Business organization and finance: legal and economic principles

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