Business law
lmjlm_redrose
busines_rules.pdf
Rule of corporations When the board of directors opposed the tender offer , and shareholders of target company losses the opportunity to sell their shares with tender offer , they may use the directors but the court will not find directors liable for opposing the tender offer because the business judgment rule applies to a board’s decision to oppose a tender offer . But if directors actions indicate that they opposed the tender offer in order to preserve their jobs , they will be liable to the corporation. If directors make a decision based on their interest rather than company’s interest , they will violate business judgment rule and will be held liable for that Business judgment rule If there are : absent bad fait, fraud, or breach of fiduciary duty , the judgment of board of directors is conclusive ; three requirements -‐ …… reasonable investigation, rational basis , no conflict of interest Conflict of interest Conflict of interest may arise when the directors or officers with a conflict of interest my prefer his own interest over those of the corporation Generally, unanimous approval of an interested person transaction by informed shareholders conclusively releases an interested director or officer from liability even if transaction is unfair to the corporation. Usurpation of a corporate opportunity As a fiduciaries, directors and officers are liable to their corporation for usurping ( stealing ) corporate opportunities the Sarbanes – Oxley Act of 2002 Congress included in the Sarbanes – Oxley Act of 2002 a section generally prohibiting public companies from making loans to their directors or officers. But if the corporation is not a public company or if the loan is made to a nonexecutive , the SOA doesn’t prohibit the corporate loan . Oppression of minority shareholders ( freeze out) oppression may occur when directors of close corporation who are also the majority shareholders pay themselves high salaries yet refuse to pay dividends or to hire minority shareholders as employees of the corporation. One method of oppression is (private going) freeze out -‐ the article of merger says that only the shareholders of the new corporation will survive as shareholders of the surviving new corporation ; the shareholders of the old corporation will receive cash only . Trading inside information Securities Regulation, the illegality of insider trading is already federal law under the Security Exchange Act
Directors and officers liability for torts and crimes The liability of the corporation. For torts, the vicarious liability rule of respondeat superior applies to corporations . Directors and officers are personally liable when they commit torts or crimes during the performance of their corporate duties. The directors or officers are usually not liable for the torts of employees of the corporation, since corporation not a director or the officer, is the principle but if they authorizes the torts but not involved they will have criminal liability.
Rules of Security Definition The Howey test states that an investment contract is an investment of money in a common enterprise with an expectation of profits solely from the efforts of others In order to satisfy the definition of securities it should me met to these three attributes If anyone violate HOWEY TEST ( security law ) the SEC will come after them some cases it will end up appearing in the jail . One of the violations is trading inside information : about the rate of securities and so on Basic and fundamental distinctions of 1933 and 1934 acts are that 1934 has ongoing reporting requirements ( all the time companies do ongoing reporting about their financial statements for exp. 10K is under 34 act and so on ), under the 1933 act it is when you issue the shares , so the inssuance of the shares subject to 1933 act . First time you sell your share to the public , that initial public offering is called IPO, so if you have an IPO you fall under 1933 act 1933 Act Under the 1933 Securities Act, a person responsible may be held liable for: 1. intentional fraud, 2. a material omission or misstatement 3. failure to file a registration statement or deliver a prospectus as required by law
Section 5 of the 1933 Act states the basic rules regarding the timing, manner, and content of offers and sales . it creates three important periods of time in the life of a securities offering: 1. The pre –filling period , 2. The waiting period, 3. The post effective period Under the rule 506 , which part of securities act regulation D , investors must be qualified to purchase the securities. They have to be either accredited investors or unaccredited investors who has a knowledge and experience in financial and business matter. And they should sign an investment latter verifying that they are qualifying . Accredited – institutional investors , high level insider of issuer, . It can sell to an unlimited number of accredited purchasers . Unaccredited – should be no more than 35 purchasers who have sufficient investment knowledge and experience Small offering exemptions Section 3(b) and 4(6) of the 1933 Act permit the SEC to exempt from registration any offering by an issuer not exceeding 5 million. State securities law may require registration , however. Rule 504 of registration D allows a nonpublic issuer to sell up to 1 million of securities in a 12-‐months period and avoid registration . it must be a nonpublic issuer under the Securities Exchange Act Rule 505 of registration D allows any issuer to sell up to 5$ million of securities in 12 months period and avoid registration. Liability for defective Registration statements Section 11 of the 1933 Act provides civil liabilities for damages when a 1933 Act registration statement on its effective date misstates or omits a material fact. If purchaser find any of these in the registration , the only thing that she or he has to prove is that the defendant is in one of classes of persons liable under section 11. Defendant can escape liability under section 11 by proving that the purchaser knew of the misstatement or omission when she purchased the security. Or defendant may raise due diligence defense . Most defendants must prove that after a reasonable investigation they had reasonable grounds to believe and did believe that the registration statement was true and contained no omissions of material fact . 1934 Act 1934 Act requires periodic discloser by issuers with publicly held equity securities. Three types of issuer must file such report
1. whose total assets exceed 10 million , and has at least 500 sec. holders 2. an issuer whose securities are traded on national securities exchange 3. An issuer who has made a registered offering of securities under the 1933 Act
Proxy Solicitation Regulation The 1934 Act regulates the solicitation of proxies. Regulation 14 A requires any person soliciting proxies from holders of securities registered under 1943 Act to furnish each holder with proxy statement containing voting information .
1934 act rule 10b-‐5 violation ( it is very important provision ) as know as intifraud provision requirements
1. misstatement or omission of Material fact 2. Materiality 3. Scienter 4. Other elements 5. Trading on inside information
Recap -‐ you have to show a material misstatements of omission of a material fact , you have to also show that there was a scienter ( intended to have a fraud or some kind of gross neglagens involved ), You have to show that there was an actual purchase or sells during the period of time when that misstatements and omissions happened, and eventually you have to show that you relied on the misstatements of material fact that results to your loss. 10b-‐5 applies not just a financial statement , 10b-‐5 violation can also creates when CEO or high executive makes material misstatements through media
Trading on inside information When does an insider breach the fiduciary duty of confidentiality 1. When the insider uses entrusted corporate information for his personal benefit 2. When the insiders discloses the entrusted corporate information to someone other than for corporate
purposes and the insider receives a personal benefit. When does an insider not breach the fiduciary duty of confidentiality 1. when the insider discloses the entrusted corporate information to someone who needs the information
for corporate purposes 2. when the insider doesn’t receive personal benefit by disclosing or using the entrusted corporate
information 3. When corporation doesn’t have a proper business purpose for keeping the information confidential
Regulation FD is different 10b-‐5 , 10b-‐5 is saying stuff that is with knowledge materially false or omitting so it is not 10b-‐5 anymore , it is not inside trading . it is trying to say hey I have got this extra information I am in a share with this big investor ,( it make sense you take care of your biggest customer ), but you can not do it , you cant selectively disclosed information to one group of share holders at the expense of the other . and why is that -‐ if there is no regulation FD , The CEO can share the information with some group of shareholders but not with every shareholders which is against the law of security -‐ that says everybody should be taking care of equally . if selective discloser took place intentionally , there is a remedy to fix it only if issuer must make public discloser at the same time within 24 hours . Foreign corrupt practices act If someone from any companies is bribing foreign government official that person fall within FCPA liability . The requirements : it has to be to a government official ( any employment of government) , the consequences are huge penalties even jail time . Bribe is something that is not facilitate payments . or anything that facilitating payments is not a bribe.
Ethics and Social Responsibility of Business – Couldn’t find rules
Rule of Employment Employee at will – being employee you can leave the company any time unless you have specific contract with them not to leave the company in certain period of time and vise versa employer can fire you any time , so you can be fired and you can quit with no reason any time . But -‐ if you are discriminated based on ; race , age, religion , gender , disability , ethnicity you are protected by law Protecting the health safety and well-‐being of workers and their families Workers’ compensation Compensation is that employee recover only for work related injuries . To be work related 1. the injury must be arise out of the employment , 2. And happen in course of employment . We need to prove only this two things . it has nothing to do with negligence . The employee will collect for all work-‐related injuries, and will not need to prove negligence on the part of the employer. Occupational Safety and health act The most important measure directly regulating workplace safety is the federal Occupational Safety and health act of 1970, With its general duty clause imposes a duty on employers to provide their employees with a workplace and jobs free form recognized hazards that may cause harm. Employers are subject to having their workplaces inspected under the Act. Even though the Act contains numerous specific safety standards, employers must also provide a work environment that is free from recognized hazards that could cause death or serious injury. Employers are required to post notices in the workplace informing workers of their rights under the Act. Family and medical leave act ( FMLA) In general this act covers those employed for at least 12 months, and for 1250 hours during those 12 months , by an employer employing 50 or more employees . Employees are covered when there is following reasons 1. Birth of child , 2. Adoption of child , 3.need care for a spouse with a serious health conditions, 4. Employee’s own serious health conditions
Protecting Wages , pensions, and benefits Unemployment Compensation States of the condition the receipt of benefit on the recipient’s having worked for a covered employer for a specific time period and/or having earned a certain minimum income over such a period. People are ineligible for benefits if voluntarily quit , fired for bad conduct , fail to seek suitable new work . Employee Retirement Income Security Act ( ERISA ) ERISA doesn’t require employers to establish or fund pension plans or doesn’t set benefits levels. Instead, it tries to check abuses and to protect employees’ expectations that promised pension benefits will be paid. Besides this ERISA imposes other things also The Fair labor standards Act ( FLSA) FLSA regulates wages and hours by entitling covered employees to 1) A specified minimum wage whose amount changes over time , and 2) a time and half rate for work exceeding 40 hours per week FLSA also forbids oppressive child labor by any employer engaged in interstate commerce , and also forbids interstate shipment of goods produced in an establishment where oppressive child labor occurs . Oppressive child labor includes : 1) below age of 14, 2) 14-‐15 , unless they work in occupation specifically approved by department of labor . 3) 16-‐17 particularly hazardous by the labor department . Collective bargaining is a good system because you have a group negotiation or one entity negotiation on behalf of entire employee group where as each individual negotiation own her own that wont have that collective bargaining power Protecting equal opportunity The equal pay act ( EPA) The equal pay act ( EPA) which forbids sex discrimination regarding pay, was a 1963 amendment to the FLSA. Unlike the FLSA , the EPA covers executive , administrative, and professional employees. The typical EPA case involves woman who claims that she has received lower pay than a male employee performing the equal work for the same employer. Equal work requirement is met : 1) Equal effort 2) equal skills , 3) Equal responsibility , 4) similar working conditions . Title 7 Title 7 of the 1964 Civil Rights Act prohibits discrimination based on Race, color, national origin, religion, sex . Even though the term “ sexual harassment” doesn’t appear in the text of Title 7, courts have long held that an employer may be liable if it allows its employees to be subjected to unwelcome sexual advances, verbal or physical conduct of a sexual nature. Two types. 1) Quid Pro quo sexual harassment , in which a supervisor makes some express or implied linkage between an employee’s submission to sexually oriented behavior and a tangible job consequences. Employer liable under the Title 7 if harassment took place within the scope of their employment, otherwise it is Frolic. 2) Hostile environment harassment conduct is covered by Title 7 which prohibits the employer from allowing an employee to be subjected to unwelcome, sex-‐related behavior that can change the conditions of her employment and create an abusive work working environment. It can also be inappropriate comments by employees . Age is not covered by title 7
Title 7 covers all employers employing 15 or more employees and engaging in an industry affecting interstate commerce . Title 7 covers organizations , not individuals . How plaintiffs in Title 7 cases prove that their employer discriminated against them varies depending on the theory of discrimination. There are 4 different defenses against Title 7 : 1) Same decision defense 2) Bona fide seniority system , 3) The various “merit” defense , and 4) The BFOQ defense . The Age Discrimination in Employment Act (ADEA) Under older worker protection act ( ADEA) prohibits employment discrimination against persons 40 years of age or older. 1) engage in an industry affecting interstate commerce 2) at least 20 persons. Its procedures and remedies are the same as for Title 7 The Americans with Disability Act ( ADA) ADA prohibits discrimination against people who have disabilities . Its procedures and remedies are the same as for Title 7 . Under the Americans with Disabilities Act, an employer is required to provide reasonable accommodations to enable a disabled person to perform a job
Protecting Employee privacy Employee Polygraph protection Act The Employee Polygraph Protection Act of 1988 (EPPA) generally prevents employers from using lie detector tests, either for pre-‐employment screening or during the course of employment, with certain exemptions. Employers generally may not require or request any employee or job applicant to take a lie detector test, or discharge, discipline, or discriminate against an employee or job applicant for refusing
to take a test or for exercising other rights under the Act. In addition, employers are required to display the EPPA poster in the workplace for their employees. Job security The Doctrine at employment at will – Breach of an Implied Covenant of Good Faith and Fair Dealing In wrongful dismissal cases based on an implied covenant of good faith and fair dealing, the discharged employee typically contends that the employer has indicated in various ways that the employee has job security and will be treated fairly. For example, long time employees who have consistently received favorable evaluations might claim that their length of service and positive performance reviews were signs that their job would be secure as long as they performed satisfactorily.
From the case of SEC Vs. EDAWEDS SEC filed suet and claim under 33 act and 34 act. SEC saying you are violating both acts 1. in a form of issuance and 2. in the form of ongoing reporting , specifically you are engaged in a fraud and we
gonna nail you antifraud previsions under 33 act section 5 ( page 1145 you will have your IPO after being all of these satisfied -‐ ) and under 34 act 10 b5
SEC mission is to protect overage investor and lower court found guilty bad guys but supreme court , based on the definition of security HOWEY test, says….. (read the case ) Does the fixed return constitute security . Is there a risk for investors Just the fact that it was a fix return is not enough it should satisfy the definition of security Howey test My brief Trial court said that there was an investment contract within the meaning of the federal securities laws and held Edwards to be liable for the damages because they had violated the registration requirements of section 5 of the Securities act of 1933 and antifraud previsions of the 1933 and 1934 securities act . Edwards and ETS appealed and the Appeal court said that since it was not corresponding to Howey test it was a contractual entitlement to the return than securities , so they didn’t violate the law of securities . SEC Asked the supreme court to review -‐ supreme court states that an investment scheme promising a fix rate of return can be an “ investment contract” and thus a “ security” subject to the federal securities laws .
