Business organization and finance: legal and economic principles

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Cover Page Title Page Copyright Page PREFACE SUMMARY OF CONTENTS INTRODUCTION TABLE OF CONTENTS CHAPTER 1 THE SOLE PROPRIETOR I. OWNERSHIP ATTRIBUTES A. Proprietorships as Organizations B. Ownership and Management C. Nature of Ownership Interest II. OWNERS AND CREDITORS A. Liability for Debts; Open Accounts B. Liability for Debts; Unlimited Liability C. Nonrecourse Loans D. Business and Personal Debt E. Debt and Equity F. Leverage G. Potential Equity Attributes of Debt III. OWNERS AND ORDINARY EMPLOYEES A. Introduction: Joint Enterprise Versus Purchased Inputs B. Implied Standard Contracts and Their Appeal C. Cooperation, Trust, Fairness, and Reputation IV. OWNERS AND ORDINARY EMPLOYEES: CONTROL A. The Servant?Type Agent and the Legal Right to Control B. The Economic Significance of the Legal Right to Control C. Vicarious Liability V. ORGANIZATION WITHIN FIRMS AND ACROSS MARKETS VI. OWNERS AND MANAGERIAL EMPLOYEES: CONTROL, RISK, AND DURATION OF RELATIONSHIP A. Managers? Resemblance to Co?Owners B. Delegation of Broad Decision?Making Authority C. Major Versus Minor Decisions D. Duration of Relationship, Ease of Replacement, and Symbiosis MM E. Mode of Compensation, Incentive, Risk, and the Employee?s Interest in Control F. Risk, Control, and Duration of Contract VII. OWNERS AND MANAGERIAL EMPLOYEES: DUTY OF CARE A. Four Types of Lack of Due Care B. Contracts Regarding Duty of Care C. Limiting Scope of Authority VIII. OWNERS AND MANAGERIAL EMPLOYEES: LOYALTY A. Conflict Concerning Information Provided to Owner B. Loyalty and Conflict Problems and Their Costs C. Self?Dealing and the Use of Incentives D. Self?Dealing, Joint Ventures, ?Waste,? and the Mythical Ideal E. The Legal Duty of Loyalty F. Loyalty and Problems of Ambiguity G. Absolute Barriers to Disloyalty IX. IRREDUCIBLE DIVERGENCIES OF INTEREST X. AVOIDANCE OF CONFLICT XI. RECAPITULATION XII. SPECULATION ON RELATIONSHIPS AMONG RISK, RETURN, CONTROL, DURATION, AND SPECIFICITY A. Risk and Return B. Risk and Control C. Duration and Specificity D. Duration and Control E. Duration and Risk F. Risk and Control?Owners and Employees XIII. TRANSFER OF OWNERSHIP?PURCHASE SUBJECT TO DEBT AND OPTION TO PURCHASE A. Purchase Subject to Debt B. Option to Purchase C. Lease With Option to Purchase CHAPTER 2 PARTNERSHIPS AND LIMITED LIABILITY COMPANIES I. INTRODUCTION A. Joint Ownership B. Rules Designed for Small Firms II. REASONS FOR JOINT OWNERSHIP A. Joint Ownership Versus Purchased Inputs B. The Need to Assemble At?Risk Capital C. Control Follows Risk D. Restatement?An Extreme Case E. Other Equity?Type Forms of Investment F. Summary G. The Element of Personal Services H. Combining Capital and Services III. NATURE AND SIGNIFICANCE OF ?PARTNERSHIP? A. Nature B. Significance IV. FORMATION A. Creation Without Formality B. The ?Silent Partner? C. Implied Terms D. Tailor?Made Provisions E. ?Spoiling the Deal? F. The Partnership Agreement as a Drafting Challenge V. THE ENTITY AND AGGREGATE CONCEPTS A. Reification and the Entity?Aggregate Distinction B. Who Cares? C. An Illustration VI. FIDUCIARY OBLIGATION A. Fiduciary Obligation?A Legal Duty of Fairness B. Illustration: The Scope?of?Business Problem C. Economic and Other Effects D. Promoters?Drafting Around the Rule E. Summary VII. CONTRIBUTIONS, ACCOUNTS, AND RETURNS A. Capital Accounts B. Draw C. Capital Accounts and Value of a Partner?s Interest D. Additional Capital E. Debt Held by, and Salaries Paid to, Partners VIII. CONTROL, AGENCY, AND LIABILITY A. Introduction B. Control C. Partners as Agents of the Partnership D. Liability IX. DURATION AND TRANSFERABILITY A. Terminology B. Dissociation at Will C. Providing for Continuity D. Transferability X. VARIATIONS A. Limited Partnerships B. Limited Liability Companies C. Limited Liability Partnerships D. Mining Partnerships CHAPTER 3 CORPORATIONS I. A BRIEF OVERVIEW A. Preliminary Observations B. The Important Characteristics C. Variations: Closely Held, Intermediate, and Start?Up Corporations II. THE DEVELOPMENT OF THE AMERICAN BUSINESS CORPORATION: A HISTORICAL OVERVIEW III. THE REIFICATION ILLUSION A. ?Decomposing? the Corporation B. Illustrations IV. THE BASIC STRUCTURE FOR CONTROL AND OPERATION A. Introduction B. Shareholders C. Directors D. Officers V. FORMATION A. The Formal Process B. Amendment C. Negotiations at the Formation Stage D. Duration and Transferability E. Limited Liability and its Exceptions F. Choice of Law G. Purposes, Powers, and Ultra Vires VI. OBLIGATIONS OF OFFICERS AND DIRECTORS A. Duty of Care B. Duty of Loyalty C. Duties Regarding Information: Rule 10b?5 VII. CORPORATE ACCOUNTABILITY: THE ISSUE OF SEPARATION OF OWNERSHIP AND CONTROL A. Implications of the Separation of Ownership and Control B. The Mechanisms of Corporate Accountability VIII. FUNDAMENTAL CHANGES: MERGERS AND ACQUISITIONS IX. A SLICE OF FINANCIAL HISTORY: ?WATERED STOCK? AND ITS LESSONS IN FRAUD X. DIVIDENDS, RETAINED EARNINGS, AND COMPENSATION A. Dividends B. Retained Earnings and Capital Gain C. Compensation for Services XI. ADDITIONAL CAPITAL XII. THE SHAREHOLDER AS LENDER XIII. FEDERAL INCOME TAX CONSIDERATIONS A. Formation B. Substituted Attributes C. The Corporation as a Taxable Entity D. Losses E. ?S? Corporations CHAPTER 4 BASIC CORPORATE INVESTMENT DEVICES: ECONOMIC ATTRIBUTES AND FORMAL CHARACTERISTICS I. INTRODUCTION II. SOME DEFINITIONS A. Expected Return B. Risk and Uncertainty C. Yield D. Risk Premium E. Risk Aversion F. Compensation for Volatility Risk III. TYPES OF SECURITIES: FORMAL AND FUNCTIONAL CHARACTERISTICS A. Bonds, Debentures, and Notes B. Shares of Common Stock C. Interests Derived From Common Stock D. Preferred Stock E. Other Forms of Investment F. Miscellaneous Devices and Hedging IV. FINANCIAL ALTERNATIVES INSIDE AND OUTSIDE THE FIRM CHAPTER 5 VALUATION, FINANCIAL STRATEGIES, AND CAPITAL MARKETS I. VALUATION A. The Interest Rate B. Market Price C. Discounted Present Value D. The Discount Rate E. Allowing for Risk: Two Methods II. LEVERAGE AND CHOICE OF CAPITAL STRUCTURE A. Introduction B. Pure Leverage Effect C. Leverage and Risk D. Some Variations E. Spurious Leverage F. Leverage and Wealth III. CAPITAL STRUCTURE A. Introduction B. A Hypothetical Corporation in a Simplified World C. The Advantage of Unbundling D. The Net Income Perspective E. How Much Leverage? F. Another View: Homemade Leverage G. Extending the Argument: Arbitrage H. Another Perspective: The One?Owner Corporation I. Unleveraging J. The Real World K. Tax Effects L. Monitoring Problems M. Managerialism N. Asymmetric Information and Signaling O. Another Perspective: Extreme Leverage IV. DIVIDEND POLICY A. Constraints B. The Conventional View C. Separation of the Investment Decision and the Dividend Decision D. Redemption CHAPTER 6 FINANCIAL MARKETS I. INTRODUCTION II. RETHINKING BUSINESS ORGANIZATIONS USING DERIVATIVES A. Categories and Uses of Derivatives B. Options C. Forwards D. Hybrids E. Structured Finance III. THE EVOLVING NATURE OF FINANCIAL MARKETS A. Exchange and Over-the-Counter Markets B. The Impact of Technology and New Trading Platforms IV. MARKET EFFICIENCY AND BEHAVIORAL FINANCE V. NEW REGULATORY APPROACHES A. Globalization and Foreign Competition B. Disclosure and Accounting Harmonization C. Deregulation INDEX