it was formed in good faith, and was designed to promote the best interests of the corporation they serve.’ See also Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946 (Del. 1985)
- 170 NW 668 (Mich 1919)
- 573 U.S. ___ (2014) at page 23, "While it is certainly true that a central objective of for- profit corporations is to make money, modern corporate law does not require for-profit corporations to pursue profit at the expense of everything else, and many do not do so. For-profit corporations, with ownership approval, support a wide variety of charitable causes, and it is not at all uncommon for such corporations to further humanitarian and other altruistic objectives."
- See Keech v Sandford  EWHC Ch J76
- See Whelpdale v Cookson (1747) 27 ER 856
- 164 N.E. 545 (N.Y. 1928)
- 5 A.2d 503 (Del. 1939)
- 637 A2d 148 (Del Supr 1996)
- See also the Revised Model Business Corporation Act §8.61 and California Corporation Code §310
- 174 N.E. 441 (1932)
- At 30 Broad Street, New York City.
- See Ultramares Corporation v. Touche, 174 N.E. 441 (1932)
- See Terlinde v. Neely, 275 S.C. 395, 271 S.E.2d 768 (1980)
- (1742) 26 ER 642
- e.g. Barnes v. Andrews, 298 F. 614 (S.D.N.Y. 1924) A director of the Liberty Starter Co, now insolvent, was accused of having contributed to the failure by being inattentive on the board. Acknowledging the duty of care, but distinguishing on these facts, Learned Hand J held, "It is easy to say he should have done something, but that will not serve to harness upon him the whole loss, nor is it the equivalent of saying that, had he acted, the company would now flourish. An inattentive director or directors cannot be held liable for a corporate loss if it is shown that proper attentiveness to corporate affairs by all the directors would still not have prevented the loss complained of. In order words, it must be demonstrated that the accused director's slothfulness was a cause of the company's loss. This notion of causation is thus a critical element in any action brought against a poorly performing board of directors and has had a tremendous impact on the course of modern corporate governance."
- e.g. Indiana Code Ann §23-1-35(1)(e)(2) requires willful misconduct or recklessness before any liability. c.f. Model Business Corporation Act §8.30(a) which requires a director act in good faith and what he or she reasonably believes to be in the company's best interests.
- 964 A 2d 106 (Del Ch 2009)
- See further, JC Coffee, ‘What went wrong? An initial inquiry into the causes of the 2008 financial crisis’ (2009) 9(1) Journal of Corporate Law Studies 1
- 488 A.2d 858 (Sup Ct Del 1985) Before this, the leading case was Graham v. Allis-Chalmers Manufacturing Co., 188 A.2d 125 (Del Supr 1963)
- See also Cinerama, Inc v. Technicolor, Inc, 663 A.2d 1156 (1995) directors proved the 'entire fairness' of a merger, selling to MacAndrews & Forbes Group, even though directors failed to conduct an adequate market check to determine if other bidders would have given a higher price. Van Gorkom was distinguished.
- 698 A 2d 959 (Del. Ch. 1996)
- 825 A 2d 275 (2003)
- See also, Brehm v. Eisner, 746 A.2d 244 (2000) Del Supreme Court, "Due care in the decisionmaking context is process due care only. Irrationality is the outer limit of the business judgment rule. Irrationality may be the functional equivalent of the waste test or it may tend to show that the decision is not made in good faith, which is a key ingredient of the business judgment rule."
- See generally Davenport v. Dows, 85 U.S. 626 (1873) and Ross v. Bernhard, 396 U.S. 531 (1970)
- e.g., the German Aktiengesetz 1965 §148
- e.g. BCE Inc. v. 1976 Debentureholders  3 SCR 560
- 824 A.2d 917 (2003)
- The case was subsequently settled. See 'Oracle's Chief in Agreement to Settle Insider Trading Lawsuit' (12 September 2005) NY Times
- See for example, the UK Companies Act 2006 ss 261-263
- See RM Buxbaum, 'Conflict-of-Interest Statutes and the Need for a Demand on Directors in Derivative Actions' (1980) 68 Californian Law Review 1122
- Delaware Chancery Court Rules, Rule 23.1, requires exhaustion of internal remedies.
- 473 A 2d 805, 812 (Del 1984)
- e.g. in New York, see Barr v. Wackman 329 NE.2d 180 (1975) and In re Kaufmann Mutual Fund Actions, 479 F.2d 257 (1973) cert denied 414 US 857 (1973)
- 430 A 2d 779 (Del Sup 1981)
- 692 F.2d 880 (1982)
- c.f. more recently, In re Oracle Corp Derivative Litigation, 824 A.2d 917 (2003) concerning insider trading, approving a derivative claim on the basis of the director's personal ties.
- WA Klein and JC Coffee, Business Organization and Finance (11th edn Foundation Press 2010)
- JH Choper, JC Coffee and R. J. Gilson, Cases and Materials on Corporations (7th edn Aspen 2009)
- LA Bebchuk, 'The Case for Increasing Shareholder Power' (2004-5) 118 Harvard Law Review 833
- V Brudney, 'Contract and Fiduciary Duty in Corporate Law' (1977) 38 B.C.L. Rev. 595
- List of States' corporate laws and websites from law.cornell.edu
- US Corporate Law on Wikibooks
- Fordham syllabus 2003
- Based on the MBCA
- Arizona Revised Statutes, Title 10
- Florida Business Corporation Act (FBCA)
- Georgia Business Corporation Code (GBCC)
- Illinois Business Corporation Act (IBCA)
- North Carolina Business Corporation Act (NCBCA)
- South Carolina Business Corporation Act (SCBCA)
- Washington Business Corporation Act (WBCA)
- Wisconsin Business Corporation Law (WBCL)
- Other states with own laws
- California Corporations Code (CCC)
- Delaware General Corporation Law (DGCL)
- Nevada Revised Statutes (NRS)
- New Jersey Business Corporation Act (NJBCA)
- New York Business Corporation Law (NYBCL)
- Ohio General Corporation Law (OGCL)
- Pennsylvania Business Corporation Law (PBCL)
- Texas Business Corporation Act (TBCA)