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Corporations

Original author: Holger Spamann

This playlist is a virtual casebook for the Corporations course. I designed it as a substitute for the traditional hardbound casebook.

[Note: I use additional transactional materials in my class (see here for an example). If you are a student in my class, you will receive them as indicated in the syllabus. If you are an instructor who is considering adopting this casebook, please contact me for the additional materials.]

Compared to standard casebooks, I use fewer cases, but I edit them sparingly and sometimes not at all. One reason for this is that the number of seminal cases in corporate law is small. I believe you are better served by knowing the important cases well, rather than by skimming a lot of less important cases. Additionally, much of corporate law consists of broad standards that take on real meaning only in their application. That is why understanding the law often requires reading the full facts of the opinion. The judges clearly considered these factual details important, even on appeal, and so should you! The other reason for focusing on fewer cases is that I want to give you the time necessary to understand the underlying business scenarios, and to reflect on the interactions of the rules discussed in the cases. In corporate law, this is not easy. The structures and transactions are often complex. Please try to understand them as best you can.

I have organized the materials largely around the doctrine and particular corporate events. But any one case involves multiple issues, including the underlying business issues. You will learn better if you try to understand the full case, rather than zooming in narrowly on the headline doctrine.

With one exception, all of the cases in these materials are either Delaware or federal cases. Delaware law is the dominant corporate law of the United States. In the U.S., each state has its own corporate law, and the applicable law is the law of the state of incorporation. Corporations are free to incorporate where they want, in return for paying incorporation tax (“franchise tax”) in that jurisdiction. Delaware has attracted more than half of all public corporations and many private corporations in the U.S. (Delaware derives a third of its state revenue from the franchise tax!) Furthermore, Delaware is also the model followed by many other states. As a result, I see no point in teaching you other states’ law. I occasionally use other countries’ laws to expose you to alternative arrangements; the variance between countries is much larger than between US states.

For similar reasons, I teach only corporations proper. I do not cover partnerships, limited liability companies (LLCs), or the many other entity forms now available. These other forms are undoubtedly important in practice. But an introductory course cannot teach the nuanced differences between these forms, many of which lie in tax law. So I only give you a brief warning about involuntary partnership in the first class. However, the commonalities between the various entity forms are great.  So if you understand corporate law and the underlying business problems, I trust you will easily learn the other forms when the need arises.

Glossary

Bylaws = a corporation’s secondary governing document (cf. DGCL 109(b)). The charter can provide, and usually does provide, that the board can amend the bylaws without shareholder consent (DGCL 109(a); contrast the charter itself, which can only be amended by board and shareholders jointly, DGCL 242(b)).

Certificate of Incorporation = a corporation’s founding and primary governing document (cf. DGCL 102).

Charter = certificate of incorporation.

Common stock / share: see share.

Debt holders = creditors.

DGCL = Delaware General Corporation Law, i.e., the basic Delaware statute. As a guide to this important statute, I have created the simplified DGCL.

Dividends = an official distribution of cash or other assets to all shareholders of one class. Even though dividends are generally the only way shareholders as a group get a return on their investment (individual shareholders can also sell their shares, but that only puts the buyer of the shares into the seller's shoes), dividends are in the board's discretion (DGCL 170(a)).

Equity; equity capital = the excess of assets over liabilities, if any (or equivalently, non-debt financing).

Equity holders = shareholders. The term derives from the fact that roughly speaking, equity is available for distribution to shareholders.

Limited liability = no liability (of shareholders). The expression “limited” comes from the observation that shareholders stand to lose whatever they put into the corporation, as this is available to satisfy the corporations' creditors' claims. However, shareholders have no liability beyond that, absent pathological circumstances.

Merger = the fusion of two corporations into one (cf. DGCL 251).

Preferred stock / share = stock with special rights (“preferences”), generally with respect to dividends. A standard term is that preferred shares are entitled to a certain dividend per year, payable if and when a dividend will be paid to common stockholders. In return, preferred shares often do not carry voting rights.

Public corporation = a corporation whose stock is publicly traded, usually on a regulated stock exchange such as the New York Stock Exchange.

Share = an interest in the corporation with rights that are defined by the corporation’s charter. Unlike debt, shares do not provide a right to fixed payouts. Rather, the board decides if and when shareholders will receive so-called dividends. The default rule is that each share provides one vote (cf. DGCL 212) and equal dividend rights; such shares are called “common shares” or “common stock.”

Stock = a synonym or collective term for shares (as in “twenty shares of the corporation’s stock”).