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Chapter 28 - Government Regulation of Corporate Entity
Chapter 28
Government Regulation of the Corporate Entity
I. Key Terms
Activist agencies (p. 697) Merger (p. 691)
Associative corporativism (p. 678) Monopoly (p. 686)
Antitrust Procedures and Penalties Office of Credit Ratings (p. 683)
Act (p. 697) Office of Investor Advocate (p. 682)
Asset acquisition (p. 692) Per se violation (p. 686)
Best-price rule (p. 694) Police power (p. 677)
Bright-line test (p. 695) Poison pill (p. 695)
Commerce Clause (p. 675) Prospectus (p. 680)
Competitive impact statement Quasi-RPM arrangement (p. 688)
(CIS) (p. 697) Quick-look standard (p. 688)
Conglomerate expansion (p. 696) Registration statement (p. 680)
Consent decree (p. 697) RPM agreement (p. 688)
Corporate raid (p. 693) Rule-of-reason standard (p. 686)
Corporate raider (p. 693) Security (p. 679)
Corporativism (p. 678) Security-based swaps (p. 681)
Derivative (p. 681) Stock acquisition (p. 692)
Dodd-Frank Act (p. 691) Swap (p. 681)
Friendly suitor (p. 694) Swap based transaction (p. 681)
Golden parachute (p. 683) Takeover bid (p. 693)
Greenmail (p. 693) Target corporation (p. 692)
Hopscotch loan (p. 693) Targeted shareholder
Horizontal expansion (p. 696) agreement (p. 694)
Hostile bidder (p. 693) Tender offer (p. 692)
Integral-part test (p. 695) Tunney Act (p. 697)
Interlocking directorates (p. 688) Tying agreement (p. 688)
Inversion (p. 693) Ultra vires (p. 678)
Inverted company (p. 693) Unfriendly buyer (p. 693)
Junk bonds (p. 692) Unfriendly suitor (p. 693)
Leveraged buyout (LBO) (p. 692) Vertical expansion (p. 696)
Lockup agreement (p. 694) White knight (p. 694)
II. Learning Objectives
1. Describe the birth of the strong central government that evolved in American politics.
2. Describe the source of state power to regulate business.
3. Explain how the Securities and Exchange Commission prevents unfair practices.
4. Explain per se antitrust violations of antitrust law.
5. Explain the “rule-of-reason” standard in antitrust law.
6. Outline the general provisions of all post-Sherman antitrust laws.
7. Define the various techniques of corporate expansion.
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Chapter 28 - Government Regulation of Corporate Entity
8. Contrast the roles of the Securities and Exchange Commission with those of the Federal
Trade Commission in corporate expansion.
9. Identify the two ways that a corporation may undergo dissolution.
10. Explain the circumstances under which a limited liability company may undergo
dissolution.
III. Major Concepts
28-1 The Constitution and the Corporate Entity
The commerce clause is located in Article I, Section 8, Clause 3, of the Constitution.
Clause 3 states that “Congress shall have the Power . . . to regulate Commerce with
foreign nations, and among the several States.” At first glance the clause appears to be an
attempt by the framers to limit the power of the central government and, conversely, to
enhance the ability of the states to regulate their own internal economic activity.
However, from the very beginning the courts identified the central national government
as the true source of commercial regulatory power in the United States.
28-2 Securities Regulation of the Corporate Entity
The primary objective of the Securities Act of 1933 and the Securities Exchange Act of
1934 is to protect investors by informing them about the securities they purchase. The
Securities and Exchange Commission carries out this objective.
28-3 Antitrust Regulation of the Corporate Entity
To preserve the value of competition and to discourage monopolies, the government has
enacted several antitrust statutes. The Sherman Antitrust Act prohibits contracts,
combinations, and conspiracies in restraint of trade. The Clayton Act, the
Robinson–Patman Act, the Foreign Trade Improvements Act, and the Federal Trade
Commission Act make the Sherman Antitrust Act more specific and more effective.
28-4 Expanding the Corporate Entity
Although both securities law and antitrust law pertain to monopolies, they have different
areas of focus. Securities law is concerned with regulating corporate expansion
techniques, including mergers, consolidations, asset acquisitions, and stock acquisition.
Antitrust law is concerned with how corporate expansion affects competition in the
marketplace. Antitrust law applies to horizontal, vertical, or conglomerate expansion
attempts.
28-5 The Government and the End of the Corporate Entity
Corporations can dissolve involuntarily or voluntarily. A corporation that has repeatedly
conducted business in an unlawful manner may be subject to involuntary dissolution by
the state. A corporation can be voluntarily dissolved by unanimous approval of the
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Chapter 28 - Government Regulation of Corporate Entity
shareholders or by a positive vote of the directors with the approval of two-thirds of the
shareholders. The government is involved in both involuntary and voluntary dissolution.
28-6 Dissolution of a Limited Liability Company
Because limited liability companies are created by state statutory law, the dissolution of a
limited liability company is also regulated by state statutory law. Most state LLC statutes
outline the circumstances that will trigger the dissolution of an LLC.
IV. Outline
I. The Constitution and the Corporate Entity (28-1)
A. Introduction
1. The Commerce Clause states that “Congress shall have the Power . . . to regulate
Commerce with foreign nations, and among the several States.”
2. From the beginning, courts identified the central national government as the favored
source of commercial regulatory power.
B. The Federal Power to Control Commerce
1. The Supreme Court in an 1824 case, Gibbons v. Ogden, declared that congressional
power to regulate commerce included the power to regulate activities that occurred
within a single state.
2. In Wickard v. Filburn, the Supreme Court ruled that the private use of wheat on a
single family farm could be curtailed by the federal government.
C. The Establishment of a Strong Central Government
1. The intent of the framers of the U.S. Constitution was to set up a strong federal
government.
2. Corporate law in the U.S. is dominated by the federal government although the states
do retain some power over commerce and corporate law, which is properly referred to
as residual power.
D. Residual State Power over Commerce and Corporate Law
1. The power of the states to regulate commerce comes from a state’s police power,
meaning the state’s authority to restrict private rights to promote and maintain public
health, safety, welfare, and morals.
2. The state government and the various subdivisions of the state government, from
counties to cities to school boards to zoning districts, all play some role in the
regulatory process.
3. Most states have contributed to a multi-state effort at establishing uniformity in
corporate law by adopting the Model Business Corporation Act, the MBCA.
a. The MBCA is relatively young and is not as settled as older statutes such as the
UCC.
b. The MBCA has been revised since its original inception.
4. The common law tradition permeates the cases of many states in relation to the
corporate person and must be interpreted along with the MBCA.
5. In the 19th century, each corporation was individually created by a unique legislative
enactment.
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Chapter 28 - Government Regulation of Corporate Entity
a. Each corporation had its own charter that outlined the powers and abilities of that
corporation.
b. Corporate managers who did exceed their authority were said to be operating
ultra vires.
6. Changes did not emerge until the waning years of the 19th century, specifically with
the advent of Delaware’s 1899 state corporate law statute.
a. Although the Delaware statute was based on a corporate law statute in New
Jersey, Delaware liberalized its law.
b. With the exception of banking, a Delaware corporation was permitted to conduct
any legal business activity and other relaxations of law were made.
c. Out-of-state corporate promoters flocked to Delaware.
d. Today, most states have refashioned corporate laws to mimic perks granted by
Delaware.
e. Even today, however, an astronomical number of corporations identify Delaware
as their place of incorporation.
f. Most corporate case law that exists in the state courts today is found in Delaware.
II. Securities Regulation of the Corporate Person (28-2)
A. Introduction
1. The primary purpose of the Securities Act of 1933 and the Securities Exchange Act of
1934 is to protect business investors by making certain that they are informed about
the securities they purchase.
2. The agency that regulates the issuance of securities by corporations and partnerships
is the Securities and Exchange Commission (SEC).
3. A security is a monetary investment that expects a return solely because of another
person’s efforts.
B. Securities Act of 1933
1. The Securities Act of 1933 regulates the issuance of new securities by corporations
and partnerships.
2. A registration statement and a prospectus must be field with the SEC.
3. A registration statement contains detailed information about the corporation.
4. A prospectus contains much of the same information as a registration statement but in
a condensed and simplified form.
5. The registration statement is designed for experts at the SEC whereas the prospectus
is designed for potential investors.
C. Securities Exchange Act of 1934
1. The Securities Exchange Act of 1934, which established the SEC, deals with
subsequent trading in securities.
2. It requires periodic reports of financial information concerning registered securities,
and it prohibits manipulative and deceptive actions in the sale and purchase of
securities.
3. The act prohibits, insiders, including officers and directors, from realizing profit from
any purchase and sale of securities within any period of less than six months.
4. Insiders are not permitted to trade on information until that information has been
made public.
5. Under the 1934 act, shareholders, including majority shareholders, who solicit
proxies must follow strict reporting requirements.
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Chapter 28 - Government Regulation of Corporate Entity
D. Dodd-Frank Wall Street Reform and Consumer
1. The Wall Street Transparency and Accountability Act is a title of the Dodd-Frank Act
that affects the Securities Exchange Commission.
a. The 21st century financial crisis was caused in part by the reckless use of a
financial instrument known as the derivative.
b. A derivative is a financial tool whose value emerges from a variable item, such as
an interest rate, a stock index, or a commodity like fuel or crops.
a. Prior to Dodd-Frank, the swap market involving derivatives was not well
regulated.
b. The SEC and its sister regulating body, the Commodity Futures Exchange
Commission, now have the power to make rules in consultation with one another
on the swaps over which each agency has jurisdiction.
2. Some critics of the Dodd-Frank Act claim that swap limitations in the act do more
harm than good, and a rider to Congress’ 2015 spending bill repealed the Dodd-Frank
provision requiring banks to place certain swaps in divisions that are not covered by
federal insurance programs.
3. The Title IX Investor Protection and Securities Reform Act is also a title of the
Dodd-Frank Act that affects the Securities Exchange Commission.
a. The act creates the Office of Investor Advocate, the purpose of which is to help
make the work of broker-dealers and investment advisors more transparent.
b. The act authorizes the SEC to develop a new agency known as the Office of
Credit Ratings, the purpose of which is to watch those organizations that issue
credit ratings.
c. The act mandates more effective control over the issuance of asset-backed
securities requiring institutions that engage in securitization to keep a minimum of
five percent of the credit risk although there are exceptions to the rule.
d. A primary goal of the act is to enhance shareholder democracy.
(a) The act permits shareholders to review and reject golden parachute contracts
with executives.
(b) The SEC is authorized to make new regulations empowering shareholders to
use management proxies to nominate board members in an election contest.
e. The act permits the SEC to make regulations that will improve its enforcement
powers by establishing rules to implement a “whistleblowing bounty” program.
(a) It is necessary that the evidence provided by a bounty hunter concern a
security law violation and include original information.
(b) Disagreement exists on whether whistleblowers should be required to
exhaust internal remedies before going to the SEC.
III. Antitrust Regulation of the Corporate Person (28-3)
A. Introduction
1. The federal government and the states have antitrust laws to preserve the values of
competition and to discourage monopolies.
2. A monopoly is the exclusive control of a market by a business enterprise.
B. Sherman Antitrust Act
1. The Sherman Antitrust Act prohibits contracts, combinations, and conspiracies in
restraint of trade.
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Chapter 28 - Government Regulation of Corporate Entity
2. It also prohibits monopolization, attempts to monopolize, and combinations or
conspiracies to monopolize any part of interstate or foreign commerce.
3. Three standards are used to judge antitrust offenses: the per se violation standard, the
rule-of-reason standard, and the quick-look standard.
4. Per se violations are practices that are so contrary to antitrust policy that harm is
presumed, and the practice is prohibited.
a. Price fixing is considered a per se violation.
b. Agreements to divide territories and agreements among competitors to stop
competing are per se violations.
5. If an alleged antitrust practice is not considered a per se violation, then the courts will
judge the legality of that practice with the rule-of-reason approach.
a. The rule-of-reason standard will stop certain practices only if they are an
unreasonable restriction of competition.
b. To determine if an anticompetitive practice is legal, the court considers such facts
as the history of the restraint, the harm that results, the reason for the practice, and
the purpose to be attained.
6. In the area between the per se violations and the rule-of-reason standard, courts use
the quick-look standard under which the court determines whether an objective
observer with an elementary knowledge of the financial world would see that the
arrangement under scrutiny could damage competition by hurting the consumer and
impairing the marketplace itself.
7. Sometimes the distinction between the original per se standard and the rule-of-reason
standard is not distinct.
a. An example involves illegal resale price maintenance agreements in which a
retailer and a manufacturer decide that the retailer will sell goods at a price set by
the manufacturer and legal quasi resale price maintenance agreements in which
manufacturers will not sell to sellers who fail to charge what the manufacturers
want.
b. The quick-look standard, the newest weapon, may be of assistance in situations
that were once unclear.
C. Post-Sherman Antitrust Legislation
1. The Clayton Act
a. Congress passed the Clayton Act to police specific business practices that could
be used to create a monopoly.
b. One practice outlawed by the act is the tying agreement.
c. A tying agreement occurs when one party refuses to sell a product unless the
buyer also purchases another product tied to the first product.
d. With some exceptions, interlocking directorates, which occur when individuals
serve as directors of two competing corporations, are outlawed by the Clayton
Act.
2. The Robinson-Patman Act
a. The Robinson-Patman Act deals with product pricing, advertising, and
promotional allowances.
b. It prohibits a seller from charging different prices to different customers for the
same product when such differences might injure competition; but nothing in the
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Chapter 28 - Government Regulation of Corporate Entity
law is intended to prevent price differences due to the cost of manufacture, sale,
delivery, or bulk purchases.
3. The Federal Trade Commission Act
a. The Federal Trade Commission Act, as amended, declares that “unfair methods of
competition, and unfair or deceptive practices in or affecting commerce are
hereby declared unlawful.”
b. The FTC was granted the power to challenge false advertising of food, drugs, and
cosmetics.
4. The Foreign Trade Antitrust Improvements Act
a. The Foreign Trade Antitrust Improvements Act is designed to circumvent some of
the restrictions placed on American companies by the Sherman Antitrust Act.
b. If an American company is operating totally in a foreign market, the act provides
that the company is not subject to American antitrust law.
IV. Expanding the Corporate Person (28-4)
A. Introduction
1. The two agencies that have the primary responsibility for regulating corporate
expansion are the SEC and the FTC.
2. The SEC is concerned with regulating the expansion tactics themselves, whereas the
FTC is more concerned with the competitive effects of those expansion tactics.
B. Expansion Tactics and Securities Law
1. Merger and Consolidation
a. The primary expansion techniques include mergers and acquisitions.
b. A merger involves two corporations, one of which is absorbed by the other.
c. In a consolidation, two companies join forming a new company.
d. Many state incorporation statutes make no reference to consolidation preferring
the term “merger” instead.
e. Some state statutes apply different rules to mergers involving limited liability
companies.
2. Asset Acquisition
a. In an asset acquisition one corporation purchases all the property of a second
corporation.
b. An advantage of asset acquisition is that it may be possible to avoid the transfer of
debts and other liabilities.
3. Stock Acquisition
a. In a stock acquisition the buyer purchases enough stock in a corporation to gain
voting control of that corporation.
b. One type of stock acquisition is the leveraged buyout (LBO) .
c. A second form of stock acquisition is the tender offer in which the buyer or suitor
makes a public offer to buy voting stock in a target corporation.
d. Sometimes a tender offer is welcomed, but at other times the tender offer is seen
as a corporate take-over bid by an unfriendly buyer, also known as an unfriendly
suitor or a hostile bidder.
4. Inversions
a. An inversion typically occurs when an American corporation buys an alien
corporation and then reincorporates in that alien’s national base.
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Chapter 28 - Government Regulation of Corporate Entity
b. An inversion may also occur when an alien corporation buys an American
corporation under a deal engineered largely for the benefit of the American
corporation.
c. Inversions are generally constructed as a way for the U.S. corporations to sidestep
certain tax laws that do not have the same impact on the aliens as they do on
America corporations.
d. The Treasury Department recently targeted inversions with a new set of
tax-related rules.
5. Post-Offer Techniques
a. The public relations initiative is aimed at convincing shareholders that it is in their
best interests not to sell their shares to the hostile bidder.
b. A corporation which activates the greenmail defense has offered to buy that
portion of the target’s stock which the bidder already owns.
c. The white knight gambit occurs when the target invites another suitor to outbid
the hostile bidder.
d. A lockup agreement occurs when management agrees to sell, for example, a very
valuable asset to a white knight if the hostile bidder gains control.
e. Under a targeted shareholder agreement, a suitor negotiates a deal with certain
targeted shareholders, usually high-ranking officers, providing them with
handsome employment-related deals, which supplement what they receive from
the sale of stock, in order to protect them should the acquisition occur.
(a) Targeted shareholder agreements have been hampered by the best-price rule.
(b) Some courts ruled the best-price rule was violated with any type of price
enhancement including employment-related packages.
(c) Other courts saw a violation of the best-price rule only during the actual
tender offer.
(d) In view of the controversy, the SEC amended the rule to clarify that targeted
shareholder agreements that involve only employment-related agreements
are not subject to the best-price rule.
6. Pre-Offer Techniques
a. Many corporations plan ahead by instituting pre-offer measures even before any
unfriendly suitors have appeared on the horizon.
b. A corporation, for example, could institute a supermajority provision into its
bylaws that would require a 90 percent affirmative vote by all shareholders for the
approval of any merger.
c. Another pre-offer technique involves the corporation in a series of accelerated
loans by which all major loans taken out by the corporation are due in full
immediately upon the takeover of the target by an unfriendly suitor.
d. A corporation may also use the poison pill defense.
(a) This defense is triggered when a potential hostile bidder purchases a
specified percentage of the firm.
(b) At the point of the specified purchase, the price of the remaining shares
drops dramatically for all other shareholders.
(c) The hostile bidder, however, is blocked from purchasing the
bargain-basement shares.
7. Takeover Bids and the SEC
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Chapter 28 - Government Regulation of Corporate Entity
a. Takeover bids are scrutinized by the SEC.
b. When a suitor makes an offer to acquire more than 5 percent of a target, that
suitor must file a statement with the SEC.
C. Expansion Tactics and Antitrust Law
1. Antitrust law looks at how an expansion attempt will affect competition.
2. Section 7 of the Clayton Act forbids any corporate expansion if that expansion sets up
a monopoly or otherwise hurts competition; and the law applies to horizontal,
vertical, or conglomerate expansion attempts.
3. Horizontal expansion occurs between companies that are involved in the same
business and is closely scrutinized by the FTC.
4. Vertical expansion occurs between companies that were in a customer-supplier
relationship.
5. Conglomerate expansion joins two companies that were not in competition with one
another either because they dealt in different products or services or because they
operated in different geographical areas.
6. The Hart-Scott-Rodino Antitrust Act is designed to police any expansion attempts that
might harm competition in the marketplace.
a. The act requires corporations that are setting up an expansion attempt to notify the
FTC before the deal is completed.
b. That advance notice allows the FTC to investigate the anticompetitive effects of
the planned expansion.
7. Through the use of consent decrees, regulated by the Antitrust Procedures and
Penalties Act, also called the Tunney Act, the Department of Justice helps parties
negotiate a merger that can be completed without violating the law.
V. The Government and the End of the Corporate Person (28-5)
A. Involuntary Dissolution
5. If a corporation has repeatedly conducted business in an unlawful manner, the
secretary of state can ask the state attorney general to bring a quo warranto action
against that corporation.
6. Under a quo warranto proceeding, the state revokes the corporation’s charter.
7. For certain reasons, courts have the power to liquidate the assets of a corporation
when an action is brought by a shareholder.
B. Voluntary Dissolution
1. Since the government grants corporate charters and regulates corporate activity, it
must be informed when a corporation voluntarily dissolves.
2. A corporation can be dissolved voluntarily by the unanimous approval of the
shareholders or by a positive vote of the directors with the approval of two-thirds of
the shareholders.
3. If existing assets cannot meet all claims of creditors, a receiver may be called in to
handle matters.
4. Following the distribution of assets, the corporation must prepare articles of
dissolution and present them to the secretary of state.
VI. Dissolution of a Limited Liability Company (28-6)
A. Circumstances of Dissolution
1. The dissolution of an LLC can be initiated by the unanimous agreement of all of its
members.
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Chapter 28 - Government Regulation of Corporate Entity
2. The dissolution can be triggered by the expulsion, bankruptcy, or withdrawal of a
member.
3. Many state statutes provide that a member may not validly leave an LLC unless such
a departure is authorized by the operating agreement.
B. Effects of Dissolution
1. A limited liability company does not stop business immediately upon the dissolution
event.
2. Dissolution must be distinguished from the winding up of the LLC, which effectively
puts it out of business.
3. Winding up involves completing all of the business of the LLC and selling its
property to satisfy all of the debts of the firm.
4. The dissolution of an LLC need not be followed by a winding up of the LLC.
V. Background Information
A. Cross-Cultural Notes
1. Although most of the federal antitrust laws are based on the common law of England,
some evidence suggests that earlier laws regulated competition among businesses. In
A.D. 483, Emperor Zeno issued an edict to the Practorian Prefect of Constantinople
prohibiting price fixing and monopolies. The penalty for practicing a monopoly was
forfeiture of property and exile from the empire. The penalty for price fixing was a
fine of 40 pounds of gold. Courts that were negligent about carrying out the law were
fined 50 pounds of gold.
B. Historical Notes
1. Although Herbert Hoover and Franklin Roosevelt differed on many issues, they
agreed that unregulated speculation in securities was one of the causes of the Stock
Market Crash of 1929 and the following Great Depression.
2. The New York Stock Exchange (NYSE) was the primary target of the Securities
Exchange Act of 1934. By 1932, the NYSE accounted for as much as three-quarters
of all listed securities transactions and included nearly all of the nation’s largest
publicly-owned firms. William O. Douglas, SEC Chairman in 1937, called the NYSE
a “private club” with “elements of a casino.” Seats on the exchange are determined by
supply and demand and have sold for over two million dollars.
3. The first blue sky law passed in Kansas in 1922 although other states soon followed
suit.
C. State Variations
1. In Florida any corporation failing to file an annual report results in administrative
dissolution or revocation of the business entity on Division of Corporation’s records.
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Chapter 28 - Government Regulation of Corporate Entity
Administratively dissolved or revoked entities may be reinstated by submitting the
appropriate application and fees.
2. Oklahoma law states that quo warranto proceedings may be brought when “any
person shall usurp, intrude into, or unlawfully hold or exercise any public office, or
shall claim any franchise within this state or any office in any corporation created by
authority of this state.” 29 Okla. Stat. Ann. § 1532.
D. Quotations
1. Law is not a profession at all, but rather a business service station and repair shop.
— Adlai E. Stevenson (1990–1965), American politician
2. Government can easily exist without law, but law cannot exist without government.
— Bertrand Russell (1872–1970), British mathematician and philosopher
VI. Terms
1. The word business comes from the medieval term bisiznis, indicating a state of being
busy. By 1700, as commercial activity increased, business became associated with a
particular kind of activity—the buying and selling of goods.
VII. Related Cases
1. Warner-Lambert, the makers of Listerine mouthwash, advertised that its product
prevents, cures, or alleviates the common cold. The FTC issued an order for
Warner-Lambert to cease and desist from advertising these claims, since there was no
medical basis for them.. Warner-Lambert v. FTC, 562 F.2d 749 (D.C. Cir. 1977).
2. In North Carolina, Food Town Stores and Lowe’s Food Stores planned to merge. The
Federal Trade Commission sued to stop the merger, claiming that the new corporation
would violate the Clayton Act. The FTC’s protest included concern that the merger
would eliminate competition between Food Town and Lowe’s in six cities, would
increase concentration in these markets, would eliminate potential competition in
other markets, and would increase barriers to entry into the local food business. The
court granted the FTC’s motion for an injunction pending appeal of the merger issue.
FTC v. Food Town Stores, Inc., 539 F.2d 1339 (4th Cir. 1976).
3. The Babcox and Wilcox Company, a supplier of nuclear fuel, and Allied-General
Nuclear Services, a nuclear service company, entered into an agreement in which
Allied-General would reprocess fuel used by Babcox and Wilcox. However, when the
construction of Allied-General’s nuclear facility was completed, the Nuclear
Regulatory Commission denied it an operating license. In Babcox and Wilcox
Company v. Allied-General Nuclear Services, 555 N.Y.S.2d 313 (App. Div. 1990), the
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Chapter 28 - Government Regulation of Corporate Entity
court ruled that the defendant showed good faith in trying to overturn the
government’s ruling, so the defendant was not liable for breach of contract.
4. In U.S. v. Apple, Inc., 791 F.3d 290 (2d Cir. 2015), the Court of Appeals affirmed a
district court’s decision that Apple conspired with publishing companies in the U.S. to
fix the prices of ebooks when it launched its original iPad and IBookstore in January
2010.
VIII. Teaching Tips and Additional Resources
1. Ask students if they would be in favor of any additional amendments to the U.S.
Constitution such as amendments pertaining to corporate business. In connection
with the note in the text, additional information regarding proposed amendments to
the U.S. Constitution that never passed, such as a proposed amendment to make
divorce illegal, can be found at http://www.constitutionfacts.com/index.cfm?
section=constitution&page=proposedAmendments.cfm.
2. Additional information regarding the New York Stock Exchange can be found at
http://www.nyse.com/.
3. The Internet site of the Securities and Exchange Commission is at
http://www.sec.gov/. A section specific to small businesses is available at
http://www.sec.gov/info/smallbus.shtml.
4. The Internet site for the Federal Trade Commission is at http://www.ftc.gov/. A
section devoted to consumer protection is at http://www.ftc.gov/bcp/index.shtml.
5. At
http://www.nytimes.com/2011/09/21/business/dodd-frank-act-is-a-target-on-gop-cam
paign-trail.html?pagewanted=all, the New York Times has an article titled
“Dodd-Frank Act a Favorite Target for Republicans Laying Blame.”
6. The SEC has a web page regarding implementation of the Dodd-Frank Act at
http://www.sec.gov/spotlight/dodd-frank.shtml.
7. The U.S. Department of Justice has information regarding antitrust available at
http://www.justice.gov/atr/.
8. An recent article titled “Should Your Business Be an LLC or an S Corp?” is available
from Inc. at http://www.inc.com/guides/201103/s-corp-vs-llc.html.
9. Joel Seligman’s The Transformation of Wall Street, A History of the Securities and
Exchange Commission and Modern Corporate Finance (Boston: Houghton-Mifflin,
1995) describes the commission’s birth and growth, its leaders, and its effects on
corporate finance.
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Chapter 28 - Government Regulation of Corporate Entity
10. Invite students to research and report on one of the “robber barons” of the late
nineteenth century, such as J.P. Morgan, Andrew Carnegie, or John D. Rockefeller,
whose huge trusts and monopolies led to a call for antitrust laws.
11. List the various methods of corporate expansion—merger, consolidation, asset
acquisition, and stock acquisition—on the board. Have students explain each
technique and ask them to help you create a list of the advantages and disadvantages
of each. Finally, have students evaluate which technique is the most effective and
which is the least effective.
12. Because it is nearly impossible to gain 100 percent ownership of a company by stock
purchase alone, nearly all acquisitions of public companies are accomplished by
mergers alone or in combination with stock purchases.
13. Have students investigate and define some of the terminology associated with
mergers and acquisitions, including tender offers, poison pills, doomsday strategies,
lock-ups, no-shop agreements, arbitrage, stakeholder, greenmail, shark repellents,
corporate raiders, leverage buyouts, white knights, turnabouts, veto stock,
accelerated loans, supermajority, voting rights, and golden parachutes.
14. Assign four to six student volunteers to two teams for a debate on whether the
government should take a greater or lesser role in regulating corporations. Possible
discussion topics include the risks involved in deregulating corporations, the history
of the federal government’s intervention in corporate activities, modern abuses of
corporate power, and modern abuses of federal power.
15. In today’s corporate environment, businesses are attempting to cut back on benefits
that retirees are receiving. Have students look for current articles in newspapers and
magazines that focus on this topic. Ask volunteers to read aloud the data they have
gathered and discuss the facts.
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