Business Associations and Securities Law
State laws govern business associations such as partnerships and corporations. The Revised Uniform Partnership Act (RUPA) (1997) largely governs the fiduciary duties of loyalty and care between partners to reflect more modern business practices than its predecessor, the Uniform Partnership Act (1914). Additionally, the RUPA provides partners with a flexible structure to meet their business needs by allowing their express agreement to control over the language of RUPA itself .Other important legal issues surrounding partnerships that are detailed in the RUPA include partnership creation, dissolution (including buyout agreements), taxation, and property rights and rights in management. For a fuller explanation of the advantages of the RUPA and some of the reasons why Iowa, as well as 32 other states and the District of Columbia have adopted the Act, click here.
In recent years, many smaller enterprises have chosen to organize under the Uniform Limited Liability Company Act (1996) or a similar statute in the states where they conduct business. Similarly, several small companies are fashioned under the Revised Uniform Limited Partnership Act (2001). The Uniform Statutory Trust Entity Act (2009) also provides statutory validation to businesses who choose to organize themselves as trusts. This form of organization will give companies a flexible alternative structure to to a partnership or limited liability company.
Corporate law governs the relationship between shareholders, boards of directors, and executive officers. The most popular state for business incorporation is Delaware, with more than 850,000 business entities having their legal homes there, including more than 50% of all publicly traded companies and 63% of the Fortune 500. For a fuller explanation on why many companies choose to incorporate in Delaware, see Lewis S. Black, Jr., Why Corporations Choose Delaware.
Many states structure their corporate laws after the Model Business Corporations Act (2002), which provides guidelines for important issues in corporate law such as piercing the corporate veil, (i.e., corporate liability), protection by the business judgment rule (including the landmark Delaware case Smith v. Van Gorkom), and mergers.
Several corporate “watchdog” organizations exist to hold corporations accountable for their actions:
Publicly traded securities are federally regulated by the Securities and Exchange Commission (SEC). The SEC was created as part of the Securities Exchange Act of 1934 in response to the Great Depression and requires companies to make certain disclosures to the public to about financial information. The 1934 Act ensures that securities are traded fairly to protect investors and maintain efficient markets under the efficient capital market hypothesis and to avoid misleading statements under the fraud on the market theory.
Among the many rules promulgated by the SEC, Rule 10b-5 (codified at 17 U.S.C. § 240.10b-5) is one of the most important rules the SEC enforces. Rule 10b-5 prevents trading by persons who seek to gain an advantage by selling and purchasing securities with inside material information not available to the general public. The 1934 Act also regulates shareholder proxy solicitations, tender offers, and corporate reporting.
Other important SEC regulations include:
The Securities Act of 1933
Trust Indenture Act of 1939
Investment Company Act of 1940
Investment Advisers Act of 1940
Sarbanes–Oxley Act of 2002 (a response to the Enron scandal)
At the state level, Iowa is one of seventeen states that has adopted the Uniform Securities Act (2002) in an effort to regulate securities at the state level. The Uniform Securities Act provides states with the power to investigate and prosecute individuals and firms that commit securities fraud. The Act is consistent with federal regulations and details civil and criminal actions against those who engage in illegal conduct.
For legal scholarship on corporate law issues and securities regulations, please visit the Journal of Corporation Law (University of Iowa) and the Delaware Journal of Corporate Law (Widener University).