1、Doing Business in the United States,Legal Principles and Issues,1,Forming a Business in the U.S. Mi Zhou, Peng Wang, Lin WuWhat Type of Business Enterprise?General Partnership?Limited Partnership?Limited Liability Company?Corporation?Where Should It Be Formed?,2,Hypothetical One,Forming a Joint Vent
2、ure Philip Brooks What is a Joint Venture? How is it Formed? How is it Regulated?,3,Hypothetical Two,Mergers and Acquisitions Offer from Lee LiuWill It Be a Friendly Takeover?Will There Be a Hostile Tender Offer?,4,Hypothetical Three,FederalismDivision of PowersBusiness Formation States State of Inc
3、orporationChoice of StateRegistered AgentInternal Affairs Doctrine,5,Introduction to American Business Law,Uniform and Model Acts Uniform Partnership Act Uniform Limited Partnership Act Uniform Limited Liability Company Act Model Business Corporation Act Uniformity Has Not Been Totally Achieved “The
4、 Genius of American Corporate Law” Division of State and Federal Powers,6,Attempt at National Uniformity,WHY ARE AMERICANS SO LITIGIOUS? Respect for Courts Diverse Communities Sense of Property Rights Lawyers Training and ExpertiseITS NOT SUCH A BAD THINGThe “Private Enforcement” PowerMovement Towar
5、ds AlternativesArbitrationMediation,7,Litigation An American Passion,Sole Proprietorship (one person) (state registration-anywhere) General Partnership (GP) (No filing No registration.) Joint Venture (JV) (two) Limited Partnership (GP/LTP) (require a state registration) Limited Liability Company (LL
6、C) ) (require a state registration) Corporation ) (require a state registration),8,Business Enterprises,What is it? How is it Formed? Uniform Partnership Act Equality Among Partners (Every partner has one note statutory requirement)ManagementProfits Partnership Agreement,9,General Partnership,Person
7、al Liability of Partners BUT.Limited Liability Partnership (LLP)OptionalAll else stays the same except personal liability Partners Authority to Act (Agency) Basic Principles of Agency Law Partners Sale or Transfer of Interest Taxes,10,General Partnership (cont.),What is a Joint Venture? How formed?
8、Like a General Partnership, Except(There is almost a agreement). Partnership Agreement Effect on the Two Venturers,11,Joint Venture with Brooks,What is it? How formed? Uniform Limited Partnership Act Management Personal LiabilityLimited Liability Limited Partnership (LLLP) Sale of Ownership Interest
9、 Taxes,12,Limited Partnership,New Form Partly like a PartnershipPass-Through Tax EntityMember ManagedLimited Right to Sell Interest Partly Like a CorporationLimited LiabilityManager ManagedNot Terminated by Death, etc.Operating Agreement,13,Limited Liability Company (LLC),Limited Liability Continuit
10、y of Life Transferability of Interest Centralized Management,14,Comparison to Corporations,Taxation Transaction Costs Investor Understanding,15,Choice of Entity,FormationArticles of IncorporationBoard MeetingSale of SharesOfficers Preemptive Rights,16,Corporations,Election of DirectorsHow will Mi an
11、d others assure election?AlternativesClasses of SharesShareholder Agreement Business DecisionsHow will Mi and others assure positions? Buy-Sell Agreements,17,Shareholder Agreements,Authorized SharesTotal number of shares that can be soldHigh number? Low Number?Importance to shareholders: Percentage
12、Common StockVotingDividendsLiquidation,18,Equity,Exception to Shareholder Immunity Equitable Doctrine Applications Sole or Close Corporation Parent-Subsidiary Corporations Entity Enterprise Theory,19,Piercing the Corporate Veil,Why is Good Corporate Governance Important?Basic Elements Objective Deci
13、sion-Making Accountability Enforceability,20,Corporate Governance,Director Independence Audit Committee Monitoring Shareholder Rights Professional Assistance The Lawyers Role The Accountants Role,21,Specific Factors for Good Corporate Governance,What is the Directors Obligation? Judicial Development
14、 of Fiduciary Standards The “Unitary” Standard What is Reasonable Care? Ordinary or Gross Negligence? Reliance on Officers Duty to MonitorThe Leading Case: Smith v. Van Gorkom,22,The Duty of Care,What Does “Loyalty” Mean? Conflict of Interest Transactions Void or Voidable? Approvals and Disclosures
15、The Corporate Opportunity Doctrine,23,The Duty of Loyalty,Same Obligations as Directors Fairness to Minority Shareholders,24,Controlling Shareholders,What Are They?Freeze-Outs: Loss of Economic BenefitsSqueeze-Outs: Loss of Investment Interest Are Minority Shareholders Protected? Statutory Protectio
16、n (40 States): “Oppression” Shareholder Agreements Judicial Protection Breach of Fiduciary Duties Legitimate Business Interest,25,Freeze-Outs and Squeeze-Outs,Special Shareholder Meetings Shareholder Proposals Removal of Directors from OfficeShareholder Derivative Litigation Demand, Complaint, Corpo
17、rate Response Judicial EvaluationSecurities & Exchange CommissionDisbarment from Office,26,Enforcement of Director/Officer Duties,GENERAL PROVISIONSFixed Dividends, e.g. $4.00 per YearLiquidation Preference Over CommonLimited Voting RightsRedeemable by CorporationOPTIONAL PROVISIONSCumulative Divide
18、ndsConvertible into Common Stock,27,PREFERRED SHARES,History The Start: State Laws National Law: 1933 Securities ActConcurrent Federal/State LawsThe Sarbanes-Oxley Act,28,United States Securities Laws,The Process Registration Statement SEC Review Underwriters Firm Commitment Underwriting Best Effort
19、s Underwriting The Lawyers Role Disclosure Guidelines What if the Company Objects to Disclosure?,29,The Registration of Securities Offerings,Cost Delay Public Company Obligations,30,The Problems of Registration,Importance for Small Companies Statutory Exemptions Section 4(2): The Private Offering Ex
20、emption Regulatory Exemptions Authority to Securities & Exchange Commission Regulation A, Regulation D Technical, Difficult Requirements Violations: Rescission Rights,31,Exemptions From Registration,Statutory Section 4(2) Transaction “not involving any public offering”The Ralston Purina case Full Di
21、sclosure (Offerees & Purchasers) “Sophistication” (Offerees & Purchasers) No General Advertising or Solicitation “Restricted” Transfer of Shares by Purchasers,32,The Private Offering Exemptions,Intent: Create Objective Standards Accredited Investors Presumed Sophisticated No Disclosure Required Unli
22、mited Number Non-Accredited Investors Limited to 35 Full Disclosure Required Purchaser Representatives for “Unsophisrticated” No General Advertising or Solicitation “Restricted Transfer” of Shares by Purchasers,33,Regulatory Offering Exemption: Rule 506,Regulation A - $5 million Maximum Advantages “
23、Testing the Waters” Broad Marketing Efforts Not Restricted SecuritiesRule 504 $1 million Maximum No Disclosure Requirement No Purchaser QualificationsRule 505 $5 million Maximum,34,Other Limited Offering Exemptions,Creation of a Venture Capital Fund Limited Partnership Private Offering for Wealthy I
24、nvestorsThe Venture Capital InvestmentConvertible Preferred SharesManagement SupervisionExit Strategies“Green Light, Yellow Light, Red Light”MergersInitial Public Offerings (IPOs),35,Venture Capital and “Angel” Financing,Why Do Public Companies “Go Private”? What is “Private Equity”? What is a Lever
25、aged Buyout? Management Initiated Acquisition Use of Corporate Assets to Secure Loans The Danger of Debt,36,Private Equity and Leveraged Buyouts,Registration Unless State ExemptionVery Little Federal/State Coordination Federal Registration Does Not Override State Law Federal Exemption Does Not Overr
26、ide State Law Rule 506 Exception: Preemption of State lawState Merit Review “Fair, Just and Equitable” NAASA Standards,37,State Regulation of Offerings,Material Misrepresentations or Omissions Issuer Liability Directors Liability Due Diligence Defense Underwriter Liability Experts Liability (Auditor
27、s) Class Action by Purchasers for Damages,38,Disclosure Violations in Registered Offerings: Section 11,Principal Rule 10b-5 Elements Fraud in Connection With Sale or Purchase of Securities Similar to Tort of Fraud Material Misrepresentation Intent to Deceive Reliance Damages Differences With Section
28、 11 Liability Class of Plaintiffs Class of Defendants Scienter What Does It Mean?,39,Disclosure Violations in Non-Registered Offerings: Rule 10b-5,What is a Primary Offering? Initial Public Offering Additional Issuer Offerings What is the Secondary Market? Stock Exchange Over-the-Counter Markets,40,
29、The Primary and Secondary Markets,The Texas Gulf Sulphur Case Company Did Not Sell or Buy Securities Meaning of “In Connection With”Press Releases, Shareholder Reports, Public StatementsOther Possible Defendants: Lawyers, Investment Advisers, Stock Analysts,41,Disclosure Violations Affecting the Sec
30、ondary Market: Rule 10b-5,Who Are Insiders? Basic Rule: Abstain for Disclose Rule 10b-5-1: Trading Program Tippers Tippees Private Actions - Disgorgement SEC Actions: Triple Penalty,42,Insider Trading: Rule 10b-5,First Attempt at Regulation Matching Six Month Transactions Purchase and Sell Within 6
31、Months Sell and Purchase Within 6 Months Definition of “Profits” Lowest Purchase Matched With Highest Sale Enforcement,43,Short Swing Profits: Section 16(b),Basic Definitions Merger Acquisition Types Friendly, Negotiated Unfriendly, Hostile,44,Mergers and Acquisitions,Purchase of Assets (and Liabili
32、ties) Purchase of Shares Voluntary Friendly Tender Offer Share Exchange Shareholder Vote,45,Negotiated Acquisitions,Effect of MergerTypes of Mergers Statutory Merger: T Into A Triangular Merger: T Into Newco Reverse Triangular Merger: Newco Into T,46,Negotiated Mergers,Why Is It So Powerful? No Lega
33、l Role for Target Board Attractive Price for Shareholders Short Time FrameConditional Offers Minimum Number of Tendered Shares Financing ContingencyShould Hostile Tender Offers Be Regulated? Economic Factors Target Shareholder Factors,47,The Hostile Tender Offer,Early Warning 5% Full Disclosure By B
34、idder Minimum Offering Period Pro Rata Acceptance of Tenders Equality of Treatment,48,The Regulation of Hostile Tender Offers,Staggered Board of Directors The “Poison Pill”: Conditional Preferred Shares Flip-in Pills Flip-over Pills Sale of Crown Jewels Lock-Up Options White Knights,49,Targets Defen
35、sive Measures,“Just Say No” Defense Reasonable Defenses: The Unocal Case If Sale is Inevitable: The Revlon Case Duty to Shareholders,50,Target Boards Fiduciary Duties,What is a Franchise Relationship? Contractual Integration Business Format Franchise Product Franchise Federal Regulation: Disclosure State Regulation: Substance,51,Franchising in the United States,The Trademark: The Lanham Act Types of Trademarks License Trademark ProtectionRoyaltiesThe El Chico Franchise Agreement,52,Elements of Franchising,
