Business Associations - Corporations Flashcards
Nature of Corporate Entity
separate from shareholders, may exercise rights through agents
Advantage of Corporate Form
(1) limited liability of shareholders (2) centralized management (3) continuity of existence (4) ease of transferring ownership (5) access to capital through sale of shares
Taxation
earnings to shareholders pay double tax
Small Business Tax Exception
Subchapter S of IRS Code, taxes income directly to shareholders in proportion to ownership
Corp Obligations to State
Must file an Annual Report
Annual Report Contents
- Corp Name
- Date of incorporation
- Address of principal office
- Federal employer ID #
- Names and business street addresses of its principal officers and directors
- Address of its registered office and name of its registered agent
Political Contributions
within limits to candidates, not as free as individuals
Corporate Liabilities
(1) contracts (2) torts committed by agency (3) punitive damages if intentionally or gross negligence
Ultra Vires Doctrine
defense by corporation ABOLISH but for (1) shareholder derivative suit against corp to enjoin performance (2) corp may sue officers to recover past acts
Articles of Incorporation MUST include
(1) name (2) # of shares (3) preemptive rights (4) registered office (5) registered agent (6) names and addresses of incorporators (7) address of principal office
Articles MAY include
(1) number of directors (2) par value (3) personal liability of shareholders (4) initial purpose (5) any other provisions
When does Corporation start existing?
Upon filing of articles of incorporation
Organizational Meeting
(1) 3 days notice (2) state time and place (3) can be waived with written consent
Bylaws
board of directions adopt initial bylaws unless otherwise said
De jure corporation
follow all mandatory requirements but not a corp
De facto incorporation
good faith attempt to follow but not enough to be a corp
Corporation by Estoppel
creates liability for people wronged by fake corps
Personal Liability for Defective Incorporation
all members personally liable
Piercing the Corporate Veil
court will disregard corp. status and hold active shareholders jointly and severally liable if (1) alter ego (2) thin capitalization (3) deep rock (4) subsidiary corp
Alter Ego Doctrine
corp is alter ego of shareholders and used as a conduit. FL law REQUIRES showing of improper conduct
Thin capitalization
a corp must have capital to meet reasonably foreseeable needs
Deep Rock Doctrine
in bankruptcy proceedings, capital contributions are loans
Subsidiary Corp
parent corp liable for debts if inadequately capitalized, intermingles, or not distinct
Common stock
voting or non-voting, representing the residual ownership of corp
Preferred stock
voting or non-voting, with a right to paid a fixed dividend ahead of common stock
Subscription Agreements
contract where subscriber agrees to purchase X amount of stock at a specified price. FL makes it IRREVOCABLE for 6 months
Consideration for Shares
FL allows promissory notes, cash, property, or promises amount determined by board
Shareholder Liability
may sue derisively if someone pays less than full consideration agreed
Doctrine of Equitable Contribution
all subscribers purchasing at the same time should pay same price
Securities Law
stocks and bonds must satisfy Securities Act of 1933
Non-exempt secutities
registration statement must be filed to SEC disclosing all material facts
Blue sky laws
impose standards governing the quality of securities sold, noes not require scienter, ONLY basis of relief if transaction has no IS commerce
Preemptive rights
shareholders have right to purchase new stock to maintain relative voting strength. In FL – NO EMPTIVE RIGHTS unless granted by articles, if granted may be waived
Repurchase of Shares Tests
(1) date money or other property is transferred or debt incurred by the corporation (2) the date the shareholder ceases to be a shareholder with respect to the squired shares
Financial Assets
UCC 8, FL adopted this, investment security may either certificated or uncertificated
Certificated Investment security
represented by an instrument issued in bearer or registered form
Uncertificated Investment Security
not represented by an instrument but registered on book maintained by the issuer
Contract/Modification of Investment Security
not subject to SoF
Issuer Defenses
limited, usually only if certificate issued is not genuine
True Owner of Investment Security
may reclaim from anyone EXCEPT protected purchaser (think PMM)
Restrictions on Transfer of Stock
enforced if REASONABLE
Specific Facts Doctrine
insiders must disclose facts of an unusual nature. FL doesn’t hold anyone liable to the corp for personal profits realized in trading on the basis of inside info
Federal Securities Law Section 16(b)
requires officers, directors, and 10% shareholders return to their corporation all profits from any purchase of shares within a SIX MONTH PERIOD
Publicly held Corp
(1) at least 2000 shareholders/500 not accredited investors and (2) $10 million in assets
Accredited Investors
include high income or net worth individuals and officers or directors of the issue
Rule 10b-5
(1) prohibits fraud and deceit (2) in connection with purchase or sale of any security (3) subject to min nexus with IS commerce (4) and a showing of scienter. Issue is adequate disclosure
Insider Trading Sanctions
SEC may sue persons illegally trading on the basis of insider information for an amount equal to three times their profit or loss avoided
Tender offers
public invitation to shareholders to sell their shares in the targeted corp, at premium over the market price
Williams Act
imposes anti-fraud and disclosure requirements on all tender offers involving more than 5% of a target’s stock
Promoter
undertakes to corm a corp and procure the necessary capital and other items
Incorporator
one who signs the articles of incorporation
Fiduciary Duty
must act in good faith and best interest of all investors
Contracts on Behalf of Corp
promoters remain liable on contracts they enter on behalf of corp, even after corp adopts K, promoter always personally liable unless novation
Expenses, Compensation, and Failure to Incorporate
promoter has NO right of action to recover, only for reasonable value of services rendered. If corp not formed – must return all money even if no wrong doing
Shareholder Powers
do not have power to control day-to-day management, but may given powers via articles
Shareholder Annual Meeting
must be held for election of director and other business, must be at least once w/13 months or shareholder may petition court
Shareholder Special Meetings
may be called for any appropriate purpose by board, holders of 1/10th of all outstanding voting shares. (1) must be notified in writing (2) need to know purpose (3) need 10 days in advance notice
Shareholder Voting
eligibility is determined by stock ownership of the record date, no more than 70 days before meeting
Shareholder Proxies
(1) may be appointed upon signing a form. (2) expires after 11 months unless stated otherwise. (3) revocable at pleasure of shareholder unless provided irrevocable.
Election of Directors
plurality vote unless articles state otherwise
Cumulative Voting
intended to aid minority shareholders in obtaining representation on board. Entitled to a number of votes= # of voting shares X # of directors. May cast votes for any one candidate or divide them
Shareholder rights to Dividends
shareholders cannot compel directors or declare dividends. Directors has discretion absent bad faith
Legality of Distribution Equity Test
distribution okay if corp will be able to pay its debts
Legality of Distribution - Balance Sheet or Bankruptcy Test
limited to amount by which total assets exceed the sum of total liabilities and liquidation preferences of preferred shares
Liability for Improper Dividends
Directors are liable for improperly paid amounts, Fl does not insulate directors from liability
Right to Inspect Books and Records
(1) absolute (2) for proper purpose
Grounds of Refusal of Inspection
(1) w/2 years offered a sale of list of shareholders of any corp or aided and abetted another (2) has improperly used any info secured through any prior examination of books (3) not acting in good faith (3) no proper purpose
Voting Trust
to irrevocably confer upon a trustee the right to vote their shares
Pooling Agreement
shareholders agree to share the shares a certain way
Close corporation Shareholder Agreement
authorizes to close corporations in range of agreement, will not hold them invalid, only applies when all shareholders consent
Fiduciary Duty of Shareholders
none, may act in personal interest. May not used power to defraud or oppress the minority
Shareholder Derivative Suits
enforce a corporate cause of action when BoD has not sought to enforce the corp’s rights
Dismissal of Shareholder Derivative Suit
- Majority vote if independent directs 2. Majority vote of a committee 3. Panel of one or more individual persons appointed by the court
Board of Directors Removal
At any time with or without cause
Director and binding on extraordinary contracts
Cannnot unless authority to act: 1. Proper notice at directors meeting 2. Quorum 3. Makority directirs approved decision
Business Judgement Rule
Not personally liable to corp for breach of care. Standard is ordinarily prudent person
Invested Director
Okay as long as full disclosure of interest and approved by majority or K is fair
Corporate Opportunity Doctrine
Must inform the corp of business opportunities of which to take advantage
Fundamental corporate change voting
Majority of outstanding shares
Regular issue and shareholder voting
Quorum of majority votes cast at a meeting
Merger
One of the combining corporations remains in being and absorbs the other
Share exchange
1 corp acquires all of the outstanding shares of one or more of classes or series of another corp
Short form merger
Merging of a parents and a subsidiary of at least 80% owned by the parent and does not require shareholder approval
De facto merger
FL has no case law accepting or rejecting de facto merger
Appraisal rights not available to
Shares traded on national securities exchange OR has at least 2000 shareholders and the outstanding shares or class has a market value if at least $10 million
Dissolution
Legal termination of corp
Liquidation
Process of marshaling corps’ assets
Voluntary dissolution
Notice must be given to all known creditors. In FL not filed until the liquidation has been conpleted
Involuntary Dissolution
1) irreparable injury or 2) shareholders at deadlick
Shareholders bringing involuntary dissolution
1) waste or misappropriation OR 2) directors acted illegally or fraudulently
