American Laws of Corporation and Corporate
Finance
Course
Syllabus
Bo Li and Junling Ma
November 2001
Renmin University Law School
This short course will last for 20 hours. The purpose of the course is to give students
an in-depth understanding of some important aspects of corporate governance,
corporate finance and related securities laws. In addition to law and policy, the course will
also cover some important transactional aspects of corporate law in the United
States.
The class time is 9:00am to 11:30am every Monday to
Thursday for the first two weeks, and Monday to Tuesday for the third week.
The last class will be on Tuesday, November 20.
To get credit for this class, a student needs to write
a short paper on a topic related to this class. Some suggested paper topics are attached at the end of this syllabus.
Each student is encouraged to discuss with any one of the teachers
about potential paper topics. The paper is due on Tuesday, November 20 in
class. Each paper should at least
have 2,500 Chinese words. If possible,
the paper should be typed on computer. Good
typed papers will be considered for publication on Perspectives, a popular online academic journal based in the United
States.
We will have office hours from 2:00pm to 4:00pm on Monday,
November 12 and Sunday, November 18. Students
are encouraged to come to the office hours to ask questions.
Reading Materials
Corporations: Examples and Explanations (Third Edition), by Lewis D. Solomon & Alan R. Palmiter
(Aspen, 1999) (“S&P”)
Corporations and Other Business Organizations: Cases
and Materials (Eighth Edition),
by Melvin Aron Eisenberg (The Foundation Press, 2000) (“Eisenberg”)
Model
Business Corporation Act (“MBCA”)
Delaware
General Corporation Law (“DGCL”)
Securities
Act of 1933 (“33 Act”)
Securities
Exchange Act of 1934 (“34 Act”)
Venture Capital Financing:
· Article by Kristopher D. Brown, “Emerging growth companies: financing and strategic alliance transactions,” Counseling Clients in the New Economy, PLI 2001
· Sample fact pattern and term sheet for a Series B financing transaction
Miscellaneous materials
Course Plan
and Reading List
Class 1. Introduction
and Formation of Corporation Monday, November 5
Teacher: Bo Li
Overview: basic attributes, theory
of firm, source of corporate law, constitutional issue
Choice of forms (C or S corporation,
partnership, LP, LLC, etc)
Incorporation Process
Location of incorporation --- Delaware
vs. other states
Ultra vires doctrine
Law of agency (relevant for two
reasons: corporate liability, corporate governance)
Reading
Assignment:
(1)
S&P: Chapter 2
(2)
Eisenberg: Morris Oil Co.
v. Rainbow Oilfield Trucking, Inc. (pp. 2-6)
Tarnowski v. Resop (pp.
18-22)
Note on the Authority of Corporate
Officers (pp. 210-214)
Class 2. Corporate
Governance: Introduction and Shareholder Voting Rights Tuesday,
November 6
Teacher: Bo Li
Introduction:
·
What is corporate governance?
·
Traditional model of
corporate governance and corporate governance in reality
·
Corporate constituencies:
shareholder, management and directors
·
Public vs. privately
held corporation: difference in corporate governance
Governing mechanisms:
·
Approval requirements:
shareholder approval (shareholder voting rights), board approval, etc.
·
Incentive mechanisms:
bonuses, stock options, market discipline, etc.
·
Fiduciary duties: concept
of fiduciary, and standard of care (law of agency)
Shareholder voting rights
·
Shareholders’ Role
in Corporate Governance
·
Voting Structure
·
Judicial Protection
of Voting Rights
·
Federal Regulation
of Proxy Voting
·
Proxy Fraud
Reading Assignment:
(1)
S&P: Chapter 7
(2)
Eisenberg: Schnell v. Chris-Craft
Industries, Inc. (pp. 169-171)
Blasius Industries, Inc. v.
Atlas Corp (pp. 171-179)
Stroud v. Grace (pp. 181-187)
(3) MBCA: Chapter 7
(4)
DGCL: Subchatper VII
Class 3. Corporate Governance: Fiduciary Duties of
Management and Controlling Shareholders
Wednesday,
November 7
Teacher: Junling Ma
Fiduciary duties of directors
·
Duty of care; business
judgment rule
·
Duty of loyalty; self
dealing
·
Corporate opportunity
Executive
compensation
Indemnification and D&O insurance
Responsibility of controlling shareholders
Shareholder
derivative suit
Reading Assignment:
(1)
S&P: Chapter
11, Chapter 12.1-12.3, pp. 199-212 (12.4-5, and examples, pp. 212-222 optional)
(2)
Eisenberg: Smith
v. Van Gorkom (pp. 549-567) (duty of care)
(3)
S&P: Chapter
13 (pp.223-233; examples on pp.233-240, optional)
(4)
DGCL: Section
144
Class 4. Corporate Finance: An Introduction
Thursday,
November 8
Teacher: Junling Ma
Financial rights in corporation
· Financial rights of equity shares
· Issuance of equity shares
· Common stock and preferred stock
· Debt financing
· Choosing a debt-equity mix
Private
(venture financing) vs. public financing (public offerings)
·
Framework for securities
offering under 1933 Act
·
Private placement exemptions
– Regulation D
·
Civil liabilities under
federal securities laws
·
Transfer restrictions
on restricted stock
·
Definition of “Security”
Reading Assignment:
(1)
S&P: Chapter 4 – Financial Rights
in Corporation; Example 1 on p. 59;
Examples 1 &3 on p. 66; Example 1 on p.73
(2)
DGCL; Sections 152,153 & 154
(3)
MBCA Section 6
(4)
S&P: Chapter 5 – Federal Regulation
of Securities Offering
(5)
33 Act: Sections 11 and 12
(6)
Eisenberg: Escott
v. BarChris Construction Co. (pp. 1365-1392)
Class 5.
Protection of Corporate Creditors
Monday, November 12
Teacher:
Bo Li
Rule of limited liability
Liability during incorporation
process
Corporate liability – authority to bind the corporation
(law of agency)
Limitations on Corporate Distributions
to Shareholders
·
Dividend
·
Capital Distribution
·
Redemption and Repurchase
Corporate formality/Piercing Corporate
Veil
Statutory recognition of corporate
form
Reading Assignment:
(1)
S&P: Chapter 31
(2)
Eisenberg: Walkovszky v.
Carlton (pp. 226-231)
Minton v. Cavaney (pp. 238-240)
Sea-Land Services, Inc. v. Pepper
Source (pp. 242-248)
(3)
MBCA: Section 6.40(c)
(4)
DGCL: Sections 154, 170, 160
Class 6. Venture Capital Financing
Tuesday, November
13
Teacher: Junling Ma
Advantages and disadvantages of
venture capital financing
Preferred stock vs. common stock
Overview of a typical venture capital
financing deal – term sheet
VC’s participation in corporate
governance
·
Preferred Stock’s special
voting rights -- protective provisions
·
Board representation
or visitation rights
Preferred stock: features set forth
in Articles of Incorporation
·
Dividends
·
Liquidation preference
·
Conversion
·
Anti-dilution protection
Preferred stock: contractual rights
set forth in Investors Rights Agreements
·
Registration rights
·
Preemptive right –
right to participate in future financing
·
Financial information
rights
Reading Assignment:
(1) S&P: Chapter 4.1
(2) Kristopher D. Brown: “Emerging growth companies: financing and strategic
alliance transactions” (selected pages)
(3) Sample fact pattern and term sheet for a Series B financing transaction.
Class 7. Going Public: The IPO Process
Wednesday,
November 14
Guest Lecturer:
James Lin
Is the company ready for IPO -- advantages and disadvantages
of going public
IPO process
The
team: investment bankers, accountants, lawyers, and management
Due
diligence, and potential liability of all parties
Preparing
and filing the registration statement, dealing with SEC
Preparing
and adopt polices and procedures required of public company
Road
shows, pricing, asking for effectiveness, and offering
Underwriting arrangement
U