The term "synthetic lease" is in vogue in the world of commercial real estate finance. In a synthetic lease transaction, money is borrowed based on the financial strength of a tenant and on that tenant's agreement to pay rent. The lender expects the debt to be serviced from the rental obligation of the tenant rather than from the financial resources of the nominal owner and borrower. The lease is "synthetic" insofar as it is designed to achieve a blended treatment: the tenant reports it as an operating lease for financial accounting purposes but as a mortgage for federal income tax purposes. This article explains synthetic lease transactions in the broader context of asset securitization and structured finance and contrasts the treatment of synthetic leases under financial accounting standards, mortgage law and federal income tax law. Although leases have long been treated differently for financial accounting purposes and tax law purposes, the article takes the position that the present divergence is too great. It takes the position that what needs fixing is not the tax law but the standards of the Financial Accounting Standards Board ("FASB"). It argues that FASB should eliminate the sharp distinction between sale-leaseback transactions and transactions in which an SPE acquires title from a third party. In particular, it argues that FASB should require balance sheet disclosure when the sine qua non of a transaction is an ex ante agreement that the tenant, not the landlord, will report that it is the substantive owner of an encumbered asset for federal income tax purposes.
{"title":"Synthetic Leases: Structured Finance, Financial Accounting and Tax Ownership","authors":"D. Weidner","doi":"10.2139/SSRN.219588","DOIUrl":"https://doi.org/10.2139/SSRN.219588","url":null,"abstract":"The term \"synthetic lease\" is in vogue in the world of commercial real estate finance. In a synthetic lease transaction, money is borrowed based on the financial strength of a tenant and on that tenant's agreement to pay rent. The lender expects the debt to be serviced from the rental obligation of the tenant rather than from the financial resources of the nominal owner and borrower. The lease is \"synthetic\" insofar as it is designed to achieve a blended treatment: the tenant reports it as an operating lease for financial accounting purposes but as a mortgage for federal income tax purposes. This article explains synthetic lease transactions in the broader context of asset securitization and structured finance and contrasts the treatment of synthetic leases under financial accounting standards, mortgage law and federal income tax law. Although leases have long been treated differently for financial accounting purposes and tax law purposes, the article takes the position that the present divergence is too great. It takes the position that what needs fixing is not the tax law but the standards of the Financial Accounting Standards Board (\"FASB\"). It argues that FASB should eliminate the sharp distinction between sale-leaseback transactions and transactions in which an SPE acquires title from a third party. In particular, it argues that FASB should require balance sheet disclosure when the sine qua non of a transaction is an ex ante agreement that the tenant, not the landlord, will report that it is the substantive owner of an encumbered asset for federal income tax purposes.","PeriodicalId":83094,"journal":{"name":"The Journal of corporation law","volume":"25 1","pages":"445"},"PeriodicalIF":0.0,"publicationDate":"2000-04-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"67980045","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Corporate directors have a fiduciary duty to make decisions in the best interests of the shareholders. This aspect of fiduciary duty is often called the shareholder primacy norm. Legal scholars generally assume that the shareholder primacy norm is a major factor considered by boards of directors of publicly traded corporations in making ordinary business decisions and that changing the shareholder primacy norm would have an effect on the substance of those decisions. This Article challenges this view and argues that the shareholder primacy norm was never equipped to mediate conflicts between shareholders and nonshareholder constituencies of a corporation. The origins and development of the shareholder primacy norm suggest that it was introduced into corporate law to perform a much different and somewhat surprising function: the shareholder primacy norm was first used by courts to resolve disputes among majority and minority shareholders, and over time this use of the shareholder primacy norm evolved into the modern doctrine of minority oppression. This application of the shareholder primacy norm seems incongruous today because minority oppression cases involve conflicts among shareholders, not conflicts between shareholders and nonshareholders. Nevertheless, when early courts employed rules requiring directors to act in the interests of all shareholders (not just the majority shareholders), they were creating the shareholder primacy norm. Once used to resolve minority oppression cases, the shareholder primacy norm easily found its way into cases involving publicly traded corporations because courts did not routinely distinguish closely held corporations from publicly traded corporations until the middle of this century. But the application of the shareholder primacy norm to the ordinary business decisions of publicly traded corporations is muted by the business judgment rule. As a result, even though the shareholder primacy norm is closely associated with debates about the social responsibility of publicly traded corporations, it's impact on the ordinary business decisions of such corporations is extremely limited.
{"title":"The Shareholder Primacy Norm","authors":"D. Smith, Gordon H. Smith","doi":"10.2139/SSRN.10571","DOIUrl":"https://doi.org/10.2139/SSRN.10571","url":null,"abstract":"Corporate directors have a fiduciary duty to make decisions in the best interests of the shareholders. This aspect of fiduciary duty is often called the shareholder primacy norm. Legal scholars generally assume that the shareholder primacy norm is a major factor considered by boards of directors of publicly traded corporations in making ordinary business decisions and that changing the shareholder primacy norm would have an effect on the substance of those decisions. This Article challenges this view and argues that the shareholder primacy norm was never equipped to mediate conflicts between shareholders and nonshareholder constituencies of a corporation. The origins and development of the shareholder primacy norm suggest that it was introduced into corporate law to perform a much different and somewhat surprising function: the shareholder primacy norm was first used by courts to resolve disputes among majority and minority shareholders, and over time this use of the shareholder primacy norm evolved into the modern doctrine of minority oppression. This application of the shareholder primacy norm seems incongruous today because minority oppression cases involve conflicts among shareholders, not conflicts between shareholders and nonshareholders. Nevertheless, when early courts employed rules requiring directors to act in the interests of all shareholders (not just the majority shareholders), they were creating the shareholder primacy norm. Once used to resolve minority oppression cases, the shareholder primacy norm easily found its way into cases involving publicly traded corporations because courts did not routinely distinguish closely held corporations from publicly traded corporations until the middle of this century. But the application of the shareholder primacy norm to the ordinary business decisions of publicly traded corporations is muted by the business judgment rule. As a result, even though the shareholder primacy norm is closely associated with debates about the social responsibility of publicly traded corporations, it's impact on the ordinary business decisions of such corporations is extremely limited.","PeriodicalId":83094,"journal":{"name":"The Journal of corporation law","volume":"23 1","pages":"277-323"},"PeriodicalIF":0.0,"publicationDate":"1998-08-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.2139/SSRN.10571","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"68132247","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 1987-01-01DOI: 10.1017/CBO9780511625855.009
Saul Levmore
{"title":"The Positive Role of Tax Law in Corporate and Capital Markets","authors":"Saul Levmore","doi":"10.1017/CBO9780511625855.009","DOIUrl":"https://doi.org/10.1017/CBO9780511625855.009","url":null,"abstract":"","PeriodicalId":83094,"journal":{"name":"The Journal of corporation law","volume":"12 1","pages":"483"},"PeriodicalIF":0.0,"publicationDate":"1987-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1017/CBO9780511625855.009","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"57084354","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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