LAW 1013: Corporations

Business Associations, Corporate Governance, Fiduciary Duties & Shareholder Rights

Overview

This course provides comprehensive coverage of corporate law, covering the foundational principles of business organizations and the complex relationships governing their operation. Students will explore the formation, governance, and dissolution of corporations, with deep focus on fiduciary duties, shareholder rights, and the contractual nature of corporate law.

Corporations serves as essential preparation for transactional practice, securities regulation, and M&A law. The course emphasizes the tension between shareholder primacy and stakeholder considerations, modern corporate governance debates, and the practical application of statutory frameworks and common law doctrines.

Learning Objectives

  • Understand the formation, governance structure, and dissolution of business corporations
  • Apply fiduciary duty principles to director and officer conduct, including duty of care and duty of loyalty
  • Analyze shareholder rights, including voting rights, inspection rights, and derivative action standing
  • Evaluate the business judgment rule and its application in corporate decision-making
  • Understand piercing the corporate veil doctrine and circumstances supporting veil piercing
  • Apply conflict of interest analysis and corporate opportunity doctrine in transactional contexts

Lecture Topics

Formation & Piercing the Veil

Basic incorporation requirements, articles of incorporation, bylaws, and the doctrine of piercing the corporate veil. Exploration of when courts disregard corporate form.

Fiduciary Duties: Duty of Care

Director and officer duty of care standard, reliance on experts, business judgment rule, and the gross negligence threshold.

Fiduciary Duties: Duty of Loyalty

Conflict of interest transactions, self-dealing, corporate opportunity doctrine, and remedies for loyalty breaches.

Corporate Governance Structures

Board composition, committees, role of shareholders, proxy voting, and modern governance best practices.

Shareholder Rights & Powers

Voting rights, inspection rights, proposal rights, cumulative voting, and direct versus derivative actions.

Derivative & Class Actions

Shareholder derivative suits, standing requirements, procedure, settlement, and comparison to class actions.

Statutory Protections & Safe Harbors

Statutes of limitations, exculpation and indemnification provisions, D&O insurance considerations.

Modern Governance Issues

ESG obligations, stakeholder theory, director independence, compensation disclosure, and emerging governance trends.

Landmark Cases for Briefing

These foundational cases form the doctrinal framework for corporate law analysis:

Donahue v. Rodd Electrotype Co., 367 Mass. 578 (1975)

Topic: Fiduciary duties in close corporations | Rule: Shareholders of close corporations owe each other fiduciary duties similar to partners, with heightened scrutiny of freeze-out transactions.

Sinclair Oil Corp. v. Levien, 206 A.2d 953 (Del. 1965)

Topic: Self-dealing transactions | Rule: When director self-dealing is present, intrinsic fairness test applies; control is insufficient for entire fairness review if no control used in transaction.

Delaware General Corporation Law § 141 & Guth v. Loft, Inc., 5 A.2d 503 (Del. 1939)

Topic: Corporate opportunity doctrine | Rule: Officers and directors cannot usurp corporate opportunities; doctrine applies when opportunity is presented in fiduciary capacity and corporation has financial ability and interest.

Smith v. Van Gorkom, 488 A.2d 858 (Del. 1985)

Topic: Duty of care & business judgment rule | Rule: Directors must inform themselves of all material information and directors cannot blindly rely on others; gross negligence breaches duty of care.

Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173 (Del. 1986)

Topic: Board duties in change of control | Rule: Once sale of company becomes inevitable, board's primary duty shifts to achieving highest price; Revlon duties apply.

Shlensky v. Wrigley, 237 N.E.2d 776 (Ill. 1968)

Topic: Business judgment rule & shareholder standing | Rule: Shareholder cannot challenge discretionary business decisions absent showing of fraud, illegality, or ultra vires conduct; business judgment rule strongly protects management.

Dodge v. Ford Motor Co., 204 Mich. 459 (1919)

Topic: Shareholder rights & dividend policy | Rule: Directors have discretion in profit distribution but cannot use corporate assets for personal purposes unrelated to corporate benefit.

Walkovszky v. Carlton, 223 N.E.2d 6 (N.Y. 1966)

Topic: Piercing the corporate veil | Rule: Mere inadequacy of capital or failure to maintain separate corporate formalities is insufficient to pierce veil; fraud or injustice must be shown.

Study Guide

Key Framework: Analyzing Fiduciary Duty Problems

  1. Identify the fiduciary: Who owed the duty? (Directors, officers, controlling shareholders in close corps)
  2. Determine the duty: Duty of care, duty of loyalty, or both?
  3. Apply the standard: Business judgment rule (most common), entire fairness (self-dealing), or gross negligence
  4. Consider defenses: Statutory exculpation, indemnification, business judgment rule presumption
  5. Assess damages: Actual damages caused by breach, but subject to defenses and limitations

Core Concepts

Business Judgment Rule

Directors/officers are presumed to act in good faith, with due care, and in corporation's best interest. Burden on plaintiff to prove breach. Even bad decisions are protected if process was sound.

Entire Fairness Test

Applied when self-dealing or conflicted transactions occur. Directors must prove transaction was entirely fair as to both process and price. Burden shifts to defendant.

Corporate Opportunity Doctrine

Officer/director cannot personally take advantage of opportunities: (1) learned in fiduciary capacity, (2) of interest to corporation, and (3) corporation had financial ability to pursue.

Shareholder Derivative Action

Shareholder sues on behalf of corporation (proceeds go to corp). Requires demand on board (unless futility exception applies) and shareholder must have standing (owned stock when harm occurred).

Practice Quizzes

Quiz 1: Formation & Piercing the Veil

Test your understanding of incorporation requirements and circumstances for veil piercing. 8 questions.

Quiz 2: Fiduciary Duties Analysis

Apply duty of care and duty of loyalty concepts to director/officer scenarios. 10 questions.

Quiz 3: Corporate Opportunity Doctrine

Test your ability to identify corporate opportunities and apply doctrine to take-or-pay scenarios. 7 questions.

Quiz 4: Shareholder Rights & Actions

Understand shareholder voting, inspection, and derivative action requirements. 9 questions.

Quiz 5: Comprehensive Corporations Problems

Multi-part problems testing integrated understanding across all major topics. 12 questions.

Recommended Resources

Casebook

Cases and Materials on Corporations by Gevurtz & Heen (7th ed. 2021)

Comprehensive casebook with strong coverage of fiduciary duties, shareholder rights, and modern governance issues. Includes helpful notes and problems.

Treatise

Modern Corporation Law by Clark (2nd ed. 1986)

Foundational treatment of corporate doctrine. Excellent for understanding theoretical framework behind rules. Classic reference for corporate law scholarship.

Statutory Framework

Delaware General Corporation Law (DGCL)

Essential statutory reference. Most corporations incorporate in Delaware. Review DGCL §§ 141-145 (board powers), 157-160 (shareholder rights), 223 (veil piercing).

Outline Resource

Corporations: Examples and Explanations by Gevurtz (6th ed. 2022)

Clear explanations with worked examples. Excellent for understanding fiduciary duty analysis and business judgment rule application.

Practice Problems

Corporations essay and multiple-choice questions from prior exams

Previous Stanford Law exam materials available through course portal. Focus on integrated problems requiring fiduciary duty analysis.

Policy Articles

Seminal pieces on corporate governance theory

Berle & Means on shareholder primacy; modern critiques of shareholder value maximization; stakeholder capitalism debate readings.

Flashcards

Master key terminology and rule statements for quick review:

Duty of Care
Directors must act with the care an ordinarily prudent director would exercise; failure to meet this standard through gross negligence breaches the duty.
Business Judgment Rule
If directors acted on informed basis, in good faith, and reasonably believed action was in corporation's best interest, business judgment rule protects decision from review despite adverse outcome.
Duty of Loyalty
Director/officer must not use position for personal advantage; must avoid conflicts of interest; cannot usurp corporate opportunities.
Piercing the Corporate Veil
Court ignores separate corporate identity when shareholder uses corporation as instrumentality for fraud or injustice; mere inadequacy of capital insufficient.
Corporate Opportunity Doctrine
Officer/director cannot take opportunity if: (1) learned in fiduciary capacity, (2) of interest/expectancy to corporation, and (3) corporation had financial ability to pursue.
Entire Fairness Test
When self-dealing exists, burden shifts to defendant director to prove transaction was entirely fair as to both process and price; reviewing court examines all circumstances.