Business Organization Flashcards
Formation and structure of corps
Big picture
- Articles of incorporation
- Stocks
- Shareholders
- Board of directors
Duration of corporate existence
Forever IF you pay the annual report fee.
Lawful activity
No need for ultra vires
it can do anything that’s lawful w/corp
Ultra vires -
- Forming a corporation
topics
- Articles of incorporation
- Required information on Articles of Incorporation
- Corporate name rules
- Permissive information on AofI
- Defective formation
- Promoter liability
Articles of Incorporation
Formation
You must: (1) file them w/secretary of state, (2) attach fees, (3) sign them
Filing makes the corporation come into existence
Required information in Art. of Inc.
Formation
- Name of corporation
- Address of registered office
- Principal office
- Name & address of incorporators
- Name of registered agent & acceptance (this is person who gets notice & service)
- # shares authorized
- Classes of stock (common or preferred)
+ preemtive rights if wanted
Preferred stock
Class of stock
First to received dividend/distribution OR highes distribution
BUT they may not vote
Corporated name rules
Required for Art. of Inc.
Must end in Corporation (corp.), company (co.), incorporation (inc.)
Name CANNOT be misleading AND must be **unique **
Permissive information on Art. of Inc.
May be included (but does not have to)
Anything not inconsistent w/FL law, i.e.
+ #directors
+ Par value stock
Par value stock
Means that the corporation cannot issue/sell stocks for less than established par value - $$
IF they were to do so, they run the risk of having watered stock and BOD would be liable for the difference to what the stock was sold for
Defective formation
Types
- De jure corporation
- De facto corporation
- Corporation by estoppel
De jure corporation
Legally perfect = corporation at law!
Everything in incorporating it is right
De facto corporation
There is good faith attempt to incorporate but something trivial went wrong = corporation in fact
Not legally a coporation yet
Corporation by estoppel
Corporation HAS NOT been formed, but people running it honestly & reasonably believe corp. was formed (but was not, usually from bad lawyer)
Stops people from suing those relying in the belief corp had been form to deny that a corp. existed (sue the corp and not attach personal liability to those people)
Promoter liability
Formation - Promoter def
Promoter = motivates people to invest in the corporation (tends to be the incorporators, but does not have to be)
Usually incorporators are the promoters, but it does not have to be.
Promoter liability
Formation - default rule
Promoter will be liable for any transaction they entered into
Promoter liability
Formation - exception
Default applies UNLESS the corporation & creditor enter into a novation b/w the 2
Stocks
big picture
q
- Capital structure
- Preemtive rights
- Distributions to shareholders
- Transfer of stock
- Stock subscription agreements
Capital structure of Corporation
Stocks - 2 ways
- Debt
- Equity
Capital structure of Corporations
Debt v. equity
Debt
1. def: promise to pay someone certain amount
2. ownership: none
3. priority of $$ claims: as a creditor, they get paid first
Equity
1. def: owners buying into the corporation by getting shares (#shares = $$ paid)
2. ownership: yes, shareholders’ right to VOTE for BOD
3. priority of claims: none, gets paid if any $$ left after all creditors are paid
Preemtive rights
Stocks
IF BOD determines to issue new shares and such issuance would dilute shareholders’ ownership interest… this allows existing shareholders the right, but no the obligation to purchase new shares FIRST to maintain their proportional ownership interest
CAN waive it by not buying, but right resets for each issuance of shares
Distributions to shareholders
Stocks
aka dividends = profits of corporation moving into shareholders’ pockets
BOD decides whether to offer dividends - and BOD has a presumption of correctenes when they decided to do/not to do so under the business judgment rule
Transfer of stock
**Free to transfer ownership **by transfering stock BUT there can be restrictions (by you/others) on the transfer.
Such restrictions must be: reasonable & conspicuous (must be obvious, i.e. written in the share bought, etc.)
Restriction can be right of first refusal (letting corp. buy it first)
Stock subscription agreements
Agreement where A subscribes to buy #shares at a specifc price w/anything that BOD deems adequate as consideration (i.e. cash, promisory notes, etc.)
In FL: This is irrevocable for 6 months
2.Shareholders
Big pictures
- Powers
- Meetings
- Cumulative Voting
- Voting trusts
- Pooling agreements
- Dividends
Shareholders’ powers
VOTING! They can vote for BOD & corporate proposals (i.e. dissolutions/amendments)
Can ONLY vote at meetings
They do not manage
Eligibility to vote
Date Determination
The record date, fixed by BOD (unless bylaws fix/provide manner of fixing it) and may not be more than 70 days prior to the meeting.
Eligibilitiy to vote
Last day to buy
One day before the record date or if no record date is fixed by the board, the close of business on the day before the first notice is delivered to the shareholders is the record date.
b/c after the record date, the stock transfer books are closed until the meeting, and the list of eligible voters is determined.
Cumulative voting
( #shares ) x (#seats open for BOD) = voting points
If allowed by Art. of incorporation/bylaws, this voting gives extra votes to disenfranchised minority shareholders to elect BOD
Shareholders’ voting trust
Voting
Shareholders transfer their shares as the res of the trust for a trustee to manage and obtain a voting trust certificate indicating:
(1) #shares you gave and the % of the trust you own (i.e. gave 42/60 shares, you own 70%) and
(2) how they want the trustee to act/vote directed by the trust document
Allows a few to exercise their power as a group
Shareholders’ pooling agreements
Group pools their resources to vote as one, this must be in writing and signed
It may bind subsequent owners to vote as the agreement dictates (if included as a restriction in the transfer)
Shareholders’ meetings
Types
(1) Annual meetings
1. Recurrence: Once every 13 months
2. Notice: 10 days
(2) Special meetings
1. Recurrence: may be called as circumstances warrant
2. Notice: 10 days
For both meetings to be valid they need quorum
If there is quorum, you need a majority (50+1) to pass something
Shareholders’ meetings
Lists requirements
At least 10 days before each shareholders’ meeting, a corporation must compile a complete list of the shareholders of record entitled to vote at that meeting.
Shareholders meetings
Quorum
Quorum means that the majority #shares entitled to vote are present
Shareholders CAN be present through proxy
Proxy
In FL: proxies expire after 11 months unless otherwise provided
Dividends
Shareholders DO NOT have a right to dividends
Shareholders’ voting trust
Dividends
If BOD issues dividends,
1. the trust receives it, so trustee must distribute these dividends based on the voting trust certificate percentages.
2. Trustee is mandated to distribute these dividends to the trust’s beneficciaries
Board of directors
Big picture
- election
- meetings
- action without meetings
- fiduciary duties (duty of care)
- fiduciary duties (duty of loyalty)
- corporate opportunity doctrine
BOD
Necessary?
if there are 100 or less shareholders, you can dispense of BOD… so there, no
But 100+ – necessary
BOD elections
By plurality = person with the most votes wins.
BOD can be removed w/o cause
BOD meetings
Types
Regular - no notice needed
special - need at least 2 days notice
Both meetings need quorum
IF you modify #directors needed for quorum, it can BEVER be less than 1/3 of BOD
BOD can only act as a body in meetings!!
Action without meeting
BOD
UNLESS … there is no need for a meeting IF there is UNANIMOUS written consent to the proposed action
Exception not default
Duty of care
Fiduciary duties
Duty to act with care & prudence of the ordinary business person = you must make an informed decision (i.e. review, inspect, etc.)
Failure to make an informed decision may mean violation of duty of care!
Duty of loyalty
Fiduciary duties
Duty to remain free of personal conflicts and take proper steps when there is an interested director transaction
Interested director transaction
Duty of loyalty
Director must:
1. disclose conflict w/BOD
2. abstain from voting
3. decision must be approved by the majority of disinterested shareholders
Anyone related to the interest director (i.e. wife, children, etc.) must abstain from voting
Corporate opportunity doctrine
Duty of loyalty
Director comes across a business opportunity that the corporation may be interested in … director must offer/disclose it to the corporation FIRST
If you fail to disclose – corporation can sue you to get all benefits back to the corporation (aka “clawback”)
Corporate mergers
Who votes to approve?
EVERYONE! (even those shares classified as non-voting) b/c
1. every share has the right to vote for mergers
2. quorum does not apply to mergers (you need the majority + 1 of ALL outstanding shares)
3. Once a surviving company exists, such must file articles of merger w/state
Mergers
Types of corporate mergers - voting
All shareholders from both corporations (surviving and absorved) must approve the process
voted merger
Share exchange
Types of corporate mergers
One corp. acquires ALL outstanding shares and becomes the sole controlling corp.
aka “bought out” - still not adversarial
Short-merger
aka Hostile takeover
One company buys/acquires 80% or more of another’s shares + files article of merger = merger
Adversarial
