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Assistant Professor of Business Law.

Ross School of Business, University of Michigan.

The Stephen M. Ross School of Business at the University of Michigan seeks applicants for a tenure-track position at the assistant professor level in the Business Law Area starting in the Fall 2019 term. The selected candidate’s primary teaching responsibilities will be to teach business law in the undergraduate (BBA) program but may be required to teach in any of the school’s degree programs. The candidate will be expected to produce high-quality research published in leading law reviews and/or business journals.

Qualified candidates must have earned a J.D. from an ABA accredited law school. The candidate must have an excellent academic record and demonstrate a strong interest, and ability, in conducting high-quality, scholarly research in an area relevant to business. Examples of such fields include, but are not limited to, corporate law, contract law, employment law, financial regulation, securities law, intellectual property, and international trade. A qualified candidate must also demonstrate excellence in university teaching or the potential to be an outstanding teacher in business law.

The review of applications will begin immediately. All applications received before October 15, 2018, will receive full consideration. However, applications received after the deadline may be considered until the position is filled.

For additional information and a complete position announcement, please visit http://careers.umich.edu/job_detail/162128/assistant_professor_of_business_law

Please contact Jen Mason, Area Administrator, via email with questions at masonlj@umich.edu

Applicants are required to submit their applications electronically by visiting the website: http://www.bus.umich.edu/FacultyRecruiting and uploading the following:

  1. A cover letter that includes a description of the candidate’s experience and interest in academic research and teaching.
  2. A curriculum vitae that includes three references

The University of Michigan is an equal opportunity/affirmative action employer.

If you’re like me, you’ve been riveted by the Tesla drama and Elon Musk’s off-the-cuff, possibly Ambien-high, tweet announcing that he planned to take the company private at $420 per share, only to finally admit yesterday that, no, Tesla would stay public after all.

In any event, back when the idea was first floated, and investors (and, I assume, Musk’s counsel) demanded more information about this take-private scheme, Musk vaguely announced that he expected most shareholders – perhaps as many as two-thirds – would stay with the company, and roll over their shares into a special purpose vehicle.  He even invited shareholders to remain invested, writing, “I would like to structure this so that all shareholders have a choice. Either they can stay investors in a private Tesla or they can be bought out at $420 per share.”

Much has been written about this proposal, including all the reasons why it didn’t make financial sense, and the evidence that no, he never had funding or a plan, and now the SEC is investigating, and so forth, but there’s really one aspect I want to focus on, which is, the proposal never could have worked, because you can’t go private that way.

Companies incur the responsibility to periodically, and publicly, report on their financial status if they have a class of securities outstanding and traded by the public (with various definitions and trigger points for what that means).  In this case, we’re talking about public reporting obligations Tesla incurred by making its stock available to the public.  (A whole ’nother question might be whether the company would have maintained reporting obligations for its bonds, but let’s stick to stock for now.)

When that stock is no longer publicly held – which, under the Securities Exchange Act, means owned by fewer than 300 shareholders – the company has the option to “go dark” and cease reporting publicly.  So for Tesla to do this, it would have had to somehow get itself down to under 300 shareholders – while, according to Musk, still keeping most of the shareholder base.

His thinking, apparently, was that if one giant fund was created, and that fund held Tesla stock, and then two-thirds of Tesla’s current shareholders bought shares of the fund, then Tesla would have one shareholder – the fund – and would no longer have reporting obligations.

One potential problem with this idea is that then the fund would be considered public and might have its own reporting obligations, but leaving that point aside, the idea still wouldn’t fly.  Ordinarily, he’s right: if a fund or a vehicle or a trust holds shares in a company, it is considered a single holder for the purposes of a shareholder count.  This, in fact, is exactly what’s happened with Uber, as I previously posted: a couple of funds sprung up that bought Uber stock and sold fund shares to investors, thus allowing investors to gain exposure to a “private” company whose stock wouldn’t ordinarily be available to them.  But the SEC will only allow that if the funds are formed independently of the subject company.  As the SEC explained, they’ll look through to the fund’s real investors if the fund is simply a sham to evade reporting requirements, which is exactly what Musk announced that he planned to do.

That said, it’s not impossible that Musk would have been able to get Tesla down to fewer than 300 shareholders while maintaining two-thirds of the old shareholder base, in a manner of speaking (if he had the funding, and a plan, etc), but almost certainly some shareholders would have to be forced out, i.e., there would be no choice available to them.

The SEC has an odd way of counting shareholders.  If the shareholder keeps the shares titled in the name of his or her brokerage company, which most shareholders do, the brokerage company counts as the shareholder.  Because lots of beneficial owners of Tesla stock use the same set of brokerage companies, that means that the official count of Tesla shareholders is much lower than the real number.  In fact, Tesla’s latest 10-K says that Tesla has 168,919,941 shares of common stock outstanding, but only 1,156 shareholders of record.  Obviously, the true number of shareholders is much higher, but the official number is 1,156, because of the practice of holding shares through brokerage companies. 

So getting down to fewer than 300 shareholders is not so far-fetched.  To use an extreme example, if Musk offered a buyout and one-third of the shareholders accepted, but the remaining two-thirds all happened to hold their shares through, say, JP Morgan, Tesla could get itself down to a single shareholder of record. 

But here’s the rub:  I’m assuming that large institutional investors use a lot of the same large brokerage companies.  Which means, even though there are something like 886 institutional holders, the number for SEC purposes may in fact be much lower.  At the same time, though, retail shareholders hold 23% of Tesla stock.  I’m guessing that they also hold in a more far-flung set of brokerage companies, maybe even some hold in their own names, and of course, they each hold much smaller amounts of Tesla stock than do institutions.  So it’s very likely that, to get down to fewer than 300 shareholders, these are the ones Tesla would have to buy out.  And these are the shareholders who are unlikely to want to sell, because Tesla retail shareholders are a particularly devoted set of true believers.  Given a choice, many would likely to want to stay with the company.

They could, however, be forced out. For example, a company can do a reverse stock split at a very high ratio – like, 1 to 1,000 – and thereby cash out anyone who holds less than 1,000 shares.  After such a split, voila!  The company has fewer than 300 shareholders.  (Matt Levine discusses a recent example; and here’s a funny story from when Bacardi tried, and failed, the same trick).  If Tesla wanted to go that route, it could sort of keep two-thirds of its shareholders – in the sense that, the original holders of two-thirds of those 168,919,941 shares might still be in place – while bringing the official shareholder count down below 300.  But once again, the involuntary nature of that plan does not at all sound like what Musk was describing, and there’s no need to use a special purpose vehicle to accomplish it.

Two weeks ago, I blogged about why lawyers, law professors, and judges should care about blockchain. I’ll be speaking about blockchain, corporate governance, and enterprise risk management on September 14th at our second annual BLPB symposium at UT. To prepare, I’m reading as many articles as I can on blockchain, but it can be a bit mind numbing with all of the complexity. After hearing Carla Reyes speak at SEALS, I knew I had to read hers, if only because of the title If Rockefeller Were A Coder.

I recommend this article in general, but especially for those who teach business organizations and want to find a way to enliven your entity selection discussions. The abstract is below. 

The Ethereum Decentralized Autonomous Organization (“The DAO”), a decentralized, smart contract-based, investment fund with assets of $168 million, spectacularly crashed when one of its members exploited a flaw in the computer code and stole $55 million. In the wake of the exploit, many argued that participants in the DAO could be jointly and severally liable for the loss as partners in a general partnership. Others claimed that the DAO evidenced an entirely new form of business entity, one that current laws do not contemplate. Ultimately, the technologists cleaned up the exploit via technological means, and without engaging in any further legal analysis, many simply concluded that the DAO, other decentralized autonomous organizations, and the Ethereum protocol itself signify opportunities to do away with legal business organizational forms as they presently exist. In this Article, I argue that precisely the opposite is true. Instead of creating a new type of corporate entity through computer code, The DAO and other smart contract-based organizations may resurrect a very old, frequently forgotten, business entity—the business trust, which Rockefeller first used to solve the technology-business organization law divide of his time. 

This Article offers the first analysis of blockchain-based business ventures under business organization law at three separate levels of the technology: protocols, smart contracts and decentralized autonomous organizations. The Article first reveals the practical and theoretical deficits of using partnership as the only default entity option for blockchain-based business ventures. The Article then demonstrates that incorporation and LLC formation will also pose both practical and doctrinal difficulties for some such businesses. When faced with a similar conundrum in the nineteenth century, Rockefeller turned to the common law business trust as a substitute business entity. This Article argues that if Rockefeller were a coder building a blockchain-based business, he would again turn to the business trust as an additional choice of entity. The Article concludes by considering, in light of Rockefeller’s history, whether the law should anticipate any challenges with the rise of blockchain-based business trusts.

 

While states often enact the same model legislation, each state’s public enforcement resources also shape the legal and business environment.   Most academic writing about law seems focused more on the substantive side without as much devoted to considering necessary resources for state and federal institutions to give actual meaning to legislation.  This focus is understandable.  Writing about the need for more forensic accountants and sophisticated database systems may appear tedious and dull and few academics with the freedom to pick their projects might be drawn to these issues.

Yet thinking about the “how” for business law and financial regulation seems just as important as discussions about what the law should be.  For example, Public enforcement resources directly affect the white collar crime environment.  In recent decades, federal institutions shifted massive resources toward counter terrorism and other priorities.   As resources flow toward those enforcement priorities, other concerns, such as white collar crime, get less attention. 

The metrics measuring public enforcement effectiveness may tilt resource allocation.  If prosecutors pride themselves on cases closed and guilty please secured, white collar criminal prosecutions may not be pursued.  After all, it may take a forensic accountant, significant time, and expert witnesses to secure convictions.  Consider the Manafort prosecution.  There were 27 witnesses presented alongside 388 documents.  

But there are also other, less readily measurable factors to consider.  Prosecutors alleged Manafort dodged over $10 million in taxes.  Even if the prosecution cannot recover $10 million  from Manafort, the deterrent effect might stop the next two or three Manaforts from cheating the public out of its tax dollars.  If that happens, the return on investment from white collar prosecution would certainly justify more enforcement.

This post notifies/reminds everyone that the American Bar Association’s LLCs, Partnerships and Unincorporated Entities Committee will be hosting its annual LLC (that’s limited liability company, Josh!) Institute on October 11 and 12, 2018 in Washington, D.C.  The 2018 program is being held at the Westin Washington, D.C. City Center.  Registration can be accomplished here.

For those of you who have not been to this unique ABA program, to consists of a enticing, manageable, substantive programs.  The audience is very participatory; lots of questions are raised and comments are freely given.  Presenting in front of this group is pure joy, unless you have insufficient knowledge or are unprepared.  I try to put this into my fall schedule every few years.  I always learn something there.

This year’s agenda includes sessions on tax and choice of entity, recent tax law changes, beneficial ownership reporting, derivative actions, ethical compliance, and charging orders, as well as the two traditional annual favorites, the non-Delaware, Delaware, and bankruptcy case summaries offered by Baylor Law’s Beth Miller.  In addition to Beth, from the academic side of the aisle, Duke Law’s Deborah DeMott is participating in the session on derivative actions, and B.U. Law’s  Nancy Moore will be addressing issues relating to ethical compliance.  (The compliance session comes with a particularly attractive title–at least in the version of the schedule sent to me: Ethics: The Top 15 Things Your Ethics Counsel-Risk Manager Hope You Know (and Hopefully Remember.)

Also, a little birdie (named Tom Rutledge, one of the leaders in organizing the LLC Institute) told me that plans already are in process for the 2019 LLC Institute.  So, if you have ideas for topics that might be covered or speakers that might be appropriate for that program, let me or Tom know.  The program for the LLC Institute always seems so full . . . .  But I know that Tom–one of the nicest and smartest guys around–is receptive to topic and speaker suggestions.

Senator Elizabeth Warren last week released her Accountable Capitalism Act. My co-blogger Haskell Murray wrote about that here, as have a number of others, including Professor Bainbridge, who has written at least seven posts on his blog. Countless others have weighed in, as well.

There are fans of the idea, others who are agnostic, and still other who thinks it’s a terrible idea. I am not taking a position on any of that, because I am too busy working through all the flaws with regard to entity law itself to even think about the overall Act.

As a critic of how most people view entities, my expectations were low. On the plus side, the bill does not say “limited liability corporation” one time.  So that’s a win. Still, there are a number of entity law flaws that make the bill problematic before you even get to what it’s supposed to do.  The problem: the bill uses “corporation” too often where it means “entity” or “business.”

Let’s start with the Section 2. DEFINITIONS.  This section provides:

 (2) LARGE ENTITY.—

(A) IN GENERAL.—The term ‘‘large entity’’ means an entity that—

(i) is organized under the laws of a State as a corporation, body corporate, body politic, joint stock company, or limited liability company;

(ii) engages in interstate commerce; and

(iii) in a taxable year, according to in- formation provided by the entity to the Internal Revenue Service, has more than $1,000,000,000 in gross receipts.

Okay, so it does list LLCs, correctly, but it does not list partnerships.  This would seem to exclude Master Limited Partnerships (MLPs). The Alerian MLP Indexlist about 40 MLPs with at least a $1 billion market cap.  It also leaves our publicly traded partnerships(PTPs). So, that’s a miss, to say the least. 

Section 2 goes on to define a  

(6) UNITED STATES CORPORATION.—The term “United States corporation’’ means a large entity with respect to which the Office has granted a charter under section 3.

The bill also creates an “Office of United States Corporations,” in Section 3, even though the definitions section clear says a “large entity” includes more than just corporations. 

Next is Section 4, which provides the “Requirement for Large Entities to Obtain Charters.”

LARGE ENTITIES.—

(1) IN GENERAL.— An entity that is organized as a corporation, body corporate, body politic, joint stock company, or limited liability company in a State shall obtain a charter from the Office . . . .”

So, again, the definition does not include MLPs (or any other partnership forms, or coops for that matter) as large entities.  I am not at all clear why the Act would refer to and define “Large Entities,” then go back to using “corporations.”  Odd. 

Later in section 4, we get the repercussions for the failure to obtain a charter: 

An entity to which paragraph (1) applies and that fails to obtain a charter from the Office as required under that paragraph shall not be treated as a corporation, body corporate, body politic, joint-stock company, or limited liability company, as applicable, for the purposes of Federal law during the period beginning on the date on which the entity is required to obtain a charter under that paragraph and ending on the date on which the entity obtains the charter.

Here, the section chooses not to use the large entity definition or the corporation definition and instead repeats the entity list from the definitions section. As a side note, does this section mean that, for “purposes of Federal law,” any statutory “large entity” without a charter is a general partnership or sole proprietorship? I would hope not for the LLC, which isn’t a corporation, anyway.

Finally, in Section 5, the Act provides:

(e) APPLICATION.—

(1) RULE OF CONSTRUCTION REGARDING GENERAL CORPORATE LAW.—Nothing in this section may be construed to affect any provision of law that is applicable to a corporation, body corporate, body politic, joint stock company, or limited liability company, as applicable, that is not a United States corporation.

Again, I will note that “general corporate law” should not apply to anything but corporations, anyway. LLCs, in particular. 

The Act further contemplates a standard of conduct for directors and officers.  LLCs do not have to have either, at least not in the way corporations do, nor do MLPs/PTPs, which admittedly do not appear covered, anyway. The Act also contemplates shareholders and shareholder suits, which are not a thing for LLCs/MLPs/PTPs because they don’t have shareholders.

This is not an exhaustive list, but I think it’s a pretty good start. I will concede that some of my critiques could be argued another way.  Obviously, I’d disagree, but maybe some of this is not as egregious as I see it. Still, there are flaws, and if this thing is going to move beyond even the release, I sure hope they take the time to get the entity issues figured out. I’d be happy to help.

There is a “post 7 book covers of books you love, without comment” campaign sweeping Facebook, and I have been tagged.

I am breaking all the rules.

Below are 8 books, 9 if you count both of the books I read by Mohsin Hamid. I don’t love all the books below, but I did read them all this summer. I am not posting a picture of the covers (but I do provide links to the books), and I couldn’t help including a brief comment on each.

Again to Carthage – John Parker Jr. (Fiction, Novel). Sequel to Once a Runner and not nearly as good. The sequel is more focused on the primary character’s midlife crisis than his running.

Inside the Magic Kingdom – Tom Connellan. (Non-Fiction, Pop-Business). My mother-in-law was reading this for her job at the beach, and I ran out of reading material. Cheesy, pop-business book, but interesting for the way Disney’s C-level executives assist in picking up the trash at the parks, and the parties at the parks they held for the families of the construction crew members. Plus, the books was more interesting to me because we plan to go to Disney World as a family sometime in the next 12 months or so. 

Run Faster – Brad Hudson. (Non-Fiction Wellness/Training). Recommended by my friend Dr. Jeff Edmonds who we profiled on this blog. Less user friendly than Dr. Daniels’ Running Formula, but still useful for those looking to self-coach in running.

The Ability to Endure – Michael Chitwood. (Non-Fiction, Autobiography). Received this book for free at the 2018 Q Conference in Nashville. I am a sucker for autobiographies and memoirs, especially of relatively normal people like Michael.

The Ethics of Influence – Cass Sunstein (Non-Fiction, Law & Behavioral Economics). Started this a number of months ago, but finished it this summer. Builds on and refines the thesis in Nudge. Explores the ethical boundaries of nudges (mostly by governments). Claims that nudges should improve or maintain welfare, autonomy, and dignity.

The Collected Short Stories of Eudora Welty. – Eudora Welty (Fiction, Short Stories). Only read a few of the selected stories this summer. Impressive character development in a condensed space.

The Reluctant Fundamentalist – Mohsin Hamid. (Fiction, Novel). The novel follows an in-depth conversation between Changez (a Pakistani Princeton Alum) and an American (probably military). Symbolism is a bit overdone, but otherwise it is a tightly-woven and engaging read. I also read Hamid’s more recent book (2017 v. 2007), a fictional/slightly sci-fi take on the lives of two refugees, Exit West.

This Day: Collected & New Sabbath Poems – Wendell Berry. (Poetry). I am not a big poetry buff, but Berry’s poems mirror the beautiful and serene outdoor locations where he writes. I liked to read these poems in the quiet of the early morning before my three children woke up. 

The following comes to us from Sergio Alberto Gramitto Ricci, Visiting Assistant Professor of Law and Assistant Director, Clarke Program on Corporations & Society, Cornell Law School.  I had the pleasure of listening to Sergio discuss this project at our recent SEALS discussion group on Masterpiece Cakeshop, and I found particularly interesting his conclusion that “Roman slaves could not own property, but ius naturale provided them with the right to exercise religion. To the contrary, Roman corporations could contract, own assets and bear liabilities, but they had no exercise rights as religion liberties were typical of personae—physically sound humans.”  The concept of robo-directors is also fascinating, and adds another layer to my ongoing dystopian (utopian?) novel plot wherein corporations are allowed to run for seats in Congress directly (as opposed to what some would argue is the current system wherein we get: “The Senator from [X], sponsored by Big Pharma Corp.”). You can download the full draft via SSRN here: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3232816.

In an era where legal persons hold wealth and power comparable to those of nation states, shedding light on the nature of the corporate form and on the rights of business corporations is crucial for defining the relations between the latter and humans. Recent decisions of the U.S. Supreme Court, including Masterpiece Cakeshop, Ltd. v. Colorado Civil Rights Commission and Burwell v. Hobby Lobby Stores, Inc., have called for a closer investigation of the role that corporate separateness plays in the business corporation formula. Moreover, legal personhood is a sophisticated legal technology, which employment can revolutionize the strategies to protect cultural heritage or natural features and can address emerging phenomena, including artificial intelligence and learning machines. This paper adopts archeology of corporate law to analyze three intertwining legal and organizational technologies based on legal personhood. Archeology of corporate law excavates ancient laws and language in order to solve salient issues in contemporary and future corporate debates. First, this paper sheds light on the origins and nature of legal personhood and on the rights of business corporations by analyzing laws and language that the Romans adopted when they invented the corporation. For example, excavating roman law shows how Roman slaves could not own property, but ius naturale provided them with the right to exercise religion. To the contrary, Roman corporations could contract, own assets and bear liabilities, but they had no exercise rights as religion liberties were typical of personae—physically sound humans. In sum, the Romans drew a line between the legal capacities of their corporations and the rights and liberties that persons possessed by virtue of being human. Second, this paper discusses the separation of ownership and control. It explains how the separation of ownership and control, together with legal personhood, constitutes the essential formula of the business corporation model. Last, this paper explores artificial intelligence in boardrooms to assist, integrate or replace human directors drawing a parallelism between robo-directors and Roman slaves appointed to run joint-enterprises. Barring the statutory restrictions that require for board directors to be natural persons and overcoming the moral concerns related to appointing robo-directors, the remaining issue that AI in boardrooms raises is that of accountability.