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Corporations

Corporations. Introduction. Incorporation. Internal affairs doctrine Delaware: >50% of Fortune 500 companies >60% of NYSE companies New York- business friendly California- environment, consumers, SH Texas- oil & gas Nevada- no taxes, no information, copy of DE.

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Corporations

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  1. Corporations Introduction

  2. Incorporation • Internal affairs doctrine • Delaware: >50% of Fortune 500 companies >60% of NYSE companies New York- business friendly California- environment, consumers, SH Texas- oil & gas Nevada- no taxes, no information, copy of DE

  3. Certificateofincorporation • No sharecapitalneeded • Corporation name • Addressofregisteredoffice • Nature of business (Ultra viresdoctrine) • Total numberofshares • Name, mailing address and signatureofincorporators • Voluntary additions

  4. ArticlesfiledOrganizational meeting (Corporation (Bylaws: any provisions relatingformed)to business) Articles/Certificate/Charter: If stock has not beenpaid: amended by incorporators & BOD If stock has beenpaid: proposal by BOD, decided by SH (voting as a class) Bylaws: If stock has not beenpaid: amended by incorporators & BOD, If stock has beenpaid: by SH (if not conferredto BOD in charter)

  5. Issuanceofshares • Howtoissue new shares? • BOD proposes, SH votes: authorization. BOD issuestopublic • Preemptiverights –opt in • Amendmentofsharerights: • BOD proposes, everyclassvotesseparately • Debttoequityratios: • Some tax advantageswithdebt (profit)

  6. Financial distributions to shareholders • Dividends: BOD normallydecidesaccordingto business judgmentrule • Capital distributions: cash payments in relation tocapital (same rules as dividends) • Stock distributions: BOD decides, if no authorizedshares, shareholdervoteneeded! • Repurchase:BOD decides!

  7. Limitations on distributions • Equity/insolvency test: the company has to be abletopayit’sdebtsas they comedue(NYBCL & MBCA) • Balancesheet test: Assets-(liabilities+ preferredsharesliquidationrights) (MBCA) • Assets-(liabilities+ statedcapital) (NYBCL) • Contractual limitations: In articlesof association or contract • Liabilityof directors: for distributions decided in bad faith

  8. Directors and officers Executive directors Independent directors CEO Record keeper CLO CFO

  9. Authority to bind the corporation • The BOD: • Actual authority • Implied actual authority • Ratification • Officers: • Matters in the usual course of business • No extraordinary matters

  10. Corporate fiduciary duties • Standards ofreview for corporatedecisionsmaking • Dutyof Care:How the BOD has performedtheir decision making and supervisoryfunctions • DutyofLoyalty: Directors shallput the corporation’sinterestsbeforetheirowninterests

  11. Business Judgment Rule • A presumtion ofcare in decisionmaking. • Burdenofproof on SH challenging BOD action • Burdenofproofsatisfiedif: • 1)Action not in goodfaith (fraud, conflictofinterest) • 2)Waste • 3)Gross negligence in becominginformed or lack of supervision

  12. Indemnification & insurance • Indemnification: Corporation’s promise to reimburse the BOD for litigation & liability • 1)Succesful litigation- always • 2)Partly successful litigation- to the extent successful • 3)Unsuccessful litigation-permissible if good faith and corp’s. best interests • D & O Insurance: Directors’ insurance paid by corporation

  13. ANNUAL MEETING Company prepares annual report The BOD selects a record date Proxies returned The BOD sets the date for the meeting Proxy solicitation /Notice Meeting

  14. ISSUES TO VOTE ON... • 1)Election and removal of directors (must) • 2) Any other issue the BOD proposes (can) • 3)Fundamental corporate changes (must) • 4) Amendment of bylaws (must) • 5)Conflicting interest transactions/ indemnification (can) • 6) Shareholder proposals (can)

  15. Foreign corporations in NY • Authorization required (Secretary of State) • “Doing business in NY”? • Right to maintain suits • Subjected to personal jurisdiction in NY

  16. Federal legislation SecuritiesAct (initial public offerings): registration, information, liability Securities Exchange Act ( secondary market): continuing information such as annualreports, quarterlyreports, insider trading, proxies, stock market regulation Sarbanes- OxleyAct (SOX):financialreporting, auditing, corporategovernance Dodd-Frank Act: Market regulation

  17. Foreign private issuers FPI: • 50 % or less is owned by U.S. residents or • morethan 50 % is held by US SH but • A)the majorityof BOD or management arenot U.S citizens or residents & • B)morethan 50 % of assets arenot locatedin the U.S & C) business is not principallyrun in the U.S. Most Swedish businessesqualify as foreign private issuers • Less stringent SEA rules

  18. Foreign private issuers SEA registrationif: • 1) IPO • 2) The securitiesaretraded on a U.S. exchange OR • 3) The securitesareheldby morethan 300 U.S. SH AND the corporation has morethan 500 SH Foreign private issuerscanuse the rule 12g3–2 (b) exemption from registration in 3) if: • The Co. is listed in a foreign country (55% of trading) • The corporationprovides SEC with all information published in Sweden (in English)

  19. AmericanDepositaryreceipts • Issuedby U.S. depositary, against the depositof a custodian • No physical transfer ofshares • ”Sponsored” & ”unsponsored” programs • Level I ADR:s: trade on the OTC market • Level II ADR:s: listing on a U.S. stock market • Level III ADR:s: IPO in the United States • Rule 144 A ADR:s: private offerings in the United States

  20. Foreign companies and rule 10 (b) 5 • “directly, or indirectly, by the use of any means or instrumentality of interstate commerce or of the mails or of any facility of any national securities exchange • A) To employ any device, scheme, or artifice to defraud • B)to make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstance under which they were made, not misleading…”

  21. Circuit court case law Territoriality principle Subjective territoriality (foreign cubed cases) • In re Royal Ahold, 351 F.Supp. 2d 334 • In re Nortel Networks, 2003 WL 22077464 Objective territoriality (the effects doctrine) • Bersch v. Drexel Firestone, 519 F.2d 974

  22. Morrison v. National Australia Bank • 130 S.Ct. 2869 (2010) • 1) transaction in the United States • 2) shares traded on a national stock exchange

  23. Dodd-Frank Act • “(1) conduct within the United States that constitutes significant steps in furtherance of the violation, even if the securities transaction occurs outside the United States and involves only foreign investors; or • (2) conduct occurring outside the United States that has foreseeable substantial effect within the United States”

  24. So what now? • Section 929 Y Dodd Frank Act… • Foreign governments involved…as well as private investors • Any problems with extraterritorial application of US laws? • Public/private sanctions • Procedural rules differ • Punitive damages/ordre public

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