Profits & Losses

1. Absent an agreement, profits are shared equally

2. Absent an agreement, losses are shared like profits

*Remember anything can be modified in an agreement, therefore very important to mention "absent an agreement"

Each partner must be repaid their loans & capital contributions

Profits & losses

Direct v. Derivative

1. Direct action - brought b/c breach of a fiduciary duty owed to the S/H by an officer or director (recovery to indiv)

2. Derivative action - S/H is asserting the corporations right rather than their own -- must have:

a. Standing

b. written demand

c. will be dismissed if disinterested directors find in gdfth suit not in corp. best interests

Ofcr/Director must act in good faith and in the best interest of the corporation and do what a prudent person would do under similar circumstances.

BJR - business judgment rule --

prudent people do their homework -- made in good faith, informed, had a rational basis

Ofcr./Director must act in good faith and w/ reasonable belief that what he/she does is in the corp's best interest

"cannot profit at corp's expense"

Under Rule 10b5, it is unlawful for any person, by use of any means of interstate commerce, to use any fraudulent scheme in connection w/ the purchase, sale of any security

1. fraudulent scheme *possible bad acts by D = Misrepresentation of material info, non-disclosure of material info., tiper/tipee

*material - a rx investor would consider important in making an investment decision

2. Scienter - D's intent to deceive or defraud

3. Reliance - P must show that he relied on D's fraudulent conduct.

4. Interstate commerce - phone, mail will suffice

5. Damages - Ds fraud caused the damages

Tipper - Liable if the tip was made for any improper purpose (in exchg for $, gift, or enhances reputation)

Tippee - liable only if tipper breached his duty and tippee KNEW tipper was breaching duty

Misappropriators - gov't may prosecute person for violating duty owed to person (Dr's., lawyers etc.)

"Any profit realized by ofcr./dir. or S/H owing 10% or more of shares in corporation from any purchase/sale or sale/purchase, w/in period of less than 6 months MUST be returned to corp.

Reporting corp: 1. listed in Nat'l exchange

2. At least 500 S/H & $10mil in assets

Recoverable profit: Highest sale price against lowest purchase price

Rule Barf: Generally, shareholders are NOT liable for the acts or debts of the corp.

Standard: to avoid fraud or unfairness

1. Alter ego: Court might PCV if S/H comingles personal $ w/ corporate, uses corp. funds as his own.

2. Undercapitalization - S/H failed to invest enough $ to cover prospective liabilities