LAW 633 Lecture Notes - Lecture 2: Fiduciary, Limited Partnership, Proxy Voting
Transactional Attorney’s Goals
• Maximize client’s gain or add value to the deal by:
o Reducing informational asymmetries between parties
o Assessing risk with information
o Past experience on similar transactions → knowing corporate regulations
Default Rules
• Statutory defaults that can be modified by parties
• Creates rules that the parties normally would bargain for, which is good for
weaker parties
• Some rules are mandatory to be a type of association
• Attorney must know common workarounds to modify the defaults
• Inter se duties between partners/agents have numerous default rules and few
mandatory
o But partners cannot remove the fiduciary duty to each other
• Third party duties have few default rules and many mandatory
Tradeoffs of Association Types
• Common issue: business need money through cash, loans, partners or investors
• Partners share equally in losses and profits beyond initial investment and they
are jointly & severally liable, but they have more control of their investment
• Lenders’ risk is capped at investment, but the reward is limited to fixed terms
and less and infrequent control. The longer duration of the loan terms make the
loan riskier, but compensate by the higher interest rate.
• Investors can lose their entire investment, but can gain in the profits and have
more control
Document Summary
Transactional attorney"s goals: maximize client"s gain or add value to the deal by, reducing informational asymmetries between parties, assessing risk with information, past experience on similar transactions knowing corporate regulations. The longer duration of the loan terms make the loan riskier, but compensate by the higher interest rate. Investors can lose their entire investment, but can gain in the profits and have more control: shareholders can calibrate their risk and reward from the shares owned, but only control through proxy voting. Selecting an association type: tax implications, partnership is taxed as an entity, but there is no profit tax. Joint venture: partnership for specific purpose until concluded: limited partnership: one general partner bears full risk and other partners are limited by their investment. The general partner is in control: llcs: statutorily authorized company managed by members with limits on transferability of ownership.