James D. Cox - Business Organizations Law

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A. Benjamin Spencer

Justice Thurgood Marshall Distinguished Professor of Law
University of Virginia School of Law

James J. White

Robert A. Sullivan Professor of Law Emeritus
University of Michigan

BUSINESS ORGANIZATIONS
LAW

Fifth Edition

James D. Cox

Brainerd Currie Professor of Law
Duke University

Thomas Lee Hazen

Cary C. Boshamer Distinguished Professor of Law
The University of North Carolina at Chapel Hill

HORNBOOK SERIES

The publisher is not engaged in rendering legal or other professional advice, and this publication is not a substitute for the advice of an attorney. If you require legal or other expert advice, you should seek the services of a competent attorney or other professional.

Hornbook Series is a trademark registered in the U.S. Patent and Trademark Office.

2011 Thomson Reuters

2016 LEG, Inc. d/b/a West Academic

2020 LEG, Inc. d/b/a West Academic

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ISBN: 978-1-64242-401-0

Preface

This hornbook is an updated adaptation of Cox & Hazen on Corporations (Practitioners Edition 3d ed. 2010)a four volume treatise supplemented annually.

In this work, we provide a comprehensive analysis of all areas of corporate law and some significant provisions of the federal securities laws. Contrasting judicial and statutory approaches are examined in both a contemporary commercial context and historical evolution of law on each subject examined. We have avoided a state-by-state review on each topic; instead we devote our energies to capturing and critiquing the significance of the differences in approaches. As evident in each of our chapters, we examine the historical fount of doctrines, their contemporary vitality, and qualifications and weaknesses in their impact. This text is not content to recite the empty metaphors and vague incantations that appear with regrettable frequency in the courts treatment of important issues of corporate law. We emphasize the financial, political, and social considerations that appear to have guided the courts dispositions in individual cases. Simply stated, we seek to provide a helpful and insightful treatment of the law of corporations.

The text is written and edited to provide an understanding of the law relating to business organizations. Although some leading sources are included, the text is not intended as a research tool. Footnotes from the parent Practitioners Edition have been edited severely. Readers conducting research and seeking additional citations should consult the four volume Cox & Hazen on Corporations (Practitioners Edition 3d ed. 2010) (with its annual supplements).

Because of the broad impact on the shape of state corporate statutes of the Model Business Corporation Act, close attention is given to the Model Act throughout the text. Major non-Model Act jurisdictions, such as California, Delaware, and New York, are also emphasized in our treatment of statutes and doctrine.

James D. Cox
Thomas Lee Hazen

January, 2020

Although this hornbook contains the same chapters as the multivolume treatise, many of the section numbers and footnotes have been renumbered.

Preface, Henry W. Ballantine, Ballantine on Corporations iii (rev. ed. 1946).

Acknowledgments

We very much appreciate the support and encouragement for this treatise that we have received from our respective deans. A great debt is also due the numerous students who provided invaluable research on this project. Their numbers are far too large to permit each to be singled out here for fear of inadvertent omissions.

A work such as this does not occur without personal sacrifices. We each thank our families for their patience, understanding, and support.

Summary of Contents

Page

Defective Formation of Corporations and
Revival of Existence

The Separate Corporate Entity: Privilege and
Its Limitations

Powers of Officers and Agents; Tort and
Criminal Liability of Corporations

Fiduciary Duties for Executive Compensation, Corporate Opportunities, and Controlling
Stockholders

Obligations Arising Out of Transactions in
Shares

Rights and Powers of Shareholders:
Inspection Rights, Voting, and Proxies

Dividend Distributions: Rights, Restrictions,
and Liabilities

Repurchases, Redemptions and the Reduction
of Capital

Table of Contents

Page

[3] Continuity of Existence and Transferability of Limited Liability
Interests

1.13 Loan to a Business Proprietor for a Share of the Profits; Sharing of Profits
by Lessor or Employee

2.6 Reform Efforts, the American Law Institutes Corporate Governance
Project

Defective Formation of Corporations and
Revival of Existence

The Separate Corporate Entity: Privilege and
Its Limitations

7.5 Dominating the Corporations Affairs as the Basis for Piercing the
Corporate Veil

Powers of Officers and Agents; Tort and
Criminal Liability of Corporations

9.3 Changes in the Statutory Description of Functions of the Board of
Directors

9.8 Directors Meetings: Place, Call, Quorum, Votes, Disqualification by
Interest

PART A. DILIGENCE, SKILL, AND CARE; LIABILITY
FOR NEGLIGENCE IN MANAGEMENT

PART B. DEALINGS BETWEEN DIRECTORS AND THEIR
CORPORATIONSCONFLICTS OF INTEREST

10.12 Statutory Treatment of Transactions with Interested Officers and
Directors

Fiduciary Duties for Executive Compensation, Corporate Opportunities, and Controlling
Stockholders

11.8 Misappropriation of Corporate Opportunities: Disloyal Diversion of
Business

PART C. CONTROLLING STOCKHOLDERS
FIDUCIARY OBLIGATIONS

11.12 Unequal Treatment Among Different Classes of Securities or Holders of
the Same Class of Security

Obligations Arising Out of Transactions in
Shares

Greenmail
and Equal Opportunity Concerns

Rights and Powers of Shareholders:
Inspection Rights, Voting, and Proxies

Because They Limit the
Board of Directors Discretion of Authority