Coverage of Business Associations I

1
Coverage of Business Associations I

• Agency
• Limited liability
• Governance
• Partnership
• Close corporation
• Public corporation
• Other
• Management power as to third parties
• Fiduciary duties

2
Other Business Courses

• Business Associations 2
• Derivative suits
• Insider trading
• Takeovers
• Finance
• Securities Regulation
• Securities Litigation
• Unincorporated business entities

3
Problems of corporate governance

• Bounded rationality
• Transaction costs
• Shirking
• Agency costs
• Opportunism
• Risk

4
An illustration
One worker gets 50 for moving an office. Five
workers do it faster and split 100 as follows
20 20 20 20 20
Work
Pay _at_20
20 20 20 20 20
5
The shirking problem
Work 0 25 25 25 25
Pay 20 20 20 20 20 Profit(loss)20 (5)
(5) (5) (5) Exchange rate 1 util 1
6
Work0 0 0 0 0 Pay0 0 0 0 0
7
The entrepreneur
Pay entrepreneur 90 of the extra 50 11
11 11 11 11 45
8
Agency costs
Pay (cop) 90 of the extra 50 11
11 11 11 11 45 OR
Four workers earn 80 for firm and one worker
earns 20 for cop 11 11 11 11 36 20 11
9
Alternative standard forms

• General partnership
• Corporation
• Close corporation
• Other partnership forms