Corporations

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Well, given that I just spent several hours constructing a somewhat lengthy post that I apparently lost (aargh!), I will keep this relatively short.

This summer, I am working on a benefit corporation project for the Annual Adolf A. Berle Symposium on Corporation, Law and Society (Berle VIII) to be held in Seattle next month.  In that connection, I have been thinking about litigation risk in public benefit corporations, which has led me to consider the specific litigation risks incident to mergers and acquisitions (“M&A”).  I find myself wondering whether anyone has yet done a benefit corporation M&A transaction and, if so, whether a checklist might have been created for the transaction that I could look at.  I am especially interested in understanding the board decision-making aspects of a benefit corporation M&A transaction. (Haskell, maybe you know of something on this . . . ?)

Preliminarily, I note that fairness opinions should not carry as much weight in the benefit corporation M&A approval context, since they only speak about fairness “from a financial point of view.” Benefit corporation boards of directors must consider not only the pecuniary interests of shareholders in managing the firm, but also the firm’s articulated public benefit or benefits (which…

Today, I received notice of a web seminar on corporate political activity to be hosted by one of my former firms, King & Spalding.

Interested readers can register for the free web seminar here.

More information, from the notice I received, is reproduced below.

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Election 2016: What Every Corporate Counsel Must Know About Corporate Political Activity     

Thursday, May 26, 2016, 12:30 PM – 1:30 PM ET

                In this election year, corporations and their employees will be faced with historic opportunities to engage in the political arena. Deciding whether and how to do so, however, must be made carefully and based on a thorough understanding of the relevant law. In this presentation, King & Spalding experts will address this timely and important area of the law and provide the guidance that corporate counsel need when engaging in the political process.            

California is the back on my short list for the state’s inability to successfully differentiate between corporations and limited liability companies (LLCs).  Last week, an “unpublished/noncitable” decision that was published on Westlaw provided a good example.

The opinion states: 

A corporation—including a limited liability corporation—may be served by effecting service on its agent for service of process. (Code Civ. Proc., § 416.10, subd. (a); see also Corp.Code, § 17701.16, subd. (a) [allowing service on limited liability corporations under Code Civ. Proc., § 413.10 et seq.].)7
*12 One of the ways a limited liability corporation can be served is by substituted service. (1 Weil & Brown, Cal. Practice Guide: Civil Procedure Before Trial (The Rutter Group 2015) ¶ 4:172, p. 4–26.) This requires that a copy of the summons and complaint be left at the office of the person to be served (or, in some cases, at the mailing address of the person to be served), in the presence of a person who is apparently in charge, “and by thereafter mailing a copy of the summons and complaint by first-class mail, postage prepaid to the person to be served at the place where a copy of the

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I had a plan to write on something else today, but I got a note from Keith Bishop sharing his blog post, which he was right to think I would appreciated.  In his post, Bishop discusses a California case: 

The LLC May Well Be The Platypus Of Business Organizations

What happens to the attorney-client privilege when a corporation dissolves?  Magistrate Judge Sallie Kim recently answered that question in Virtue Global Holdings Ltd. v. Rearden LLC, 2016 U.S. Dist. LEXIS 53076 (N.D. Cal. April 5, 2016):

When a corporation ceases to exist, “the corporate powers, rights and privileges of the corporation shall cease.” Cal. Corp. Code §1905(b). In that case, no entity holds the attorney-client privilege for Original MO2. City of Rialto, 492 F.Supp.2d at 1197 (“a dissolved corporation is not entitled to assert the attorney-client privilege”).

I am somewhat baffled by the ruling because the entity asserting the privilege in the case was not a corporation at all (Section 1905 is in the General Corporation Law).  The entity attempting to claim the privilege was, according to the information provided in the opinion, indubitably a California limited liability company.  Thus, the court should be citing the California Revised Uniform Limited

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This is just to give everyone a “heads up” on a symposium being held this fall (Friday, October 21 and Saturday, October 22) to honor Lyman Johnson and David Millon.  The symposium is being sponsored by the Washington & Lee Law Review (which will publish the papers presented), and I am thrilled to be among the invited speakers.  I will have more news on the symposium and my paper for it as the date draws nearer.  But I wanted everyone to know about this event so that folks could plan accordingly if they want to attend.  I understand Lexington, Virginia is lovely in late October . . . .  Actually, it’s always been lovely when I have been up there! And the honorees and contributors are a stellar group (present company notwithstanding).  I hope to see some of you there.

Thought Josephine Sandler Nelson’s recent Oxford Business Law Blog post on Volkswagen might be of interest to our readers. It is reposted here with permission.

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Fumigating the Criminal Bug: The Insulation of Volkswagen’s Middle Management

New headlines each day reveal wide-spread misconduct and large-scale cheating at top international companies: Volkswagen’s emissions-defeat devices installed on over eleven million cars trace back to a manager’s PowerPoint from as early as 2006. Mitsubishi admits that it has been cheating on emissions standards for the eK and Dayz model cars for the past 25 years—even after a similar scandal almost wiped out the company 15 years ago. Takata’s $70 million fine for covering up its exploding air bags in Honda, Ford, and other car brands could soon jump to $200 million if a current Department of Justice probe discovers additional infractions. The government has ordered Takata’s recall of the air bags to more than double: one out of every five cars on American roads may be affected. Now Daimler is conducting an internal investigation into potential irregularities in its exhaust compliance.

A recent case study of the 2015-16 Volkswagen (‘VW’) scandal pioneers a new way to look at these scandals…

In follow up to my post yesterday, my trusted and valued co-blogger Joan Heminway asked a good question (as usual) based one of my comments.  My response became long enough that I thought it warranted a follow-up post (and it needed formatting).  Joan commented: 

you say: “there should be no problem if, for example, Delaware corporate law did not allow a for-profit entity to exercise religion for the sole sake of religion. I think that is the case right now: that’s not a proper corporate purpose under my read of existing law.” Are you implying that a corporate purpose of that kind for a for-profit corporation organized in Delaware would be unlawful? Can you explain?

My response: I am suggesting exactly that, though I concede one might need a complaining shareholder first. My read of eBay, and Chief Justice Strine’s musing on the subject, suggest that an entity that is run for purposes of religion (not shareholder wealth maximization) first and foremost, is an improper use of the Delaware corporate form. (“I simply indicate that the corporate law requires directors, as a matter of their duty of loyalty, to pursue a good faith strategy to maximize profits for…

Last week, Hamdi Ulukaya, founder and CEO of Chobani, announced a 10% company stock grant to all company employees.  Chobani joined the ranks of high profile stock grants including Whole Foods, Starbucks, Apple and Twitter.  Stock grants, while more common in tech industries, are a part of hybrid corporate law-employment law conversation on shared ownership.  Employee ownership in companies can occur in several different forms such as ERISA-governed benefit plans where the company stock issued or bought as a part of a retirement saving plan. Alternatively, a stock grant may be structured as a bonus plan, a standard compensation, or a vesting employee benefit eligible after threshold years and types of service.  All of these plans fall under the rubric of shared ownership.  In 2015, the National Center for Employee Benefits estimated that over 9000 companies participated in some form of shared ownership.

In a similar vein, actors in the hit (and record-breaking with 16 Tony Nominations) musical Hamilton have entered into a profit-sharing agreement with producers.  The deal is different for these actors, but the sentiment is the same in sharing profits, aligning interests, and promoting employee loyalty.

Shared ownership plans, especially the ERISA-governed ones can…

Submissions: manuscripts or abstracts must be submitted electronically to Professor Michelle Harner, Chair-Elect of the Section on Business Associations, at mharner@law.umaryland.edu August 24, 2016.

The AALS Section on Business Associations and the AALS Section on Comparative Law are pleased to announce a Call for Papers for a joint program to be held on January 5, 2017, at the AALS 2017 Annual Meeting in San Francisco.  The topic of the program is “Business Law in the Global Gig Economy:  Legal Theory, Doctrine, and Innovations in the Context of Startups, Scaleups, and Unicorns.”  

Startups and entrepreneurs have long played an important role in the U.S. economy.  From Henry Ford to Mark Zuckerberg, entrepreneurs have revolutionized the ways in which their customers receive products and services. As Phil Libin, CEO of Evernote, has explained, “There’s lots of bad reasons to start a company. But there’s only one good, legitimate reason, and I think you know what it is: it’s to change the world.”

That philosophy continues today as entrepreneurs disrupt markets and challenge business and legal norms. Traditional notions of the firm, fiduciary duties, contractual bargains, and optimal capital structures may not aptly fit entrepreneurial approaches. Indeed, entrepreneurs’ business models, financing needs, and operational objectives require lawyers and scholars to rethink governance, capital structures, and regulatory schemes that may limit or impede further innovation, both nationally and transnationally.  

A recent Vanity Fair article discussing Citizens United is making the rounds. (I saw it on Facebook!)  The article notes:  

It had already been established, in Buckley v. Valeo (1976), that anyone has a First Amendment right to spend his or her own money advancing his or her own cause, including a candidacy for political office. Citizens United extended this right to legally created “persons” such as corporations and unions.

I have been giving some more thought to whole “personhood” discussion of late, and my thoughts have taken me back to both Hobby Lobby and Citizens United. What follows is a long blog post that pulls together my thoughts on these two cases in an admittedly not well developed way.  But it’s a start (though I really should be grading).