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894
accounting assets purchases, 626EU regulation, 69, 86, 516executive earnings, 417, 422–423principles, recognition, 66
ad hoc Mitteilungen, 524–526AFA, 679agency
See also authorityagency costs, 299–300authority, 312–313, 317–318contracting capacity, 312fiduciary principles, 11leveraged buyouts, 845–846partnership and, 25questions for discussion, 321
Aktiengesetz, 8Alexander, Jacob, 424American Bar Association, 17, 86analysts, 454, 459, 528annual general meetings
abuse, 549electronic methods, 547EU law, 70, 559, 566medium for collective action,
546–549procedures
Germany, 555–563Greenwell v. Porter (UK), 571–573overview, 549–567Puddephatt v. Leith (UK),
569–570Schnell v. Chris-Craft (Delaware),
568–569United Kingdom, 563–567United States, 549–555
shareholder litigation and, 604–608
terminology, 549applicable law. See conflict of lawsArmour, John, 11, 12, 262Assmann, Heinz-Dieter, 173asymmetric information, 193, 456,
524Athens, 546Aufsichtsrat. See German management,
supervisory boardsAustralia, company seals, 316Austria, prospectuses, 195authority
company directors, 312–313, 315–318
company law, 315–317contract law, 317–318implied authority, 318reliance on ostensible authority,
318–320company seals and, 316–317documenting chain of authority,
320–321signature books, 320–321
General Overseas Films v. Robin International (New York), 324–331
Hurley v. Ornsteen (Massachusetts), 323–324
questions for discussion, 321Royal British Bank v. Turquand
(UK), 322–323automotive industry, 337
Baird, Douglas, 845Ballantine, Henry Winthrop, 153Barad, Jill, 420Baums, Theodor, 82, 561, 606
I N D E X
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Cambridge University Press978-0-521-76873-3 - Comparative Company Law: Text and Cases on the Laws GoverningCorporations in Germany, the UK and the USAAndreas Cahn and David C. DonaldIndexMore information
Index 895
Bebchuk, Lucien, 95, 96, 420, 489Berle, A. A., 497BERR, 21, 135best practice, 4Betriebsverfassungsgesetz, 309–311Bezugsrecht, 417, 431–432Bezugsrechte, 200–202, 431, 478Bismarck, Otto von, 308Blumberg, Dean Phillip, 677bonding expenditures, 300Börse. See Frankfurt Stock ExchangeBörseneinführung. See German listed
companiesbranches, EU regulation, 68, 69Bratton, William, 95Broadrige Financial Solutions, 555bullet-dodging, 423business judgment rule
See also DelawareARAG v. Garmenbeck (Germany),
373–381Aronson v. Lewis (Delaware),
382–383 assessing, 369–373meaning, 334questions for discussion, 373Sinclair Oil v. Levien (Delaware), 693Unocal v. Mesa Petroleum
(Delaware), 407–415 Walt Disney Company Derivative
Litigation, Re (Delaware), 383–406
Zapata v. Maldonado (Delaware), 613–617
Cao, Jerry, 847capacity
company contracts, 312–313ultra vires doctrine, 134,
313–315, 318capital
increasing, legal issues, 195–197shares. See share capitalsources of financing, 188–190structure
comparative law, 190determinants, 188–195effect on firm’s value, 190–193
debt/equity ratio, 190–192Modigliani/Miller thesis, 192pecking order hypothesis,
192–193trade-off model, 193
legal and economic factors, 193–195
questions for discussion, 206terminology, 195
care. See duty of careCary, William, 90CESR, 525Chandler, Alfred, 678–679, 680Chinese Walls, 460choses in action, 263Clark, Robert, 797Coffee, John, 422Cohen Report (1945), 453commenda, 31company law
effects test, 12–13functional components,
9–23comparative law
approach to company law, 3–9legislative comparative law, 5methodology, 6–7social and historical context, 7–8transition economies and, 6
compensation. See executive remuneration
competition, directors’ conflicts of interests, 338
Comverse Technologies (New York), 424
confidentiality fiduciary duty, 339, 455German obligations, 339, 455merger negotiations, 637UK management, 455US obligations, 455, 458–459
conflict of interests competing businesses,
338corporate opportunity doctrine,
360, 364, 368situations, 333, 337–338takeovers, 800
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Cambridge University Press978-0-521-76873-3 - Comparative Company Law: Text and Cases on the Laws GoverningCorporations in Germany, the UK and the USAAndreas Cahn and David C. DonaldIndexMore information
Index896
use of rules in conflict areas, 337–338
conflict of laws cases, 97–127European Union
Centros (ECJ), 78–80, 100, 105, 115, 118
cross-border mergers, 640–643Inspire Art (ECJ), 108–119member states, 66–72regulatory competition, 65–72,
78–82securities law, 80–81SEVIC Systems (ECJ), 640–643Überseering (ECJ), 97–108, 634
Germany, 73Überseering (ECJ), 97–108, 634
levels, 65–66questions for discussions, 96–97United Kingdom, 75–77United States, 82–96
regulatory competition, 90–96Vantagepoint v. Examen
(Delaware), 119–127contemporaneous ownership rule, 605contingency fees, 8, 600–601, 603, 608contracts
assets purchases, 626authority, 312–313, 317–318share purchases and, 628
convertible securities, 190, 202, 265, 267
corporate groups. See groups of companies
corporate opportunity doctrine, 360, 364, 368
corporate veil, piercing Amoco Cadiz (US), 737–740Polly Peck (UK), 740–751Rave v. Entertainment Equities (New
York), 732–736share repurchase, 243tort victims, 737–740US requirements, 689
corporations comparative approach, 3–9core structural characteristics, 9
Germany, 13–17
table, 22–23United Kingdom, 19United States, 17–19
functional components, 9–23partnerships and, 24–26
creditor protection capital maintenance and, 169, 219,
220–221leveraged buyouts and, 846share repurchase and, 243, 244shareholders as residual claimants,
261–262, 471subsidiaries and, 680tort victims, 169, 221
CRESTCo, 567Crown Jewel, 413–414
Davies, Paul, 204, 205, 260, 271Davos World Economic Forum, 846debt financing
buyouts. See leveraged buyoutsconvertible bonds, 190, 202, 265, 267covenants, 196forms, 189–190pecking order hypothesis, 193securitization, 190, 846shareholder approval, 196
Delaware annual general meetings
balloting methodology, 554–555conduct of proceedings, 554information requirements,
550–552notification, 550participants, 550proxy battles, 568–569quorums, 553–554Schnell v. Chris-Craft (Delaware),
568–569shareholder expenses, 553shareholder participation,
552–553timing, 549–550, 568–569vote counting, 555voting entitlement, 554
authorized representatives, 316, 318Hurley v. Ornsteen
(Massachusetts), 323–324basic law, 9
conflict of interests (cont.)
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Cambridge University Press978-0-521-76873-3 - Comparative Company Law: Text and Cases on the Laws GoverningCorporations in Germany, the UK and the USAAndreas Cahn and David C. DonaldIndexMore information
Index 897
business judgment rule, 372Aronson v. Lewis (Delaware),
382–383 disinterested directors, 382, 413duty of loyalty and, 341, 346information duty, 382–383meaning, 382, 410restrictions, 382–383Sinclair Oil v. Levien (Delaware),
693standard, 383–406takeover defenses, 837–838Unocal v. Mesa Petroleum
(Delaware), 407–415 Walt Disney Company Derivative
Litigation, Re (Delaware), 383–406
Zapata v. Maldonado (Delaware), 613–617
de facto incorporation, 142–143Cleary v. North Delaware A-OK
(Delaware), 148–151directors
annual election, 305entrenchment, 569presidents, 316, 318removal, 307role, 382
distributions management discretion, 196,
227–228nimble dividends, 228
duty of loyalty Broz v. Cellular Information
Systems (Delaware), 360–368
common law, 344–345corporate opportunity doctrine,
360, 364, 368D&O insurance, 347listed companies, 345–346no safe harbor, 396rules, 345spring-loaded options and, 424standard, 346–347, 360–368 Walt Disney Company Derivative
Litigation, Re (Delaware), 395–397, 399
executive remuneration
business judgment rule and, 384disclosures, 426shareholder control, 428stock options, 424, 529–534Walt Disney Company Derivative
Litigation, Re (Delaware), 384
fiduciary duties, 89, 206, 392Benihana of Tokyo v. Benihana
(Delaware), 218confidential information, 455corporate waste and, 394, 400duty of care, 394–395good faith, 344, 345, 394, 397–399,
400–406gross negligence, 395, 400–404groups of companies, 688, 692,
729increasing share capital, 206merger negotiations and, 647–648takeover defenses and, 830–832,
833–843to shareholders, 336transactions with their
companies, 345–346groups of companies
company v. group interest, 721–732
fiduciary duties, 688, 692, 729Hollinger v. Black (Delaware),
721–732minority shareholders and
Sinclair Oil v. Levien (Delaware), 691–695
regulation method, 681, 688incorporation
amendment to bylaws, 729–731amendment to certificates of
incorporation, 482, 721–732declarations of nullity, 145defensive charter amendments,
413optional default terms, 18procedures, 136–137
increasing share capital, 205–206approval, 205Benihana of Tokyo v. Benihana
(Delaware), 206–218duty of care, 218
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Cambridge University Press978-0-521-76873-3 - Comparative Company Law: Text and Cases on the Laws GoverningCorporations in Germany, the UK and the USAAndreas Cahn and David C. DonaldIndexMore information
Index898
duty of loyalty, 218improper primary purpose,
215–218validity of transaction,
214–215payment methods, 205–206preemption rights, 201, 206
initial capital payment cash payments, 177–178in-kind payments, 178Lewis v. Scotten Dillon (Delaware),
178, 185–187shareholder policing, 178,
185–187jurisdiction, 17–19jurisprudence, 18loan covenants, 228mergers and acquisitions
appraisal rights, 662–663Weinberger v. UOP (Delaware),
666–674assets sales, 631, 655cross-border mergers, 634defensive provisions
no-shop provision, 645Paramount v. QVC (Delaware),
643–648stock option agreements, 645termination fees, 638–639, 645
fiduciary duties and merger negotiations, 647–648
Kahn v. Lynch Communication (Delaware), 586–594, 634
minority shareholders, 656, 666–674
shareholder approval, 655–656Katz v. Bregman (Delaware),
664short form mergers, 656statutory mergers, 631–632
minority shareholders actions for written consents, 604fiduciary duties to, 18, 576,
588–589groups of companies, 691–695Kahn v. Lynch Communication
(Delaware), 586–594mergers, 656
Weinberger v. UOP (Delaware), 666–674
Sinclair Oil v. Levien (Delaware), 691–695
takeovers, 774Tooley v. Donaldson (Delaware),
609–612non-profit corporations, 145preliminary injunctions, 837regulatory competition, 88–90
internal affairs, 89Vantagepoint v. Examen
(Delaware), 119–127securities regulation, 19share capital
authorized stock, 205increasing, 205–206maintenance, 253–256no par shares, 167–168, 227
share classes, 274Lacos Land v. Arden (Delaware),
278–287variation of rights, 275, 278–287
share repurchase, 250burden of proof, 411disclosures, 256–258Klang v. Smith’s Food & Drug
Centers (Delaware), 252–258selective repurchase, 413self-tenders, 258, 407–415 treasury shares, 250
shareholder duties fiduciary duties, 586–594Kahn v. Lynch Communication
(Delaware), 586–594loyalty, 576majority shareholders, 18,
588–589shareholder information rights
Melzer v. CNET Networks (Delaware), 529–534
on request, 513, 529–534shareholder litigation, 608
Aronson v. Lewis (Delaware), 382–383
board duties and, 612–617demand rule, 612–617derivative or direct actions,
609–612, 827
Delaware (cont.)
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Index 899
Tooley v. Donaldson (Delaware), 609–612
Zapata v. Maldonado (Delaware), 612–617
shareholder voting rights agreements, 555amendment to certificates of
incorporation, 482appointments, 481–482assets issues, 482balloting methodology, 554–555Blasius v. Atlas (Delaware), 473,
487, 493–500democratic legitimacy, 473, 497,
499entitlement, 554Hollinger v. Black (Delaware),
721–732initiating procedures, 486–488Katz v. Bregman (Delaware), 664mergers, 664required majorities, 491–492sale of rights, 469vote counting, 555
takeovers defensive measures, 800–801
Carmody v. Toll Brothers (Delaware), 821–832
“dead hand” poison pills, 821, 823–824, 828–832
fiduciary duties and, 830–832, 833–843
lock-up options, 833, 840–842poison pills, 838–839Revlon v. MacAndrews &
Forbes Holdings (Delaware), 833–843
self-tenders, 407–415 Unocal v. Mesa Petroleum
(Delaware), 407–415 judicial approaches, 798minority shareholders, 774section 203, 770stakeholders, 850
delegation of powerSee also authorityagency costs, 299–300
democracy methodology, 548
shareholder voting rights and legitimacy, 473, 497, 499
DeMott, Deborah, 125derivative actions
Delaware. See Delawaredifficulties, 600distinguishing from direct actions,
602Tooley v. Donaldson (Delaware),
609–612effect, 603Germany, 339, 604–605meaning, 602shareholder right, 264United Kingdom, 607–608US control, 178Walt Disney Company Derivative
Litigation, Re (Delaware), 384
derivatives executive remuneration and,
424–425leveraged buyouts, 846regulation, 66
Deutsche Bank, 484directors. See managementdisclosures. See shareholder rightsdistributions
capital maintenance and, 219–220EU restrictions, 221–222Germany, 222–225internal financing and, 196questions for discussion, 228–229Sam Weller, Re (UK), 232–237shareholder rights, 262, 264taxation, 219UK restrictions, 226–227United States, 227–228Wells Fargo Bank v. Desert View
(Nevada), 237–240dividends. See distributionsD&O insurance, 341, 344–346,
347Donne, John, 678dot.com bubble, 422, 426Drury, R. R., 144–145du Pont de Nemours, 678duties. See fiduciary duties;
shareholder duties
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Index900
duty of care common requirement, 332Delaware, 218, 394–395German management, 303, 339UK directors, 17, 20, 369–370
duty of loyalty Broz v. Cellular Information Systems
(Delaware), 360–368 common requirement, 332conflict situations, 333, 337–338Delaware. See DelawareGermany, 303, 338–341overview, 338–347questions for discussion, 347Regal (Hastings) v. Gulliver (UK),
347–359United Kingdom, 341–344United States, 344–347use of rules in conflict areas,
337–338
Easterbrook, Frank, 471Ebbers, Bernard, 418EDGAR system, 523Eisenberg, Melvin, 370–371, 680,
686–687enlightened shareholder model, 336Enriques, Luca, 81Enron, 91, 384, 516, 688entity proliferation, 24environmental liability, 626equity
See also share capitalequity financing, 189
pecking order hypothesis, 193executive remuneration and
creative accounting, 422–423derivatives, 424–425manipulation, 420, 422–423
meaning, 189equity swaps, 424–425estoppel, US defective incorporation,
143, 151–155European Companies (SEs)
mergers, 635–636employee participation, 635–636,
662registration, 636
shareholder approval, 661–662regulation, 69–70statutory form, 634
European Economic Interest Groupings (EEIGs), 40
European Private Equity and Venture Capital Association, 853
European Union accounts, 69, 86, 516annual general meetings, 559, 566
shareholder rights, 70branches, 68, 69company law
directives, 68–71First Directive, 69harmonization, 68–71, 72regulatory competition, 82Second Directive, 69
convertible securities, 202cross-border mergers, 70, 634–636
consideration, 635Directive, 634–635European Companies (SEs),
635–636SEVIC Systems (ECJ), 640–643shareholder approval, 661–662
directives, 68binding effect, 160–161direct effect, Marleasing (ECJ),
147–148European Private Company, 82free establishment, 67, 78
Centros (ECJ), 78–80, 100, 105, 115, 118
cross-border mergers, 640–643German cumbersome rules and,
224Inspire Art (ECJ), 108–119provisions, 108–109SEVIC Systems (ECJ), 640–643Überseering (ECJ), 97–108, 634
free movement of capital, 803–809harmonization of law, 5, 68incorporation
declarations of nullity, 143–144direct effect, 147–148Marleasing (ECJ), 143,
146–148
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Cambridge University Press978-0-521-76873-3 - Comparative Company Law: Text and Cases on the Laws GoverningCorporations in Germany, the UK and the USAAndreas Cahn and David C. DonaldIndexMore information
Index 901
objects of companies, 134, 143, 148
insider dealing. See insider dealingjurisdiction, 65, 66–72
company law directives, 68–71concurrent jurisdiction, 67EC Treaty competence, 66–68
leveraged buyouts, 848–849conflicts of interest, 849disclosures, 851financial assistance rules,
848–849minority shareholders, 849
market abuse insider dealing, 453Lamfalussy process, 71share repurchase and, 244–246
mergers cross-border, 70, 634–636leveraged buyouts, 848–849regulation, 69shareholder approval, 661–662
partnerships and, 40preemption rights, 200pre-incorporation liabilities, 138,
160UK implementation, 139
prospectuses detailed regulation, 194–195Directive, 514Lamfalussy process, 71
regulatory competition, 78–82Centros (ECJ), 78–80, 100, 105,
115, 118company law future, 82securities, 80–81
securities regulation, 70–71Directives, 445dominance, 194harmonization of law, 72jurisdiction, 80–81Lamfalussy process, 71regulatory competition, 80–81share repurchase, 244–246
share capital declarations of nullity, 143distribution restrictions, 221–222employee share options, 245
financial assistance rules, 848–849, 853
maintenance, 220Second Directive, 221–222US model and, 221
minimum, 136, 168non-cash contributions, 174payment of initial capital, 175, 203share options, 417
share repurchase, 243–246annual reports, 244Buy-back Regulation, 245–246capital markets rules, 244–246corporate law rules, 243–244creditor protection, 244equal treatment of shareholders,
244German implementation,
246–247voting rights, 244
single-shareholder companies, 69subsidiarity principle, 67–68, 78supremacy of EU law, 67, 79takeovers
definition of takeover bids, 755disclosure of bidders’ plans, 760free movement of capital,
803–809regulation, 69reporting significant holdings,
578terminology, 66transparency, 114–115
annual financial reports, 516Directive, passport structure,
515–516, 517half-yearly reports, 516–517interim management reports, 517listed companies, 515–517publication methods, 517routine disclosures, 515–517Transparency Directive, 515–517
executive remuneration accounting, 417consultants, 420earning management, 422–423elements, 418–419equity, 419
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Index902
creative accounting, 422–423derivatives, 424–425manipulation, 420, 422–423
Germany, 303, 429–432governance tool, 417–419incentives, 301incompetence and, 420Mannesmann prosecution
(Germany), 435–441moral hazard, 416–417, 419–422objectives, 418performance-linked pay
evaluation issues, 420moral hazard, 416–417
perquisites, 418questions for discussion, 434–435risks, 419–425share options
bullet-dodging, 423insider dealing, 424manipulating value, 423–424spring-loading, 423
United Kingdom, 305, 432–434United States, 307, 425–429Walt Disney Company Derivative
Litigation, Re (Delaware), 384
Ferran, Ellis, 81, 271, 314, 845, 849, 850fiduciary duties
See also specific dutiesbusiness judgment. See business
judgment ruledue care, 332fiduciary relationships, 334–335, 575good faith, 333insider dealing and, 455loyalty, 332, 338–347merger negotiations and, 639,
663–664John Crowther v. Carpets
International (UK), 648–653Paramount v. QVC (Delaware),
647–648partnerships, 49performance-linked pay and, 416questions for discussion, 347rules and standards, 332–335
safe harbors, 333share options, derivatives, 424–425shareholder litigation and, 608–609
Zapata v. Maldonado (Delaware), 612–617
shareholders, 575–577standard, 384to whom owed, 335–337
shareholder primacy, 336stakeholders, 336suppliers, 337
use of rules in conflict areas, 337–338
finance debt financing, 189–190, 193equity financing, 189, 193internal financing, 189, 193
distributions and, 196pecking order hypothesis, 192–193sources, 188–190
Financial Accounting Standards Board (FASB), 429
financial assistance rules European Union, 848–849, 853Germany, 852–853United Kingdom, 853–854
Brady v. Brady (UK), 855–862principal purpose exception,
75–77, 854US lack of rules, 849, 851
financial markets. See securities lawFinancial Services Authority
Disclosure and Transparency Rules centrality, 21, 445EU regulation and, 71implementing Transparency
Directive, 519–520management standards, 304
jurisdiction, 20, 77Listing Rules. See UK listed
companieson private equity, 846
Fischel, Daniel, 280, 471Fischer, Robert, 15France
Code Napoleon, 41takeovers, 765
Frankfurt Stock Exchange annual general meetings, 555
executive remuneration (cont.)
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Index 903
governance and, 448jurisdiction, 72, 73–75reporting requirements, 519rules, 16, 73–75takeover code, 765
fraudulent conveyances, 13, 87, 92, 237–240, 626, 850–851, 862–876
free riding, 474–475Fried, Jesse, 420Friedman, Milton, 259
Gattung, 267–270General Electric, 678Georgeson Shareholder, 555German groups of companies
creditor protection, 682, 684de facto groups, 683, 684–685
damages to subsidiaries, 686dependence reports, 685–686domination relationships,
685–686, 852–853Holzmüller, Re (Germany),
700–701distributions, 681enterprise agreements, 683–684
creditor protection, 684profit transfer agreements, 684standard of care, 684
grouping strategy, 678judicial extension of Konzernrecht,
686–687Gelatine, Re (Germany),
710–721Holzmüller, Re (Germany),
686–687, 695–709Konzernrecht, 682–687minority shareholders
enterprise agreements, 684Gelatine, Re (Germany),
710–721Holzmüller, Re (Germany),
695–709parent companies, 695–709
regulation, 682–687shareholder approval, 683, 695–709,
710–721terminology, 678
German listed companies
ad hoc disclosure of significant events, 524–526
annual general meetings. See German shareholders
audit committees, 450–451directors’ transactions with their
companies, 448executive remuneration, disclosures,
430Kodex, 446prospectuses
EU regulation, 71false information, 535
regulation, 445reporting requirements, 517–519
ComROAD Securities Litigation (Germany), 534–540
liability for false information, 534–535
securities law, 445supervisory boards, 450takeovers. See German takeoversterminology, 443voluntary delisting, shareholder
voting rights, 501, 504German management
appointments criminal records, 302labor representatives,
qualifications, 300management boards (Vorstand),
478procedures, 302removal, 302, 477shareholder voting rights,
476–478terms of office, 302, 476–477
auditors, appointment, 477authority to represent, 315, 317
apparent authority, 318authority by forbearance, 318–319
business judgment rule, 371, 372ARAG v. Garmenbeck (Germany),
373–381deciding on legal proceedings,
373–381challenging shareholders’
resolutions, 376–378co-determination, 8, 308–311
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Index904
1976 Act, 310–3112004 Act, 309–310appointments, 477constitutionality, 311core characteristic, 10history, 308–309intention v. function, 11mining, iron and steel sector,
309three regimes, 309–311
conflicts of interest, 560Corporate Governance Code
(Kodex), 16duty of loyalty, 303, 338–341
confidentiality, 339, 455consulting agreements, 340damages, 340derivative actions, 339D&O insurance, 341executive bonuses and, 441legal proceedings, 341loans, 303, 339–340Mannesmann prosecution
(Germany), 441non-compete rule, 339rules, 339–340service contract negotiations, 340source and nature of duty,
338–339standard, 340–341transactions with their
companies, 340, 448executive remuneration, 303,
429–432accounting treatment of options,
431–432disclosures, 429–430informal capping, 417Mannesmann prosecution
(Germany), 435–441prosecutions, 430restrictions, 421share options, 417shareholder approval, 431supervisory directors, 430
false reporting, 229–232, 534–535fiduciary duties
duty of care, 303, 339interests of the company, 335loyalty, 303, 338–341
governing rules, 131loans to board members, 303,
339–340, 418maximum directorships, 302rules and standards, 302–303self-dealing, 303supervisory boards, 427, 450
co-determination, 310–311, 477executive remuneration and, 430function, 431model, 449no confidence votes, 477removal of members, 477responsibilities, 373rights of judicial review, 376–378sub-committees, 302terms of office, 476–477
two-tier structure, 302, 431German mergers and acquisitions
appraisal rights, 663assets sales, 632audits, 658creditor protection, 658EU cross-border mergers, 661forms, 632information rights, 512leveraged buyouts
disclosures, 847financial assistance rules, 852–853regulation, 852
merger agreements, 657–658merger reports, 658public offers, 657registration, 628, 633, 659share purchases, 632shareholder approval, 478, 657–659short form mergers, 658statutory mergers, 632–633
cross-border mergers, 640–643registration, 640–641SEVIC Systems (ECJ), 640–643
UmwG, 14, 633German partnerships
civil law partnerships (GbR) court actions, 28, 52–57
German management (cont.)
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Index 905
dissolution, 28formation, 27legal capacity, ISM GmbH v.
ARGE Wua (Germany), 52–57
management, 27–28commercial partnerships (OHG)
commercial purpose, 29death of partners, 31joint and several liability, 30–31loyalty duty, 30management, 29–30profits, 30
jurisprudence, 15limited partnerships (KG), 31–33
commenda origin, 31general partners, 31GmbH & Co. KG, 32limited liability, 61–64limited partners, 31limited partners’ duties, 33management, 32registration, 31W. J. v. S. Sch. (Germany),
61–64partners as agents, 25types, 26–33
civil law partnerships (GbR), 27–28
commercial partnerships (OHG), 29–31
limited partnerships (KG), 31–33partnerships limited by shares
(KGaA), 33professional partnerships (PartG),
28–29German share capital
bonus shares, 197, 204cash payments
auditing, 171, 172circumventing techniques, 171disguised in-kind contributions,
172–173IBH/Lemmerz (Germany),
180–185increasing capital, 200initial capital, 170judicial flexibility, 172–173
post-incorporation rules, 172, 182–184
private companies, 173distributions, 196, 222–225financial assistance rules, 852–853increasing
approval, 197–199bank underwriting, 200bonus shares, 197charter amendment, 197–199class votes, 198conditional increases, 198, 431convertible securities, 203effective or nominal, 197–198issue price, 198overview, 197–202payment methods, 200preemption rights, 200–202shareholder voting rights, 478
large blockholders, 632leverage, 195limited liability companies, 99maintenance, 222–225
accounting principles, 225EM.TV, Re (Germany), 229–232groups of companies, 684, 852loans to shareholders and, 224
minimum, 132, 165no par shares, 133, 167–168non-cash assets
auditing, 133, 174complexity, 173disguised non-cash contributions,
172–173IBH/Lemmerz (Germany),
180–185initial capital, 133, 173–174plausibility, 133
payment of initial capital, 133, 170–174
preemption rights, 200–202, 431, 478
reserves, 223share classes, 267–270
bundling of rights, 268–269changing rights, 269–270meaning of class, 267–268new classes, 269–270
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preference shares, 268, 270single shareholders, 267voting shares, 193, 268–269
share ownership transparency, 10–11
share premiums, 171share repurchase, 246–247
10 percent purchase limit, 246accounting treatment, 247appraisal rights, 246corresponding reserve, 247equal treatment, 246fully paid-up shares, 247implementation of Directive,
246–247leveraged buyouts and, 853shareholder voting rights, 478suspension of all rights, 247
splitting shares, 562subscription, 132–133
German shareholders annual general meetings, 303
balloting methods, 560–562conduct of proceedings, 559–560counting votes, 562–563false information, 558information requirements,
557–558notification, 556–557participants, 556procedures, 555–563proxy voting, 547, 557quorums, 558–559shareholder participation, 558strike suits, 559timing, 555–556transmission, 560voting entitlement, 560
fiduciary duties Girmes, Re (Germany), 594–598Linotype, Re (Germany), 583–585
information rights ad hoc disclosure of significant
events, 524–526annual reports, 518ComROAD Securities Litigation
(Germany), 534–540
false reporting, 229–232, 534–535financial statements, 303half-annual reports, 518interim management statements,
518on request, 511–512prospectuses, 535routine disclosures, 514, 517–519,
534–540websites, 519
litigation blocking registration strategy,
601, 606–607business judgment rule, 373–381challenging shareholder
resolutions, 605, 659class actions, 604derivative actions, 339, 604–605direct actions, 604economic incentives, 606–607exculpating resolutions, 500, 605general meetings and, 604–607
loans to, 224minority shareholders
appraisal rights, 663blocking minorities, 491,
594–598, 606–607calling general meetings, 604Gelatine, Re (Germany), 710–721Girmes, Re (Germany), 594–598groups of companies, 682, 684,
695–709, 710–721Holzmüller, Re (Germany),
695–709Linotype, Re (Germany), 583–585mergers, 633takeovers, 768–769, 802–809
resolutions, board challenges, 376–378
voting rights agreements, 562amendment to Satzung, 478appointments, 302, 476–478, 803assets matters, 478balloting methods, 560–562business splits, 478calculation, 802capital changes, 478
German share capital (cont.)
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conflicts of interest, 560counting votes, 562–563custodian accounts, 560–562decision matters, 478–479entitlement, 560executive remuneration, 431Gelatine, Re (Germany), 710–721groups of companies, 683,
695–709Holzmüller, Re (Germany),
695–709initiating procedures, 483–485Macrotron Shareholder Litigation
(Germany), 500–509mergers, 478, 657–659minority protection, 501, 506proxy voting, 547, 557required majorities, 490–491rights-based theories, 469share repurchase, 478takeovers, 802–809transfer of rights, 469Volkswagen privatization, 803voluntary delisting, 501, 504voting matters, 476–479waiver of pre-emptive rights, 478
German takeovers acting in concert, 768
Württembergische Metallwarenfabrik (Germany), 782–787
BaFin jurisdiction, 765bearer shares and, 577–578bids to purchase securities, 765defensive measures
Commission v. Germany (ECJ), 802–809
Volkswagen Law, 802–809disclosures, 765–766
electronic publication, 766false information, 766
equal treatment of shareholders, 767–768
highest price rule, 768Württembergische
Metallwarenfabrik (Germany), 782–787
mandatory bid threshold, 765
non-compliance, 768minority shareholders, 768–769
sell-outs, 769squeeze-outs, 768–769
partial bids, 765regulation, 764–769
origins, 756, 764–765Takeover Act, 16
takeover bids, 765time limits, 767
Germany accounting
annual accounts, 86principles, 14, 225publication, 514share options, 431–432share repurchase, 247
applicable law BaFin jurisdiction, 75incorporation v. real seat theory,
518jurisdiction and EU, 65legal capacity, 97–108stock corporations, 73stock exchanges, 73–75Überseering (ECJ), 97–108, 634
banks, custodian accounts, 556–557, 560–562
Codes, 41Civil Code, 16Commercial Code, 16Corporate Governance Code,
74–75company law
Aktiengesetz (AktG), 8concept, 16core functions, 13–17jurisprudence, 15
constitutional property rights, 311
creditor protection groups of companies, 682, 684mergers, 658restrictive covenants, 222
debt financing, covenants, 196directors. See German managementfraudulent conveyances, 13general rules, 16
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groups of companies. See German groups of companies
incorporation of AGs amendment to Satzung, 478articles of incorporation
(Satzung), 132corporation in formation status,
132declarations of nullity, 144defective incorporation,
liabilities, 141post-incorporation, 172pre-incorporation liabilities,
138–139, 145–146procedures, 132–134public notices, 133registration, 133–134, 317share subscription, 132–133
insolvency, full payment of shares, 171
iron and steel industry, 308joint ownership, 54–55labor councils, 308legal capacity, 98
applicable law, 97–108limited liability legislation, 16listed companies. See German listed
companiesmergers. See German mergers and
acquisitionspartnerships. See German
partnershipspre-incorporation companies, 138pre-incorporation liabilities,
145–146private companies (GmbH), 138promoters, 138–139
private companies (GmbH) financial assistance rules and, 853pre-incorporation liabilities, 138
real seat theory, 79Rechtsfortbildung, 15registration system, 601Securities Act, 16security interests, 13share capital. See German share
capital
shareholders. See German shareholders
stock exchanges See also Frankfurt Stock Exchange
jurisdiction, 73–75takeovers. See German takeoverstort liability, 525, 536Volkswagen privatization, 802,
803Weimar Republic, 308, 717workers’ councils, 308
Gesellschaft mit beschrånkter Haftung (GmbH), 138, 853
globalization, 3, 4GmbH, 138, 853Golden Parachute, 413golden shares, 266Gonenc, Halit, 194–195good faith
Delaware, 344, 345, 394, 397–399, 400–406
fiduciary requirement, 333merger negotiations, 638UK directors, 335, 341, 343–344
Gordon, Jeffrey, 89, 831greenmail, 411–412, 413, 415groups of companies
company v. group interests Hollinger v. Black (Delaware),
721–732corporate veil, 688–689, 732–751
Amoco Cadiz (US), 737–740Polly Peck (UK), 740–751Rave v. Entertainment Equities
(New York), 732–736tort victims, 737–740
creditor protection, 680interests affected, 680–681internal capital market, 682limited liability, 679
or single economic unit, 688–689, 732–751
minority shareholders and, 680–681Gelatine, Re (Germany), 710–721Holzmüller, Re (Germany),
695–709parent companies, 695–709,
710–721
Germany (cont.)
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Sinclair Oil v. Levien (Delaware), 691–695
subsidiaries, 691–695nature, 677–678questions for discussion, 690rationale, 678–680regulation methods, 681–688
constitutional documents, 687–688
Delaware, 681, 688German Konzernrecht, 682–687United Kingdom, 687
Grundfest, Joseph, 492
Hague Conference on Private International Law, 5
Handelsgesetzbuch, 16Handelsregister, 133–134, 317, 601Hansmann, Henry, 11, 12, 25Hirschman, Albert, 467historical context, 7–8Honoré, A. M., 261Hopt, Klaus, 4HSBC, 419
incorporation cases, 146–164
Cleary v. North Delaware A-OK (Delaware), 148–151
Jacobson v. Stern (Nevada), 162–164
Kelner v. Baxter (UK), 155–158Marleasing (ECJ), 146–148Phonogram v. Lane (UK), 158–162Timberline v. Davenport (Oregon),
151–155corporate purpose, 313–315declarations of nullity, 143–145
European Union, 143–144Germany, 144Marleasing (ECJ), 146–148United Kingdom, 144–145United States, 145
defective incorporation Cleary v. North Delaware A-OK
(Delaware), 148–151German liabilities, 141shareholders’ liabilities, 141–143
Timberline v. Davenport (Oregon), 151–155
UK liabilities, 141–142US liabilities, 142–143, 148–155
pre-incorporation liabilities European Union, 138, 160German promoters, 138–139Jacobson v. Stern (Nevada),
162–164Kelner v. Baxter (UK), 161Phonogram v. Lane (UK), 158–162promoters, 138–141scenario, 145–146UK promoters, 139–140US promoters, 140–141
procedures differences, 131–132Germany, 132–134specification of share capital, 165United Kingdom, 134–136United States, 136–137
information technology, 547initial public offerings (IPOs), 443insider dealing
argument for, 422, 455breach of fiduciary duty, 455European Union, 453
exceptions, 526framework, 457Lamfalussy process, 71non-selective disclosure of
material events, 457share repurchase schemes, 462
Germany, 422definition of inside information,
524derivatives, 461massive change, 461preventive rules, 453–454, 456rapid disclosure of material
events, 456, 524–525regulating use of inside
information, 461–462share repurchase schemes, 462valuations, 462
market abuse, 454preventive rules, 451–454
Germany, 453–454, 456
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United Kingdom, 453, 456United States, 451–453, 456
rapid disclosure of material events, 456–457, 524
regulating use of inside information, 457–462
Germany, 461–462United Kingdom, 460–461United States, 457–460
scale of problem, 454securities analysts and, 454, 459share options and, 424United Kingdom, 21, 453
definition of inside information, 460–461
definition of insider, 460preventive rules, 453, 456rapid disclosure of material
events, 456, 526–527regulated information services,
526regulating use of information,
460–461United States, 445
disgorgement of profits, 452, 459
duty of trust and confidence, 458–459
employee stock option plans, 452misappropriation theory, 459non-selective disclosure, 457penalty, 460preventive rules, 451–453, 456rapid disclosure of material
events, 456regulating use of information,
457–460shareholder groups, 452Wall Street crash (1929), 451
insider trading. See insider dealingInsiderhandel. See insider dealinginsolvency
company law and insolvency law, 11, 12
fraudulent conveyances, 13, 87, 92, 237–240, 626, 850–851, 862–876
intermediaries, 575, 577
International Accounting Standards Board (IASB), 429, 431
International Financial Reporting Standards (IFRS), 516
internet, 474IOSCO, 70, 523, 657
Jackson, Thomas, 845Jenkins Report (1962), 659Jennings, Philip, 846Jensen, Michael, 299–300, 418, 420,
429judicial proceedings. See shareholder
litigationjunk bonds, 362, 365, 407, 408, 412,
493, 774
Knoll, Leonhard, 483Kodex, 446Kötz, Heinrich, 5, 7Kraakman, Reinier, 11, 12, 25Kübler, Friedrich, 173
Lamfalussy process, 71legal personality
core characteristic, 9, 260partnerships v. corporations, 26purchase of assets and, 625purpose, 11
Lehman Brothers, 847Lerner, Josh, 847leveraged buyouts
2008 crisis, 847–848agency problems, 845–846Brady v. Brady (UK), 855–862cheap credit and, 846creditor protection and, 846derivative instruments, 846effect on stakeholders, 847EU regulation, 848–849German regulation, 852improved governance, 847management buyouts, 845meaning, 844–845minority shareholders, 845Moody v. Security Pacific Business
Credit (US), 862–876participation/return ratio, 844–845philosophy, 847
insider dealing (cont.)
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questions for discussion, 854–855regulatory concerns, 845–848reversed leveraged buyouts, 846–847scenario, 845securitization, 846UK regulation, 853–854US regulation, 849–852
limited liability core structural characteristic, 9essence, 25groups of companies, 679, 688–689,
732–751minimum share capital and, 168purpose, 11
Lipton, Martin, 260liquidations, shareholder rights, 262,
264listed companies
annual general meetings. See annual general meetings
corporate governance codes, 446directors’ transactions with their
companies Germany, 448overview, 446–448UK companies, 447–448US companies, 447
exchange rules, 445initial public offerings (IPOs), 443insider dealing. See insider dealingmarket rules, 445–446meaning of listing, 443–445reporting requirements, 514–524
ad hoc disclosure of significant events, 524
EU Transparency Directive, 515–517
Germany, 517–519primary v. secondary markets,
514–515United Kingdom, 519–520United States, 520–524, 527–528
securities exchanges, 443–444securities law, 445shareholder information rights,
511supervisory committees, 449–451
audit committees, 449Germany, 450–451
United Kingdom, 450United States, 449–450
litigation. See shareholder litigationLondon Stock Exchange
electronic voting, 567listing standards, FSA jurisdiction,
77reporting requirements, 519
loyalty. See duty of loyalty
McCahery, Joseph, 95Macey, Jonathan, 603management
authority. See authoritybusiness judgment. See business
judgment rulecapacity, 313–315core structural characteristic, 9delegation of powers, 315
agency costs, 299–300duties. See fiduciary dutiesincentives. See executive
remunerationrules and standards
generally, 301Germany, 302–303United Kingdom, 304–305United States, 307
screening and appointing generally, 300Germany, 302, 476–478United Kingdom, 303–304United States, 305–307
shareholder litigation and, 608–609shareholder rights, 262–263supervisory activities, 372–373
management buyouts, 845Manning, Dean Bayless, 167, 220market abuse
EU regulation, Lamfalussy process, 71
insider trading. See insider dealingshare repurchase, 242, 243
Mattel, 420Meckling, William, 299–300media, 242meetings. See annual general meetingsmergers and acquisitions
appraisal rights, 662
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Germany, 663United Kingdom, 663United States, 662–663Weinberger v. UOP (Delaware),
666–674assets purchase
accounting, 626contracts, 626fraudulent conveyances, 626liabilities, 626overview, 625–627restrictions, 654subsidiary vehicle, 627taxation, 626transaction costs, 626
complexity, 623–624conflicts of interest, 338cross-border mergers, 634–636
European Union, 70, 634–636, 640–643
SEVIC Systems (ECJ), 640–643United States, 634
fiduciary duties and, 639, 663–664forms, 624–631
Germany, 14, 632United Kingdom, 633United States, 631–632
leveraged buyouts. See leveraged buyouts
meaning, 623minority shareholders, 662protection of deals, 636–639
confidentiality agreements, 637duty of good faith negotiations,
638fiduciary out clauses, 639,
647–648John Crowther v. Carpets
International (UK), 648–653no-shop agreements, 638, 639no-talk agreements, 638Paramount v. QVC (Delaware),
638–639stalking horses, 636, 637termination fees, 638–639, 645
questions for discussion, 639–640right to be bought out, 662
share purchases, 627–628disadvantages, 628liabilities, 628public offers, 627subsidiary vehicle, 628taxation, 627–628termination of contracts, 628
shareholder approval, 655–662European Union, 661–662Germany, 657–659Katz v. Bregman (Delaware), 664United Kingdom, 659–661United States, 655–656
shareholder rights, 262, 654–655non-discrimination, 655
statutory mergers, 628–631subsidiary vehicle, 629–630taxation, 630triangular mergers, 629–630
takeovers and, 631Mertens, Hans-Joachim, 73Miller, Geoffrey, 603Miller, Merton, 192minority shareholders
fiduciary duties, 576–577Girmes, Re (Germany),
594–598Kahn v. Lynch Communication
(Delaware), 586–594leveraged buyouts, 845Menier v. Hooper’s Telegraph Works
(UK), 581–583mergers, appraisal rights, 662parent companies and, 680–681Linotype, Re (Germany), 583–585takeovers, 757
Minow, Neil, 472–473Mitbestimmung, 8, 308–311, 477Modigliani, Franco, 192Monks, Robert, 472–473moral hazard, executive remuneration
performance-linked pay, 416–417self-dealing, 419–422
Murphy, Kevin, 418, 420, 429Myers, Stewart, 193
Nasdaq audit committees, 449
mergers and acquisitions (cont.)
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directors, appointment and screening, 305–306
executive remuneration and, 427, 449
shareholder approval, 428, 482Netherlands
capital requirements, 115, 118creditor protection, 117–118foreign corporations, 79, 109–110pre-incorporation liability, 109
New York Stock Exchange brokers’ voting rights, 554compensation committees, 427corporate governance committees,
449director appointments, 305–306executive remuneration, shareholder
approval, 428, 482Listed Company Manual, 74notification of AGMs, 550share classes, 276
Northern Ireland, jurisdiction, 72
objects of companies capacity and, 313–315EU law, 134, 143, 148UK law, 134–135, 144, 659
öffentliches Angenbot, 657Ovitz, Michael, 385–391
Pac Man, 413partnerships
agency and, 25basic characteristics, 48–50
capital tied to partners, 48–49fiduciary duties, 49informal establishment, 48management, 48–49transfer restrictions, 49, 50–52
cases, 50–64Fairway Development v. Title
Insurance (Ohio), 50–52ISM GmbH v. ARGE Wua
(Germany), 52–57Meinhard v. Salmon (New York),
58–61W. J. v. S. Sch. (Germany), 61–64
corporations and, 24–26
questions for discussion, 49–50theory of partnership
Fairway Development v. Title Insurance (Ohio), 50–52
ISM GmbH v. ARGE Wua (Germany), 52–57
types Germany, 26–33overview, 26–48United Kingdom, 33–40United States, 40–48
pecking order hypothesis, 192–193perquisites, 418poison pills, 267, 273, 821, 823–824,
828–832, 838–839Pound, John, 473–474preemption rights
Benihana of Tokyo v. Benihana (Delaware), 206–218
Delaware, 201, 206European Union, 200German shares, 200–202, 431, 478UK shares, 203–205, 434, 480United States, 274
preemptive rights. See preemption rights
preference shares, 265, 266–267private equity, 846, 847Prokurist, 315, 317promoters, pre-incorporation
liabilities Germany, 138–139overview, 138–141United Kingdom, 139–140United States, 140–141
property rights bundle of rights, 261–262shares, 469
control, 262–263judicial remedies, 262levels of property interests, 260minority shareholders, 576nature of property interests,
261–264ownership of corporation, not
assets, 259–261residual rights, 261–262, 471types, 259–267
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prospectuses EU regulation, 194–195
Directive, 514Lamfalussy process, 71
German liabilities, 535regulation, 514United Kingdom, 195
proxy voting abuse, 549Germany, 547
custodian accounts, 560–562information, 557
mechanism, 546–547United Kingdom, 565, 567United States, 547
fiduciary duty, 555proxy service companies, 555proxy statements, 551–552Schnell v. Chris-Craft (Delaware),
568–569pyramid schemes, 375
Raiser, Thomas, 308rational apathy, 474regulated information services, 526regulatory competition
dynamics, 65–72European Union, 78–82
Centros (ECJ), 78–80, 100, 105, 115, 118
company law future, 82Inspire Art (ECJ), 108–119securities law, 80–81share capital, 165Überseering (ECJ), 97–108, 634
meaning, 65United States, 90–96
Vantagepoint v. Examen (Delaware), 119–127
reliance company contracts, 312–313fraud-on-the-market theory, 541,
543–544ostensible authority, 318–320
repurchase of shares. See share repurchase
Ripert, Georges, 160Roman law, 53Romano, Roberta, 95–96
Rosenblum, Steven, 260
safe harbors, 333Schmidt, Karsten, 73Scotland
jurisdictional divergences, 72partnerships, legal personality, 34,
76seals, 316–317Securities and Exchange Commission
(SEC) creation, 91executive remuneration and, 428insiders’ transaction reports to, 452jurisdiction, 88registration with, 445regulation of takeovers, 769reporting rules, 521–524safe harbors, 333share repurchase, 250–251
securities exchanges. See stock exchanges
securities law dual listing, 80European Union
harmonization, 72regulation, 70–71regulatory competition, 80–81
flexibility, 448triggered by listing, 445
securitization, 190, 846Seifert, Bruce, 194–195Seligman, Joel, 88shadow directors, 342share capital
acquisitions. See mergers and acquisitions
classes. See share classescore structural characteristic, 9EU regulatory competition, 165groups of companies and, 679–680increase, 197
Benihana of Tokyo v. Benihana (Delaware), 206–218
Delaware, 205–206Germany, 197–202United Kingdom, 202–205
initial capital payment, 170–178
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specification, 165maintenance, 219–220
distributions and, 219–220EM.TV, Re (Germany), 229–232EU members, 220EU Second Directive, 221–222Germany, 222–225move to disclosure system,
220–221protection of creditors, 219,
220–221United Kingdom, 226–227United States, 227–228Wells Fargo Bank v. Desert View
(Nevada), 237–240minimum legal requirements,
168–169alternative creditor protection,
169complexity of procedures, 169critique, 169deception of creditors, 169deterrence effect, 169
non-cash contributions ascertaining, 170IBH/Lemmerz (Germany),
180–185Lewis v. Scotten Dillon (Delaware),
178, 185–187restrictions, 170
par/nominal value of shares, 165–168
payment of initial capital Germany, 170–174IBH/Lemmerz (Germany),
180–185Lewis v. Scotten Dillon (Delaware),
185–187overview, 170–178United Kingdom, 175–177United States, 177–178
preemption rights. See preemption rights
premium, 166–167questions for discussion, 178–179registration, share transfers,
577–579significant holdings, duty to report,
577–581
stock watering, 170terminology, 168transferability of shares, 9, 25transparency, 10–11
share classes common shares, 265convertible securities, 190, 265,
267cumulative preferred, 265customizing shares, 265–267discussion questions, 276–278functions, 264–267Germany, 267–270golden shares, 266Greenhalgh v. Arderne Cinemas
(UK), 287–294Lacos Land v. Arden (Delaware),
278–287preference shares, 265, 266–267redeemable shares, 265, 267subscription rights, 267tracking stock, 266United Kingdom, 270–273United States, 273warrants, 267
share options bullet-dodging, 423insider dealing, 424manipulating value, 423–424spring-loading, 423
share repurchase advantages, 242–243control and, 241creditors and, 243dangers, 243entrenchment power, 243EU law, 243–246German rules, 246–247hostile takeover offers and, 243issues, 241–242Klang v. Smith’s Food & Drug
Centers (Delaware), 252–258market manipulation, 242, 243popularity, 247redemption, 241strategy reasons, 243taxation, 242United Kingdom, 248–250US rules, 250–251
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Index916
shareholder duties fiduciary duties, 575–577minority shareholders
Girmes, Re (Germany), 594–598Kahn v. Lynch Communication
(Delaware), 586–594Menier v. Hooper’s Telegraph
Works (UK), 581–583protection, 576–577Linotype, Re (Germany),
583–585reporting significant holdings,
577–581shareholder information rights
ad hoc disclosure of significant events
Basic v. Levinson (US), 540–545Germany, 524–526overview, 524United Kingdom, 526–527United States, 527–528
false information, 511, 528Basic v. Levinson (US), 540–545causality, 534–540ComROAD Securities Litigation
(Germany), 534–540fraud-on-the-market theory,
543–544forms, 510–511listed companies, 511on request, 511–513
Germany, 511–512Melzer v. CNET Networks
(Delaware), 529–534United Kingdom, 512–513United States, 513, 529–534
questions for discussion, 529routine disclosures, 513–524
ComROAD Securities Litigation (Germany), 534–540
EU Transparency Directive, 515–517
Germany, 514, 517–519primary v. secondary markets,
514–515United Kingdom, 514, 519–520United States, 520–524
shareholder litigation abusive situations, 600
board duties and, 608–609Tooley v. Donaldson (Delaware),
609–612class actions
effect, 603meaning, 602
contingency fees and, 600–601, 603, 608
derivative actions difficulties, 600distinguishing from direct
actions, 602, 609–612effect, 603meaning, 602Tooley v. Donaldson (Delaware),
612–617Zapata v. Maldonado (Delaware),
612–617difficulties, 600–601direct actions, 601–602general meetings and, 604–608
Germany, 604–607United Kingdom, 607–608United States, 608
shareholder rights collective action, 474–475, 546–549enforcement. See shareholder
litigationequal treatment requirement, 470information. See shareholder
information rightsmeetings. See annual general
meetingsmergers. See mergers and
acquisitionsoptions, 467–468political v. economic solutions, 467property rights, 259–267, 469residual claimants, 261–262, 471technology and, 546–548voice or exit, 467–468voting. See shareholder voting rights
shareholder voting rights capital structure and, 194collective action problems, 474–475
takeovers and, 797, 798–800democracy theory of rights, 472–474
Blasius v. Atlas (Delaware), 473, 493–500
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doctrinal reasoning, 468–470economic theory of rights, 470–472equal treatment requirement, 470free riding, 474–475initiating procedures, 483–490
Germany, 483–485United States, 486–490
instrumental theory, 470–472Macrotron Shareholder Litigation
(Germany), 500–509political theory of rights, 472–474proxy voting. See proxy votingrational apathy, 474required majorities, 490–492
Germany, 490–491United Kingdom, 491United States, 491–492
rights-based theory, 468–470takeovers and, 475voting matters
Germany, 476–479overview, 476–482United Kingdom, 479–481United States, 481–482
shareholders duties. See shareholder dutiesinformation. See shareholder
information rightslitigation. See shareholder litigationproperty rights. See property rightsrights. See shareholder rightsvoting. See shareholder
voting rightsshares
capital. See share capitalchoses in action, 263classes. See share classesproperty rights. See property rightsrepurchase. See share repurchase
short selling, 242short-swing profits, 452Siemens, 678Siems, Mathias, 336signature books, 320–321single-shareholder companies, 69social context, 7–8Sorgfaltspflicht, 303, 339Spain, void contracts, 146spring-loading, 423
Squire, Richard, 25stakeholder rights, 336stalking horses, 636, 637stock exchanges
See also specific exchangesadvantages, 445–446rules, 445, 515
stock options. See share optionssub-prime lending, 847subscription rights, 267subsidiarity principle, 67–68, 78system theory, 472
takeovers arguments against, 797–800consumer protection, 756control thresholds, 757cross-border
BAT Industries (Takeover Panel), 809–821
defensive measures, 474BAT Industries (Takeover Panel),
809–821Carmody v. Toll Brothers
(Delaware), 821–832Commission v. Germany (ECJ),
802–809Hanson Trust v. SCM (US),
775–780Revlon v. MacAndrews & Forbes
Holdings (Delaware), 833–843
EU regulation, 69Commission v. Germany (ECJ),
802–809free movement of capital,
803–809hostile takeovers as governance,
795–797auctions increase bid premiums,
796–797collective action problems,
798–800deterrence effect, 797, 799incentives, 796ineffective ordinary governance,
795, 797market tool, 796, 797shareholder gains, 796
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information rights, 757leveraged buyouts. See leveraged
buyoutsmanagement role
conflicts of interest, 800influence on shareholders,
800–801questions for discussion,
801–802share repurchase, 243
meaning, 755–756mergers/acquisitions and, 631minority shareholders, 757public offers, 757regulation
BT/PlusNet (Takeover Panel), 780–782
Germany, 764–769Guinness/Distillers (Takeover
Panel), 788–794Hanson Trust v. SCM (US),
775–780questions for discussion, 775reasons to regulate bids, 756–757United Kingdom, 758–764United States, 769–774Württembergische
Metallwarenfabrik (Germany), 782–787
share purchases or takeovers, 755shareholder voting rights, 475transaction costs, 798
taxation assets purchase, 626distributions, 219partnerships v. corporations, 26share purchases, 627–628share repurchases, 242statutory mergers, 630
technology, shareholder rights and, 546–548
Telefunken, 679tort victims
assets purchases and, 626groups of companies, Amoco Cadiz
(US), 737–740involuntary creditors, 221protection, 169
tracking stock, 266trade-off model, 193transparency. See shareholder
information rightsTreitel, G. H., 161Treuepflicht. See German management,
duty of loyaltytreuhänderische Pflicht. See German
management, fiduciary duties
Tröger, Tobias, 81
UK groups of companies control contracts, 687corporate veil, Polly Peck (UK),
740–751regulation, 687
UK listed companies annual general meetings. See UK
shareholdersboard composition, 446Chinese Walls, 460Combined Code, 304, 445
compliance with, 446model, 74
directors’ transactions with their companies, 447–448
related parties, 447smaller transactions, 448
employee share schemes, 434executive remuneration, 432–433
shareholder voting rights, 480insider dealing. See insider dealingListing Rules, 21, 77Model Code, 445prospectuses, disclosure rules, 195registered information, 512–513regulation, 445reporting requirements, 519–520
ad hoc disclosure of material events, 526–527
shareholder voting rights appointments, 479
supervisory committees, 450takeovers. See UK takeovers
UK management appointments
listed companies, 304procedures, 303–304
takeovers (cont.)
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shareholder voting rights, 479audit committees, 427auditors, appointment, 479authority to represent, 315, 317
ostensible authority, 318, 319–320Royal British Bank v. Turquand
(UK), 322–323seals, 317
business judgment rule and, 371–372conflicts of interests, 342–343
disclosure, 342golden handshakes, 343loans, 304, 343, 418quasi-loans, 343self-dealing, 304service contracts, 342transactions with own companies,
304, 343, 447–448, 480duty of care, 17, 20, 369–370duty of confidentiality, 455duty of loyalty, 341–344
good faith, 335, 341, 343–344insurance, 344–346Regal (Hastings) v. Gulliver (UK),
347–359rules, 342–343source and nature of duty, 341standard, 343–344, 347–359
executive remuneration, 432–434accounting treatment, 434disclosures, 432incentives, 305listed companies, 432–433, 480share options, 417shareholder approval, 434supervisory directors, 433
fiduciary duties, 304annual reporting, 336loyalty, 341–344to companies, 335
governing rules, 131loans to, 304, 343rules and standards, 304–305secretaries, 315service contracts
information rights, 513shareholder voting rights, 480
shadow directors, 342supervisory committees, 449, 450
UK mergers and acquisitions assets sales, 659creditor protection, 661EU cross-border mergers, 661–666forms, 633information rights, 513leveraged buyouts
2008 crisis, 847Brady v. Brady (UK), 855–862circumventing rules, 854disclosures, 761regulation, 853–854
mergers by absorption, 629, 633protection of deals, John Crowther
v. Carpets International, 648–653
registration, 633share premium accounts and,
176–177shareholder approval, 481, 659–661short-form mergers, 660–661
UK partnerships definition, 34dissolution, 37duties of partners, 36joint liability, 36legal personality and, 34, 76limited liability partnerships (LLPs)
corporate members, 37designated members, 38legal personality, 37new partners, 39overview, 37–39partners as agents, 38registration, 37, 39vicarious liability, 38–39
limited partnerships (LPs), 39–40assignment of shares, 40classes of partners, 39limited partners’ rights, 40profit distribution, 40registration, 39–40
partners as agents, 25retirement of partners, 37transfer of shares, 36–37types, 33–40
limited liability partnerships (LLPs), 37–39
limited partnerships, 39–40
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partnerships, 33–37UK share capital
bonus shares, 204cash payments, 175–177
currency, 175debt-for-equity swaps, 175meaning of cash, 175, 177, 203post-incorporation transactions,
175share premiums, 175–177
merger relief, 176–177certificates, 136distributions
restrictions, 226–227Sam Weller, Re (UK), 232–237shareholder voting rights, 480unfair prejudice, 232–237
employee share schemes, 202converted securities, 202preemption rights and, 434shareholder voting rights, 480
financial assistance rules, 853–854Brady v. Brady (UK), 855–862principal purpose exception,
75–77, 854in-kind contributions
implementation of EU changes, 174
increased capital, 203initial capital, 177
increasing, 202–205advance authorization, 202approval, 202–203convertible securities, 202employee share schemes, 202non-cash share distribution, 202payment methods, 203preemption rights, 203–205registration, 203
initial capital payment, 175–177maintenance, 226–227
accounting principles, 226–227executive share options and, 434shareholder voting rights, 480
minimum, 165preemption rights, 203–205, 434
waiver, 480
share classes, 270–273articles of association, 272bundling of rights, 271–272cumulative preference shares,
271Greenhalgh v. Arderne Cinemas
(UK), 287–294meaning of class, 270–271Model Articles of Association,
289nominal value, 271ordinary shares, 271preference shares, 271redeemable shares, 272sub-division of shares, 290variation of rights, 272–273,
287–294share repurchase
10 percent limit, 249accounting treatment, 248authorization, 248–249disclosures, 249–250fully paid-up shares, 248market purchases, 248off-market purchases, 248rules, 248–250self-tenders, 249treasury shares, 249, 250
statements on incorporation, 135UK shareholders
annual general meetings conduct of proceedings, 566false information, 565Greenwell v. Porter (UK), 571–573information requirements, 564listed companies, 564, 565, 566,
567notification, 563participants, 563procedures, 563–567proxy votes, 565, 567Puddephatt v. Leith (UK),
569–570quorums, 565–566shareholder participation,
564–565timing, 563vote counting, 567
UK partnerships, types (cont.)
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voting entitlement, 567information rights
ad hoc disclosure of significant events, 526–527
annual reports, 520beneficial v. registered owners,
577half-yearly reports, 520interim management statements,
520leveraged buyouts, 761listed companies, 304on request, 512–513registers, 512–513reports, 304routine disclosures, 514
litigation class actions, 607derivative actions, 607–608direct actions, 607general meetings and, 607–608pre-purchase wrongs, 605
minority shareholders appraisal rights, 663calling general meetings, 604Menier v. Hooper’s Telegraph
Works (UK), 581–583takeovers, 764unfair prejudice, 576, 581–583
residual power to manage, 262, 304rights, 262voting rights
agreements, 569–570, 571–573amendment to articles, 480appointments, 304, 479assets issues, 480–481balloting methods, 567decision rights, 479–481entitlement, 567executive remuneration, 434Greenwell v. Porter (UK),
571–573mergers, 481, 659–661mortgaged shares, 569–570overview, 479–481Puddephatt v. Leith (UK),
569–570required majorities, 491
show of hands, 8structural matters, 481takeovers, 481vote counting, 567
UK takeovers acting in concert, 760, 761
Guinness/Distillers (Takeover Panel), 788–794
defensive measures BAT Industries (Takeover Panel),
809–821General Principle 7, 809, 815–816legal proceedings, 818lobbying, 816–818
disclosures, 759–762accuracy, 762bidders’ plans, 760–761declarations of responsibility, 762financial statements, 760funding, 761leveraged buyouts, 761
equal treatment of shareholders, 763–764
Guinness/Distillers (Takeover Panel), 788–794
highest price rule, 763–764management role, 801mandatory bid threshold,
759–760BT/PlusNet (Takeover Panel),
780–782liability for breach, 782Rule 9, 781–782
minority shareholders, 764principles, 759regulation, 758–764
origins, 756sell-outs, 758, 764shareholder voting rights, 481squeeze-outs, 758, 764Takeover Code, 21, 445, 758–759
characteristics, 770General Principle 7, 809,
815–816permitted consideration, 801prescriptive approach, 770Rule 9, 781–782
Takeover Panel, 758
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BAT Industries (Takeover Panel), 809–821
BT/PlusNet (Takeover Panel), 780–782
Guinness/Distillers (Takeover Panel), 788–794
jurisdiction, 76–77timing of bids, 762–763twelve-month moratorium, 819
ultra vires doctrine, 134, 313–315, 318
Umwandlung, 633UNCITRAL, 5UNIDROIT, 5United Kingdom
accounting annual accounts, 86, 304executive share schemes, 434principles, 226–227publications, 479, 514
agency, non-existent principal, 139, 157, 161
capital market, 21Companies Act 2006, 8, 19–21company law, core functions, 19creditor protection, mergers, 661directors. See UK managementfloating charges, 13fraudulent conveyances, 13FSA. See Financial Services
Authoritygroups of companies. See UK groups
of companiesincorporation of plcs
application for registration, 135articles of association, 18, 134, 135
amendment, 480Model Articles, 21, 135share classes, 272
certificates of incorporation, 136, 142, 145
declarations of nullity, 144–145illegal objects, 144memoranda of association,
134–135, 272objects, 134–135, 659post-incorporation transactions,
175
pre-incorporation liabilities, 136, 139–140
procedures, 134–136registration, 135–136trading certificates, 136
insider dealing. See insider dealinginsolvency
1986 Act, 21corporate veil, 740–751double proof rules, 746hiving out rules, 20wrongful trading, 21
jurisdiction, 75–77European Union, 65Financial Services Authority, 77multiple jurisdictions, 75Secretary of State, 76Takeover Panel, 76–77
leverage, 195mergers. See UK mergers and
acquisitionspartnerships. See UK partnershipspre-incorporation liabilities, 136
implementation of First Directive, 139, 160–161
Kelner v. Baxter (UK), 161Phonogram v. Lane (UK), 158–162promoters, 139–140
share capital. See UK share capitalshareholders. See UK shareholdersSingle European Act, 78trade unions, ban on incorporation,
144ultra vires doctrine, 134
United Nations, 5United States
See also Delaware21st-century investment landscape,
799accounting
scandals, 516standards, 522–523, 524
agency law, 140, 142banking, 166conflict of laws, 65, 82–96
creditor rights, 87Exchange Rules, 87–90federal laws, 84–87federal preemption, 83–84
UK takeovers (cont.)
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foreign corporations, 92–95internal affairs doctrine, 122,
123–124certainty and, 125state law of incorporation,
126–127uniformity requirement,
125–126Model Act, 86Model Business Corporation Act,
9, 17regulatory competition, 90–96SEC jurisdiction, 88securities exchanges, 88, 90state corporate laws, 9, 17–19systemic balance of state and
federal law, 90–92takeovers, 769–770Vantagepoint v. Examen
(Delaware), 119–127Constitution
Commerce Clause, 83Full Faith and Credit Clause,
94Privileges and Immunities
Clause, 94Supremacy Clause, 83
creditor protection applicable law, 87evolution, 227–228, 251fraudulent conveyances, 87, 92,
237–240leveraged buyouts, 850–851Wells Fargo Bank v. Desert View
(Nevada), 237–240directors. See US managementdue process, 124estoppel
defective incorporation, 143, 151–155
Timberline v. Davenport (Oregon), 151–155
groups of companies. See US groups of companies
incorporation amendment to certificates of
incorporation, 482certificates of incorporation,
136–137, 152
de facto incorporation, 137, 142
Cleary v. North Delaware A-OK (Delaware), 148–151
Model Act prohibition, 142–143, 152
declarations of nullity, 145defective incorporation, 142–143,
151–155pre-incorporation liabilities, 137,
140–141procedures, 136–137
insider trading. See insider dealinginsolvency law, 92
fraud, 736fraudulent conveyances, 13,
850–851, 862–876Moody v. Security Pacific Business
Credit (US), 862–876unreasonably small capital,
871–875insurance, 166, 811
D&O insurance, 347listed companies. See US listed
companiespartnerships. See US partnershipspre-incorporation liabilities
Jacobson v. Stern (Nevada), 162–164
promoters, 140–141regulatory competition, 90–96
foreign corporations, 92–95, 119–127
incorporation theory, 78, 123–124, 126–127
outreach statutes, 92–95, 124–125stable future, 95–96systemic balance of state and
federal law, 90–92Vantagepoint v. Examen
(Delaware), 119–127Sarbanes–Oxley Act, 85
board composition, 446executive remuneration and, 423internal matters, 88, 91, 94objective, 91–92
SEC. See Securities and Exchange Commission (SEC)
share capital. See US share capital
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shareholders. See US shareholderstakeovers. See US takeoverstrade unions, 145
Unternehmensinteresse, 335US groups of companies
See also Delawarecorporate veil
Amoco Cadiz (US), 737–740piercing, 734–735Rave v. Entertainment Equities
(New York), 732–736reasons for grouping, 678
US listed companies annual general meetings. See US
shareholdersapplicable law, 80, 515
exchange rules, 87–90listing rules, 92SEC jurisdiction, 88, 90
appointments, 305–306audit committees, 449board composition, 446cross-border mergers, 634directors’ transactions with own
companies, 345–346, 447executive remuneration
accounting treatment of options, 428–429
disclosures, 426–427, 447shareholder voting rights, 482,
488insider trading. See insider dealingmergers, shareholder approval, 656regulation, 13, 18–19, 445
1930s, 472applicable law, 80, 515federal law, 91primary market, 514
reporting requirements, 520–524ad hoc disclosure of material
events, 527–528, 540–545Basic v. Levinson (US), 540–545foreign private issuers, 523–524,
528–529significant holdings, 578,
579–581share classes, 276share purchases, 631
shareholder information rights, on request, 513
shareholder voting rights, initiating procedures, 487–490
supervisory committees, 449–450supervisory directors, 427–428, 449
US management See also Delawareappointments
listed companies, 305–306procedures, 305–307terms of office, 306
audit committees, 427, 449authority to represent, 317
apparent authority, 318, 324–331General Overseas Films v. Robin
International (New York), 324–331
Hurley v. Ornsteen (Delaware), 323–324
business judgment rule, 371–372Aronson v. Lewis (Delaware),
382–383 Unocal v. Mesa Petroleum
(Delaware), 407–415 Walt Disney Company Derivative
Litigation, Re (Delaware), 383–406
Zapata v. Maldonado (Delaware), 613–617
chief executive officers, 305remuneration, 417, 420
duty of loyalty, 344–347directors’ transactions with own
companies, 345–346, 447D&O insurance, 347listed companies, 345–346rules, 345self-dealing, 307source and nature, 344–345standard, 346–347
executive remuneration, 425–429abuse, 421accounting treatment of options,
428–429, 529–534CEOs, 417, 420disclosures, 426–427, 447empire building, 417–418growth, 425–426
United States (cont.)
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listed companies, 426–427, 447, 482
manipulation of share options, 424
overview, 307shareholder approval, 428supervisory directors, 427–428
fiduciary duties centrality, 178insider dealing and, 451Kahn v. Lynch Communication
(Delaware), 586–594loyalty, 344–347shareholder litigation and, 609to companies and shareholders,
336to stakeholders, 336Zapata v. Maldonado (Delaware),
612–617rules and standards, 307supervisory committees, 449–450
US mergers and acquisitions appraisal rights, 242, 662–663
Weinberger v. UOP (Delaware), 666–674
assets sales, 631cross-border mergers, 634fiduciary duties, Kahn v. Lynch
Communication (Delaware), 586–594
forms, 631–632leveraged buyouts, 849–852
disclosures, 851ex post remedies, 850–851fraudulent conveyances, 850–851,
862–876judicial definition, 863minority shareholders, 851Moody v. Security Pacific Business
Credit (US), 862–876no financial assistance rule, 849,
851unreasonably small capital,
871–875unsecured creditors, 850–851
self-tenders, 250share purchases, 631shareholder approval, 482, 655–656
Katz v. Bregman (Delaware), 664
statutory mergers, 631–632US partnerships
aggregate theory, 51, 52distribution of profits, Meinhard v.
Salmon (New York), 58–61general partnerships, 40–44
definition, 41dissolution, 44distribution of profits, 58–61entity approach, 44fiduciary duties, 43, 59–60formation, 42joint and several liability, 43–44joint ventures, 42, 58–61legal personality, 42management, 42–43transfer of shares, 44Uniform Partnership Act, 41
limited liability partnerships (LLPs), 44–45
limitation of liability, 45limited partnerships
definition, 45distributions, 46formation, 45limited liability, 46management, 46overview, 45–47transfer of shares, 46–47
partners as agents, 25theory of partnership, Fairway
Development v. Title Insurance (Ohio), 51, 52
transfer of partners’ interests dissolution v. winding up, 51–52effect, 51Fairway Development v. Title
Insurance (Ohio), 50–52new certificates, 51
types, 40–48general partnerships,
40–44limited liability companies, 47limited liability partnerships
(LLPs), 44–45limited partnerships, 45–47
US share capital cash payments, 177–178distributions, 227–228
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leading to bankruptcy, 228, 237–240
in-kind payments, 178fiduciary duties, 178
initial capital payment, 177–178shareholder policing, 178,
185–187leverage, 195maintenance, 92, 227–228
disclosure system, 220Wells Fargo Bank v. Desert View
(Nevada), 237–240minimum, 166reporting significant holdings, 578,
579–581share classes, 273
bundling of rights, 273–275debt instruments with voting
rights, 274express rights, 274–275Lacos Land v. Arden (Delaware),
278–287listing requirements, 276meaning of class, 273par value, 273payments-in-kind, 275poison pills, 267, 273preemption rights, 274redeemable shares, 274residual rights, 274sub-classes, 273variation of rights, 275, 278–287voting shares, 193, 554
share ownership transparency, 10–11
share repurchase disclosures, 251market abuse, 251market manipulation, 251rules, 250–251SEC rules, 250–251self-tenders, 250
US shareholders annual general meetings
balloting methodology, 554–555
conduct of proceedings, 554false information, 553
information requirements, 550–552
notification, 550participants, 550procedures, 549–555proxy duties, 555proxy service companies, 555proxy statements, 551–552proxy voting, 547quorums, 553–554Schnell v. Chris-Craft (Delaware),
568–569shareholder participation,
552–553timing, 549–550, 568–569vote counting, 555voting entitlement, 554
information rights ad hoc disclosure of significant
events, 527–528, 540–545annual reports, 521–523Basic v. Levinson (US), 540–545EDGAR system, 523false statements, 522foreign private issuers, 523–524,
528–529fraud-on-the-market theory,
543–544Melzer v. CNET Networks
(Delaware), 529–534on request, 513, 529–534routine disclosures, 520–524
litigation, 608contemporaneous ownership
rule, 605contingency fees, 8, 600–601, 603,
608demand rule, 609, 612–617Tooley v. Donaldson (Delaware),
609–612Zapata v. Maldonado (Delaware),
612–617minority shareholders
appraisal rights, 662–663Weinberger v. UOP (Delaware),
666–674leveraged buyouts, 851takeovers, 774
protection, intention v. function, 11
US share capital (cont.)
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residual control rights, 262shareholder groups, 452voting rights
amendment to certificates of incorporation, 482
appointments, 481–482assets decisions, 482balloting methodology, 554–555Blasius v. Atlas (Delaware), 473,
493–500democratic legitimacy, 473, 497,
499entitlement, 554executive remuneration, 428initiating procedures, 486–490listed companies, 487–490mergers, 482, 655–656
Katz v. Bregman (Delaware), 664
overview, 481–482proxy service companies, 555proxy voting, 547required majorities, 491–492share classes, 554structural matters, 482vote counting, 555
US takeovers See also Delawaredefensive measures
constituency statutes, 336legal proceedings, 818lobbying, 816–818
disclosures, 771–772boards’ opinion, 772consumer protection, 772misstatements, 772Schedule 13D, 771Schedule 14D-9, 772Schedule TO, 771–772
equal treatment of shareholders, 773–774
fiduciary duties, 586–594highest price rule, 773–774junk bonds, 774lobby power, 76management role, 800–801meaning of tender offer, 755
Hanson Trust v. SCM (US), 775–780
minority shareholders, 774poison pills, 267, 273regulation, 769–774
characteristics, 770–771origins, 756state v. federal law, 769–770Williams Act (1968), 769, 778
reporting significant holdings, 578, 579–581
SEC rules, 769self-tender, 243time limits, 772–773two-tier tender offers, 774
Vahtera, Veikko, 193Vergütung, 303, 429–432Vollmacht, 547, 557Vorstand. See German managementVorzugsaktien, 268, 270
warrants, 267Wenger, Ekkehard, 483Wertpapierbörse. See Frankfurt Stock
ExchangeWertpapiererwerbs-und
Übernahmegesetz. See German takeovers
Wertpapierhandelsgesetz. See German listed companies
Wertpapierprospekt, 71, 535Whincop, Michael, 262white knights, 413–414, 588, 841, 842Wikipedia, 474, 547Williamson, Oliver, 371, 680, 682Williston, S., 329, 331Wood, Philip, 4, 6World Bank, 5WorldCom, 91, 384, 418Wruck, Erick, 418, 429Wymeersch, Eddy, 244, 849
YouTube, 474
zero-cost collars, 424–425Zweigert, Konrad, 5, 7
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