v
Business Associations – Winter 200 6
Professor: Wendy Adams
Notes: Laurence Bich-Carrière
These notes are en bilingue et en couleur
and include Prof. Adam's lecture notes. Oh
yeah, and hard to follow.
Table of Contents.
WHY TRANSYSTEMIC BUSINESS ASSOCIATIONS LAW? 1
1. Five features of Corporations 1
1.1. Legal personality (298 CcQ) 1
1.2. Limited Liability (309 CcQ) 1
1.4. Delegated Management under the Board Structure (CBCA, part X, s. 102) 2
1.5. Investor Ownership (CBCA, s. 24(3)) 2
2. Conflicts that can happen in the corporation. 2
I. The Form and Function of Corporate Law 2
CORPORATE LAW AS THE CONSTITUTIONAL LAW OF MARKET ACTORS 2
What is the role and function of corporate law? 2
1. What are the objectives of Corporate Law? 3
2. What is the relationship between state law and the corporation’s internal rules? 3
2.1 Corporate Law as the Constitutional Law of Actors. 3
2.2. The Salomon case: can there be a sole-person corporation? 3
2.3. The Private vs. Public Law Debate 4
Why Firms, Why Corporations and Why Separation of Ownership and Control? 6
1. Allocation of powers between managements and shareholders 6
1.1. General rules regarding the Agency problem 6
1.2. Controlling Management's Discretionary powers 8
1.2.1 The duty of loyalty and the corporate opportunity doctrine. 8
1.2.2 Director's decisions: errare humanum est and the business-judgement rule 8
2.1. What is regulatory arbitrage? 8
2.2. Corporate Law as a State-Offered Product. 9
2.2.1 Is it a good thing that States compete in such a way? 9
2.2.2. Which law governs the corporation incorporated and carrying business in two places? 10
2.2.3.1. Why Delaware Rocks. 10
2.2.3.2. Canada's Corporate Karma. 11
3. Why are there firms rather than a web of individual contracts? 13
4 What are the different legal forms of business association? 16
4.1.2. Principle and agent. 16
4.1.3. Un/secured creditors. 17
4.2. Four types of business. 17
4.2.1. Sole proprietorships. 17
4.3.4 Trusts (income, business, other, reit?). 20
5. Separation of Ownership and Control. 23
5.1. What is being criticised: the Dominant View of the Corporation. 23
5.2. Response to the Agency Problem: property analysis or contracts? 24
5.2.1. What is the Agency Problem? 24
5.2.2. The traditional property analysis 24
5.2.3. The economic analysis 24
5.3.2. Chandler, Managerial Hierarchies 25
5.3.3. Testy, Feminist Legal Theory and Progressive Corporate Law 26
5.4. Conclusion and Wrap-Up 27
III. The Emergence of Legal Personality of the Corporation. 28
COMPARATIVE HISTORY, JUSTIFICATION AND RELATION TO SOCIOECONOMIC FACT 28
1. The Basic Problem: Dispersion of O'ship because it's separated from Control 28
2. The stages of capitalism and the much-needed Protection flowing from it 28
2.2. The Sarbanes-Oxley Act: monitoring the monitors. 30
2.2.2. Is this a good response? 31
3. Comparative history of corporate legal personality and limited liability? 32
3.1. Have LL and LP always gone hand in hand? 32
3.2. Historical account going back to limited liability. 32
3.3. Piercing the Corporate Veil 34
3.4. Moral persons and real-person rights. 34
4. Legal personality in Quebec 35
5. What is the legal, economic and social significance of corporate legal personality? 36
5.2. Ce que divers auteurs en penser. 37
IV. Agency, Fiduciary Relations and the Corporation: The Duty of Loyalty 43
THE DEPLOYMENT, ORGANIZATION, AND REINFORCEMENT OF TRUST 43
0.1. Recall QCA Art. 123.83, CCQ Art. 321, 322, 2138, 43
1. What is the role of fiduciary relationships within the corporation? 43
2. How does the law protect corporate fiduciary obligations? 45
2.1.2. Ian Rose from Lavery, de Billy's Points 46
Shareholders, stakeholders and private ordering 48
A critique of the economic approach: too much personification? 49
3. For what range of stakeholders are corporate fiduciary obligations recognized and protected? 50
4. Relation between the duty of loyalty and corporate social responsibility 50
4.1. What is corporate social responsibility? 50
4.2.1. Problem-based, not interest-based. 50
4.2.2. The process of the decision 51
4.3. Teubner's proposals (see “solutions”) 52
1. The economic theory of agency costs 54
1. What is the relationship between corporate fiduciary obligations and corporate governance? 54
2. What are the legal contours of the problem of corporate governance? 57
3. What light does the Management literature shed on the problem of corporate governance? 60
3. 1. Deux approches différentes 60
3.1.1. Le r?le des actionnaires 60
3.1.1.1. Des propositions des actionnaires 60
3. 1.1.1.2 Quelques exemples 61
3.1.1. 2. Les configurations organisationnelles 61
2. L'OPA et le marché efficace comme mesures disciplinaires de l'administration 65
2.1. La méthode ?Wall Street? 65
2.3. Coffee and unstable coalitions 66
2.3.2. L'administration et les actionnaires 66
2.4. Lorsque les cours s'en mêlent: défenses il/légitimes aux OPA 67
3.1. Avantage sur la méthode Wall Street. 70
4. What does one learn from a comparison of leading domestic corporate governance regimes? 71
1.2. Deux grandes questions. 71
1.2.1. Comment la gouvernance d'entreprise influence-t-elle les marchés? 71
1.2.2. Les principes de gouvernance d'entreprise sont-ils universels? 72
2. Comment la gouvernance d'entreprise influence-t-elle les marchés? 72
2.1.1. La théorie de l'agence 72
2.1.2. Entre l'actionnaire et l'autre partie prenante (stakeholder) 73
2.2.1. Réalisme et contr?le de l'administration 74
2.2.1.1. De l'importance des marchés secondaires 74
2.2.1.2. Qui peut assurer la surveillance? 74
2.2.1.3. Le problème de l'action à court terme. 74
2.2.2. Nominalisme et contr?le des actionnaires-propriétaires. 75
2.2.2.1. Collusion de la majorité et long terme 75
2.2.2.2. Le r?le des banques. 75
2.2.2.3. Relations à long terme et holding intragroupe. 75
2.3. Quelques autres problèmes empiriques 75
2.3.1. Market for corporate control and firm performance 75
2.3.2. Managerial compensation and firm performance 76
3. Les principes de gouvernance d'entreprise sont-ils universels? 76
Qu'est-ce l'OCDé et quels sont ces principes de gouvernance? 76
Multinationales et droit des entreprises international 78
VII. The Globalized Firm: Multinationals and Networked Firms 78
1. Transition: Does contemporary corporate governance reflect injustice in corporate law? 78
1.1. Quelques principes philosophiques avant de commencer et ce que ?a change. 78
1.2. Quelques principes juridiques. 79
1.2.1. La responsabilité de l'entreprise et non de ses membres 79
1.2.2. La responsabilité des tiers. 79
1.2.3. Percer le mur de la responsabilité limitée. 79
2.2. Harmonisation ou globalisation? 80
2.3. Transition la convergence 81
3. C'est bien beau de parler de tout ?a, mais est-ce que ?a arrive ou pas? 81
3.1. Oui, il y a convergence et c'est correct: Hansmann&Kraakman 81
3.2. Cernat: non, ?a n'arrive pas, ?a n'arrivera pas et si ?a arrive, ce sera hybride 82
4. Compagnie mondialisée et firme globalisée 82
4.1. Début de ce cours-ci replacé à la fin qui répète probablement ce qui suit. 82
4.2. Qu'est-ce qu'une multinationale? 82
4.3. Comment créer une multinationale? 83
5. Comment réguler les règles de gouvernance d'entreprise dans ces matières internationales? 84
5.2. Les défis de la régulation. 84
5.2.3. Approches territoriales et extraterritoriales. 85
5.2.3.1. Et la souveraineté du voisin, alors? 85
5.2.3.2. Geographically-complex fact-pattern. 85
5.2.3.2. Exemples concrets. 86
b. Child-labour and extraterritoriality. 86
c. à ce sujet, voir les conflits de Aramco et de Sumimoto. 86
6. Les nouvelles obligations en droit international. 87
6.1. Une compagnie peut-être violer des droits humains? 87
VIII. Corporation Social Responsibility. 87
FROM LEGITIMATE GOVERNANCE TO RESPONSIBLE CITIZENSHIP 87
1. What is the legal foundation of corporate social responsibility and corporate citizenship? 87
1.1. Introduction par le général 87
1.2. Introduction par le Code civil 88
1.3. Introduction par le cours 88
2.2. Ces intérêts sont-ils vraiment opposés? 89
2.5. Permissive or mandatory? 90
3.1. What legal mechanisms? 90
3.2. Les incitatifs à la RSC 90
3.3. Les gestionnaires de fond ont-ils les chiffres comme seul critère? 91
3.3.2. The answer is not in the market: Minnows and mammoths 91
4. Du cumul des fonctions par l'entreprise 92
Corporate social responsibility: From legitimate governance to responsible citizenship 93
What is the legal foundation of corporate social responsibility and corporate citizenship? 93
96
96
0. Introduction.
WHY TRANSYSTEMIC BUSINESS ASSOCIATIONS LAW?
This text illustrates one way in which comparative law enters into the practice of a trans-national business enterprise. Read it with a view to thinking about how a trans-systemic approach to business associations could improve the conceptual apparatus of the jurist and practitioner.
Sainte-Fare Garnot, Rémy , Des juristes au service d'une entreprise industrielle opérant au plan international [R. 7]
Dans les faits (car c'est le témoignage d'un praticien), voici le droit dont ont besoins les corporations. Il y a trois problèmes à résoudre afin que soient appliquées les règles: (1) conna?tre et faire conna?tre les règles (2) en démontrer l'utilité réelle (3) les rendre concrètes et applicables. D'où l'importance des conseils extérieurs à l'entreprises, conseils qui devront faire preuve d'imagination et de hardiesse: il n'existe pas de supradroit, on a droit au mélange et plusieurs règles sont à inventer (?espace de liberté?). Parfois, fractionner les responsabilités ou les joindre peut permettre de segmenter ou de contourner des difficultés, tant au niveau de la compréhension qu'au niveau de la méthode. Pragmatiquement, il importe de bien définir ses objectifs et d'avoir des solutions cohérentes, ce qui permettra d'instiller une dose de sécurité dans la liberté précédemment mentionnée.
Why the Trans-Systemism: Because when there are no rules and you have to fix your own, it can't be bad to have more than one system to pick out from…
1. Five features of Corporations
Hansmann&Kraakman, Reiner , What is Corporate Law
As a normative matter, the overall objective of corporate law – as of any branch of law – is presumably to serve the interests of society as a whole. More particularly, the appropriate goal of corporate law is to advance the aggregate welfare of a firm’s shareholders, employees, suppliers, and customers without undue sacrifice – and, if possible, with benefit – to third parties such as local communities and beneficiaries of the natural environment. This is what economists would characterize as the pursuit of overall social efficiency.
Look at it as you wish, take it under any angle, any society, there are five features that make corporate law what it is, five trans-systemic features.
1.1. Legal personality ( 298 CcQ )
The fact that a physical person can enjoy a legal personality seems quite normal, but a corporation is only a few sheets of paper sitting in the registrar's office: it can't sign sheet. This juridical personality is essential to have people act in the name of the corporation (not in theirs). It would be too burdensome to have all shareholders sign whenever a decision has to be made, so we created a fiction, the corporation, considered as a whole, as one moral person.
1.2. Limited Liability ( 309 CcQ )
If you are a shareholder investing in the corporation, there is a risk. There is always a risk (no risk, no revenue). It is statistically certain that some corporations will fail. Obviously, as a middle-class investor, or as a pension-fund manager, you wouldn't want to invest and risk losing your house, therefore a corporation usually[1] is only risking the assets it holds.
The risk is on the creditors, who should know their business and who'll charge more if the risk is higher.
1.3. Transferable Shares
There are two types of corporations, the closely held one (where a bunch of friends get together and only them or people they approve of can get shares) and the publicly traded ones (where there is no restriction about buying and selling, except, of course, access to the stock exchange).
1.4. Delegated Management under the Board Structure ( CBCA, part X, s. 102 )
It is the right of the shareholders to elect the managers, that is, the directors of the Board that will supervise whatever methods the appointed executive officers[2] have of carrying out the business plan.
1.5. Investor Ownership ( CBCA, s. 24(3) )
In the business literature, especially in the US, the shareholders are often referred to as the owners. Stricto sensu, this doesn't make sense: the corporation is a moral person and no one can own a person. What the shareholders own are shares, not fractions of a corporation, but representations of the rights (vote at the meetings, get dividend and receive any remaining [3]property after the dissolution of the corporation) they have vis-à-vis that corporation