Another question re mid-term and my videos on D2L

Hi Professor, The videos were informational.

I have two questions: 1. To whom do make your disclosures when you are selling a security? 2. If a corporation with stockholders and one of them want to sell his/her stock, isn’t that stock already registered since it was previously sold?

  1. For securities laws purposes, the security has to be “registered.” It’s not about you disclosing anything. If it’s a duty to disclose under Rule 10b-5, you disclose to the other party (if there is a duty to disclose). If you cannot disclose (because you don’t know who the other party is), you must abstain from trading.
  2. Stock doesn’t just stay registered, the basic rule of “register unless exempt” applies to every transaction.

Question from student re second mid-term

As I was going over Judson’s Tax Service essay, I realized that in the past, you have expected students to discuss securities law as a cause of action for Donald. However, I have the following questions / comments:

1) This corporation is not a public traded company,

2) the corporation is not selling stocks (securities), and 

3) the loan by Donald is not a security, repayment of a loan is not contingent on the company’s expected gains or losses. There are no facts indicating that Judson has offered any percentage of ownership of the corp. to Donald, nor that Donald expected any profits from the efforts of others. 

Could you please explain how a securities issue is present?


The short answer is no.

As I have stated many times, answer the question asked.

(1) Tina now believes that her audit was mishandled by Judson. Who can she sue, on what basis, and what is the likelihood of success?
(2) Donald has not been paid. Who can he sue, on what basis, and what is the likelihood of success?
(3) Robert wants to sue to collect the 50% he was promised. Who can he sue, on what basis, and what is the likelihood of success?

If securities law is part of the answer to one of those questions, then it should be included.

Good question from a student re corporations which enter into partnership agreements.

Hi Professor Hayes,

If someone opens a corporation, then enters into a partnership to carry out the business, does that mean that the corporation becomes part of the partnership or the corporation will be a separate entity?


First a corporation, once formed, will continue to exist and be a corporation until the end of eternity unless dissolved by the state. A partnership is the same except that it ends when the agreement ends (or eternity, whichever occurs first).

If a corporation enters into a partnership with someone else, a person, a corp or another partnership, then the corp is a partner in the partnership. The corp has its assets and business, the partnership has its assets and business. Assume that Apple and Microsoft decide to build a new computer, they could form a new corporation to do that (which issue stock to each) or just agree to do it together which would create a partnership (sometimes called a joint venture). The partnership is created by the agreement to create the thing. IT has two partners.

You and I could agree to start a sports bar. We each form corps, mine is ProfHayes, Inc. Yours is “Student, Inc. The two corps then agree to buy or build a sports bar. That agreement creates a partnership which would then own and operate the sports bar. If the partnership agreement says the partners get x dollars per month, that would go to the two corps. The BOD of each corp would then decide to declare dividends or invest the money or whatever. The partners are liable for the debts of the partnership but that means the two corps, not you and I personally.

Study Sessions

I cannot meet with anyone tomorrow. For one thing, I am grading the exams. I will meet with students on Wednesday of next week by Zoom at 5pm. Send me your name and email so I can send you a Zoom invite. Next Saturday I will be out of town.

Questions re first mid-term

1- Did Jack own 100% of the shares and was he the sole member when he decided to sell the SSI stock, or he did sell the stock while he owned 87% and without going back to the BOD?

2- Does a derivative suit on behalf of the company include causes of actions that arises before the shareholder bought his shares in the company? 


  1. I’m not sure why students are asking about the timing of the sale of the shares and who sold the shares to the new shareholders. He is a shareholder and a bunch of other people are shareholders. If you think the timing of the sales of the shares matters, you have to say why and explain what the result would be first if he sold his own shares and second if the corp sold new shares. For whatever it’s worth; a sale of shares by the corp must be approved by the BOD (therefore what is the consequences if the BOD does not approve?). A sale by a shareholder of his personal shares does not have to be approved by the corp or anyone else – forgetting securities laws. These are not issues in this question. If you think they are, by all means explain why. I will listen.
  2. The answer to this is no. But don’t worry about whether the derivative suit was procedurally proper. I should have said that in the question, although again it could be answered easily; “if she didn’t own shares when the bad things happened, she cannot be the plaintiff.”

Note: I have been thinking about this as I’m writing the response. The question says S wants her investment back. That’s a good question when we get to securities laws. Can she get it back from Jack? Your answer should say “yes, if ——-.” “No, if ———.” Can she get it back from the corp? Same.

But the question says (you forced me to look at the question): Suzie files a derivative suit against Jack and the BOD. It doesn’t ask you if she can get her investment back directly from Jack.

Good questions.

Study Sessions

I am not going to do a study session this Saturday because of the exam answers that are due next Tuesday. As I said in class last night, I am willing to spend an hour to 90 minutes with students by Zoom one evening a week for the next five weeks – starting next week. I can do it at 5pm or at 7pm, any night obviously except Tuesday night. Please send me an email if you are interested in attending telling me which days and times you prefer. I will pick a time which the most people can attend. That is the best I can do.