Bar Exam Masters

Question 1

What does it mean for a proxy to be coupled with an interest?

Answer 1

By statute, a proxy coupled with an interest includes, among other things, the appointment of a pledgee, a person who purchased or agreed to purchase the shares, a creditor who extended credit under terms requiring appointment, an employee whose contract requires appointment, or a party to a voting agreement.

Question 2

For how long is a proxy appointment valid?

Answer 2

A proxy appointment is valid for the term provided in the appointment. If no term is provided, proxies expire after 11 months unless the appointment is irrevocable.

Question 3

Proxies are revocable at the pleasure of the shareholder unless…

Answer 3

1. the proxy provides it is irrevocable AND
2. the proxy holder has an interest in the shares (such as a pledgee, purchaser, or employee)

Question 4

Is the solicitation of proxies regulated?

Answer 4

Yes, it is highly regulated by the federal proxy rules promulgated by the SEC, pursuant to its authority under section 14 of the Securities Exchange Act of 1934

Question 5

What limitation is imposed on the doctrine of corporation by estoppel?

Answer 5

It only protects shareholders against contract claims and not tort claims

Question 6

What is corporation by estoppel?

Answer 6

Even when an enterprise has failed to achieve de facto status, some courts have held that third persons who have dealt with the business, believing it to be a corporation, are estopped from denying its corporate status to avoid contracts otherwise validly entered into, or to hold the shareholders or managers personally liable for the obligations of the enterprise.

Question 7

Corporation by Estoppel

Equitable Doctrine

Answer 7

Estoppel is an equitable doctrine, and the equities often turn on the facts and circumstances of each particular case.

Question 8

Corporation by Estoppel

Inapplicable to Tort

Answer 8

Corporation by estoppel is not usually available in a tort action since there has been no course of dealing between the parties as corporation.

Question 9

Corporation by Estoppel

Estoppel in Suits By and Against Corporation

Answer 9

Persons acting as a corporation are estopped by statute in Florida from setting up the lack of legal organization as a defense to an action against them as a corporation, and third persons sued by a corporation are estopped from setting up its lack of legal organization as a defense.

Question 10

Who bears the burden of proving directors are disinterested when they move to dismiss a derivative suit upon a finding that it is not in the corporation’s best interest?

Answer 10

The corporation.

Question 11

What is a derivative suit?

Answer 11

One brought by a shareholder to enforce a corporate cause of action when the board of directors for some reason has not sought to enforce the corporation’s rights.

Question 12

What are the conditions for bringing derivative actions?

Answer 12

1. demand;
2. prior ownership.

Question 13

What is the “demand”?

Answer 13

The plaintiff-shareholder’s complaint must be verified and allege with particularity the demand made to obtain action by the board.

• The complaint must also allege that the demand was refused or ignored by the board for at least 90 days, or the reasons the shareholder did not make the effort to obtain the desired action because doing so would be futile

Question 14

What does “prior ownership” require?

Answer 14

The shareholder must have owned stock in the corporation at the time the alleged wrong took place, or the shares must have devolved upon him by operation of the law. (this rule is designed to prevent the purchase of lawsuits)

Question 15

When can the court dismiss a derivative suit?

Answer 15

On motion by the corporation, the court may dismiss a derivative proceeding if the court finds that one of the following groups has made a good faith determination, after conducting a reasonable investigation, that maintenance of the derivative suit is not in the best interests of the corporation:

1. Majority vote of qualified directors present;
2. Majority vote of a committee (consisting of two or more qualified directors appointed by majority vote of the qualified directors);
3. A panel of one or more disinterested and independent individuals appointed by the court.

Question 16

Is there a maximum number of offices one individual may hold?

Answer 16

No, unless the articles of incorporation or bylaws provide otherwise.

Question 17

Who owns a for-profit corporation?

Answer 17

Its shareholders

Question 18

Who has standing to inspect corporate books and records?

Answer 18

ANY shareholder regardless of amount or holding period.

Question 19

What is a de facto corporation?

Answer 19

There must have been a good faith attempt at corporate formation and some act on the corporation’s behalf.

Question 20

What are the elements essential to finding a de facto corporation?

Answer 20

1. A valid statute under which the business could have been legally incorporated;
2. A good faith attempt to incorporate. This means that the incorporators, or others in control of the business, cannot be aware of the defect;
3. Colorable compliance with the statutory requirements;
4. An actual exercise or “use” of the corporate powers, usually by conducting business in the corporate name.

Question 21

Do Florida courts recognize the de facto corporation doctrine?

Answer 21

No, if the defendant knew of the lack of incorporation

Question 22

What are appraisal rights?

Answer 22

In certain situations, a shareholder who does not approve of a fundamental corporate change may have the right to compel the corporation to buy back his shares for fair value.

Question 23

When a director is elected for a specified term, what effect does this have on the corporation’s authority to remove the director?

Answer 23

The shareholders can still remove the director with or without cause unless the articles of incorporation state otherwise, and the only recourse the director has is under breach of contract.

Question 24

Where must articles of dissolution be filed?

Answer 24

With the Department of State.

Question 25

When may a Florida corporation be voluntarily dissolved without judicial supervision?

Answer 25

By:

1. The resolution of the board of directors approved by an absolute majority of all the shares entitled to vote or such greater proportion as may be required by the articles or the board;
2. Without action of the board, by written consent signed by an absolute majority of all shares entitled to vote; or
3. The majority of the incorporators or directors of a corporation that has not issued shares.

Question 26

When does one face competing venture liability?

Answer 26

Almost any competition with the corporation is unacceptable, so involvement with a competitor will almost always expose a director or officer to liability

Question 27

When may a corporation’s creditor petition for dissolution?

Answer 27

When the corporation is insolvent and the creditor has an unsatisfied judgment against it, or the corporation admits the debt owed to the creditor in writing

Question 28

In what ways may a Florida corporation be involuntary liquidated and dissolved?

Answer 28

1. By a shareholder, under certain circumstances;
2. By a judgment creditor with an unsatisfied execution, but only if the corporation is insolvent;
3. By a corporation already in voluntary liquidation to have the liquidation continued under the supervision of the court.

Question 29

Under what situations may a shareholder bring an action for involuntary liquidation and dissolution? (not in a public company)

Answer 29

1. The directors are deadlocked AND the corporation is suffering or threatened with irreparable injury;
2. The shareholders are deadlocked in voting power and have failed to elect successors to directors whose terms have expired;
3. The corporate assets are being misapplied or wasted, causing material injury to the corporation; or
4. The directors or those in control of the corporation have acted, are acting, or are reasonably expected to act in an illegal or fraudulent manner.

Question 30

Who appoints and removes officers?

Answer 30

The board of directors.

Question 31

What is watered stock?

Answer 31

Stock which is paid for with less than par value.

Question 32

Whose approval is necessary when an amendment to the bylaws affects the rights of a particular class of shareholders?

Answer 32

In addition to the board of directors and an absolute majority of shareholders, an absolute majority of the affected class is also necessary even if that class does not have voting rights. (So basically an absolute majority of everyone)

Question 33

What default provisions apply absent a provision to the contrary in the articles?

Answer 33

• The corporation has perpetual duration;
• It can pursue any lawful purpose; and
• It has the same powers as an individual

Question 34

What does “transacting business” mean for purposes of whether a foreign corporation must qualify to do business in Florida?

Answer 34

Engaging in intrastate transactions on a regular basis. This does not include isolated transactions, interstate transactions, or the conduct of internal corporate affairs

Question 35

Are shareholders generally liable for corporate debts?

Answer 35

No, they are generally protected by limited liability.

Question 36

What is the significance of a fundamental corporate change?

Answer 36

It may trigger appraisal rights and requires approval of both the board of directors AND an absolute majority of shareholders.

Question 37

Is amending the articles a fundamental change?

Answer 37

Yes.

Question 38

What may amendments include?

Answer 38

They may include any provision that would be lawful and proper to include in original articles at the time of making the amendment, thereby permitting existing corporations to take advantage of changes in the law.

Question 39

What is the procedure for amendments?

Answer 39

1. Amendments first must be adopted by the board of directors;
2. Amendments must then be approved by the shareholders generally and by the holders of any class adversely affected by the change

Question 40

Where are the articles of amendment filed?

Answer 40

With the department of state.

Question 41

How does a corporation resolve unknown claims?

Answer 41

The corporation must file a notice of dissolution with the Department of State and publish notice at least once per week for 2 or more consecutive weeks in a newspaper of the locality its principal office is situated in or where it owns real or personal property if there is no principal office.

• The notice shall state that claims will be barred after 4 years unless unknown creditors file an action to enforce their claims within that time

Question 42

What is a “consolidation”?

Answer 42

When two or more corporations combine into a new corporation.

Question 43

On what basis may a director be removed in a non-profit corporation?

Answer 43

A director can be removed with or without cause in a non-profit corporation.

Question 44

If someone leaves during a meeting, what effect does that have on quorum?

Answer 44

It has no effect for shareholder meetings but may break quorum in a board meeting.

Question 45

What stock transfer restrictions are reasonable?

Answer 45

Amon others,

• a right of first refusal;
• limitation on selling to a particular buyer;
• and right of corporate approval for sales

Question 46

What are the two main subsets of the duty of care?

Answer 46

Misfeasance and nonfeasance

Question 47

When may a plaintiff pierce the corporate veil?

Answer 47

When the corporation is the alter ego of an individual or it is grossly under-capitalized considering the nature of its business

Question 48

When may a shareholder derivative suit be dismissed or settled?

Answer 48

Only with court approval.

Question 49

What is “winding up”?

Answer 49

The process of liquidating the corporation’s assets, paying creditors, and distributing the remainder

Question 50

What actions may be taken at a special meeting of the shareholders?

Answer 50

Only those included in the notice of the meeting.

Question 51

To whom does Florida’s Control Shares Acquisition Act apply?

Answer 51

Public corporations (with 100+ shareholders) with their PPB or substantial assets in Florida and either 1,000 shareholders or more than 10% of its shareholders in Florida

Question 52

On matters other than the election of directors, when is a matter approved by shareholders?

Answer 52

When the votes cast for the measure exceed the votes cast against it, unless the articles of incorporation provide otherwise.

Question 53

Where must amended articles of incorporation be filed?

Answer 53

With the Department of State.

Question 54

A corporation may sue a subscriber or sell to another buyer if payment is not made within how many days after written demand?

Answer 54

20 days.